3M CO

3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products and services. Effective in the first quarter of 2023, 3M made the following changes:

•Changes in measure of segment operating performance and segment composition used by 3M’s chief operating decision maker—impacting 3M’s disclosed measure of segment profit/loss (business segment operating income (loss))—and realignment of 3M's Consumer business segment from four divisions to three divisions. See additional information in Note 21. 3M's disclosed disaggregated revenue was also updated as a result of these changes. See additional information in Note 2.

•Changes to non-GAAP measures - certain amounts adjusted for special items. Refer to the Certain amounts adjusted for special items - (non-GAAP measures) section below for additional information.

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

3M manages its operations in four operating business segments: Safety and Industrial; Transportation and Electronics; Health Care; and Consumer. In July 2022, 3M announced its intention to spin off the Health Care business as a separate public company (see Note 3 for additional information). The Company continues to make progress on the Health Care business spin-off. The transaction is expected to be completed in the first half of 2024 and is subject to satisfaction of customary conditions, including final approval from the 3M Board of Directors and receipt of regulatory approvals, discussed in Note 3. The completion of the spin will enable the creation of two world-class public companies well positioned to pursue their respective growth plans, tailor capital allocation strategies, and create long-term value for shareholders.

From a geographic perspective, any references to EMEA refer to Europe, Middle East and Africa on a combined basis. References are made to organic sales change (which include both organic volume impacts and selling price impacts), which is defined as the change in net sales, absent the separate impacts on sales from foreign currency translation and acquisitions, net of divestitures. Acquisition and divestiture sales change impacts, if any, are measured separately for the first twelve months post-transaction. 3M believes this information is useful to investors and management in understanding ongoing operations and in analysis of ongoing operating trends.

3M is impacted by certain special items such as costs for significant litigation and the sales and income associated with manufactured PFAS products. During 2023, 3M's costs for significant litigation (see Certain amounts adjusted for special items - (non-GAAP measures)section below) totaled approximately $15.2 billion pre-tax and included, among other things, pre-tax charges of $10.5 billion and $4.3 billion (inclusive of imputed interest) related to the PWS Settlement and the CAE Settlement (discussed in Note 18), respectively, both announced in 2023. See Certain amounts adjusted for special items - (non-GAAP measures) section below for additional discussion of these and other special items, including references therein to where further information is provided.

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

Earnings (loss) per share attributable to 3M common shareholders – diluted: The following table provides the increases (decreases) in diluted earnings (loss) per share.

The Company refers to various "adjusted" amounts or measures on an “adjusted basis.” These exclude special items. These non-GAAP measures are further described and reconciled to the most directly comparable GAAP financial measures in the Certain amounts adjusted for special items - (non-GAAP measures) section below.

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

Organic growth/productivity and other:

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

◦Declines in disposable respirator demand year-on-year and the 2022 exit of operations in Russia negatively impacted earnings (loss) per share by $0.43.

◦Remaining organic growth/productivity and other impacts resulted in a net year-on-year increase of $0.73 per share which was impacted by the following:

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

▪Lower sales volumes (particularly electronics/consumer retail); investments in growth, productivity, and sustainability; manufacturing/supply chain headwinds; inflation impacts; China; and Europe's geopolitical impacts

•In 2022, the following components impacted earnings per diluted share year-on-year:

◦Declines in disposable respirator demand year-on-year negatively impacted earnings per share by $0.29.

◦Remaining organic growth/productivity and other impacts resulted in a net year-on-year benefit $0.51 to earnings per share which was impacted by the following:

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

▪Manufacturing headwinds from global supply chain challenges; geopolitical impacts due to the Russia/Ukraine conflict as well as ongoing COVID-related challenges in China

▪2021 benefit of $91 million pre-tax ($0.12 per share after tax) from the impact of the favorable decision of the Brazilian Supreme Court regarding the calculation of past social taxes

▪Increased investments in growth, productivity and sustainability

•In 2023, lower defined benefit pension and postretirement service cost decreased expense year-on-year.

Restructuring and related charges:

•3M recorded restructuring pre-tax charges of $437 million and $59 million in 2023 and 2022, respectively, (refer to Note 5 for additional discussion). In addition, 3M recorded certain related accelerated depreciation.

Raw material impact:

•In 2023, 3M continued to experience headwinds year-on-year from the carryover impact of raw material, logistics and energy cost inflation.

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

Foreign exchange impacts:

•Foreign currency impacts (net of hedging) increased operating loss by approximately $162 million and decreased operating income by approximately $271 million (or an increase of pre-tax loss by approximately $159 million and a decrease in pre-tax earnings of approximately $280 million) year-on-year for 2023 and 2022, respectively. These estimates include: (a) the effects of year-on-year changes in exchange rates on translating current period functional currency profits into U.S. dollars and on current period non-functional currency denominated purchases or transfers of goods between 3M operations, and (b) year-on-year changes in transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risks.

Acquisitions/divestitures:

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

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

◦In 2023, 3M completed the sale of its dental local anesthetic business (discussed in Note 3). In 2022, 3M completed the split-off of the Food Safety business (discussed in Note 3).

