3M CO 10-K

Item 7. 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 eight sections: • Overview • Results of Operations • Performance by Business Segment • Performance by Geographic Area • Critical Accounting Estimates • New Accounting Pronouncements • Financial Condition and Liquidity • Financial Instruments The term "N/M" used herein references "not meaningful" for certain percent changes. Forward-looking statements in Item 7 may involve risks and uncertainties that could cause results to differ materially from those projected (refer to the section entitled Cautionary Note Concerning Factors That May Affect Future Results in Item 1 and the risk factors provided in Item 1A for discussion of these risks and uncertainties). Additional information about results of operations and financial condition for 2022 and 2021 (including the detailed discussion of the prior year 2022 to 2021 year-over-year changes) can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations sections in 3M's Annual Report on Form 10-K for the year ended December 31, 2022. 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 21. 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. In July 2022, 3M announced its intention to spin off the Health Care business as a separate public company (see Note 3 for additional information). The Company continues to make progress on the Health Care business spin-off. The transaction is expected to be completed in the first half of 2024 and is subject to satisfaction of customary conditions, including final approval from the 3M Board of Directors and receipt of regulatory approvals, discussed in Note 3. The completion of the spin will enable the creation of two world-class public companies well positioned to pursue their respective growth plans, tailor capital allocation strategies, and create long-term value for shareholders. 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 is impacted by certain special items such as costs for significant litigation and the sales and income associated with manufactured PFAS products. During 2023, 3M's costs for significant litigation (see Certain amounts adjusted for special items - (non-GAAP measures) section below) totaled approximately $15.2 billion pre-tax and included, among other things, pre-tax charges of $10.5 billion and $4.3 billion (inclusive of imputed interest) related to the PWS Settlement and the CAE Settlement (discussed in Note 18), respectively, both announced in 2023. 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. 19 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 Year ended December 31, 2023 2022 Same period last year $ 10.18 $ 10.12 Net costs for significant litigation 3.20 0.61 Divestiture costs 0.08 — Gain on business divestitures (4.73) — Divestiture-related restructuring actions 0.05 — Russia exit charges 0.20 — Manufactured PFAS products 0.90 (0.18) Total special items (0.30) 0.43 Same period last year, excluding special items $ 9.88 $ 10.55 Increase/(decrease) due to: Total organic growth/productivity and other 0.30 0.22 Restructuring and related charges (0.62) 0.16 Raw material impact (0.24) (0.99) Foreign exchange impacts (0.17) (0.39) Acquisitions/divestitures (0.06) (0.05) Other expense (income), net (0.06) 0.02 Income tax rate — 0.06 Shares of common stock outstanding 0.21 0.30 Current period, excluding special items 9.24 9.88 Net costs for significant litigation (21.00) (3.20) Divestiture costs (0.68) (0.08) Gain on business divestitures 0.05 4.73 Divestiture-related restructuring actions — (0.05) Russia exit (charges) benefits 0.04 (0.20) Manufactured PFAS products (0.28) (0.90) Total special items (21.87) 0.30 Current period $ (12.63) $ 10.18 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: Organic growth/productivity and other: • In 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 $0.43. ◦ Remaining organic growth/productivity and other impacts resulted in a net year-on-year increase of $0.73 per share which was impacted by the following: ▪ Benefits from spending discipline, sourcing actions, restructuring, higher selling prices and ongoing productivity actions ▪ Lower sales volumes (particularly electronics/consumer retail); investments in growth, productivity, and sustainability; manufacturing/supply chain headwinds; inflation impacts; China; and Europe's geopolitical impacts • In 2022, the following components impacted earnings per diluted share year-on-year: ◦ Declines in disposable respirator demand year-on-year negatively impacted earnings per share by $0.29. ◦ Remaining organic growth/productivity and other impacts resulted in a net year-on-year benefit $0.51 to earnings per share which was impacted by the following: ▪ Benefits from strong pricing, spending discipline and 2021 restructuring actions ▪ Manufacturing headwinds from global supply chain challenges; geopolitical impacts due to the Russia/Ukraine conflict as well as ongoing COVID-related challenges in China ▪ 2021 benefit of $91 million pre-tax ($0.12 per share after tax) from the impact of the favorable decision of the Brazilian Supreme Court regarding the calculation of past social taxes ▪ Increased investments in growth, productivity and sustainability • In 2023, lower defined benefit pension and postretirement service cost decreased expense year-on-year. 20 Table of Contents Restructuring and related charges: • 3M recorded restructuring pre-tax charges of $437 million and $59 million in 2023 and 2022, respectively, (refer to Note 5 for additional discussion). In addition, 3M recorded certain related accelerated depreciation. Raw material impact: • In 2023, 3M continued to experience headwinds year-on-year from the carryover impact of raw material, logistics and energy cost inflation. • In 2022, 3M experienced inflationary pressures with year-on-year increases in raw material and logistics costs driven by many geopolitical, logistics, and disruptive events that caused imbalance in the global supply chain. Foreign exchange impacts: • Foreign currency impacts (net of hedging) increased operating loss by approximately $162 million and decreased operating income by approximately $271 million (or an increase of pre-tax loss by approximately $159 million and a decrease in pre-tax earnings of approximately $280 million) year-on-year for 2023 and 2022, respectively. 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 2023, 3M completed the sale of its dental local anesthetic business (discussed in Note 3). In 2022, 3M completed the split-off of the Food Safety business (discussed in Note 3). ◦ In 2022, 3M deconsolidated the Aearo Entities and, in 2023, reconsolidated those entities (discussed in Note 18). 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: • Interest expense (net of interest income) included in other expense (income), net as presented above decreased in 2023 compared to the same period year-on-year driven by interest income on invested cash. • Interest expense (net of interest income) decreased in 2022 compared to the same period year-on-year driven by debt maturities in the ordinary course and interest income on invested cash. • Lower income related to non-service cost components of pension and postretirement expense increased expense year-on-year for both 2023 and 2022. Income tax rate : • Certain items above reflect specific income tax rates associated therewith. Overall, the effective tax rates for 2023, 2022, and 2021 were 27.8 percent on a pre-tax loss, 9.6 percent on pre-tax income and 17.8 percent on pre-tax income, respectively. The primary factors that impacted the comparison of the 2023 and 2022 rates were the 2023 charges related to the PWS Settlement and the CAE Settlement (discussed in Note 18) and the tax impact associated with the 2022 charge related to steps toward resolving Combat Arms Earplugs litigation (discussed in Note 18), along with the tax efficient structure associated with the 2022 gain on split-off of the Food Safety business. The primary factor that decreased the Company's effective tax rate in 2022 was the tax efficient structure associated with the gain on split-off of the Food Safety business (see Note 3). • On an adjusted basis (see section entitled Certain amounts adjusted for special items - (non-GAAP measures)) , the effective tax rates for 2023, 2022, and 2021 were 17.5 percent, 17.5 percent, and 18.1 percent, respectively. Shares of common stock outstanding: • Lower shares outstanding increased earnings per share per diluted share for 2023 and 2022. 