What changed in this filing

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Item 1. Financial Statements

2020-07-28 compared with 2020-04-28 · 505 added, 214 removed, 1296 unchanged (36% of the section changed)

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Three months ended

Six months ended

(Millions, except per share amounts)

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Net income including noncontrolling interest

Net income attributable to noncontrolling interest

Net income (loss) attributable to noncontrolling interest

Net income attributable to 3M

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Three months ended

Six months ended

Net income including noncontrolling interest

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944,033,056 shares issued

Shares outstanding - March 31, 2020:

Shares outstanding - June 30, 2020:

Shares outstanding - December 31, 2019:

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Treasury stock, at cost:

Shares at March 31, 2020:

Shares at June 30, 2020:

Shares at December 31, 2019:

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Consolidated Statement of Cash Flows

Three months ended

Six months ended

Cash Flows from Operating Activities

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Deferred income taxes

Loss on deconsolidation of Venezuelan subsidiary

Changes in assets and liabilities

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This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes included in its Annual Report on Form 10-K.

As described in Note 16, effective in the first quarter of 2020, the Company changed its business segment reporting in its continuing effort to improve the alignment of businesses around markets and customers.

As described in Note 16, effective in the second quarter of 2020, the measure of segment operating performance used by 3M’s chief operating decision maker changed and, as a result, the Company’s disclosed measure of segment profit/loss has been updated.

Also, effective in the first quarter of 2020, the Company changed its business segment reporting in its continuing effort to improve the alignment of businesses around markets and customers.

Additionally, the Company consolidated the way it presents geographic area net sales by providing an aggregate Americas geographic region (combining former United States and Latin America and Canada areas).

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

Use of estimates

The preparation of financial statements in conformity with U.S.

generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

The Company considered the coronavirus (COVID-19) related impacts on its estimates, as appropriate, within its consolidated financial statements and there may be changes to those estimates in future periods.

3M believes that the accounting estimates are appropriate after giving consideration to the increased uncertainties surrounding the severity and duration of the COVID-19 pandemic.

Such estimates and assumptions are subject to inherent uncertainties which may result in actual amounts differing from these estimates.

Changes to Significant Accounting Policies

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The Company does not have any significant off-balance-sheet credit exposure related to its customers.

The Company has long-term receivables that typically aggregate to less than $ 100 million, do not have significant credit risk, and the origination dates of which are typically not older than five years .

The Company has long-term customer receivables that do not have significant credit risk, and the origination dates of which are typically not older than five years .

These long-term receivables are subject to an allowance methodology similar to other receivables.

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The allowance is limited by the amount that the fair value is less than the amortized cost basis.

A change in the allowance for credit losses is recorded into earnings in the period of the change.

A change in the allowance for credit losses is recorded into earnings in the period of the

Any impairment that has not been recorded through an allowance for credit losses is recorded through accumulated other comprehensive income as a component of shareholders’ equity.

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Amounts are reclassified out of accumulated other comprehensive income and into earnings upon sale or a change in the portions of impairment related to credit losses and not related to credit losses.

Property, plant and equipment:

3M’s accounting policy with respect to property, plant and equipment, is disclosed in the Company’s notes to consolidated financial statements included in its most recent Annual Report on Form 10-K.

In addition, 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.

Foreign Currency Translation

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Cumulative translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in shareholders’ equity.

3M had a consolidating subsidiary in Venezuela, the financial statements of which were remeasured as if its functional currency were that of its parent because Venezuela’s economic environment is considered highly inflationary.

3M had a consolidated subsidiary in Venezuela, the financial statements of which were remeasured as if its functional currency were that of its parent because Venezuela’s economic environment is considered highly inflationary.

The operating income of this subsidiary was immaterial as a percent of 3M’s consolidated operating income for the periods presented.

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Earnings Per Share

The difference in the weighted average 3M shares outstanding for calculating basic and diluted earnings per share attributable to 3M common shareholders is the result of the dilution associated with the Company’s stock-based compensation plans.

Certain options outstanding under these stock-based compensation plans were not included in the computation of diluted earnings per share attributable to 3M common shareholders because they would have had an anti-dilutive effect ( 19.2 million and 5.2 million average options for the three months ended March 31, 2020 and 2019, respectively).

The difference in the weighted average 3M shares outstanding for calculating basic and diluted earnings per share attributable to 3M common shareholders is a result of the dilution associated with the Company’s stock-based compensation plans.

Certain options outstanding under these stock-based compensation plans were not included in the computation of diluted earnings per share attributable to 3M common shareholders because they would have had an anti-dilutive effect ( 20.9 million average options for the three months ended June 30, 2020;

20.0 million average options for the six months ended June 30, 2020;

6.7 million average options for the three months ended June 30, 2019;

6.0 million average options for the six months ended June 30, 2019).

The computations for basic and diluted earnings per share follow:

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Three months ended

Six months ended

(Amounts in millions, except per share amounts)

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This ASU provides temporary optional expedients and exceptions to existing guidance on contract modifications and hedge accounting to facilitate the market transition from existing reference rates, such as LIBOR which is being phased out in 2021, to alternate reference rates, such as SOFR.

The standard was effective upon issuance and allowed application to

contract changes as early as January 1, 2020.

The standard was effective upon issuance and allowed application to contract changes as early as January 1, 2020.

The provisions have impact as contract modifications and other changes occur while LIBOR is phased out.

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Deferred revenue primarily relates to revenue that is recognized over time for one-year software license contracts.

Deferred revenue (current portion) as of March 31, 2020 and December 31, 2019 was $ 422 million and $ 430 million, respectively.

Approximately $ 160 million of the December 31, 2019 balance was recognized as revenue during the three months ended March 31, 2020, while approximately $ 370 million of the December 31, 2018 balance was recognized as revenue during the three months ended March 31, 2019.

Deferred revenue (current portion) as of June 30, 2020 and December 31, 2019 was $ 412 million and $ 430 million, respectively.

Approximately $ 110 million and $ 270 million of the December 31, 2019 balance was recognized as revenue during the three and six months ended June 30, 2020, respectively, while approximately $ 110 million and $ 480 million of the December 31, 2018 balance was recognized as revenue during the three and six months ended June 30, 2019, respectively.

Operating Lease Revenue:

Net sales includes rental revenue from durable medical devices as part of operating lease arrangements, which was $ 133 million and $ 275 million during the three and six months ended June 30, 2020.

Applicable rental revenue for the three and six months ended June 30, 2019 was not material.

Disaggregated revenue information:

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Six months ended

Net Sales (Millions)

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Total Company

Three months ended March 31, 2020

Three months ended June 30, 2020

Net Sales (Millions)

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Total Company

Three months ended March 31, 2019

Six months ended June 30, 2020

Net Sales (Millions)

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Total Company

Americas included United States net sales to customers of $ 3.425 billion and $ 3.046 billion for the three months ended March 31, 2020 and 2019, respectively.

Three months ended June 30, 2019

Net Sales (Millions)

Europe, Middle East and Africa

Other Unallocated

Safety and Industrial

Transportation and Electronics

Corporate and Unallocated

Elimination of Dual Credit

Total Company

Six months ended June 30, 2019

Net Sales (Millions)

Europe, Middle East and Africa

Other Unallocated

Safety and Industrial

Transportation and Electronics

Corporate and Unallocated

Elimination of Dual Credit

Total Company

Americas included United States net sales to customers of $ 3.1 billion and $ 3.4 billion for the three months ended June 30, 2020 and 2019, respectively, and $ 6.6 billion and $ 6.5 billion for the six months ended June 30, 2020 and 2019, respectively.

Acquisitions and Divestitures

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2020 acquisitions:

There were no acquisitions that closed during the three months ended March 31, 2020.

There were no acquisitions that closed during the six months ended June 30, 2020.

2019 acquisitions:

In February 2019, 3M completed the acquisition of all of the ownership interests of the technology business of M*Modal for $ 0.7 billion of cash, net of cash acquired, and assumption of $ 0.3 billion of M*Modal’s debt.

In February 2019, 3M completed the acquisition of the technology business of M*Modal for $ 0.7 billion of cash, net of cash acquired, and assumption of $ 0.3 billion of M*Modal’s debt.

The allocation of purchase consideration related to M*Modal was completed in the fourth quarter of 2019.

Net sales and operating loss (inclusive of transaction and integration costs) of this business included in 3M’s consolidated results of operations for the first quarter of 2019 were approximately $ 50 million and $ 20 million, respectively.

Net sales and operating loss (inclusive of transaction and integration costs) of this business included in 3M’s consolidated results of operations for the second quarter of 2019 were approximately $ 75 million and $ 15 million, respectively.

Net sales and operating loss (inclusive of transaction and integration costs) of this business included in 3M’s consolidated results of operations for the first six months of 2019 were approximately $ 125 million and $ 35 million, respectively.

M*Modal is reported within the Company’s Health Care business.

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and its KCI subsidiaries and in the first quarter of 2020 paid certain consideration previously accrued under the terms of related agreements.

Adjustments in 2020 to the purchase price allocation were approximately $ 18 million and related to ongoing identification and valuation of certain acquired assets.

Adjustments in 2020 to the purchase price allocation were approximately $ 5 million and related to ongoing identification and valuation of certain acquired assets and liabilities.

The change to provisional amounts did not result in material impacts to results of operations in 2020 or any portion related to earlier quarters in the measurement period.

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3M may divest certain businesses from time to time based upon review of the Company’s portfolio considering, among other items, factors relative to the extent of strategic and technological alignment and optimization of capital deployment, in addition to considering if selling the businesses results in the greatest value creation for the Company and for shareholders.

Announced divestitures :

In December 2019, 3M agreed to sell substantially all of its drug delivery business to an affiliate of Altaris Capital Partners, LLC.

Subject to closing and other adjustments, 3M will receive approximately $ 650 million in consideration including cash, an interest-bearing security, and a 17 percent noncontrolling interest in the new company.

The business that is being divested has annual sales of approximately $ 380 million.

3M will retain its transdermal drug delivery components business.

The sale is expected to close in the second quarter of 2020, subject to customary closing conditions and regulatory approvals.

3M expects a pre-tax gain of approximately $ 380 million as a result of the divestiture that will be reported within the Company’s Health Care business.

Following completion of the transaction, 3M will reflect its ownership interest in the divested business using the equity method of accounting.

As discussed in Note 16 (Business Segments), gains/losses on sale of businesses are reflected in Corporate and Unallocated.

2020 divestitures:

In January 2020, 3M completed the sale of its advanced ballistic-protection business to Avon Rubber p.l.c for $ 86 million in cash and recognized certain contingent consideration from the outcome of pending tenders.

Further contingent consideration of less than $ 25

million may be recognized depending on outcomes in the future.

In January 2020, 3M completed the sale of its advanced ballistic-protection business, formerly part of the Transportation and Electronics business, to Avon Rubber p.l.c for $ 86 million in cash and recognized certain contingent consideration from the outcome of pending tenders.

Further contingent consideration of less than $ 25 million may be recognized depending on outcomes in the future.

The business, with annual sales of approximately $ 85 million, consists of ballistic helmets, body armor, flat armor and related helmet-attachment products serving government and law enforcement.

Within the Transportation and Electronics business, 3M reflected immaterial impacts in the third quarter of 2019 as a result of measuring this disposal group at the lower of its carrying amount or fair value less cost to sell and in the first quarter 2020 related to completion of the divestiture and recognition of contingent consideration.