◦In 2022, 3M deconsolidated the Aearo Entities and, in 2023, reconsolidated those entities (discussed in Note 18). For each of the 12-months post-deconsolidation and post-reconsolidation, impacts are each reflected separately as divestiture and acquisition, respectively.

Other expense (income), net:

•Interest expense (net of interest income) included in other expense (income), net as presented above decreased in 2023 compared to the same period year-on-year driven by interest income on invested cash.

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

•Lower income related to non-service cost components of pension and postretirement expense increased expense year-on-year for both 2023 and 2022.

Income tax rate:

•Certain items above reflect specific income tax rates associated therewith. Overall, the effective tax rates for 2023, 2022, and 2021 were 27.8 percent on a pre-tax loss, 9.6 percent on pre-tax income and 17.8 percent on pre-tax income, respectively. The primary factors that impacted the comparison of the 2023 and 2022 rates were the 2023 charges related to the PWS Settlement and the CAE Settlement (discussed in Note 18) and the tax impact associated with the 2022 charge related to steps toward resolving Combat Arms Earplugs litigation (discussed in Note 18), along with the tax efficient structure associated with the 2022 gain on split-off of the Food Safety business. The primary factor that decreased the Company's effective tax rate in 2022 was the tax efficient structure associated with the gain on split-off of the Food Safety business (see Note 3).

•On an adjusted basis (see section entitled Certain amounts adjusted for special items - (non-GAAP measures)), the effective tax rates for 2023, 2022, and 2021 were 17.5 percent, 17.5 percent, and 18.1 percent, respectively.

Shares of common stock outstanding:

•Lower shares outstanding increased earnings per share per diluted share for 2023 and 2022.

Certain amounts adjusted for special items - (non-GAAP measures): In addition to reporting financial results in accordance with U.S. GAAP, 3M also provides certain non-GAAP measures. These measures are not in accordance with, nor are they a substitute for GAAP measures, and may not be comparable to similarly titled measures used by other companies.

Certain measures adjust for the impacts of special items. Special items for the periods presented include the items described below. Because 3M provides certain information with respect to business segments, it is noteworthy that special items impacting operating income (loss) are reflected in Corporate and Unallocated, except as described below with respect to net costs for significant litigation and manufactured PFAS products items.

In 2023, 3M changed certain of its non-GAAP measures by adjusting for the results of manufactured PFAS products in arriving at results, adjusted for special items. In the fourth quarter of 2022, 3M recorded a charge for PFAS manufacturing exit costs and included it as an adjustment in arriving at results, adjusted for special items. The 2023 non-GAAP measure change involved expanding the extent of adjustment to include the sales and estimates of income (including exit costs) and associated activity regarding manufactured PFAS products that 3M plans to exit by the end of 2025. The information herein reflects the impacts of these changes for all periods presented.

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

Special items for the periods presented include:

Net costs for significant litigation:

•These relate to 3M's respirator mask/asbestos (which include Aearo and non-Aearo items), PFAS-related other environmental, and Combat Arms Earplugs matters (as discussed in Note 18). Net costs include the impacts of changes in accrued liabilities (including interest imputation on applicable settlement obligations), external legal fees, and insurance recoveries, along with the associated tax impacts. 3M does not consider the elements of the net costs associated with these matters to be normal, operating expenses related to the Company’s ongoing operations, revenue generating activities, business strategy, industry, and regulatory environment. Net costs related to respirator mask/asbestos are reflected as special items in the Safety and Industrial business segment while those impacting operating income (loss) associated with PFAS-related other environmental and Combat Arms Earplugs matters are reflected as corporate special items in Corporate and Unallocated. In addition, during the voluntary chapter 11 bankruptcy period (which began in July 2022 and ended in June 2023—see Note 18), costs associated with the Aearo portion of respirator mask/asbestos matters were reflected in corporate special items in Corporate and Unallocated. Prior to the bankruptcy, costs associated with Combat Arms Earplugs matters were reflected as part of special items in the Safety and Industrial business segment.

Gain/loss on sale of business divestitures:

•In 2023, 3M recorded a gain related to the sale of its dental local anesthetic business partially offset by a loss associated with a previously contingent indemnification obligation from a 2020 divestiture. Refer to Note 3 for further details.

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

Divestiture costs:

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

Divestiture-related restructuring actions:

•In the third quarter of 2022, following the split-off of the Food Safety business, management approved and committed to undertake certain restructuring actions addressing corporate functional costs across 3M in relation to the magnitude of amounts previously allocated to the divested businesses. Refer to Note 5 for further details.

Manufactured PFAS products:

•These amounts relate to sales and estimates of income (loss) regarding manufactured PFAS products that 3M plans to exit by the end of 2025 included within the Transportation and Electronics business segment. Along with other costs in arriving at this associated income, these amounts include estimates of costs of sales of $1,267 million, $970 million, and $890 million for 2023, 2022 and 2021, respectively. Estimated income does not contemplate impacts on non-operating items such as net interest income/expense and the non-service cost components portion of defined benefit plan net periodic benefit costs.