21 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 18). Net costs include the impacts of changes in accrued liabilities (including interest imputation on applicable settlement obligations), external legal fees, and insurance recoveries, along with the associated tax impacts. 3M does not consider the elements of the net costs associated with these matters to be normal, operating expenses related to the Company’s ongoing operations, revenue generating activities, business strategy, industry, and regulatory environment. 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 18), 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. Gain/loss on sale of business divestitures: • In 2023, 3M recorded a gain related to the sale of its dental local anesthetic business partially offset by a loss associated with a previously contingent indemnification obligation from a 2020 divestiture. Refer to Note 3 for further details. • In 2022, 3M recorded a gain related to the split-off and combination of its Food Safety business with Neogen Corporation. Divestiture costs: • These include costs related to separating and divesting substantially an entire business segment of 3M following public announcement of its intended divestiture. Divestiture-related restructuring actions: • In the third quarter of 2022, following the split-off of the Food Safety business, management approved and committed to undertake certain restructuring actions addressing corporate functional costs across 3M in relation to the magnitude of amounts previously allocated to the divested businesses. Refer to Note 5 for further details. 22 Table of Contents Manufactured PFAS products: • These amounts relate to sales and estimates of income (loss) regarding manufactured PFAS products that 3M plans to exit by the end of 2025 included within the Transportation and Electronics business segment. Along with other costs in arriving at this associated income, these amounts include estimates of costs of sales of $1,267 million, $970 million, and $890 million for 2023, 2022 and 2021, respectively. 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 17 for further details. Year ended December 31, 2021 (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 $ 2,460 20.5 % Adjustments for special items: Net costs for significant litigation 249 Total special items 249 Adjusted amounts (non-GAAP measures) $ 2,709 22.6 % Transportation and Electronics GAAP amounts $ 9,262 $ 1,869 20.2 % Adjustments for special items: Manufactured PFAS products (1,258) (135) Total special items (1,258) (135) Adjusted amounts (non-GAAP measures) $ 8,004 $ 1,734 21.7 % Total Company GAAP amounts $ 35,355 $ 7,369 20.8 % $ 7,204 $ 1,285 17.8 % $ 5,921 $ 10.12 Adjustments for special items: Net costs for significant litigation — 463 463 104 359 0.61 Manufactured PFAS products (1,258) (135) (135) (29) (106) (0.18) Total special items (1,258) 328 328 75 253 0.43 Adjusted amounts (non-GAAP measures) $ 34,097 $ 7,697 22.6 % $ 7,532 $ 1,360 18.1 % $ 6,174 $ 10.55 23 Table of Contents Year ended December 31, 2022 (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 per diluted share Earnings (loss) per diluted share percent change Safety and Industrial GAAP amounts $ 1,135 9.8 % Adjustments for special items: Net costs for significant litigation 1,414 Total special items 1,414 Adjusted amounts (non-GAAP measures) $ 2,549 22.0 % Transportation and Electronics GAAP amounts $ 8,902 (3.9) % $ 973 10.9 % Adjustments for special items: Manufactured PFAS products (1,351) 631 Total special items (1,351) 631 Adjusted amounts (non-GAAP measures) $ 7,551 (5.6) % $ 1,604 21.2 % Total Company GAAP amounts $ 34,229 (3.2) % $ 6,539 19.1 % $ 6,392 $ 612 9.6 % $ 5,777 $ 10.18 1 % Adjustments for special items: Net costs for significant litigation — 2,291 2,291 476 1,815 3.20 Manufactured PFAS products (1,351) 631 631 121 510 0.90 Gain on business divestitures — (2,724) (2,724) (39) (2,685) (4.73) Russia exit charges (benefits) — 109 109 (2) 111 0.20 Divestiture-related restructuring actions — 41 41 9 32 0.05 Divestiture costs — 60 60 13 47 0.08 Total special items (1,351) 408 408 578 (170) (0.30) Adjusted amounts (non-GAAP measures) $ 32,878 (3.6) % $ 6,947 21.1 % $ 6,800 $ 1,190 17.5 % $ 5,607 $ 9.88 (6) % Year ended December 31, 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 $ 2,324 21.2 % Adjustments for special items: Net costs for significant litigation 84 Total special items 84 Adjusted amounts (non-GAAP measures) $ 2,408 22.0 % Transportation and Electronics GAAP amounts $ 8,501 (4.5) % $ 1,312 15.4 % Adjustments for special items: Manufactured PFAS products (1,289) 205 Total special items (1,289) 205 Adjusted amounts (non-GAAP measures) $ 7,212 (4.5) % $ 1,517 21.0 % Total Company GAAP amounts $ 32,681 (4.5) % $ (9,128) (27.9) % $ (9,688) $ (2,691) 27.8 % $ (6,995) $ (12.63) N/M Adjustments for special items: Net costs for significant litigation 1 — 14,869 15,245 3,615 11,630 21.00 Manufactured PFAS products (1,289) 205 205 50 155 0.28 Gain on business divestitures — (36) (36) (11) (25) (0.05) Russia exit charges (benefits) — (18) (18) 3 (21) (0.04) Divestiture costs — 496 496 118 378 0.68 Total special items (1,289) 15,516 15,892 3,775 12,117 21.87 Adjusted amounts (non-GAAP measures) $ 31,392 (4.5) % $ 6,388 20.3 % $ 6,204 $ 1,084 17.5 % $ 5,122 $ 9.24 (6) % 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. 24 Table of Contents Year ended December 31, 2022 Sales Change Organic sales Acquisitions Divestitures Translation Total sales change Total Company 1.2 % — % (0.5) % (3.9) % (3.2) % Remove manufactured PFAS products special item impact (0.4) — — — (0.4) Adjusted total Company (non-GAAP measures) 0.8 % — % (0.5) % (3.9) % (3.6) % Transportation and Electronics 1.2 % — % (0.5) % (4.6) % (3.9) % Remove manufactured PFAS products special item impact (2.2) — — 0.5 (1.7) Adjusted Transportation and Electronics (non-GAAP measures) (1.0) % — % (0.5) % (4.1) % (5.6) % Year ended December 31, 2023 Sales Change Organic sales Acquisitions Divestitures Translation Total sales change Total Company (3.2) % 0.2 % (0.9) % (0.6) % (4.5) % Remove manufactured PFAS products special item impact — — (0.1) 0.1 — Adjusted total Company (non-GAAP measures) (3.2) % 0.2 % (1.0) % (0.5) % (4.5) % Transportation and Electronics (3.5) % 0.7 % (0.7) % (1.0) % (4.5) % Remove manufactured PFAS products special item impact — 0.2 (0.2) — — Adjusted Transportation and Electronics (non-GAAP measures) (3.5) % 0.9 % (0.9) % (1.0) % (4.5) % Sales and operating income (loss) by business segment: The following tables contain sales and operating income (loss) results by business segment for the years ended December 31, 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 21 for additional information on business segments. 