3M reflected immaterial impacts in the third quarter of 2019 as a result of measuring this disposal group at the lower of its carrying amount or fair value less cost to sell and in the first quarter 2020 related to completion of the divestiture and recognition of contingent consideration.

In May 2020, 3M completed the sale of substantially all of its drug delivery business, formerly part of the Health Care business, to an affiliate of Altaris Capital Partners, LLC for $ 617 million in consideration including $ 487 million of cash, approximately $ 70 million in the form of an interest-bearing security, and approximately $ 60 million in the form of a 17 percent noncontrolling interest in the new company, Kindeva Drug Delivery (Kindeva).

Non-cash consideration was valued at time of initial recognition on an income-based approach using relevant estimated future cash flows and applicable market interest rates while considering impacts of restrictions related to transferability.

The divested business had annual sales of approximately $ 380 million.

3M retained its transdermal drug delivery components business.

3M reflected a pre-tax gain of $ 387 million as a result of the divestiture.

The Company reflects its ownership interest in Kindeva using the equity method of accounting incorporating the recording of 3M’s share of earnings/losses on a lag-basis based on availability of Kindeva financial statements.

As a result, income/loss from this unconsolidated subsidiary will begin to be reflected in 3M’s financial statements in the third quarter of 2020.

Kindeva and 3M entered into certain limited-term agreements related to post-divestiture transition and supply services.

2019 divestitures:

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Operating income and held for sale amounts:

The aggregate operating income of these businesses was approximately $ 25 million and immaterial in the first three months of 2020 and 2019, respectively.

The approximate amounts of major assets and liabilities associated with disposal groups classified as held-for-sale as of March 31, 2020 and December 31, 2019 included the following:

The aggregate operating income of these businesses was approximately $ 38 million and immaterial in the first six months of 2020 and 2019, respectively.

The approximate amounts of major assets and liabilities associated with disposal groups classified as held-for-sale as of December 31, 2019 included the following:

Property, plant and equipment

Intangible assets

In addition, approximately $ 20 million and $ 30 million of goodwill was estimated to be attributable to disposal groups classified as held-for-sale as of March 31, 2020 and December 31, 2019, respectively, based upon relative fair value.

In addition, approximately $ 30 million of goodwill was estimated to be attributable to disposal groups classified as held-for-sale as of December 31, 2019, based upon relative fair value.

The amounts above have not been segregated and are classified within the existing corresponding line items on the Company’s consolidated balance sheet.

Goodwill and Intangible Assets

There was no goodwill recorded from acquisitions during the first three months of 2020.

The acquisition activity in the following table relates to the net impact of adjustments to the preliminary allocation of purchase price within the one year measurement period following prior acquisitions, which decreased goodwill by $ 18 million during the three months ended March 31, 2020.

There was no goodwill recorded from acquisitions during the first six months of 2020.

The acquisition activity in the following table relates to the net impact of adjustments to the preliminary allocation of purchase price within the one year measurement period following prior acquisitions, which decreased goodwill by $ 5 million during the six months ended June 30, 2020.

The amounts in the “Translation and other” row in the following table primarily relate to changes in foreign currency exchange rates.

The goodwill balance by business segment as of December 31, 2019 and March 31, 2020, follow:

The goodwill balance by business segment as of December 31, 2019 and June 30, 2020, follow:

Safety and Industrial

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Translation and other

Balance as of March 31, 2020

Balance as of June 30, 2020

Accounting standards require that goodwill be tested for impairment annually and between annual tests in certain circumstances such as a change in reporting units or the testing of recoverability of a significant asset group within a reporting unit.

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Acquired Intangible Assets

The carrying amount and accumulated amortization of acquired finite-lived intangible assets, in addition to the balance of non-amortizable intangible assets, as of March 31, 2020 and December 31, 2019, follow:

The carrying amount and accumulated amortization of acquired finite-lived intangible assets, in addition to the balance of non-amortizable intangible assets, as of June 30, 2020, and December 31, 2019, follow:

Customer related intangible assets

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Certain tradenames acquired by 3M are not amortized because they have been in existence for over 55 years , have a history of leading-market share positions, have been and are intended to be continuously renewed, and the associated products of which are expected to generate cash flows for 3M for an indefinite period of time.

As discussed in Note 13, 3M reflected an immaterial charge related to impairment of certain indefinite-lived assets in the three months ended March 31, 2020.

Amortization expense for the three months ended March 31, 2020 and 2019 follows:

As discussed in Note 13, 3M reflected an immaterial charge related to impairment of certain indefinite-lived assets in the first quarter of 2020.

Amortization expense for the three and six months ended June 30, 2020 and 2019 follows:

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Six months ended

Amortization expense

Expected amortization expense for acquired amortizable intangible assets recorded as of March 31, 2020:

Expected amortization expense for acquired amortizable intangible assets recorded as of June 30, 2020:

Amortization expense

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3M expenses the costs incurred to renew or extend the term of intangible assets.

Restructuring Actions and Exit Activities

Restructuring Actions

2020 Restructuring Actions:

Divestiture-Related Restructuring

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

These actions affected approximately 1,300 positions worldwide and resulted in a second quarter 2020 pre-tax charge of $ 55 million, within Corporate and Unallocated.

The divestiture-related restructuring actions were recorded in the income statement as follows:

Second Quarter 2020

Cost of sales

Selling, general and administrative expenses

Research, development and related expenses

Total operating income impact

Divestiture-related restructuring actions, including cash and non-cash impacts, follow:

Employee-Related

Asset-Related and Other

Expense incurred in the second quarter of 2020

Non-cash changes

Accrued divestiture-related restructuring action balances as of June 30, 2020

Remaining activities related to this divestiture-related restructuring are expected to be largely completed through the second quarter of 2021.

Other Restructuring

Additionally, in the second quarter of 2020, management approved and committed to undertake certain restructuring actions addressing structural enterprise costs and operations in certain end markets as a result of the COVID-19 pandemic and related economic impacts.

These actions affected approximately 400 positions worldwide and resulted in a second quarter 2020 pre-tax charge of $ 58 million.

The restructuring charges were recorded in the income statement as follows:

Second Quarter 2020

Cost of sales

Selling, general and administrative expenses

Research, development and related expenses

Total operating income impact

The business segment operating income impact of these restructuring charges are summarized by business segment as follows:

Second Quarter 2020

Employee-Related

Asset-Related

Safety and Industrial

Transportation and Electronics

Corporate and Unallocated

Total Operating Expense

Restructuring actions, including cash and non-cash impacts, follow:

Employee-Related

Asset-Related

Expense incurred in the second quarter of 2020

Non-cash changes

Accrued restructuring action balances as of June 30, 2020

Remaining activities related to this restructuring are expected to be largely completed through the second quarter of 2021.

2019 Restructuring Actions:

As described in Note 5 in 3M’s 2019 Annual Report on Form 10-K, during the second quarter of 2019, in light of slower than expected 2019 sales, management approved and committed to undertake certain restructuring actions.

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The Company recorded second quarter 2019 pre-tax charges of $ 148 million.

Additionally, during the fourth quarter of 2019, to realign 3M’s organizational structure and operating model to improve growth and operational efficiency, management approved and committed to undertake certain restructuring actions.

These actions impacted approximately 1,500 positions worldwide.

The Company recorded fourth quarter 2019 pre-tax charges of $ 134 million.

As of December 31, 2019, the balance of accrued restructuring actions for these matters was $ 140 million.

Restructuring actions, including cash and non-cash impacts, follow:

The restructuring charges were recorded in the income statement as follows:

Second Quarter 2019

Cost of sales

Selling, general and administrative expenses

Research, development and related expenses

Total operating income impact

Other expense (income), net

Total income before taxes impact

The operating income impact of these restructuring charges are summarized by business segment as follows:

Second Quarter 2019

Employee-Related

Asset-Related

Safety and Industrial

Transportation and Electronics

Corporate and Unallocated

Total Operating Expense

The second quarter 2019 actions included a voluntary early retirement incentive (further discussed in Note 11), the charge for which is included in other expense (income), net above.

Restructuring action activity from 2019, which includes both second and fourth quarter actions, including cash and non-cash impacts, follow:

Employee-Related

Accrued restructuring action balances as of December 31, 2019

Cash payments

Accrued restructuring action balances as of March 31, 2020

Remaining activities related to this restructuring are expected to be completed largely through 2020.

Accrued restructuring action balances as of June 30, 2020

Remaining activities related to this restructuring are expected to be completed largely through early 2021.

Supplemental Income Statement Information

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Interest expense

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Pension and postretirement net periodic benefit cost (benefit)

Loss on deconsolidation of Venezuelan subsidiary

Pension and postretirement net periodic benefit costs described in the table above include all components of defined benefit plan net periodic benefit costs except service cost, which is reported in various operating expense lines.

Refer to Note 11 for additional details on the components of pension and postretirement net periodic benefit costs.

Pension and postretirement net periodic benefit costs include a second quarter 2019 charge related to the voluntary early retirement incentive program announced in May 2019.

Refer to Note 11 for additional details on the voluntary early retirement incentive program in addition to the components of pension and postretirement net periodic benefit costs.

In the second quarter of 2019, the Company incurred a charge of $ 162 million related to the deconsolidation of its Venezuelan subsidiary.

Refer to Note 1 for additional details.

Supplemental Equity and Comprehensive Income Information

Cash dividends declared and paid totaled $ 1.47 and $ 1.44 per share for the first quarter 2020 and 2019, respectively.

Cash dividends declared and paid totaled $ 1.47 and $ 1.44 per share for the first and second quarters 2020 and 2019, respectively, or $ 2.94 and $ 2.88 per share for the first six months of 2020 and 2019, respectively.

Consolidated Changes in Equity

Three months ended March 31, 2020

Three months ended June 30, 2020

3M Company Shareholders

Comprehensive

Balance at March 31, 2020

Other comprehensive income (loss), net of tax:

Cumulative translation adjustment

Defined benefit pension and post-retirement plans adjustment

Cash flow hedging instruments

Total other comprehensive income (loss), net of tax

Dividends declared

Purchase of subsidiary shares

Stock-based compensation

Reacquired stock

Issuances pursuant to stock option and benefit plans

Balance at June 30, 2020

Six months ended June 30, 2020

3M Company Shareholders

Comprehensive

Balance at December 31, 2019

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Dividends declared

Purchase of subsidiary shares

Stock-based compensation

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Issuances pursuant to stock option and benefit plans

Balance at June 30, 2020

Three months ended June 30, 2019

3M Company Shareholders

Comprehensive

Balance at March 31, 2019

Three months ended March 31, 2019

Other comprehensive income (loss), net of tax:

Cumulative translation adjustment

Defined benefit pension and post-retirement plans adjustment

Cash flow hedging instruments

Total other comprehensive income (loss), net of tax

Dividends declared

Stock-based compensation

Reacquired stock

Issuances pursuant to stock option and benefit plans

Balance at June 30, 2019

Six months ended June 30, 2019

3M Company Shareholders

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Issuances pursuant to stock option and benefit plans

Balance at March 31, 2019

Balance at June 30, 2019

*See Note 1 in 3M’s 2019 Annual Report on Form 10-K.

