3M CO

Results of Operations

Net Sales: Refer to the preceding Overview section and the Performance by Business Segment section later in MD&A for additional discussion of sales change.

Operating Expenses:

Stock compensation expense was $29 million and $135 million for the first quarter of 2024 and 2023, respectively, which impacts cost of sales; selling, general and administrative expenses (SG&A); and research, development and related expenses (R&D). The Company’s annual stock option and restricted stock unit grant is typically made in February. As discussed in Note 20 to the Consolidated Financial Statements in 3M's 2023 Annual Report on Form 10-K, because of certain accounting rules, grants to employees that are retiree-eligible are essentially fully reflected as compensation at time of grant. This retiree-eligible population generally represents approximately 35 percent of the annual grant stock-based compensation expense; therefore, higher stock-based compensation expense is typically recognized in the first quarter. However, as previously disclosed, due to the spin-off separation of Solventum, the 2024 annual grant will be made after the April 1, 2024 separation.

For total year 2024, 3M previously expected defined benefit pension and postretirement service cost expense (which impacts cost of sales, SG&A, and R&D) to total approximately $250 million while non-service pension and postretirement net benefit costs was expected to be a benefit of approximately $30 million, for a total consolidated defined benefit pre-tax pension and postretirement expense of approximately $220 million, an increase of approximately $75 million compared to 2023. In connection with the April 1, 2024 separation of Solventum (see Note 3), the historical net income of Solventum will be reported in 3M's consolidated financial statements as discontinued operations beginning in the second quarter of 2024. Further, the remeasurement of U.S. pension and postretirement pension plans discussed in Note 12 impacts 2024 expense. Considering this remeasurement and also on the basis of treating Solventum as a discontinued operation, 3M preliminarily estimates full year 2024 continuing operations defined benefit pension and postretirement service cost expense to total approximately $200 million while continuing operations non-service pension and postretirement net benefit cost is anticipated to be a benefit of approximately $10 million, for a total estimated continuing operations consolidated defined benefit pre-tax pension and postretirement expense of approximately $190 million.

The year-on-year decrease in defined benefit pension and postretirement service cost expense for the first three months of 2024 was approximately $3 million.

For total year 2023, the Company recognized consolidated defined benefit pre-tax pension and postretirement service cost expense of $274 million and a benefit of $129 million related to all non-service pension and postretirement net benefit costs (after settlements, curtailments, special termination benefits and other) for a total consolidated defined benefit pre-tax pension and postretirement expense of $145 million.

The Company continues to make investments in the implementation of new business systems and solutions, including enterprise resource planning, with these investments impacting cost of sales, SG&A, and R&D.

Cost of Sales: Cost of sales, measured as a percent of sales, decreased in the first quarter of 2024 when compared to the same period last year. Decreases in the first quarter of 2024 were primarily due to ongoing manufacturing productivity initiatives and timing of stock-based compensation grants.

Selling, General and Administrative Expenses: SG&A, measured as a percent of sales, increased slightly in the first three months of 2024 when compared to the same period last year. SG&A in 2024 was primarily impacted by divestiture costs (related to the spin-off separation of Solventum), restructuring charges and timing of stock-based compensation grants.

Research, Development and Related Expenses: R&D, measured as a percent of sales, decreased in the first quarter of 2024 when compared to the same period last year. 3M continues to invest in a range of R&D activities from application development, product and manufacturing support, product development and technology development aimed at disruptive innovations. R&D was also impacted by timing of stock-based compensation grants and restructuring charges.

Other Expense (Income), Net: See Note 6 for a detailed breakout of this line item.

Interest expense (net of interest income) increased in the first quarter of 2024 driven by the addition of imputed interest associated with the obligations resulting from the PWS Settlement and the CAE Settlement (discussed in Note 16) and interest expense on debt issued by Solventum for the period outstanding prior to the April 1, 2024 completion of the separation of Solventum from 3M.

The non-service pension and postretirement net benefit decreased approximately $20 million in the first quarter of 2024 compared to the same period year-on-year.

Provision (benefit) for Income Taxes:

Factors that impacted the tax rates between years are further discussed in the Overview section above and in Note 8.

Income from Unconsolidated Subsidiaries, Net of Taxes:

Income (loss) from unconsolidated subsidiaries, net of taxes, is attributable to the Company’s accounting under the equity method for ownership interests in certain entities.

Net Income (Loss) Attributable to Noncontrolling Interest:

Net income (loss) attributable to noncontrolling interest represents the elimination of the income or loss attributable to non-3M ownership interests in 3M consolidated entities. The primary noncontrolling interest relates to 3M India Limited, of which 3M’s effective ownership is 75 percent.

Significant Accounting Policies: Information regarding new accounting standards is included in Note 1 to the Consolidated Financial Statements.