2023 2022 % change (Dollars in millions) Net Sales % of Total Operating Income (Loss) Net Sales % of Total Operating Income (Loss) Net Sales Operating Income (Loss) Business Segments Safety and Industrial $ 10,956 33.5 % $ 2,324 $ 11,604 33.9 % $ 1,135 (5.6) % 104.7 % Transportation and Electronics 8,501 26.0 1,312 8,902 26.0 973 (4.5) 34.9 Health Care 8,195 25.1 1,603 8,427 24.6 1,799 (2.8) (10.9) Consumer 5,026 15.4 904 5,292 15.5 978 (5.0) (7.6) Corporate and Unallocated 3 — (15,271) 4 — 1,654 Total Company $ 32,681 100.0 % $ (9,128) $ 34,229 100.0 % $ 6,539 (4.5) N/M Year ended December 31, 2023 Worldwide Sales Change By Business Segment Organic sales Acquisitions Divestitures Translation Total sales change Safety and Industrial (5.1) % — % — % (0.5) % (5.6) % Transportation and Electronics (3.5) 0.7 (0.7) (1.0) (4.5) Health Care 0.7 — (3.1) (0.4) (2.8) Consumer (4.7) — (0.1) (0.2) (5.0) Total Company (3.2) 0.2 (0.9) (0.6) (4.5) 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. 25 Table of Contents Sales by geographic area: Percent change information compares the years ended December 31, 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. Year ended December 31, 2023 Americas Asia Pacific Europe, Middle East & Africa Other Unallocated Worldwide Net sales (millions) $ 18,375 $ 8,463 $ 5,843 $ — $ 32,681 % of worldwide sales 56.2 % 25.9 % 17.9 % 100.0 % Components of net sales change: Organic sales 0.4 (10.5) (2.2) (3.2) Acquisitions 0.3 0.1 — 0.2 Divestitures (0.9) (0.9) (0.9) (0.9) Translation 0.1 (3.2) 1.7 (0.6) Total sales change (0.1) % (14.5) % (1.4) % (4.5) % Year ended December 31, 2022 Americas Asia Pacific Europe, Middle East & Africa Other Unallocated Worldwide Net sales (millions) $ 18,400 $ 9,901 $ 5,928 $ — $ 34,229 % of worldwide sales 53.8 % 28.9 % 17.3 % 100.0 % Components of net sales change: Organic sales 2.6 0.3 (0.6) 1.2 Divestitures (0.6) (0.4) (0.6) (0.5) Translation (0.3) (6.5) (9.8) (3.9) Total sales change 1.7 % (6.6) % (11.0) % (3.2) % Additional information beyond what is included in the preceding tables is as follows: • For 2023, in the Americas geographic area, U.S. total sales were flat which included flat organic sales. Total sales in Mexico increased 12 percent which included increased organic sales of 10 percent. In Canada, total sales decreased 9 percent which included decreased organic sales of 5 percent. In Brazil, total sales increased 4 percent which included increased organic sales of 3 percent. In the Asia Pacific geographic area, China total sales decreased 15 percent which included decreased organic sales of 11 percent. In Japan, total sales decreased 15 percent which included decreased organic sales of 9 percent. • For 2022, in the Americas geographic area, U.S. total sales were flat which included increased organic sales of 1 percent. Total sales in Mexico increased 8 percent which included increased organic sales of 12 percent. In Canada, total sales increased 9 percent which included increased organic sales of 13 percent. In Brazil, total sales increased 15 percent which included increased organic sales of 12 percent. In the Asia Pacific geographic area, China total sales decreased 6 percent which included decreased organic sales of 3 percent. In Japan, total sales decreased 12 percent which included increased organic sales of 2 percent. Managing currency risks: 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. For less liquid currencies, financial hedging is frequently more expensive with more limitations on tenor. Thus, this risk is largely managed via local operational actions using natural hedging tools as discussed above. In either case, 3M’s hedging approach is designed to mitigate a portion of foreign currency risk and reduce volatility, ultimately allowing time for 3M’s businesses to respond to changes in the marketplace. Financial condition: Refer to the section entitled Financial Condition and Liquidity later in MD&A for a discussion of items impacting cash flows. In November 2018, 3M’s Board of Directors replaced the Company’s February 2016 repurchase program with a new repurchase program. This new program authorizes the repurchase of up to $10 billion of 3M’s outstanding common stock, with no pre-established end date. In 2023, the Company purchased $33 million of its own stock, compared to $1.5 billion of stock purchases in 2022. As of December 31, 2023, approximately $4.2 billion remained available under the authorization. In February 2024, 3M’s Board of Directors declared a first-quarter 2024 dividend of $1.51 per share, an increase of 1 percent. Raw materials: Refer to the section entitled Raw materials in Item 1 for discussion of 3M's sources and availability of raw materials in 2023. 26 Table of Contents Pension and postretirement defined benefit/contribution plans: On a worldwide basis, 3M’s pension and postretirement plans were 94 percent funded at year-end 2023. The primary U.S. qualified pension plan, which is approximately 69 percent of the worldwide pension obligation, was 94 percent funded and the international pension plans were 114 percent funded. The U.S. non-qualified pension plan is not funded due to tax considerations and other factors. Asset returns in 2023 for the primary U.S. qualified pension plan were 10.4 percent, as 3M strategically invests in both growth assets and fixed income matching assets to manage its funded status. For the primary U.S. qualified pension plan, the expected long-term rate of return on an annualized basis for 2024 is 7.75 percent. The primary U.S. qualified pension plan year-end 2023 discount rate was 4.98%, down 20 basis points from the year-end 2022 discount rate of 5.18%. The decrease in U.S. discount rates resulted in a increased valuation of the projected benefit obligation (PBO). The primary U.S. qualified pension plan’s funded status decreased to 94% as of December 31, 2023 due to the higher PBO resulting from the discount rate decrease and the mortality table update discussed in Note 14, partially offset by the postive returns of the plan's assets. Additional detail and discussion of international plan asset returns and discount rates is provided in Note 14 (Pension and Postretirement Benefit Plans). 3M expects to contribute approximately $100 million to $200 million of cash to its global defined benefit pension and postretirement plans in 2024. The Company does not have a required minimum cash pension contribution obligation for its U.S. plans in 2024. 3M expects global defined benefit pension and postretirement expense in 2024 to increase by approximately $75 million pre-tax when compared to 2023. Refer to “Critical Accounting Estimates” within MD&A and Note 14 (Pension and Postretirement Benefit Plans) for additional information concerning 3M’s pension and post-retirement plans. 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: (Percent of net sales) 2023 2022 Change Cost of sales 56.5 % 56.2 % 0.3 % Selling, general and administrative expenses (SG&A) 65.9 26.5 39.4 Research, development and related expenses (R&D) 5.6 5.4 0.2 Gain on business divestitures (0.1) (8.0) 7.9 Goodwill impairment expense — 0.8 (0.8) Operating income (loss) margin (27.9) % 19.1 % (47.0) % The Company continues to make investments in the implementation of new business systems and solutions, including enterprise resource planning, with these investments impacting cost of sales, SG&A, and R&D. Cost of Sales: Cost of sales, measured as a percent of sales, increased in 2023 when compared to 2022. Increases were primarily due to investments in growth, productivity and sustainability; restructuring charges, and carryover impact of higher energy cost inflation partially offset by 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, sourcing actions and restructuring benefits. Selling, General and Administrative Expenses: SG&A, measured as a percent of sales, increased in 2023 when compared to 2022. SG&A in 2023 was primarily impacted by pre-tax charges of $10.3 billion and $4.2 billion in the second and third quarters related to the PWS Settlement and the CAE Settlement, respectively (both discussed in Note 18). SG&A was also impacted by restructuring charges (see Note 5), divestiture costs (related to separating and preparing the Health Care business for spin-off) and continued investment in key growth initiatives. These impacts were partially offset by 2022 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 2022, discussed in Note 18), certain impairment costs related to exiting PFAS manufacturing (see Note 17), costs related to exiting Russia (see Note 17), divestiture-related restructuring charges (see Note 5), restructuring benefits and ongoing general 3M cost management. Research, Development and Related Expenses: R&D, measured as a percent of sales, increased in 2023 when compared to 2022. 