Changes in Accumulated Other Comprehensive Income (Loss) Attributable to 3M by Component

Three months ended March 31, 2020

Three months ended June 30, 2020

Defined Benefit

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Comprehensive

Balance at March 31, 2020, net of tax:

Other comprehensive income (loss), before tax:

Amounts before reclassifications

Amounts reclassified out

Total other comprehensive income (loss), before tax

Total other comprehensive income (loss), net of tax

Balance at June 30, 2020, net of tax:

Six months ended June 30, 2020

Defined Benefit

Postretirement

Comprehensive

Balance at December 31, 2019, net of tax:

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Total other comprehensive income (loss), net of tax

Balance at June 30, 2020, net of tax:

Three months ended June 30, 2019

Defined Benefit

Postretirement

Comprehensive

Balance at March 31, 2019, net of tax:

Three months ended March 31, 2019

Other comprehensive income (loss), before tax:

Amounts before reclassifications

Amounts reclassified out

Total other comprehensive income (loss), before tax

Total other comprehensive income (loss), net of tax

Balance at June 30, 2019, net of tax:

Six months ended June 30, 2019

Defined Benefit

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Total other comprehensive income (loss), net of tax

Balance at March 31, 2019, net of tax:

Balance at June 30, 2019, net of tax

*See Note 1 in 3M’s 2019 Annual Report on Form 10-K.

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Comprehensive Income Components

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

Location on Income

Cumulative translation adjustment

Deconsolidation of Venezuelan subsidiary

Other income (expense), net

Total before tax

Provision for income taxes

Defined benefit pension and postretirement plans adjustments

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Curtailments/Settlements

Deconsolidation of Venezuelan subsidiary

Other income (expense), net

Total before tax

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state and foreign jurisdictions.

As of March 31, 2020, no taxing authority has proposed significant adjustments to the Company’s tax positions for which the Company is not adequately reserved.

As of June 30, 2020, no taxing authority has proposed significant adjustments to the Company’s tax positions for which the Company is not adequately reserved.

It is reasonably possible that the amount of unrecognized tax benefits could significantly change within the next 12 months.

At this time, the Company is not able to estimate the range by which these potential events could impact 3M’s unrecognized tax benefits in the next 12 months.

The total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of March 31, 2020 and December 31, 2019 are $ 1,107 million and $ 1,178 million, respectively.

The total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of June 30, 2020 and December 31, 2019 are $ 1,140 million and $ 1,178 million, respectively.

The decrease in unrecognized tax benefits includes a $ 52 million decrease associated with the tax treatment of the 2018 agreement reached with the State of Minnesota that resolved the Natural Resources Damages (NRD) lawsuit.

As of March 31, 2020 and December 31, 2019, the Company had valuation allowances of $ 158 million and $ 158 million on its deferred tax assets, respectively.

The effective tax rate for the first quarter of 2020 was 17.4 percent, compared to 17.9 percent in the first quarter of 2019, a decrease of 0.5 percentage points.

Primary factors that decreased the Company’s effective tax rate include resolution of the tax treatment of the 2018 NRD lawsuit, increased benefit from U.S.

international tax provisions, and geographical income mix.

These decreases were partially offset by decreased benefit from stock options and higher prior year litigation charges.

As of June 30, 2020 and December 31, 2019, the Company had valuation allowances of $ 150 million and $ 158 million on its deferred tax assets, respectively.

The effective tax rate for the second quarter of 2020 was 21.0 percent, compared to 21.8 percent in the second quarter of 2019, a decrease of 0.8 percentage points.

Primary factors contributing to the 0.8 percentage point decrease were the 2019 non-deductible charge related to the deconsolidation of the Venezuelan subsidiary, adjustments to uncertain tax positions not repeating in 2020 and increased year-over-year benefit from US international tax provisions.

These decreases were partially offset by the 2019 tax benefit that did not repeat related to the “held for sale” status of legal entities associated with the then pending divestiture of the gas and flame detection business and decreased year-over-year benefit from stock options.

The effective tax rate for the first six months of 2020 was 19.2 percent, compared to 20.1 percent in the first six months of 2019, a decrease of 0.9 percentage points.

Primary factors that decreased the effective rate for the first six months of 2020 include the 2019 non-deductible charge related to the deconsolidation of the Venezuelan subsidiary, adjustments to uncertain tax positions not repeating in 2020, 2020 resolution of the tax treatment of the 2018 NRD lawsuit, and increased year-over-year benefit from US international tax provisions.

These decreases were partially offset by the 2019 tax benefit that did not repeat related to the “held for sale” status of legal entities associated with the then-pending divestiture of the gas and flame detection business and decreased year-over-year benefit from stock options.

In March 2020, in response to the impact of the COVID-19 pandemic in the US and across the globe, the United States Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act.

While the enactment period impacts to 3M were immaterial to income taxes, the Company continues to assess other aspects of the CARES Act.

Marketable Securities

The enactment period impacts to 3M were immaterial to income tax expense.

Marketable Securities and Held-to-Maturity Debt Securities

The Company invests in asset-backed securities, certificates of deposit/time deposits, commercial paper, and other securities.

The following is a summary of amounts recorded on the Consolidated Balance Sheet for marketable securities (current and non-current).

March 31, 2020

June 30, 2020

December 31, 2019

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Total marketable securities

At March 31, 2020 and December 31, 2019, gross unrealized, gross realized, and net realized gains and/or losses (pre-tax) were not material.

The balances at March 31, 2020 for marketable securities by contractual maturity are shown below.

At June 30, 2020 and December 31, 2019, gross unrealized, gross realized, and net realized gains and/or losses (pre-tax) were not material.

The balances at June 30, 2020 for marketable securities by contractual maturity are shown below.

Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

March 31, 2020

June 30, 2020

Due in one year or less

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In connection with the in-substance debt defeasance of the Third Lien Notes described in Note 10, the Company purchased a $ 0.5 billion U.S.

Treasury security in the fourth quarter of 2019 that matures in the second quarter of 2020 and transferred it to a trust with irrevocable instructions to use the proceeds from its maturity to satisfy the redemption of the Third Lien Notes in May 2020.

This debt security is considered held-to-maturity due to the restrictions in satisfying and discharging the Third Lien Notes, is carried at amortized cost, and is reflected in other current assets on the Company’s consolidated balance sheet.

At March 31, 2020, the difference between the amortized cost of the U.S.

Treasury security and its fair value was not material.

Treasury security in the fourth quarter of 2019 and transferred it to a trust with irrevocable instructions to use the proceeds from its maturity to satisfy the redemption of the Third Lien Notes that occurred in May 2020.

This debt security was considered held-to-maturity due to the restrictions in satisfying and discharging the Third Lien Notes, was carried at amortized cost, and was reflected in other current assets on the Company’s consolidated balance sheet.

Upon the maturity of the debt security in May 2020, the Company has no held-to-maturity debt securities as of June 30, 2020.

Long-Term Debt and Short-Term Borrowings

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These were comprised of $ 500 million of 5-year notes due 2025 with a coupon rate of 2.65 %, $ 600 million of 10-year notes due 2030 with a coupon rate of 3.05 %, and $ 650 million of 30-year notes due 2050 with a coupon rate of 3.70 %.

As of March 31, 2020, the Company had $ 585 million commercial paper outstanding, compared to $ 150 million in commercial paper outstanding as of December 31, 2019.

In September 2019, 3M entered into a credit facility expiring in July 2020 in the amount of 80 billion Japanese yen.

At March 31, 2020, 69 billion Japanese yen, or approximately $ 641 million at March 31, 2020 exchange rates, was drawn and outstanding.

As of June 30, 2020, the Company had no commercial paper outstanding, compared to $ 150 million in commercial paper outstanding as of December 31, 2019.

3M has a credit facility expiring in July 2020 in the amount of 80 billion Japanese yen that in July 2020 was further extended until August 2021.

At June 30, 2020, 69 billion Japanese yen, or approximately $ 646 million at June 30, 2020 exchange rates, was drawn and outstanding.

In November 2019, 3M entered into a credit facility expiring in November 2020 in the amount of 150 million euros.

At March 31, 2020, 150 million euros, or $ 167 million at March 31, 2020 exchange rates, was drawn and outstanding.

At June 30, 2020, 150 million euros, or $ 168 million at June 30, 2020 exchange rates, was drawn and outstanding.

In conjunction with the October 2019 acquisition of Acelity (see Note 3), 3M assumed outstanding debt of the business, of which $ 445 million in principal amount of third lien senior secured notes (Third Lien Notes) maturing in 2021 with a coupon rate of 12.5 % was not immediately redeemed at closing.

Instead, at closing, 3M satisfied and discharged the Third Lien Notes via an in-substance defeasance, whereby 3M transferred cash equivalents and marketable securities to a trust with irrevocable instructions to redeem the Third Lien Notes on May 1, 2020.

The trust assets are restricted from use in 3M’s operations and may only be used for the redemption of the Third Lien Notes.

These actions, however, do not represent a legal defeasance.

Therefore, as of March 31, 2020, this debt is included in current portion of long-term debt and the related trust assets comprised of a held-to-maturity debt security are included in other current assets on the Company’s consolidated balance sheet.

The trust assets were restricted from use in 3M’s operations and were only used for the redemption of the Third Lien Notes that occurred in May 2020.

These actions, however, did not represent a legal defeasance.

Therefore, this debt was included in current portion of long-term debt and the related trust assets were included in current assets on the Company’s consolidated balance sheet as of December 31, 2019.

In May 2020, 3M repaid the aggregate $ 445 million principal amount of Third Lien Notes subject to the in-substance defeasance above and repaid 650 million euros aggregate principal amount of floating-rate medium-term notes that matured.

Future Maturities of Long-term Debt

Maturities of long-term debt in the table below reflect the impact of put provisions associated with certain debt instruments and are net of the unaccreted debt issue costs such that total maturities equal the carrying value of long-term debt as of March 31, 2020.

The maturities of long-term debt for the periods subsequent to March 31, 2020 are as follows (in millions):

The maturities of long-term debt for the periods subsequent to June 30, 2020 are as follows (in millions):

Pension and Postretirement Benefit Plans

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The other components of net periodic benefit cost are reflected in other expense (income), net.

Components of net periodic benefit cost and other supplemental information for the three months ended March 31, 2020 and 2019 follow:

Components of net periodic benefit cost and other supplemental information for the three and six months ended June 30, 2020 and 2019 follow:

Benefit Plan Information

Three months ended March 31,

Three months ended June 30,

Qualified and Non-qualified

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Expected return on plan assets

Amortization of prior service benefit

Amortization of net actuarial loss

Settlements, curtailments, special termination benefits and other

Total non-operating expense (benefit)

Total net periodic benefit cost (benefit)

Six months ended June 30,

Qualified and Non-qualified

Pension Benefits

Postretirement

United States

International

Net periodic benefit cost (benefit)

Operating expense

Non-operating expense

Interest cost

Expected return on plan assets

Amortization of transition asset

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Total net periodic benefit cost (benefit)

For the three months ended March 31, 2020, contributions totaling $ 38 million were made to the Company’s U.S.

For the six months ended June 30, 2020 contributions totaling $ 75 million were made to the Company’s U.S.

and international pension plans and $ 2 million to its postretirement plans.

For total year 2020, the Company expects to contribute approximately $ 200 million of cash to its global defined benefit pension and postretirement plans.

The Company does not have a required minimum cash pension contribution obligation for its U.S.

