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 $154 million and $35 million for the second quarter of 2024 and 2023, respectively, and $180 million and $155 million for the six months ended 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 18, 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 34 percent of the annual grant stock-based compensation expense; therefore, higher stock-based compensation expense is typically recognized in the first quarter. However, due to the spin-off of Solventum (see Note 2), the 2024 annual grant was made in May, after the April 1, 2024 separation.

Defined benefit pension and postretirement service cost expense for continuing operations (which impacts cost of sales, SG&A, and R&D) for the first six months of 2024 was $48 million compared to $56 million in same period last year (as discussed in Note 13). For total year 2024, considering the remeasurements of U.S. pension and postretirement pension plans and second quarter 2024 $795 million pension settlement charge associated the pension risk transfer special item (all discussed in Note 13), 3M estimates full year 2024 continuing operations defined benefit pension and postretirement service cost expense to total approximately $195 million while continuing operations non-service pension and postretirement net benefit cost is anticipated to be a charge of approximately $810 million, for a total estimated continuing operations consolidated defined benefit pre-tax pension and postretirement expense of approximately $1,005 million. These amounts reflect a decrease of $27 million and an increase of $918 million in the service and non-service cost components, respectively, compared to 2023 on similar basis as discussed below

For total year 2023 on a comparable continuing operations basis, the Company recognized defined benefit pension and postretirement service cost expense of $222 million and a benefit of $108 million related to all non-service pension and postretirement net benefit costs (after settlements, curtailments, special termination benefits and other) for a total continuing operations defined benefit pension and postretirement expense of $114 million.

For 2025, 3M preliminarily expects a year-on-year non-service pension and postretirement expense tailwind of approximately $720 million, primarily as a result of the second quarter 2024 pension risk transfer charge special item (see Note 13 and section entitled “Description of special items”). Adjusting for this 2024 special item, 3M expects a year-on-year headwind of approximately $70 million primarily due to amortization of prior service costs and impacts from previously deferred asset losses. These estimates are based on assumptions from 3M's most recent remeasurements of applicable plans carrying over to the year-end 2024 measurement.

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 second quarter and first six months of 2024 when compared to the same period last year. Decreases were primarily due to ongoing manufacturing productivity initiatives and lower raw materials and energy costs, along with lower year-on-year restructuring charges. In the second quarter of 2024, these decreases were partially offset by timing of stock-based compensation grants.

Selling, General and Administrative Expenses: SG&A, measured as a percent of sales, decreased in the second quarter and first six months of 2024 when compared to the same period last year. Decreases were primarily impacted by a $10.3 billion pre-tax charge related to the PWS settlement in the second quarter of 2023 (discussed in Note 17). SG&A in 2024 was impacted by lower year-on-year restructuring charges and the second quarter 2024 timing of stock-based compensation grants.

Research, Development and Related Expenses: R&D, measured as a percent of sales, slightly decreased in the second quarter and first six months 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.

Other Expense (Income), Net: See Note 7 for a detailed breakout of this line item.

Interest expense (net of interest income) increased in the second quarter and first six months of 2024 compared to the same period year-on-year primarily driven by the addition of imputed interest associated with the obligations resulting from the PWS Settlement and the CAE Settlement in the second and third quarter of 2023 respectively (discussed in Note 17).

The non-service pension and postretirement net benefit decreased approximately $821 million and $836 million in the second quarter and first six months of 2024, respectively, compared to the same period year-on-year, largely due to the $795 million second quarter 2024 pension settlement charge as a result of transferring a portion of U.S. pension payment obligations and related plan assets to an insurance company (see Note 13).

Solventum ownership - change in value resulted in a year-on-year benefit of $1.1 billion for both second quarter and first six months of 2024 following Solventum's separation from 3M in April 2024 (discussed in Note 2).

Provision (benefit) for Income Taxes:

Factors that impacted the tax rates between years are further discussed in the Overview section above and in Note 9.

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.