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. Gain on Business Divestitures: In 2023, 3M recorded a pre-tax gain of $36 million related to the sale of assets associated with its dental local anesthetic business net of a previous contingent indemnification obligation from a 2020 divestiture. In 2022, 3M recorded a pre-tax gain of $2.7 billion related to the split-off and combination of its Food Safety business with Neogen Corporation. Refer to Note 3 for further details. 27 Table of Contents Goodwill Impairment Expense: As a result of 3M's commitment to exit per- and polyfluoroalkyl substance (PFAS) manufacturing, 3M recorded a goodwill impairment charge related to the Advanced Materials reporting unit (within the Transportation and Electronics business) in 2022. Refer to Note 17 for further details. Other Expense (Income), Net: See Note 6 for a detailed breakout of this line item. Interest expense (net of interest income) increased in 2023 compared to 2022 driven by the addition of imputed interest associated with the obligations resulting from the PWS Settlement and the CAE Settlement (discussed in Note 18). The non-service pension and postretirement net benefit decreased $119 million in 2023. The lower year-on-year benefit in 2023 was primarily due to higher interest costs due to higher discount rates as of the year-end 2022, partially offset by a reduction in actuarial loss amortization, which was driven by the lower discount rates. Refer to Note 14 for additional details. Provision (benefit) for Income Taxes: (Percent of pre-tax income/loss) 2023 2022 Effective tax rate 27.8 % 9.6 % Factors that impacted the tax rates between years are further discussed in the Overview section above and in Note 10. Income from Unconsolidated Subsidiaries, Net of Taxes: (Millions) 2023 2022 Income (loss) from unconsolidated subsidiaries, net of taxes $ 18 $ 11 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. Net Income (Loss) Attributable to Noncontrolling Interest: (Millions) 2023 2022 Net income (loss) attributable to noncontrolling interest $ 16 $ 14 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. 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 21. 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 21 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. 28 Table of Contents Corporate and Unallocated: In addition to these four business segments, 3M assigns certain costs to “Corporate and Unallocated,” which is presented separately in the preceding business segments table and in Note 21. 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 18) 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 17). 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 divested businesses. 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 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 21 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 pre-tax charges of $10.3 billion and $4.2 billion in the second and third quarters of 2023 related to the PWS Settlement and the CAE Settlement, respectively (both discussed in Note 18), and divestiture costs. Other Corporate Expense - Net: Other corporate operating expenses, net, increased in 2023 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. 29 Table of Contents Safety and Industrial Business (33.5% of consolidated sales): 2023 2022 Sales (millions) $ 10,956 $ 11,604 Sales change analysis: Organic sales (5.1) % 1.0 % Translation (0.5) (4.2) Total sales change (5.6) % (3.2) % Business segment operating income (millions) $ 2,324 $ 1,135 Percent change 104.7 % (53.9) % Percent of sales 21.2 % 9.8 % Adjusted business segment operating income (millions) (non-GAAP measure) $ 2,408 $ 2,549 Percent change (5.5) % (5.9) % Percent of sales 22.0 % 22.0 % 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 18), 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 21 for additional information). Refer to the Certain amounts adjusted for special items - (non-GAAP measures) section for additional details. Year 2023 results: Sales in Safety and Industrial were down 5.6 percent in U.S. dollars. On an organic sales basis: • Sales increased in roofing granules and automotive aftermarket, and decreased in personal safety, closure and masking systems, industrial adhesives and tapes, abrasives, and electrical markets. • 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 5.2 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 (slowing down in packaging and shipping activity). Business segment operating income margins increased year-on-year primarily due to lower special item costs for significant litigation. 2022 was impacted by a pre-tax charge of approximately $1.2 billion related to steps toward resolving Combat Arms Earplugs litigation (discussed in Note 18). Margins were also impacted by aggressive spending discipline, benefits from restructuring, pricing and productivity actions offset by the lower sales volume, higher restructuring costs, inflation impacts, investments in the business and China-related challenges. Adjusting for special item costs for significant litigation (non-GAAP measure), business segment operating income margins were consistent year-on-year as displayed above. Year 2022 results: Sales in Safety and Industrial were down 3.2 percent in U.S. dollars. On an organic sales basis: • Sales increased in electrical markets, abrasives, automotive aftermarket, roofing granules, closure and masking systems, and industrial adhesives and tapes and decreased in personal safety. • Growth from continued improving general industrial manufacturing activity and other end-market demand was partially offset by the disposable respirator sales decline within personal safety, which negatively impacted year-on-year organic growth by 4.5 percentage points. Business segment operating income margins decreased year-on-year due to special item costs for significant litigation primarily related to steps toward resolving Combat Arms Earplugs litigation (discussed in Note 18) resulting in a 2022 pre-tax charge of approximately $1.2 billion. Margins were also impacted by increased raw materials and logistics costs, manufacturing productivity headwinds, partially offset by selling price actions, spending discipline and restructuring actions. Adjusting for special item costs for significant litigation (non-GAAP measure), business segment operating income margins decreased year-on-year as displayed above. 