The Company does not have a required minimum cash

pension contribution obligation for its U.S.

plans in 2020.

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3M’s annual measurement date for pension and postretirement assets and liabilities is December 31 each year, which is also the date used for the related annual measurement assumptions.

In May 2019 (as part of the 2019 restructuring actions discussed in Note 5), the Company began offering a voluntary early retirement incentive program to certain eligible participants of its U.S.

pension plans who meet age and years of pension service requirements.

The eligible participants who accepted the offer and retired by July 1, 2019 received an enhanced pension benefit.

Pension benefits were enhanced by adding one additional year of pension service and one additional year of age for certain benefit calculations.

Approximately 800 participants accepted the offer and retired before July 1, 2019.

As a result, the Company incurred a $ 35 million charge related to these special termination benefits in the second quarter of 2019.

In May 2019, 3M modified the 3M Retiree Life Insurance Plan postretirement benefit to close it to new participants effective August 1, 2019 (which results in employees who retire on or after August 1, 2019 not being eligible to participate in the plan) and reducing the maximum life insurance and death benefit to $ 8,000 for deaths on or after August 1, 2019.

Due to these changes, the plan was re-measured in the second quarter of 2019, resulting in a decrease to the accumulated projected benefit obligation liability of approximately $ 150 million and a related increase to shareholders’ equity, specifically accumulated other comprehensive income in addition to an immaterial income statement benefit prospectively.

In the second quarter of 2020, as a result of the divestiture of the drug delivery business, the Company recognized a curtailment in its United Kingdom Pension Plan.

The resulting re-measurement of the pension plan funded status reduced long-term prepaid pension and post retirement assets (located within “other assets” of the Company’s balance sheet) by approximately $ 80 million, which was offset within accumulated other comprehensive income (located within the equity section of the Company’s balance sheet).

The expense impact of this re-measurement was immaterial for the second quarter of 2020 and subsequent periods.

The Company uses interest rate swaps, currency swaps, commodity price swaps, and forward and option contracts to manage risks generally associated with foreign exchange rate, interest rate and commodity price fluctuations.

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The portion of gains or losses on the derivative instrument previously included in accumulated other comprehensive income for dedesignated hedges remains in accumulated other comprehensive income until the forecasted transaction occurs or becomes probable of not occurring.

Changes in the value of derivative instruments after dedesignation are recorded in earnings and are included in the Derivatives Not Designated as Hedging Instruments section below.

Changes in the value of derivative instruments after dedesignation are recorded in earnings and are included in the Derivatives Not Designated as

Hedging Instruments section below.

The maximum length of time over which 3M hedges its exposure to the variability in future cash flows of the forecasted transactions is 36 months .

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The Company may use forward starting interest rate swap or treasury rate lock contracts to hedge exposure to variability in cash flows from interest payments on forecasted debt issuances.

The amortization of gains and losses on forward starting interest rate swap and treasury rate lock contracts is included in the tables below as part of the gain/(loss) recognized in income as a result of reclassification from accumulated other comprehensive income.

Additional information regarding previously issued but terminated interest rate contracts, which have related balances within accumulated other comprehensive income being amortized over the underlying life of related debt, can be found in Note 14 in 3M’s 2019 Annual Report on Form 10-K.

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The amortization of gains and losses on forward starting interest rate swap and treasury rate lock contracts is included in the tables below as part of the gain/(loss) reclassified from accumulated other comprehensive income into income.

As of March 31, 2020, the Company had a balance of $ 16 million after-tax net unrealized gain associated with cash flow hedging instruments recorded in accumulated other comprehensive income.

As of June 30, 2020, the Company had a balance of $ 20 million after-tax net unrealized loss associated with cash flow hedging instruments recorded in accumulated other comprehensive income.

This includes a remaining balance of $ 111 million (after-tax loss) related to the forward starting interest rate swap and treasury rate lock contracts, which will be amortized over the respective lives of the notes.

Based on exchange rates as of March 31, 2020, 3M expects to reclassify approximately $ 72 million, $ 57 million, $ 45 million of the after-tax net unrealized cash flow hedging gains to earnings over the next 12 months, over the remainder of 2020, and in 2021, respectively, in addition to reclassifying approximately $ 86 million of the after-tax net unrealized cash flow hedging losses to earnings after 2021 (with the impact offset by earnings/losses from underlying hedged items).

Based on exchange rates as of June 30, 2020, 3M expects to reclassify approximately $ 56 million, $ 31 million, and $ 37 million of the after-tax net unrealized cash flow hedging gains to earnings over the next 12 months, over the remainder of 2020, and in 2021, respectively, in addition to reclassifying approximately $ 88 million of the after-tax net unrealized cash flow hedging losses to earnings after 2021 (with the impact offset by earnings/losses from underlying hedged items).

The location in the consolidated statements of income and comprehensive income and amounts of gains and losses related to derivative instruments designated as cash flow hedges are provided in the following table.

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Comprehensive Income into Income

Three months ended March 31, 2020 (Millions)

Three months ended June 30, 2020 (Millions)

Foreign currency forward/option contracts

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Interest expense

Three months ended March 31, 2019 (Millions)

Six months ended June 30, 2020 (Millions)

Foreign currency forward/option contracts

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Interest expense

Three months ended June 30, 2019 (Millions)

Foreign currency forward/option contracts

Cost of sales

Interest rate contracts

Interest expense

Six months ended June 30, 2019 (Millions)

Foreign currency forward/option contracts

Cost of sales

Interest rate contracts

Interest expense

Fair Value Hedges:

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Additional information regarding designated interest rate swaps can be found in Note 14 in 3M’s 2019 Annual Report on Form 10-K.

Refer to the section below titled Statement of Income Location and Impact of Cash Flow and Fair Value Derivative Instruments for details on the location within the consolidated statements of income for amounts of gains and losses related to derivative instruments designated as fair value hedges and similar information relative to the hedged items for the three months ended March 31, 2020 and 2019.

The following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustments for fair value hedges:

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Location on the Consolidated Balance Sheet

March 31, 2020

June 30, 2020

December 31, 2019

March 31, 2020

June 30, 2020

December 31, 2019

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Additionally, variation can occur in connection with the extent of the Company’s desired foreign exchange risk coverage.

At March 31, 2020, the total notional amount of foreign exchange forward contracts designated in net investment hedges was approximately 200 million euros, along with a principal amount of long-term debt instruments designated in net investment hedges totaling 4.1 billion euros.

At June 30, 2020, the total notional amount of foreign exchange forward contracts designated in net investment hedges was approximately 50 million euros, along with a principal amount of long-term debt instruments designated in net investment hedges totaling 3.5 billion euros.

The maturity dates of these derivative and nonderivative instruments designated in net investment hedges range from 2020 to 2031.

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Recognized in Income

Three months ended March 31, 2020 (Millions)

Three months ended June 30, 2020 (Millions)

Foreign currency denominated debt

2 unchanged sentences

Cost of sales

Three months ended March 31, 2019 (Millions)

Six months ended June 30, 2020 (Millions)

Foreign currency denominated debt

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Cost of sales

Three months ended June 30, 2019 (Millions)

Foreign currency denominated debt

Cost of sales

Foreign currency forward contracts

Cost of sales

Six months ended June 30, 2019 (Millions)

Foreign currency denominated debt

Cost of sales

Foreign currency forward contracts

Cost of sales

Derivatives Not Designated as Hedging Instruments:

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The location in the consolidated statement of income and amounts of gains and losses related to derivative instruments not designated as hedging instruments are as follows:

Three months ended June 30, 2020

Six months ended June 30, 2020

Gain (Loss) on Derivative Recognized in

Three months ended March 31, 2020 (Millions)

Gain (Loss) on Derivative Recognized in

Foreign currency forward/option contracts

Cost of sales

Foreign currency forward contracts

Interest expense

Three months ended March 31, 2019 (Millions)

Interest expense

Three months ended June 30, 2019

Six months ended June 30, 2019

Gain (Loss) on Derivative Recognized in

Foreign currency forward/option contracts

Cost of sales

Foreign currency forward contracts

Interest expense

Statement of Income Location and Impact of Cash Flow and Fair Value Derivative Instruments

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Location and Amount of Gain (Loss) Recognized in Income

Three months ended March 31, 2020

Three months ended March 31, 2019

Three months ended June 30, 2020

Six months ended June 30, 2020

Cost of sales

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Total amounts of income and expense line items presented in the consolidated statement of income in which the effects of cash flow or fair value hedges are recorded

The effects of fair value and cash flow hedging:

The effects of cash flow and fair value hedging:

Gain or (loss) on cash flow hedging relationships:

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Derivatives designated as hedging instruments

Location and Amount of Gain (Loss) Recognized in Income

Three months ended June 30, 2019

Six months ended June 30, 2019

Cost of sales

Other expense

(income), net

Cost of sales

Other expense

(income), net

Total amounts of income and expense line items presented in the consolidated statement of income in which the effects of cash flow or fair value hedges are recorded

The effects of cash flow and fair value hedging:

Gain or (loss) on cash flow hedging relationships:

Foreign currency forward/option contracts:

Amount of gain or (loss) reclassified from accumulated other comprehensive income into income

Interest rate contracts:

Amount of gain or (loss) reclassified from accumulated other comprehensive income into income

Gain or (loss) on fair value hedging relationships:

Interest rate contracts:

Derivatives designated as hedging instruments

Location and Fair Value Amount of Derivative Instruments

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Additional information with respect to the fair value of derivative instruments is included in Note 13.

March 31, 2020 (Millions)

June 30, 2020 (Millions)

Derivatives designated as

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A master netting arrangement may allow each counterparty to net settle amounts owed between a 3M entity and the counterparty as a result of multiple, separate derivative transactions.

As of March 31, 2020, 3M has International Swaps and Derivatives Association (ISDA) agreements with 17 applicable banks and financial institutions which contain netting provisions.

In addition to a master agreement with 3M supported by a primary counterparty’s parent guarantee, 3M also has associated credit support agreements in place with 16 of its primary derivative counterparties which, among other things, provide the circumstances under which either party is required to post eligible collateral (when the market value of transactions covered by these agreements exceeds specified thresholds or if a counterparty’s credit rating has been downgraded to a predetermined rating).

As of June 30, 2020, 3M has International Swaps and Derivatives Association (ISDA) agreements with 17 applicable banks and financial institutions which contain netting provisions.

covered by these agreements exceeds specified thresholds or if a counterparty’s credit rating has been downgraded to a predetermined rating).

The Company does not anticipate nonperformance by any of these counterparties.

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Net Amount of

March 31, 2020 (Millions)

June 30, 2020 (Millions)

Balance Sheet

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Net Amount of

March 31, 2020 (Millions)

June 30, 2020 (Millions)

Balance Sheet

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Currency Effects

3M estimates that year-on-year foreign currency transaction effects, including hedging impacts, decreased pre-tax income by approximately $ 1 million for the three months ended March 31, 2020.

3M estimates that year-on-year foreign currency transaction effects, including hedging impacts, increased pre-tax income by approximately $ 12 million and $ 11 million for the three and six months ended June 30, 2020.

These estimates include transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risks.

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Using Inputs Considered as

March 31, 2020

June 30, 2020

Available-for-sale:

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Three months ended

Six months ended

Marketable securities — certain U.S.

