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 2024 when compared to 2023 and increased in 2023 when compared to 2022. Decreases in 2024 were primarily due to ongoing manufacturing productivity, procurement and logistics savings net of inflation, along with lower year-on-year restructuring charges. Increases in 2023 were primarily due to investments in growth, productivity and sustainability; restructuring charges, and carryover impact of higher energy cost inflation partially offset by lower year-on-year net costs for significant litigation to address certain PFAS-related matters at 3M's Zwijndrecht, Belgium site, higher selling prices, spending discipline, sourcing actions and restructuring benefits. 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 2024 when compared to 2023 and increased in 2023 when compared to 2022. Decreases in 2024 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 19). SG&A in 2024 was also impacted by lower year-on-year restructuring charges. SG&A in 2023 was also impacted by restructuring charges (see Note 6), and continued investment in key growth initiatives. These impacts were partially offset by 2022 net costs for significant litigation to address Combat Arms Earplugs litigation matters (for which a pre-tax charge of approximately $1.2 billion was reflected in 2022, discussed in Note 19), certain impairment costs related to exiting PFAS manufacturing, costs related to exiting Russia, divestiture-related restructuring charges (see Note 6), restructuring benefits and ongoing general 3M cost management. 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, decreased in 2024 when compared to 2023 and increased in 2023 when compared to 2022. 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 restructuring charges. 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. In 2022, 3M recorded a pre-tax gain of $2.7 billion related to the split-off and combination of its Food Safety business with Neogen Corporation. Refer to Note 4 for further details.

Goodwill Impairment Expense: As a result of 3M's commitment to exit per- and polyfluoroalkyl substance (PFAS) manufacturing, 3M recorded a goodwill impairment charge related to the Advanced Materials reporting unit (within the Transportation and Electronics business) in 2022.

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

Interest expense (net of interest income) increased year-on-year for both 2024 and 2023 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 19), partially offset by additional interest income.

The non-service pension and postretirement net benefit decreased $0.9 billion and $0.1 billion in 2024 and 2023, respectively. The lower year-on-year benefit in 2024 was largely due to the $0.8 billion 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. The lower year-on-year benefit in 2023 was primarily due to higher interest costs due to higher discount rates as of the year-end 2022, partially offset by a reduction in actuarial loss amortization, which was driven by the higher discount rates (see Note 15).

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 $1.6 billion in 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 11.

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 21 and impacts cost of sales, SG&A, and R&D. As noted 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.

Pre-tax defined benefit pension and postretirement service cost expense for continuing operations impacts cost of sales, SG&A, and R&D while the non-service cost component of pension and postretirement benefits for continuing operations impacts the other expense (income), net line item. As discussed in Note 15, in 2024 for continuing operations, the Company recognized pre-tax defined benefit pension and postretirement benefit service cost expense of $194 million and non-service pension and postretirement net benefit costs (including settlements, curtailments, special termination benefits and other) of $828 million for a total pre-tax continuing operations defined benefit pension and postretirement expense of $1,022 million. These 2024 amounts include the impacts of remeasurements of pension and postretirement pension plans during the year and $0.8 billion pension settlement charge associated the pension risk transfer special item (all discussed in Note 15).

For 2023 on a comparable continuing operations basis, the Company recognized pre-tax defined benefit pension and postretirement service cost expense of $222 million and a benefit of $109 million related to non-service pension and postretirement net benefit costs (including settlements, curtailments, special termination benefits and other) for a total pre-tax continuing operations defined benefit pension and postretirement expense of $113 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.