30 Table of Contents Transportation and Electronics Business (26.0% of consolidated sales): 2023 2022 Sales (millions) $ 8,501 $ 8,902 Sales change analysis: Organic sales (3.5) % 1.2 % Acquisitions 0.7 — Divestitures (0.7) (0.5) Translation (1.0) (4.6) Total sales change (4.5) % (3.9) % Business segment operating income (millions) $ 1,312 $ 973 Percent change 34.9 % (48.0) % Percent of sales 15.4 % 10.9 % Adjusted sales (millions) (non-GAAP measure) $ 7,212 $ 7,551 Sales change analysis: Organic sales (3.5) % (1.0) % Acquisitions 0.9 — Divestitures (0.9) (0.5) Translation (1.0) (4.1) Total sales change (4.5) % (5.6) % Adjusted business segment operating income (millions) (non-GAAP measure) $ 1,517 $ 1,604 Percent change (5.4) % (7.6) % Percent of sales 21.0 % 21.2 % 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. Year 2023 results: Sales in Transportation and Electronics were down 4.5 percent in U.S. dollars. Adjusting for special item PFAS manufactured products (non-GAAP measure), sales were down 4.5 percent in U.S. dollars. On an organic sales basis: • Sales increased in automotive and aerospace, were flat in commercial solutions, and decreased in electronics, advanced materials and transportation safety. • 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 18). 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 increased year-on-year due to lower operating losses on PFAS manufactured products. In 2022, PFAS manufacturing products results included a $0.8 billion asset impairment charge (discussed in Note 17). Margins were also impacted by lower sales volumes, inflation impacts, investments in the business, higher restructuring costs, manufacturing and supply chain headwinds and China-related challenges partially offset by benefits from aggressive spending discipline, pricing and productivity actions. Adjusting for special item PFAS manufactured products (non-GAAP measure), business segment operating income margins decreased year-on-year as displayed above. Year 2022 results: Sales in Transportation and Electronics were down 3.9 percent in U.S. dollars. On an organic sales basis: • Sales increased in automotive and aerospace, commercial solutions, and advanced materials and decreased in electronics, and transportation safety. • Growth was held back by weaker consumer electronics end-market demand and ongoing impacts of semiconductor supply chain constraints on automotive markets. 31 Table of Contents Divestitures: • Divestiture impact relates to lost Transportation and Electronics sales year-on-year from deconsolidation of the Aearo Entities in July 2022. Business segment operating income margins decreased year-on-year due to a 2022 asset impairment charge of $0.8 billion as a result of 3M's announced exit from PFAS manufacturing (discussed in Note 17). Margins were also impacted by increased raw materials and logistics costs, manufacturing productivity headwinds which were further magnified by the shutdown of certain operations in Belgium and investments in auto electrification, partially offset by selling price actions, strong spending discipline and restructuring actions. Adjusting for special item PFAS manufacturing exit costs (non-GAAP measure), business segment operating income margins decreased year-on-year as displayed above. Health Care Business (25.1% of consolidated sales): 2023 2022 Sales (millions) $ 8,195 $ 8,427 Sales change analysis: Organic sales 0.7 % 3.2 % Divestitures (3.1) (1.4) Translation (0.4) (3.8) Total sales change (2.8) % (2.0) % Business segment operating income (millions) $ 1,603 $ 1,799 Percent change (10.9) % (11.5) % Percent of sales 19.6 % 21.4 % Year 2023 results: Sales in Health Care were down 2.8 percent in U.S. dollars. On an organic sales basis: • Sales increased in oral care and medical solutions 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 tighter hospital budgets along with overall headwinds from the exit of Russia. Divestitures: • Divestiture impact relates to the lost sales year-on-year from the third quarter 2023 sale of the dental local anesthetic business and the third quarter 2022 split-off of the Food Safety business. Business segment operating income margins decreased year-on-year due to manufacturing and supply chain headwinds, inflation impacts, investments in the business, restructuring costs, and added costs of building out the team ahead of the spin (referenced below) partially offset by benefits from aggressive spending discipline, pricing, productivity actions, and restructuring. 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. Year 2022 results: Sales in Health Care were down 2.0 percent in U.S. dollars. On an organic sales basis: • Sales increased in separation and purification, health information systems, food safety, and medical solutions and was flat in oral care. • Growth was impacted by COVID-related trends on elective procedure volumes and ongoing inflationary pressures. Divestitures: • Divestiture impact relates to the lost sales year-on-year from the divestiture from the Food Safety Division split-off transaction and combination with Neogen completed in the third quarter of 2022. Business segment operating income margins decreased year-on-year due to increased raw materials and logistics costs along with manufacturing productivity headwinds, investments in the business and transaction-related costs associated with the announced divestiture of the food safety business (see Note 3), partially offset by sales growth (including selling price actions), strong spending discipline and restructuring actions. 32 Table of Contents Consumer Business (15.4% of consolidated sales): 2023 2022 Sales (millions) $ 5,026 $ 5,292 Sales change analysis: Organic sales (4.7) % (0.9) % Divestitures (0.1) (0.4) Translation (0.2) (2.6) Total sales change (5.0) % (3.9) % Business segment operating income (millions) $ 904 $ 978 Percent change (7.6) % (15.9) % Percent of sales 18.0 % 18.5 % Year 2023 results: Sales in Consumer were down 5.0 percent in U.S. dollars. On an organic sales basis: • Sales decreased in home improvement, stationery and office, and home health and auto care. • 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 higher restructuring costs partially offset by benefits from aggressive spending discipline, pricing, productivity actions and restructuring. Year 2022 results: Sales in Consumer were down 3.9 percent in U.S. dollars. On an organic sales basis: • Sales increased in stationery and office and decreased in home improvement, and home health and auto care. • Growth was impacted by softening trends in the Consumer retail business as consumers pulled back on discretionary spending and retailers took actions to reduce their inventories. These impacts were partially offset by demand for Scotch Blue TM painter’s tape, Scotch-Brite TM , and Post-it ® -solutions. Business segment operating income margins decreased year-on-year as a result of increased raw materials, logistics and outsourced hardgoods manufacturing costs along with manufacturing productivity headwinds and investments in the business, partially offset by sales growth (including selling price actions), strong spending discipline and restructuring actions. Performance by Geographic Area While 3M manages its businesses globally and believes its business segment results are the most relevant measure of performance, the Company also utilizes geographic area data as a secondary performance measure. Export sales are generally reported within the geographic area where the final sales to 3M customers are made. A portion of the products or components sold by 3M’s operations to its customers are exported by these customers to different geographic areas. As customers move their operations from one geographic area to another, 3M’s results will follow. Thus, net sales in a particular geographic area are not indicative of end-user consumption in that geographic area. Financial information related to 3M operations in various geographic areas is provided in Note 2 and Note 21. Refer to the Overview section for a summary of net sales by geographic area and business segment. Geographic Area Supplemental Information Employees as of December 31, Capital Spending for years ended December 31, Property, Plant and Equipment - net as of December 31, (Millions, except Employees) 2023 2022 2023 2022 2023 2022 Americas 50,000 54,000 $ 1,184 $ 1,321 $ 6,179 $ 6,066 Asia Pacific 17,000 18,000 148 182 1,267 1,389 Europe, Middle East and Africa 18,000 20,000 283 246 1,713 1,723 Total Company 85,000 92,000 $ 1,615 $ 1,749 $ 9,159 $ 9,178 Employment: Employment decreased in 2023 when compared to 2022. The above table includes the impact of acquisitions, net of divestitures and other actions. 