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For 3M, such measurements of fair value relate primarily to indefinite-lived and long-lived asset impairments, goodwill impairments, and adjustment in carrying value of equity securities for which the measurement alternative of cost less impairment plus or minus observable price changes is used.

3M reflected an immaterial charge related to impairment of certain indefinite-lived assets and a net charge of $ 22 million related to adjustment to the carrying value of equity securities using the measurement alternative during the three months ended March 31, 2020.

There were no material impairments of assets or adjustments to equity securities using the measurement alternative for the three months ended March 31, 2019.

There were no material impairments of assets or adjustments to equity securities using the measurement alternative for the three months ended June 30, 2020 in addition to the three and six months ended June 30, 2019.

Fair Value of Financial Instruments:

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Information with respect to the carrying amounts and estimated fair values of these financial instruments follow:

March 31, 2020

June 30, 2020

December 31, 2019

2 unchanged sentences

The carrying amount of long-term debt referenced above is impacted by certain fixed-to-floating interest rate swaps that are designated as fair value hedges and by the designation of certain fixed rate Eurobond securities issued by the Company as hedging instruments of the Company’s net investment in its European subsidiaries.

A number of 3M’s fixed-rate bonds were trading at a premium at March 31, 2020 and December 31, 2019 due to lower interest rates compared to issuance levels.

A number of 3M’s fixed-rate bonds were trading at a premium at June 30, 2020 and December 31, 2019 due to lower interest rates compared to issuance levels.

Commitments and Contingencies

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Respirator Mask/Asbestos Litigation

As of March 31, 2020, the Company is a named defendant, with multiple co-defendants, in numerous lawsuits in various courts that purport to represent approximately 1,733 individual claimants, compared to approximately 1,727 individual claimants with actions pending on December 31, 2019.

As of June 30, 2020, the Company is a named defendant, with multiple co-defendants, in numerous lawsuits in various courts that purport to represent approximately 1,688 individual claimants, compared to approximately 1,727 individual claimants with actions pending on December 31, 2019.

The vast majority of the lawsuits and claims resolved by and currently pending against the Company allege use of some of the Company’s mask and respirator products and seek damages from the Company and other defendants for alleged personal injury from workplace exposures to asbestos, silica, coal mine dust or other occupational dusts found in products manufactured by other defendants or generally in the workplace.

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In January 2020, the manufacturers filed a petition with the West Virginia Supreme Court, challenging the trial court’s rulings;

that petition is scheduled to be heard in September 2020.

No liability has been recorded for this matter because the Company believes that liability is not probable and estimable at this time.

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These developments include, but are not limited to, significant changes in (i) the key assumptions underlying the Company’s accrual, including, the number of future claims, the nature and mix of those claims, the average cost of defending and resolving claims, and in maintaining trial readiness (ii) trial and appellate outcomes, (iii) the law and procedure applicable to these claims, and (iv) the financial viability of other co-defendants and insurers.

As a result of its review of its respirator mask/asbestos liabilities, of pending and expected lawsuits and of the cost of resolving claims of persons who claim more serious injuries, including mesothelioma, other malignancies, and black lung disease, the Company increased its accruals in the first three months of 2020 for respirator mask/asbestos liabilities by $ 8 million.

In the first three months of 2020, the Company made payments for legal defense costs and settlements of $ 27 million related to the respirator mask/asbestos litigation.

As a result of its review of its respirator mask/asbestos liabilities, of pending and expected lawsuits and of the cost of resolving claims of persons who claim more serious injuries, including mesothelioma, other malignancies, and black lung disease, the Company increased its accruals in the first six months of 2020 for respirator mask/asbestos liabilities by $ 8 million.

In the first six months of 2020, the Company made payments for legal defense costs and settlements of $ 35 million related to the respirator mask/asbestos litigation.

During the first quarter of 2019, the Company recorded a pre-tax charge of $ 313 million in conjunction with an increase in the accrual as a result of the March and April 2019 settlements-in-principle of the coal mine dust lawsuits mentioned above and the Company’s assessment of other current and expected coal mine dust lawsuits (including the costs to resolve all current and expected coal mine dust lawsuits in Kentucky and West Virginia).

As of March 31, 2020, the Company had an accrual for respirator mask/asbestos liabilities (excluding Aearo accruals) of $ 589 million.

As of June 30, 2020, the Company had an accrual for respirator mask/asbestos liabilities (excluding Aearo accruals) of $ 581 million.

This accrual represents the Company’s best estimate of probable loss and reflects an estimation period for future claims that may be filed against the Company approaching the year 2050.

The Company cannot estimate the amount or upper end of the range of amounts by which the liability may exceed the accrual the Company has established because of the (i) inherent difficulty in projecting the number of claims that have not yet been asserted or the time period in which future claims may be asserted, (ii) the complaints nearly always assert claims against multiple defendants where the damages alleged are typically not attributed to individual defendants so that a defendant’s share of liability may turn on the law of joint and several liability, which can vary by state, (iii) the multiple factors described above that the Company considers in estimating its liabilities, and (iv) the several possible developments described above that may occur that could affect the Company’s estimate of liabilities.

As of March 31, 2020, the Company’s receivable for insurance recoveries related to the respirator mask/asbestos litigation was $ 4 million.

As of June 30, 2020, the Company’s receivable for insurance recoveries related to the respirator mask/asbestos litigation was $ 4 million.

The Company continues to seek coverage under the policies of certain insolvent and other insurers.

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Aearo manufactured and sold various products, including personal protection equipment, such as eye, ear, head, face, fall and certain respiratory protection products.

As of March 31, 2020, Aearo and/or other companies that previously owned and operated Aearo’s respirator business (American Optical Corporation, Warner-Lambert LLC, AO Corp.

As of June 30, 2020, Aearo and/or other companies that previously owned and operated Aearo’s respirator business (American Optical Corporation, Warner-Lambert LLC, AO Corp.

and Cabot Corporation (“Cabot”)) are named defendants, with multiple co-defendants, including the Company, in numerous lawsuits in various courts in which plaintiffs allege use of mask and respirator products and seek damages from Aearo and other defendants for alleged personal injury from workplace exposures to asbestos, silica-related, coal mine dust, or other occupational dusts found in products manufactured by other defendants or generally in the workplace.

As of March 31, 2020, the Company, through its Aearo subsidiary, had accruals of $ 58 million for product liabilities and defense costs related to current and future Aearo-related asbestos and silica-related claims.

As of June 30, 2020, the Company, through its Aearo subsidiary, had accruals of $ 21 million for product liabilities and defense costs related to current and future Aearo-related asbestos and silica-related claims.

This accrual represents the Company’s best estimate of Aearo’s probable loss and reflects an estimation period for future claims that may be filed against Aearo approaching the year 2050.

The accrual was increased by $ 9 million during the three months ended March 31, 2020, reflecting the Company’s assessment of pending and expected lawsuits, its review of its respirator mask/asbestos liabilities, and the cost of resolving claims of persons who claim more serious injuries.

The accrual was reduced by $ 37 million during the second quarter of 2020 after paying Aearo’s share of certain settlements under the informal arrangement described below.

The accrual reflects the Company’s assessment of pending and expected lawsuits, its review of its respirator mask/asbestos liabilities, and the cost of resolving claims of persons who claim more serious injuries.

Responsibility for legal costs, as well as for settlements and judgments, is currently shared in an informal arrangement among Aearo, Cabot, American Optical Corporation and a subsidiary of Warner Lambert and their respective insurers (the “Payor Group”).

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Environmental Matters and Litigation

The Company’s operations are subject to environmental laws and regulations including those pertaining to air emissions, wastewater discharges, toxic substances, and the handling and disposal of solid and hazardous wastes enforceable by national, state, and local authorities around the world, and private parties in the United States and abroad.

These laws and regulations provide, under certain circumstances, a basis for the remediation of contamination, for capital investment in pollution control equipment, for restoration of or

compensation for damages to natural resources, and for personal injury and property damage claims.

authorities around the world, and private parties in the United States and abroad.

These laws and regulations provide, under certain circumstances, a basis for the remediation of contamination, for capital investment in pollution control equipment, for restoration of or compensation for damages to natural resources, and for personal injury and property damage claims.

The Company has incurred, and will continue to incur, costs and capital expenditures in complying with these laws and regulations, defending personal injury and property damage claims, and modifying its business operations in light of its environmental responsibilities.

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and Cordova, Illinois plants.

As previously reported, the Company entered into a voluntary remedial action agreement with the Alabama Department of Environmental Management (ADEM) to remediate the presence of PFAS in the soil and groundwater at the Company’s manufacturing facility in Decatur, Alabama associated with the historic (1978-1998) incorporation of wastewater treatment plant

manufacturing facility in Decatur, Alabama associated with the historic (1978-1998) incorporation of wastewater treatment plant sludge.

With ADEM’s agreement, 3M is installing a multilayer cap on the former sludge incorporation areas and implementing groundwater migration controls and treatment.

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In August 2014, the Illinois EPA approved a request by the Company to establish a groundwater management zone at its manufacturing facility in Cordova, Illinois, which includes ongoing pumping of impacted site groundwater, groundwater monitoring and routine reporting of results.

In May 2017, the MDH issued new HBVs for PFOS and PFOA.

In May 2017, the MDH issued new HBVs for PFOA and PFOS.

The new HBVs are 35 ppt for PFOA and 27 ppt for PFOS.

8 unchanged sentences

In February 2020, the EPA provided notice and requested public comment on certain preliminary determinations to regulate PFOA and PFOS under the Safe Drinking Water Act (SDWA).

In June 2020, 3M submitted comments on EPA’s preliminary determinations to regulate PFOA and PFOS under the SDWA.

EPA announced in its Spring 2020 Regulatory Agenda, released in June 2020, that it intends to publish a notice of proposed rulemaking to designate PFOA and PFOS as hazardous substances under CERCLA in August 2020.

Agency for Toxic Substances and Disease Registry (ATSDR) within the Department of Health and Human Services released a draft Toxicological Profile for PFAS for public review and comment in June 2018.

In the draft report, ATSDR proposed draft minimal risk levels (MRLs) for PFOS, PFOA and several other PFAS.

An MRL is an estimate of the daily human exposure to a hazardous substance that is likely to be without appreciable risk of adverse non-cancer health effects over a specified duration of exposure.

An MRL is an estimate of the daily human exposure to a

hazardous substance that is likely to be without appreciable risk of adverse non-cancer health effects over a specified duration of exposure.

MRLs are not intended to define cleanup or action levels for ATSDR or other agencies.

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In April 2020, the New Hampshire Supreme Court agreed to review several issues related to the preliminary injunctive order.

In July 2020, the governor signed a bill passed by the New Hampshire legislature setting the same drinking water standards that had been enjoined by the court.

Vermont finalized drinking water standards for a combination of PFOA, PFOS and three other PFAS in March 2020.

New Jersey finalized drinking water standards and designated PFOA and PFOS as hazardous substances in June 2020.

Some other states have also been evaluating or have taken actions relating to PFOA, PFOS and other PFAS in products such as food packaging, carpets and other products.

The Company cannot predict what additional regulatory actions arising from the foregoing or other proceedings and activities, if any, may be taken regarding such compounds or the consequences of any such actions.

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The parties have agreed to continue to stay the St.

John case through April 2020, pending ongoing mediation between the parties involved in this case and another case discussed below.

John case through September 2020, pending ongoing mediation between the parties involved in this case and another case discussed below.