Russia exit charges/benefits:

•In the second quarter of 2023, 3M recorded a gain on final disposal of net assets in Russia. Previously, in the third quarter of 2022, 3M recorded a charge primarily related to impairment of these assets in connection with management's committed exit and disposal plan. Refer to Note 17 for further details.

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

Sales and operating income (loss) by business segment: The following tables contain sales and operating income (loss) results by business segment for the years ended December 31, 2023 and 2022. Refer to the section entitled Performance by Business Segment later in MD&A for additional discussion concerning 2023 versus 2022 results, including Corporate and Unallocated. Refer to Note 21 for additional information on business segments.

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

Sales by geographic area: Percent change information compares the years ended December 31, 2023 with the same prior year period, unless otherwise indicated. Additional discussion of business segment results is provided in the Performance by Business Segment section.

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

•For 2023, in the Americas geographic area, U.S. total sales were flat which included flat organic sales. Total sales in Mexico increased 12 percent which included increased organic sales of 10 percent. In Canada, total sales decreased 9 percent which included decreased organic sales of 5 percent. In Brazil, total sales increased 4 percent which included increased organic sales of 3 percent. In the Asia Pacific geographic area, China total sales decreased 15 percent which included decreased organic sales of 11 percent. In Japan, total sales decreased 15 percent which included decreased organic sales of 9 percent.

•For 2022, in the Americas geographic area, U.S. total sales were flat which included increased organic sales of 1 percent. Total sales in Mexico increased 8 percent which included increased organic sales of 12 percent. In Canada, total sales increased 9 percent which included increased organic sales of 13 percent. In Brazil, total sales increased 15 percent which included increased organic sales of 12 percent. In the Asia Pacific geographic area, China total sales decreased 6 percent which included decreased organic sales of 3 percent. In Japan, total sales decreased 12 percent which included increased organic sales of 2 percent.

Managing currency risks:3M utilizes a number of tools to manage currency risk related to earnings including natural hedges such as pricing, productivity, hard currency, hard currency-indexed billings, and localizing source of supply. 3M also uses financial hedges to mitigate currency risk. In the case of more liquid currencies, 3M hedges a portion of its aggregate exposure, using a 12, 24 or 36 month horizon, depending on the currency. For less liquid currencies, financial hedging is frequently more expensive with more limitations on tenor. Thus, this risk is largely managed via local operational actions using natural hedging tools as discussed above. In either case, 3M’s hedging approach is designed to mitigate a portion of foreign currency risk and reduce volatility, ultimately allowing time for 3M’s businesses to respond to changes in the marketplace.

Financial condition: Refer to the section entitled Financial Condition and Liquidity later in MD&A for a discussion of items impacting cash flows.

In November 2018, 3M’s Board of Directors replaced the Company’s February 2016 repurchase program with a new repurchase program. This new program authorizes the repurchase of up to $10 billion of 3M’s outstanding common stock, with no pre-established end date. In 2023, the Company purchased $33 million of its own stock, compared to $1.5 billion of stock purchases in 2022. As of December 31, 2023, approximately $4.2 billion remained available under the authorization. In February 2024, 3M’s Board of Directors declared a first-quarter 2024 dividend of $1.51 per share, an increase of 1 percent.

Raw materials: Refer to the section entitled Raw materials in Item 1 for discussion of 3M's sources and availability of raw materials in 2023.

Pension and postretirement defined benefit/contribution plans: On a worldwide basis, 3M’s pension and postretirement plans were 94 percent funded at year-end 2023. The primary U.S. qualified pension plan, which is approximately 69 percent of the worldwide pension obligation, was 94 percent funded and the international pension plans were 114 percent funded. The U.S. non-qualified pension plan is not funded due to tax considerations and other factors. Asset returns in 2023 for the primary U.S. qualified pension plan were 10.4 percent, as 3M strategically invests in both growth assets and fixed income matching assets to manage its funded status. For the primary U.S. qualified pension plan, the expected long-term rate of return on an annualized basis for 2024 is 7.75 percent. The primary U.S. qualified pension plan year-end 2023 discount rate was 4.98%, down 20 basis points from the year-end 2022 discount rate of 5.18%. The decrease in U.S. discount rates resulted in a increased valuation of the projected benefit obligation (PBO). The primary U.S. qualified pension plan’s funded status decreased to 94% as of December 31, 2023 due to the higher PBO resulting from the discount rate decrease and the mortality table update discussed in Note 14, partially offset by the postive returns of the plan's assets. Additional detail and discussion of international plan asset returns and discount rates is provided in Note 14 (Pension and Postretirement Benefit Plans).

3M expects to contribute approximately $100 million to $200 million of cash to its global defined benefit pension and postretirement plans in 2024. The Company does not have a required minimum cash pension contribution obligation for its U.S. plans in 2024. 3M expects global defined benefit pension and postretirement expense in 2024 to increase by approximately $75 million pre-tax when compared to 2023. Refer to “Critical Accounting Estimates” within MD&A and Note 14 (Pension and Postretirement Benefit Plans) for additional information concerning 3M’s pension and post-retirement plans.