33 Table of Contents Capital Spending/Net Property, Plant and Equipment: Investments in property, plant and equipment enable growth across many diverse markets, helping to meet product demand and increasing manufacturing efficiency. 3M is increasing its investment in manufacturing and sourcing capability in order to more closely align its product capability with its sales in major geographic areas in order to best serve its customers throughout the world with proprietary, automated, efficient, safe and sustainable processes. Capital spending is discussed in more detail later in MD&A in the section entitled Cash Flows from Investing Activities . Critical Accounting Estimates Information regarding significant accounting policies is included in Note 1 to the consolidated financial statements. As stated in Note 1, the preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and assumptions. Such estimates and assumptions are subject to inherent uncertainties which may result in actual amounts differing from these estimates. The Company considers the items below to be critical accounting estimates. Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the Company. Senior management has discussed the development, selection and disclosure of its critical accounting estimates with the Audit Committee of 3M’s Board of Directors. Legal Proceedings: Assessments of lawsuits and claims can involve a series of complex judgments about future events, the outcomes of which are inherently uncertain, and can rely heavily on estimates and assumptions. The Company accrues an estimated liability for legal proceeding claims that are both probable and reasonably estimable in accordance with Accounting Standard Codification (ASC) 450, Contingencies . Please refer to the section entitled Process for Disclosure and Recording of Liabilities Related to Legal Proceedings (contained in Legal Proceedings in Note 18) for additional information about such estimates. Pension and Postretirement Obligations: The Company applies certain estimates for the discount rates and expected return on plan assets in determining its defined benefit pension and postretirement obligations and related net periodic benefit costs. The below further describes these estimates. Note 14 provides the weighted averages of these assumptions as of applicable dates and for respective periods and additional information on how the rates were determined. Discount rate The defined benefit pension and postretirement obligation represents the present value of the benefits that employees are entitled to in the future for services already rendered as of the measurement date. The Company measures the present value of these future benefits by projecting benefit payment cash flows for each future period and discounting these cash flows back to the December 31 measurement date, using the yields of a portfolio of high quality, fixed-income debt instruments that would produce cash flows sufficient in timing and amount to settle projected future benefits. Service cost and interest cost are measured separately using the spot yield curve approach applied to each corresponding obligation. Service costs are determined based on duration-specific spot rates applied to the service cost cash flows. The interest cost calculation is determined by applying duration-specific spot rates to the year-by-year projected benefit payments. The spot yield curve approach does not affect the measurement of the total benefit obligations as the change in service and interest costs offset the actuarial gains and losses recorded in other comprehensive income. Changes in expected benefit payment and service cost cash flows, as well as ongoing changes in market activity and yields, cause these rates to be subject to uncertainty. Using this methodology, the Company determined discount rates for its plans as follow: U.S. Qualified Pension International Pension (weighted average) U.S. Postretirement Medical December 31, 2023 Liability: Benefit obligation 4.98 % 3.99 % 4.94 % 2024 Net Periodic Benefit Cost Components: Service cost 5.08 % 3.67 % 5.08 % Interest cost 4.97 % 3.99 % 4.87 % Expected return on plan assets The expected return on plan assets for the primary U.S. qualified pension plan is based on strategic asset allocation of the plan, long-term capital market return expectations, and expected performance from active investment management. For the primary U.S. qualified pension plan, the expected long-term rate of return on an annualized basis for 2024 is 7.75%, an increase from 7.50% in 2023. Return on assets assumptions for international pension and other post-retirement benefit plans are calculated on a plan-by-plan basis using plan asset allocations and expected long-term rate of return assumptions. The weighted average expected return for the international pension plans is 5.27% for 2024 compared to 4.61% for 2023. Changes in asset allocation and market performance over time, among other factors, cause these estimates to be subject to uncertainty. 34 Table of Contents For the year ended December 31, 2023, the Company recognized consolidated defined benefit pre-tax pension and postretirement service cost expense of $274 million and a benefit of $129 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 $145 million, down from $178 million in 2022. In 2024, defined benefit pension and postretirement service cost expense is anticipated to total approximately $250 million while non-service pension and postretirement net benefit costs is anticipated to be a benefit of approximately $30 million, for a total consolidated defined benefit pre-tax pension and postretirement expense of approximately $220 million, an increase of approximately $75 million compared to 2023. Assessments of Goodwill: The Company makes certain estimates and judgments in impairment assessments of goodwill. As of December 31, 2023, 3M goodwill totaled approximately $12.9 billion. Goodwill is tested for impairment annually in the fourth quarter of each year and is tested between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. If future non-cash asset impairment charges are taken, 3M would expect that only a portion of the goodwill would be impaired. Impairment testing for goodwill is done at a reporting unit level, with all goodwill assigned to a reporting unit. Reporting units are one level below the business segment level, but are required to be combined when reporting units within the same segment have similar economic characteristics. At 3M, reporting units correspond to a division. 3M did not combine any of its reporting units for impairment testing. An impairment loss would be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit, and the loss would equal that difference. The estimated fair value of a reporting unit is determined based on a market approach using comparable company information such as EBITDA (earnings before interest, taxes, depreciation and amortization) multiples. 