Two additional putative class actions filed in the same court by certain residents in the vicinity of the Decatur plant seeking relief on similar grounds (the Chandler case and the Stover case, respectively) are stayed pending the resolution of class certification issues in the St.

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Discovery is ongoing.

The parties are in active discussions regarding a negotiated resolution, and the case has been stayed through September 2020.

In June 2016, the Tennessee Riverkeeper, Inc.

6 unchanged sentences

The complaint further alleges such practices may present an imminent and substantial endangerment to health and/or the environment and that Riverkeeper has suffered and will continue to suffer irreparable harm caused by defendants’ failure to abate the endangerment unless the court grants the requested relief, including declaratory and injunctive relief.

This case has been stayed through April 2020, pending ongoing mediation between the parties in conjunction with the St.

This case has been stayed through August 2020, pending ongoing mediation between the parties in conjunction with the St.

In August 2016, a group of over 200 plaintiffs filed a putative class action against West Morgan-East Lawrence Water and Sewer Authority (Water Authority), 3M, Dyneon, Daikin, BFI, and the City of Decatur in state court in Lawrence County, Alabama (the “Billings” case).

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John case, discussed above, stayed this litigation pending resolution of the St.

In January 2017, several hundred plaintiffs sued 3M, its subsidiary Dyneon, and Daikin America in Lawrence and Morgan Counties, Alabama (the “Owens” case).

In January 2017, several hundred plaintiffs sued 3M, Dyneon and Daikin America in Lawrence and Morgan Counties, Alabama (the “Owens” case).

The plaintiffs are owners of property, residents, and holders of property interests who receive their water from the West Morgan-East Lawrence Water and Sewer Authority (Water Authority).

They assert common law claims for negligence, nuisance, trespass, wantonness and battery, and they seek injunctive relief and punitive damages.

The plaintiffs contend that the defendants own and operate manufacturing and disposal facilities in Decatur that have released and continue to release PFOA,

PFOS and related chemicals into the groundwater and surface water of their sites, resulting in discharges into the Tennessee River.

The plaintiffs contend that the defendants own and operate manufacturing and disposal facilities in Decatur that have released and continue to release PFOA, PFOS and related chemicals into the groundwater and surface water of their sites, resulting in discharges into the Tennessee River.

The plaintiffs contend that, as a result of the alleged discharges, the water supplied by the Water Authority to the plaintiffs was, and is, contaminated with PFOA, PFOS and related chemicals at a level dangerous to humans.

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John case, and the case is progressing through discovery.

In November 2017, a putative class action (the “King” case) was filed against 3M, its subsidiary Dyneon, Daikin America, and the West Morgan-East Lawrence Water and Sewer Authority (Water Authority) in the U.S.

In November 2017, a putative class action (the “King” case) was filed against 3M, Dyneon, Daikin America and the West Morgan-East Lawrence Water and Sewer Authority (Water Authority) in the U.S.

District Court for the Northern District of Alabama.

The plaintiffs are residents of Lawrence and Morgan County, Alabama who receive their water from the Water Authority and seek injunctive relief, attorneys’ fees, compensatory and punitive damages for their alleged personal injuries.

The plaintiffs contend that the defendants own and operate manufacturing and disposal facilities in Decatur, Alabama that have released and continue to release PFOA, PFOS and related chemicals into the groundwater and surface water of their sites, resulting in discharges into the Tennessee River.

In November 2019, the King plaintiffs amended their complaint to withdraw all class allegations, dismiss the Water Authority as a defendant and add 24 new individual plaintiffs (for a total of 59 plaintiffs).

Discovery in this case is proceeding.

In July 2019, 3M announced that it had initiated an investigation into the possible presence of PFAS in three closed municipal landfills in Decatur that accepted waste from 3M’s Decatur plant and other companies in the 1960s through the 1980s.

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Under the terms of the settlement, 3M agreed to provide an $ 850 million grant to the State for a special “3M Water Quality and Sustainability Fund.” This Fund, which is administered by the State, will enable projects that support water sustainability in the Twin Cities East Metro region, such as continued delivery of water to residents and enhancing groundwater recharge to support sustainable growth.

The projects will also result in habitat and recreation improvements, such as fishing piers, trails, and open space preservation.

Other purposes of the grant include habitat and recreation improvements, such as fishing piers, trails, and open space preservation.

3M recorded a pre-tax charge of $ 897 million, inclusive of legal fees and other related obligations, in the first quarter of 2018 associated with the resolution of this matter.

The State of New York, by its Attorney General, has filed four lawsuits (in June 2018, February 2019, July 2019, and November 2019) against 3M and other defendants seeking to recover the costs incurred in responding to PFAS contamination allegedly caused by Aqueous Film Forming Foam (AFFF) manufactured by 3M and others.

allegedly caused by Aqueous Film Forming Foam (AFFF) manufactured by 3M and others.

Each of the four suits was filed in Albany County Supreme Court before being removed to federal court, and each has been transferred to the multi-district litigation (MDL) proceeding for AFFF cases, which is discussed further below.

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In August 2019, the court stayed all proceedings in these actions pending a ruling on NJDEP’s motions to remand the cases to state court.

In April 2020, the federal court denied the state’s motion to remand.

In June 2020, the court entered a consent order lifting the stay and consolidating the two actions, along with two others brought by the NJDEP relating to the DuPont facilities, for case management and pretrial purposes.

In May 2019, the New Jersey Attorney General and NJDEP filed a lawsuit against 3M, DuPont, and six other companies, alleging natural resource damages from AFFF products and seeking damages, including punitive damages, and associated fees.

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This suit remains in state court in early stages of litigation.

3M’s motion to dismiss remains pending.

In its June 2020 ruling on defendants’ motions to dismiss, the court dismissed the state’s trespass claim, but allowed several claims to proceed.

In June 2019, the Vermont Attorney General filed two lawsuits alleging contamination of the state’s drinking water supplies and other natural resources by PFAS chemicals.

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The second suit asserts PFAS contamination from non-AFFF sources and names 3M and several entities related to DuPont and Chemours as defendants.

This suit remains in state court in early stages of litigation.

3M’s motion to dismiss remains pending.

This suit is proceeding in state court.

In May 2020, the court denied the defendants’ motion to dismiss, but dismissed the state’s trespass claim as to property the state does not own.

The case remains in early stages of litigation.

In May 2019, the Michigan Attorney General issued a request for proposal seeking outside legal expertise in pursuing claims against manufacturers, distributors, and other parties related to PFAS.

In January 2020, the Michigan Attorney General filed a lawsuit in state court against 3M, Dyneon, DuPont, Chemours and others seeking injunctive and equitable relief and damages for alleged injury to Michigan public natural resources and its residents relating to PFAS.

The defendants filed a motion to dismiss in May 2020.

In September 2019, the Attorney General of Guam filed a lawsuit against 3M and other defendants relating to contamination of the territory’s drinking water supplies and other natural resources by PFAS, allegedly resulting from the use of AFFF products at several sites around the island.

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In December 2019, the Attorney General of the Commonwealth of Northern Mariana Islands, a U.S.

territory, filed a lawsuit against 3M and other defendants relating to contamination of the territory’s drinking water supplies and other natural resources by PFAS, allegedly resulting from the use of AFFF products.

territory, filed a lawsuit against 3M and other defendants relating to contamination of the territory’s drinking water

supplies and other natural resources by PFAS, allegedly resulting from the use of AFFF products.

This lawsuit has been removed to federal court and transferred to the AFFF MDL.

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3M manufactured and marketed AFFF for use in firefighting at airports and military bases from approximately 1963 to 2002.

As of March 31, 2020, 576 lawsuits (including 25 putative class actions) have been filed against 3M (along with other defendants) in various state and federal courts where current or former airports, military bases, or fire training facilities are or were located.

As of June 30, 2020, 730 lawsuits (including 25 putative class actions) have been filed against 3M (along with other defendants) in various state and federal courts where current or former airports, military bases, or fire training facilities are or were located.

As previously noted, some of these cases have been brought by state or territory attorneys general.

In most of these cases, plaintiffs typically allege that certain PFAS used in AFFF contaminated the soil and groundwater where AFFF was used and seek damages for loss of use and enjoyment of properties, diminished property values, investigation costs, remediation costs, and in some cases, personal injury and funds for medical monitoring.

In most of these cases, plaintiffs typically allege that certain PFAS used in AFFF contaminated the soil and groundwater where AFFF was used and seek damages for alleged injuries such as loss of use and enjoyment of properties, diminished property values, investigation costs, remediation costs, personal injury and/or funds for medical monitoring.

249 cases filed since October 2019 have been brought by current or former firefighters who claim to have suffered personal injury as a result of exposure to AFFF while using the product.

The United States, the U.S.

Department of

Defense and several companies have been sued along with 3M, including but not limited to Ansul Co.

Department of Defense and several companies have been sued along with 3M, including but not limited to Ansul Co.

(acquired by Tyco, Inc.), Angus Fire, Buckeye Fire Protection Co., Chemguard, Chemours, DuPont, National Foam, Inc., and United Technologies Corp.

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Additional AFFF cases continue to be transferred into the MDL as they are filed or removed to federal court.

As of March 31, 2020, there were 576 cases in the MDL, 568 of which name 3M as a defendant.

As of June 30, 2020, there were 725 cases in the MDL, 715 of which name 3M as a defendant.

The parties in the MDL are currently in the process of conducting discovery.

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Five cases remain pending in state courts where they are in early stages of litigation, after Valero dismissed its Ohio state court action without prejudice in October 2019.

The parties in the state court cases have agreed to stay all five cases through August 2020.

In September 2019, an individual plaintiff filed an AFFF lawsuit against 3M, together with the State of Alaska, Chemguard, Tyco Fire Equipment Co., DuPont, Chemours and other co-defendants, in state court in Alaska.

Plaintiff in this case seeks property damages and medical monitoring on behalf of a putative class.

Also in September 2019, 3M was named a defendant, together with Tyco Fire Products, Chemguard, Buckeye Fire Protection and other co-defendants, in an AFFF action filed by individual plaintiffs in state court of New York.

Plaintiffs in the New York case seek damages for alleged property damage and personal injuries, as well as injunctive relief in the form of medical monitoring and property testing and remediation.

In March 2020, the Kalispel Tribe of Indians and certain tribal corporations filed a lawsuit in the U.S.

District Court for the Eastern District of Washington against the United States, 3M, and other AFFF manufacturers, seeking damages for business and property losses allegedly resulting from the contamination of their water by PFAS from AFFF use at a nearby Air Force base.

The parties in the state court cases have agreed to stay all five cases through November 2020.

Two subsidiaries of Husky Energy filed suit in April 2020 against 3M and other AFFF manufacturers in Wisconsin state court relating to alleged PFAS contamination from AFFF use at Husky facilities in Superior, Wisconsin and Lima, Ohio.

This case remains in early stages of litigation.

As of June 30, 2020, the Company was named but not served in nine other AFFF lawsuits filed by individuals in state courts against the Company and other defendants.

Other PFAS-related Product and Environmental Litigation

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3M has answered the complaints in these cases, which are now proceeding through discovery.

The plaintiffs in the putative class action have moved for class certification.

3M is also defending eight additional cases in New York filed by Nassau County drinking water providers in the U.S.

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District Court for the Western District of Michigan against 3M and Wolverine World Wide (Wolverine) and other defendants.

