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:

Cost of Sales: Cost of sales, measured as a percent of sales, decreased in the third quarter and first nine 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. See also Certain Expenses Impacting Multiple Line Items within Results of Operations subsection further below.

Selling, General and Administrative Expenses: SG&A, measured as a percent of sales, decreased in the third quarter and first nine 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 and the $4.2 billion pre-tax charge related to the CAE settlement in the second and third quarters of 2023 respectively (both discussed in Note 17). SG&A in 2024 was also impacted by lower year-on-year restructuring charges. See also Certain Expenses Impacting Multiple Line Items within Results of Operations subsection further below.

Research, Development and Related Expenses: R&D, measured as a percent of sales, was consistent in the third quarter and decreased in the first nine 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. See also Certain Expenses Impacting Multiple Line Items within Results of Operations subsection further below.

Gain on Business Divestitures: In 2023, 3M recorded a pre-tax gain of $36 million related to the sale of assets associated with its dental local anesthetic business net of a previous contingent indemnification obligation from a 2020 divestiture.

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

Interest expense (net of interest income) decreased in the third quarter compared to the same period last year due to the pay down of debt maturities and additional interest income from increased cash balances. Interest expense (net of interest income) increased in the first nine months of 2024 compared to the same period last 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 quarters of 2023 respectively (discussed in Note 17) partially offset by additional interest income.

The non-service pension and postretirement net benefit decreased approximately $33 million in the third quarter of 2024 and decreased approximately $869 million in the first nine months of 2024 compared to the same period last 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).

See also Certain Expenses Impacting Multiple Line Items within Results of Operations subsection further below.

Solventum ownership - change in value resulted in a year-on-year benefit of $0.6 billion and $1.7 billion for the third quarter and first nine months of 2024, respectively, 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.

Certain Expenses Impacting Multiple Line Items within Results of Operations:

Stock compensation expense is discussed in Note 18 and impacts cost of sales, SG&A, and R&D. As note therein, higher stock-based compensation expense is recognized in the quarter in which 3M’s annual stock option and restricted stock unit grant is made because of accounting rules for grants to employees that are retiree-eligible. Typically, the annual grant is made 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 nine months of 2024 was $148 million compared to $167 million in same period last year (as discussed in Note 13). The non-service cost component of pension and postretirement service cost impacts the other expense (income), net line item. 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 $825 million, for a total estimated continuing operations consolidated defined benefit pre-tax pension and postretirement expense of approximately $1,025 million. These amounts reflect a decrease of $27 million and an increase of $933 million in the service and non-service cost components, respectively.

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.

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