3M also performs a discounted cash flow analysis for certain reporting units if the market approach indicates additional review is warranted. A discounted cash flow analysis involves key assumptions including projected sales, EBITDA margins, capital expenditures, and discount rates. Changes in reporting unit earnings, comparable company information, and expected future cash flows, as well as underlying market and overall economic conditions, among other factors, make these estimates subject to uncertainty. Based on the annual test in the fourth quarter of 2023 completed as of October 1, 2023, no goodwill impairment was indicated for any of the reporting units. As of October 1, 2023, 3M had 20 primary reporting units, with ten reporting units accounting for approximately 95 percent of the goodwill. These ten reporting units were comprised of the following divisions: Abrasives, Display Materials and Systems, Electronics Materials Solutions, Health Information Systems, Industrial Adhesives and Tapes, Medical Solutions, Oral Care, Personal Safety, Separation and Purification Sciences, and Transportation Safety. 3M is a highly integrated enterprise, where businesses share technology and leverage common fundamental strengths and capabilities, thus many of 3M’s businesses could not easily be sold on a stand-alone basis. 3M’s focus on research and development has resulted in a portion of 3M’s value being comprised of internally developed businesses. As a result of 3M's December 2022 announced commitment to a plan to exit per- and polyfluoroalkyl substance (PFAS) manufacturing as described in Notes 4 and 17, 3M tested the Advanced Materials and Electronics Materials Solutions reporting units (within the Transportation and Electronics business) for impairment resulting in a goodwill impairment charge related to the Advanced Materials reporting unit. 3M will continue to monitor its reporting units and asset groups in 2024 for any triggering events or other indicators of impairment. Assessments of Long-Lived Assets: The Company makes certain estimates and judgments in impairment assessments of long-lived assets. As discussed in Note 1, long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An impairment loss is recognized when the carrying amount exceeds the estimated undiscounted future cash flows expected to result from the use of the asset group and its eventual disposition. The amount of the impairment is based on the excess of the asset group’s carrying value over its fair value. As discussed in Notes 4 and 17, in December 2022, as a result of 3M's commitment to a plan to exit per- and polyfluoroalkyl substance (PFAS) manufacturing, 3M recorded a charge related to impairment of long-lived assets. Underlying fair values were determined primarily using discounted cash flow models. Key assumptions included projected sales, EBITDA margins, capital expenditures, and discount rates. Changes in underlying market and overall economic conditions, including changes in competitive conditions and customer preferences; operational execution of activities associated with these asset groupings; and items mentioned in Item 1A—Risk Factors with respect to 3M’s exit of PFAS manufacturing, among other factors, make these estimates subject to uncertainty. 35 Table of Contents Uncertainty in Income Tax Positions: The extent of 3M’s operations involves dealing with uncertainties and judgments in the application of complex tax regulations in a multitude of jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state, and international tax audits. The Company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes will be due. The Company follows guidance provided by ASC 740, Income Taxes , a subset of which relates to uncertainty in income taxes, to record these liabilities (refer to Note 10 for additional information). The Company adjusts these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company’s current estimate of the tax liabilities. If the Company’s estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary. New Accounting Pronouncements Information regarding new accounting pronouncements is included in Note 1 to the Consolidated Financial Statements. 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 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 December 31, 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 the date of this report, 3M has a credit rating of A3, negative outlook from Moody's Investors Service, a credit rating of BBB+, CreditWatch negative from S&P Global Ratings, and a credit rating of A-, stable outlook from Fitch. The Company’s total debt at December 31, 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. Certain USD LIBOR rates subject to a synthetic methodology will continue to be published until September 2024. The Company's material debt securities, bank facilities, and derivative instruments that previously utilized LIBOR as the reference rate have transitioned 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 December 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). Information with respect to long-term debt issuances and maturities for the periods presented is included in Note 13. 36 Table of Contents In May 2023, 3M entered into a $4.25 billion five-year revolving credit facility expiring in 2028; the facility was amended in July and September 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 December 31, 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 December 31, 2023, this ratio was approximately 15 to 1. Debt covenants do not restrict the payment of dividends. The Company also had $355 million in stand-alone letters of credit and bank guarantees issued and outstanding at December 31, 2023. These instruments are utilized in connection with normal business activities. Cash, cash equivalents and marketable securities: At December 31, 2023, 3M had $6.0 billion of cash, cash equivalents and marketable securities, of which approximately $3.2 billion was held by the Company’s foreign subsidiaries and approximately $2.8 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 December 31, 2023 and December 31, 2022. December 31, (Millions) 2023 2022 Change Total debt $ 16,035 $ 15,939 $ 96 Less: Cash, cash equivalents and marketable securities 6,006 3,916 2,090 Net debt (non-GAAP measure) $ 10,029 $ 12,023 $ (1,994) 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): December 31, (Millions) 2023 2022 Change Current assets $ 16,379 $ 14,688 $ 1,691 Less: Current liabilities 15,297 9,523 5,774 Working capital (non-GAAP measure) $ 1,082 $ 5,165 $ (4,083) 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 $4.1 billion compared with December 31, 2022. Balance changes in current assets increased working capital by $1.7 billion, driven largely by increases in cash and cash equivalents partially offset by decreases in inventories. Balance changes in current liabilities decreased working capital by $5.8 billion, primarily due to increases in the current portion of obligations resulting from the PWS Settlement and the CAE Settlement (discussed in Note 18). 37 Table of Contents Cash Flows: Discussions of cash flows from operating, investing and financing activities are provided in the sections that follow. Cash Flows from Operating Activities: Cash flows from operating activities can fluctuate significantly from period to period, as working capital movements, tax timing differences and other items such as litigation payments can significantly impact cash flows. In 2023, cash flows provided by operating activities increased $1,089 million compared to the same period last year, primarily driven by decreases in inventories, increasing operating cash flow by $567 million in 2023, compared to inventory increases that decreased operating cash flow by $629 million in 2022. The 2023 pre-tax charges of $10.5 billion and $4.3 billion (inclusive of imputed interest) related to the PWS Settlement and the CAE Settlement, respectively, along with the $1.2 billion pre-tax charge in 2022 related to steps toward resolving Combat Arms Earplugs litigation (all discussed in Note 18) largely impacted the net income component, with offsets in the other-net and deferred tax elements in each of those periods. Cash Flows from Investing Activities: Investments in property, plant and equipment enable growth across many diverse markets, helping to meet product demand and increasing manufacturing efficiency. The Company expects 2024 capital spending to be approximately $1.5 billion to $1.7 billion as 3M continues to invest in growth, productivity and sustainability. 3M records capital-related government grants earned as reductions to the cost of property, plant and equipment; and associated unpaid liabilities and grant proceeds receivable are considered non-cash changes in such balances for purposes of preparation of statement of cash flows. 3M invests in renewal and maintenance programs, which pertain to cost reduction, cycle time, maintaining and renewing current capacity, eliminating pollution, and compliance. Costs related to maintenance, ordinary repairs, and certain other items are expensed. 3M also invests in growth, which adds to capacity, driven by new products, both through expansion of current facilities and new facilities. Finally, 3M also invests in other initiatives, such as information technology (IT), laboratory facilities, and a continued focus on investments in sustainability. Refer to Note 3 for information on acquisitions and divestitures (including the 2022 cash payment from the Food Safety business split-off). The Company is actively considering additional acquisitions, investments and strategic alliances, and from time to time may also divest certain businesses. Purchases of marketable securities and investments and proceeds from maturities and sale of marketable securities and investments are primarily attributable to certificates of deposit/time deposits, commercial paper, and other securities, which are classified as available-for-sale. Refer to Note 12 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: 2023 Debt Activity : Total debt was approximately $16.0 billion at December 31, 2023 and $15.9 billion at December 31, 2022. Maturities of $1.8 billion of fixed-rate notes were offset by net issuances of commercial paper of $1.8 billion (issuance and subsequent repayments/reissuances). The gross commercial paper issuances and repayments, in addition to repayments of the fixed-rate notes, are largely reflected in “Proceeds from debt (maturities greater than 90 days)” and "Repayment of debt (maturities greater than 90 days)". The Company had $1.8 billion in commercial paper outstanding at December 31, 2023, compared to no commercial paper outstanding as of December 31, 2022. 3M’s primary short-term liquidity needs are met through cash on hand and U.S. commercial paper issuances. Refer to Note 13 for more detail regarding debt. 2022 Debt Activity : Decreases in debt were largely due to the repayments of 500 million euros and $600 million aggregate principal amounts of fixed-rate medium-term notes in February 2022 and June 2022, respectively. The Company had no commercial paper outstanding at December 31, 2022 and 2021. In conjunction with the Food Safety Division split-off transaction and combination with Neogen (discussed in Note 3), the associated non-cash debt-for-debt exchange in the third quarter of 2022 reduced then-outstanding 3M commercial paper indebtedness of $350 million (borrowed earlier in the year) which became new term-debt obligations of Neogen. Net commercial paper issuances in addition to repayments and borrowings by international subsidiaries are largely reflected in “Change in short-term debt – net”. Repurchases of Common Stock : Repurchases of common stock are made to support the Company’s stock-based employee compensation plans and for other corporate purposes. In 2023, the Company purchased $33 million of its own stock. For more information, refer to the table titled “Issuer Purchases of Equity Securities” in Part II, Item 5. The Company does not utilize derivative instruments linked to the Company’s stock. 38 Table of Contents Dividends Paid to Shareholders: 3M has paid dividends since 1916. In February 2024, 3M’s Board of Directors declared a first-quarter 2024 dividend of $1.51 per share, an increase of 1 percent. 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. 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. Year ended December 31, (Millions) 2023 2022 Major GAAP Cash Flow Categories Net cash provided by (used in) operating activities $ 6,680 $ 5,591 Net cash provided by (used in) investing activities (1,207) (1,046) Net cash provided by (used in) financing activities (3,147) (5,350) Free Cash Flow (non-GAAP measure) Net cash provided by (used in) operating activities $ 6,680 $ 5,591 Purchases of property, plant and equipment (1,615) (1,749) Free cash flow 5,065 3,842 Net income (loss) attributable to 3M $ (6,995) $ 5,777 Free cash flow conversion N/M 66 % Material Cash Requirements from Known Contractual and Other Obligations: 3M’s material cash requirements from known contractual and other obligations primarily relate to following, for which information on both a short-term and long-term basis is provided in the indicated notes to the consolidated financial statements: • Tax obligations—Refer to Note 10. • Debt—Refer to Note 13. Future cash payments for interest on long-term debt is approximately $6 billion. • Commitments and contingencies—Refer to Note 18. In addition to other matters discussed therein, Note 18 references that the Company expects to pay up to $12.5 billion in the aggregate from 2023 through 2036 pursuant to the terms of the PWS Settlement and expects to pay up to $6.0 billion in the aggregate from 2023 to 2029 pursuant to the terms of the CAE Settlement. Note 7 provides further information regarding amounts due under these settlements. See the settlement agreements that are included in the exhibit list to this filing for additional information. • Operating and finance leases—Refer to Note 19. 3M purchases the majority of its materials and services as needed, with no unconditional commitments. In limited circumstances, in the normal course of business, 3M enters into unconditional purchase obligations with various vendors that may take the form of, for example, take or pay contracts in which 3M guarantees payment to ensure availability to 3M of certain materials or services or to ensure ongoing efforts on capital projects. The Company expects to receive underlying materials or services for these purchase obligations. To the extent the limited amount of these purchase obligations fluctuates, it largely trends with normal-course changes in regular operating activities. Additionally, contractual capital commitments represent a small part of the Company’s expected capital spending. 39 Table of Contents Financial Instruments The Company enters into foreign exchange forward and option contracts to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies and to offset, in part, the impacts of changes in value of various non-functional currency denominated items including certain intercompany financing balances. As circumstances warrant, the Company also uses foreign exchange contracts and foreign currency denominated debt as hedging instruments to hedge portions of the Company’s net investments in foreign operations. The Company manages interest rate risks using a mix of fixed and floating rate debt. To help manage borrowing costs, the Company may enter into interest rate swaps. Under these arrangements, the Company agrees to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. The Company manages commodity price risks through negotiated supply contracts and price protection agreements. Refer to Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”, for further discussion of foreign exchange rates risk, interest rates risk and commodity prices risk.