The action arises from Wolverine’s allegedly improper disposal of

materials and wastes, including 3M Scotchgard, related to Wolverine’s shoe manufacturing operations.

The action arises from Wolverine’s allegedly improper disposal of materials and wastes, including 3M Scotchgard, related to Wolverine’s shoe manufacturing operations.

Plaintiffs allege Wolverine used 3M Scotchgard in its manufacturing process and that chemicals from 3M’s product contaminated the environment and drinking water sources after disposal.

In addition to the consolidated federal court putative class action, as of March 31, 2020, 3M has been named as a defendant in approximately 262 private individual actions in Michigan state court based on similar allegations.

In addition to the consolidated federal court putative class action, as of June 30, 2020, 3M has been named as a defendant in approximately 267 private individual actions in Michigan state court based on similar allegations.

These cases are coordinated for pre-trial purposes.

Four of these cases were selected for bellwether trials in 2020.

In January 2020, the court issued the first round of dispositive motion rulings related to the first two bellwether cases, including dismissing the second bellwether case entirely and dismissing certain plaintiffs’ medical monitoring, risk of future disease, and granting summary judgment to the defendants on one plaintiff’s cholesterol injury claims.

An agreement to resolve the first bellwether case was reached in February 2020, subject to court approval.

The next bellwether trials are currently set to begin in October 2020.

In January 2020, the court issued the first round of dispositive motion rulings related to the first two bellwether cases, including dismissing the second bellwether case entirely and dismissing certain plaintiffs’ medical monitoring and risk of future disease claims, and granting summary judgment to the defendants on one plaintiff’s cholesterol injury claims.

The plaintiffs settled the first bellwether case in early 2020.

In June 2020, the court denied the plaintiffs’ motion to reconsider the dismissal of the second bellwether case.

The court has since allowed the addition of another bellwether case.

The three bellwether trials are scheduled to begin in March 2021.

The parties are engaged in mediation in both the putative class action and the state court mass action.

Wolverine also filed a third-party complaint against 3M in a suit by the State of Michigan and intervenor townships that seeks to compel Wolverine to investigate and address contamination associated with its historic disposal activity.

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3M is also a defendant, together with Georgia-Pacific as co-defendant, in a putative class action in federal court in Michigan brought by residents of Parchment, who allege that the municipal drinking water is contaminated from waste generated by a paper mill owned by Georgia-Pacific’s corporate predecessor.

Defendants have moved to dismiss certain claims in the complaint, and the parties have begun discovery on the remaining claims.

The defendants have moved to dismiss certain claims in the complaint, and the parties have begun discovery on the remaining claims.

In Alabama and Georgia, 3M is defending four state court cases, including three brought by municipal water utilities, relating to 3M’s sale of PFAS-containing products to carpet manufacturers in Georgia.

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The three water utility cases remain in the early stages of litigation.

One state court case was brought by individuals asserting PFAS contamination by the Georgia carpet manufacturers and seeking economic damages and injunctive relief on behalf of a putative class of Rome and Floyd County water subscribers.

This case has been removed to federal court where it remains in the early stages of litigation.

3M filed a motion to dismiss the putative class action in April 2020, which remains pending.

In Delaware, 3M is defending one putative class action brought by individuals alleging PFAS contamination of their water supply resulting from the operations of local metal plating facilities.

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This case has been removed to federal court, where it remains in early stages.

On a separate matter, 3M was dismissed without prejudice from a class action that was previously pending in federal court in New Jersey, relating to the DuPont Chambers Works plant.

In October 2018, 3M and other defendants, including DuPont and Chemours, were named in a putative class action in the U.S.

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In February 2020, the court denied 3M’s motion to transfer the case to the AFFF MDL.

The case is in early stages of litigation.

Other PFAS-related Matters

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The Company is reviewing its operations at the plant, has installed wastewater treatment controls and has restarted idled processes.

The Company is currently in negotiations with ADEM to address these and other related matters in the state of Alabama.

As a result of the Company’s discussions with ADEM to address these and other related matters in the state of Alabama, 3M and ADEM have agreed to the terms of an interim Consent Order in July 2020 to cover all PFAS-related wastewater discharges and air emissions from the Company’s Decatur facility.

Under the interim Consent Order, the Company’s principal obligations include commitments related to (i) future ongoing site operations such as (a) providing certain notices or reports and performing various analytical and characterization studies and (b) future capital improvements;

and (ii) remediation activities, including certain on-site and off-site investigations and studies.

Obligations related to ongoing future site operations under the Consent Order will involve additional operating costs and capital expenditures over multiple years.

The Company does not expect them to have a material impact on its consolidated results of operations or financial position.

With respect to remediation activities, financial obligations related to certain activities under the Consent Order are probable and estimable, and are included in the Company’s accruals for “other environmental liabilities” as described in the “Environmental Liabilities and Insurance Receivables” section below.

As offsite investigation activities continue, additional remediation amounts may become probable and estimable in the future.

In December 2019, the Company received a grand jury subpoena from the U.S.

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The Company continues to work with the EPA and IEPA to address the discharge from the Cordova facility.

The Company is also reviewing operations at its other plants with similar manufacturing processes, such as those in Cottage Grove, Minnesota, to ensure those operations are in compliance with applicable environmental regulatory requirements and Company policies and procedures.

The Company is also reviewing operations at its other plants with similar manufacturing processes, such as the plant in Cottage Grove, Minnesota, to ensure those operations are in compliance with applicable environmental regulatory requirements and Company policies and procedures.

As a result of these reviews, the Company discovered it had not fully characterized its PFAS discharge in its NPDES permit for the Cottage Grove facility.

In March 2020, the Company disclosed this matter to the Minnesota Pollution Control Agency (MPCA) and the EPA.

The Company continues to work with the MPCA and EPA to address the discharge from the Cottage Grove facility.

In July 2020, the Company received an information request from MPCA for documents and information related to, among other matters, the Company’s compliance with the Clean Water Act at its Cottage Grove facility.

The Company is cooperating with this inquiry and will be producing documents and information in response to the request for information.

The Company continues to work with the MPCA and EPA to address the discharges from the Cottage Grove facility.

Separately, in June 2020, the Company reported to EPA and MPCA that it had not fully complied with elements of the inspection, characterization and waste stream profile verification process of the Waste and Feedstream Analysis plan of its Resource Conservation and Recovery Act permit for its Cottage Grove incinerator.

In February 2020, the Company received an information request from EPA for documents and information related to, among other matters, the Company’s compliance with the Clean Water Act at its facilities that manufacture, process and use PFAS, including the Decatur, Cordova and Cottage Grove facilities.

The Company is cooperating with this inquiry and will produce documents and information in response to the request for information.

The Company is cooperating with this inquiry and is producing documents and information in response to the request for information.

The Company will continue to work with relevant state and federal agencies as it conducts these reviews.

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The Company periodically examines whether the contingent liabilities related to the environmental matters and litigation described above are probable and estimable based on experience and developments in those matters.

During the three months ended March 31, 2020, the Company increased its accrual for PFAS-related other environmental liabilities by $ 25 million and made related payments of $ 63 million.

During the six months ended June 30, 2020, the Company increased its accrual for PFAS-related other environmental liabilities by $ 43 million and made related payments of $ 106 million.

During the first quarter of 2019, the EPA issued its PFAS Action Plan and the Company settled the litigation with the Water Authority (both matters are described in more detail above).

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As a result of these actions during the fourth quarter the Company recorded a pre-tax charge of $ 214 million.

As of March 31, 2020, the Company had recorded liabilities of $ 407 million for “other environmental liabilities.” The accruals represent the Company’s best estimate of the probable loss.

As of June 30, 2020, the Company had recorded liabilities of $ 382 million for “other environmental liabilities.” The accruals represent the Company’s best estimate of the probable loss.

The Company is not able to estimate a possible loss or range of loss in excess of the established accruals at this time.

As of March 31, 2020, the Company had recorded liabilities of $ 21 million for estimated non-PFAS related “environmental remediation” costs to clean up, treat, or remove hazardous substances at current or former 3M manufacturing or third-party sites.

As of June 30, 2020, the Company had recorded liabilities of $ 20 million for estimated non-PFAS related “environmental remediation” costs to clean up, treat, or remove hazardous substances at current or former 3M manufacturing or third-party sites.

The Company evaluates available facts with respect to each individual site each quarter and records liabilities for remediation costs on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies or the Company’s commitment to a plan of action.

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The Company has both pre-1986 general and product liability occurrence coverage and post-1985 occurrence reported product liability and other environmental coverage for environmental matters and litigation.

As of March 31, 2020, the Company’s receivable for insurance recoveries related to the environmental matters and litigation was $ 35 million.

As of June 30, 2020, the Company’s receivable for insurance recoveries related to the environmental matters and litigation was $ 8 million.

Various factors could affect the timing and amount of recovery of this and future expected increases in the receivable, including (i) delays in or avoidance of payment by insurers;

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Product Liability Litigation

As of March 31, 2020, the Company was a named defendant in 18 lawsuits in the United States involving 21 plaintiffs and one Canadian punitive class action with a single named plaintiff, alleging that the Bair Hugger™ patient warming system caused a surgical site infection.

As of June 30, 2020, the Company was a named defendant in 19 lawsuits in the United States involving 23 plaintiffs and one Canadian punitive class action with a single named plaintiff, alleging that the Bair Hugger™ patient warming system caused a surgical site infection.

As previously disclosed, 3M had been a named defendant in lawsuits in federal courts involving over 5,000 plaintiffs.

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Among the 19 remaining lawsuits in the United States, 16 are in the MDL court and three are in state court.

The MDL court is considering whether to remand one case to Oklahoma state court and has stayed 14 remaining lawsuits pending the appeal of the summary judgment decision.

The MDL court declined to remand one case to Oklahoma state court and has stayed all 16 remaining lawsuits pending the appeal of the summary judgment decision.

In February 2020, the MDL court remanded two cases to state court in Jackson County, Missouri that combined Bair Hugger product liability claims with medical malpractice claims.

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The plaintiff seeks various damages, including medical and related expenses, loss of income, and punitive damages.

As of March 31, 2020, the Company is a named defendant in approximately 2,787 lawsuits (including 14 putative class actions) in various state and federal courts that purport to represent approximately 11,582 individual claimants making similar allegations.

As of June 30, 2020, the Company is a named defendant in approximately 2,853 lawsuits (including 14 putative class actions) in various state and federal courts that purport to represent approximately 11,650 individual claimants making similar allegations.

In April 2019, the U.S.

Judicial Panel on Multidistrict Litigation granted motions to transfer and consolidate all cases pending in federal courts to the U.S.

District Court for the Northern District of Florida to be managed in a multi-district litigation (MDL) proceeding to centralize pre-trial proceedings.

District Court for the Northern District of Florida to be managed

in a multi-district litigation (MDL) proceeding to centralize pre-trial proceedings.

Discovery is underway.

The plaintiffs and 3M have filed preliminary summary judgment motions.

The plaintiffs and 3M filed preliminary summary judgment motions on the government contractor defense.

In July 2020, based on the current record, the court granted the plaintiffs’ summary judgment motion and denied the defendants’ summary judgment motion, ruling that plaintiffs’ claims are not barred by the government contractor defense.

The first bellwether case is scheduled for April 2021.

No liability has been recorded for these matters because the Company believes that any such liability is not probable and estimable at this time.

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The complaints contain allegations that the KCI Defendants violated the federal False Claims Act by submitting false or fraudulent claims to federal healthcare programs by billing for V.A.C.

® Therapy in a manner that was not consistent with the Local Coverage

Determinations issued by the Durable Medical Equipment Medicare Administrative Contractors and seek monetary damages.

® Therapy in a manner that was not consistent with the Local Coverage Determinations issued by the Durable Medical Equipment Medicare Administrative Contractors and seek monetary damages.

One complaint (the “Godecke case”) also contains allegations that the KCI Defendants retaliated against the relator-plaintiff for alleged whistle-blowing behavior.

In October 2016, the KCI Defendants filed counterclaims in the Godecke case, asserting breach of contract and conversion.

In August 2017, the fraud claim of the Godecke case was dismissed in favor of the KCI defendants.

In August 2017, the relator-plaintiff’s fraud claim in the Godecke case was dismissed in favor of the KCI defendants.

In January 2018, the district court stayed the retaliation claim and the KCI Defendants' counterclaims pending the relator-plaintiff’s appeal.

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Court of Appeals for the Ninth Circuit reversed and remanded the case to the district court for further proceedings.

The district court has ordered a stay of the proceedings pending a status conference in June 2020.

The district court has ordered a stay of the proceedings pending a status conference in August 2020.

Separately, in June 2019, following discovery, the district court in the second case (the “Hartpence case”) entered summary judgment in the KCI Defendants’ favor on all of the relator-plaintiff’s claims.

The plaintiff then filed an appeal in the U.S.

Court of Appeals for the Ninth Circuit, which is pending.

Oral argument in the Hartpence case is scheduled for July 2020.

Court of Appeals for the Ninth Circuit.

Oral argument in the Hartpence case was held in July 2020.

The appellate court’s opinion remains pending.

No liability has been recorded for these matters because the Company believes that any such liability is not probable and estimable at this time.

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Awards may be issued in the form of incentive stock options, nonqualified stock options, progressive stock options, stock appreciation rights, restricted stock, restricted stock units, other stock awards, and performance units and performance shares.

As of March 31, 2020, the remaining shares available for grant under the LTIP Program are 15.7 million.

As of June 30, 2020, the remaining shares available for grant under the LTIP Program are 15.7 million.

The Company’s annual stock option and restricted stock unit grant is made in February to provide a strong and immediate link between the performance of individuals during the preceding year and the size of their annual stock compensation grants.

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Amounts recognized in the financial statements with respect to stock-based compensation programs, which include stock options, restricted stock, restricted stock units, performance shares and the General Employees’ Stock Purchase Plan (GESPP), are provided in the following table.

Capitalized stock-based compensation amounts were not material for the three months ended March 31, 2020 and 2019.

Capitalized stock-based compensation amounts were not material for the three and six months ended June 30, 2020 and 2019.

Stock-Based Compensation Expense

Three months ended

Six months ended

Cost of sales

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Stock Option Program

The following table summarizes stock option activity during the three months ended March 31, 2020:

The following table summarizes stock option activity during the six months ended June 30, 2020:

Intrinsic Value

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Stock options vest over a period from one year to three years with the expiration date at 10 years from date of grant.

As of March 31, 2020, there was $ 107 million of compensation expense that has yet to be recognized related to non-vested stock option based awards.

As of June 30, 2020, there was $ 89 million of compensation expense that has yet to be recognized related to non-vested stock option based awards.

This expense is expected to be recognized over the remaining weighted-average vesting period of 23 months .

The total intrinsic values of stock options exercised were $ 98 million and $ 235 million during the three months ended March 31, 2020 and 2019, respectively.

Cash received from options exercised was $ 100 million and $ 162 million for the three months ended March 31, 2020 and 2019, respectively.

The Company’s actual tax benefits realized for the tax deductions related to the exercise of employee stock options were $ 20 million and $ 49 million for the three months ended March 31, 2020 and 2019, respectively.

The total intrinsic values of stock options exercised were $ 127 million and $ 341 million during the six months ended June 30, 2020 and 2019, respectively.

Cash received from options exercised was $ 145 million and $ 270 million for the six months ended June 30, 2020 and 2019, respectively.

The Company’s actual tax benefits realized for the tax deductions related to the exercise of employee stock options were $ 27 million and $ 72 million for the six months ended June 30, 2020 and 2019, respectively.

For the primary 2020 annual stock option grant, the weighted average fair value at the date of grant was calculated using the Black-Scholes option-pricing model and the assumptions that follow.

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Restricted Stock and Restricted Stock Units

The following table summarizes restricted stock and restricted stock unit activity during the three months ended March 31, 2020:

The following table summarizes restricted stock and restricted stock unit activity during the six months ended June 30, 2020:

(Shares in thousands)

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As of January 1

As of March 31

As of March 31, 2020, there was $ 132 million of compensation expense that has yet to be recognized related to non-vested restricted stock and restricted stock units.

As of June 30

As of June 30, 2020, there was $ 111 million of compensation expense that has yet to be recognized related to non-vested restricted stock and restricted stock units.

This expense is expected to be recognized over the remaining weighted-average vesting period of 25 months .

The total fair value of restricted stock and restricted stock units that vested during the three months ended March 31, 2020 and 2019 was $ 88 million and $ 133 million, respectively.

The Company’s actual tax benefits realized for the tax deductions related to the vesting of restricted stock and restricted stock units was $ 16 million and $ 26 million for the three months ended March 31, 2020 and 2019, respectively.

The total fair value of restricted stock and restricted stock units that vested during the six months ended June 30, 2020 and 2019 was $ 89 million and $ 135 million, respectively.

The Company’s actual tax benefits realized for the tax deductions related to the vesting of restricted stock and restricted stock units was $ 17 million and $ 26 million for the six months ended June 30, 2020 and 2019, respectively.

Restricted stock units granted generally vest three years following the grant date assuming continued employment.

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Weighted average performance shares whose performance period is complete are included in computation of diluted earnings per share.

The following table summarizes performance share activity during the three months ended March 31, 2020:

The following table summarizes performance share activity during the six months ended June 30, 2020:

(Shares in thousands)

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Performance change

As of March 31

As of March 31, 2020, there was $ 40 million of compensation expense that has yet to be recognized related to performance shares.

As of June 30

As of June 30, 2020, there was $ 33 million of compensation expense that has yet to be recognized related to performance shares.

This expense is expected to be recognized over the remaining weighted-average earnings period of 22 months .

The total fair value of performance shares that were distributed were $ 35 million and $ 45 million for the three months ended March 31, 2020 and 2019, respectively.

The Company’s actual tax benefits realized for the tax deductions related to the distribution of performance shares were $ 7 million and $ 9 million for the three months ended March 31, 2020 and 2019, respectively.

The total fair value of performance shares that were distributed were $ 35 million and $ 45 million for the six months ended June 30, 2020 and 2019, respectively.

The Company’s actual tax benefits realized for the tax deductions related to the distribution of performance shares were $ 7 million and $ 9 million for the six months ended June 30, 2020 and 2019, respectively.

Business Segments

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3M is an integrated enterprise characterized by substantial intersegment cooperation, cost allocations and inventory transfers.

Therefore, management does not represent that these segments, if operated independently, would report the operating income information shown.

The difference between operating income and pre-tax income relates to other expense (income), which is not allocated to business segments.

Further information about which is included in Note 6.

Effective in the first quarter of 2020, in a continuing effort to improve the alignment of its businesses around customers and markets, the Company made the following changes:

Therefore, management does not represent that these segments, if operated independently, would report the business segment operating income information shown.

Effective in the second quarter of 2020, the measure of segment operating performance used by 3M’s chief operating decision maker (CODM) changed and, as a result, 3M’s disclosed measure of segment profit/loss (business segment operating income) has been updated for all periods presented.

The change to business segment operating income aligns with the update to how the CODM assesses performance and allocates resources for the Company’s business segments.

3M discloses business segment operating income as its measure of segment profit/loss, reconciled to both total 3M operating income and income before taxes.

Business segment operating income includes dual credit for certain related operating income (as described below in “Elimination of Dual Credit”).

Business segment operating income excludes certain expenses and income that are not allocated to business segments (as described below in “Corporate and Unallocated”).

Additionally, the following special items are excluded from business segment operating income and, instead, are included within Corporate and Unallocated:

significant litigation-related charges/benefits, gain/loss on sale of businesses (see Note 3), and divestiture-related restructuring actions (see Note 5).

In addition, effective in the first quarter of 2020, in a continuing effort to improve the alignment of its businesses around customers and markets, the Company made the following changes:

Continued alignment of customer account activity

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This dual credit is based on which business segment provides customer account activity with respect to a particular product sold in a specific country.

As a result, previously reported aggregate business segment net sales and operating income for the total year 2019 decreased $ 42 million and $ 10 million, respectively, offset by corresponding decreases in the “Elimination of Dual Credit” net sales and operating income amounts.

As a result of this change, previously reported aggregate

business segment net sales and operating income for the total year 2019 decreased $ 42 million and $ 10 million, respectively, offset by corresponding decreases in the “Elimination of Dual Credit” net sales and operating income amounts.

Additional actions impacting product line alignments

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● In addition, certain product lines were realigned within business segments.

Automotive and Aerospace Division, was realigned to the Commercial Solutions Division (both of which are within the Transportation and Electronics business segment).

The transdermal drug delivery components business, formerly included in the Drug Delivery Systems Division, was realigned to the Medical Solutions Division (both of which are within the Health Care business segment) and the paint protection film business, formerly included in the Automotive and Aerospace Division, was realigned to the Commercial Solutions Division (both of which are within the Transportation and Electronics business segment).

The financial information presented herein reflects the impact of the preceding changes for all periods presented.

1 unchanged sentence

Three months ended

Six months ended

Net Sales (Millions)

Safety and Industrial

3 unchanged sentences

Total Company

Operating Income

Operating Performance (Millions)

Safety and Industrial

Transportation and Electronics

Corporate and Unallocated

Elimination of Dual Credit

Total Company

Total business segment operating income

Corporate and Unallocated

Special items:

Significant litigation-related (charges)/benefits

Gain/(loss) on sale of businesses

Divestiture-related restructuring actions

Other corporate expense - net

Total Corporate and Unallocated

Total Company operating income

Other expense/(income), net

Income before income taxes

Corporate and Unallocated

Corporate and unallocated operating income includes a variety of miscellaneous items, such as corporate investment gains and losses, certain derivative gains and losses, certain insurance-related gains and losses, certain litigation and environmental expenses, corporate restructuring charges and certain under- or over-absorbed costs (e.g.

pension, stock-based compensation) that the Company may choose not to allocate directly to its business segments.

pension, stock-based compensation) that the Company may choose not to allocate directly to its business segments and is disclosed as “other corporate expense-net”.

Additionally, Corporate and

Unallocated includes special items such as significant litigation-related charges/benefits, gain/loss on sale of businesses (see Note 3), and divestiture-related restructuring costs (see Note 5).

Corporate and Unallocated also includes sales, costs, and income from contract manufacturing, transition services and other arrangements with the acquirer of the Communication Markets Division following its 2018 divestiture through 2019.

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

Elimination of Dual Credit

3M business segment reporting measures include dual credit to business segments for certain sales and related operating income.

8 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements