3M(MMM) - 2024 Q2 - Quarterly Report

PART I. Financial Information This part presents 3M Company's comprehensive financial statements, including income, balance sheet, cash flows, and detailed accounting notes Item 1. Financial Statements This section presents 3M Company's unaudited consolidated financial statements for the quarter ended June 30, 2024, including the Statement of Income (Loss), Comprehensive Income (Loss), Balance Sheet, and Cash Flows, along with detailed notes explaining significant accounting policies, discontinued operations, revenue, and various financial instruments and contingencies Consolidated Statement of Income (Loss) This statement details 3M's net sales, operating income, and net income for the specified periods, showing significant year-over-year improvements Consolidated Statement of Income (Loss) Highlights | Metric (Millions, except per share) | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net sales | $6,255 | $6,283 | $12,271 | $12,338 | | Operating income (loss) | $1,272 | $(9,358) | $2,421 | $(8,492) | | Income (loss) from continuing operations before income taxes | $1,410 | $(9,430) | $2,339 | $(8,620) | | Provision (benefit) for income taxes | $203 | $(2,261) | $423 | $(2,116) | | Net income (loss) attributable to 3M | $1,145 | $(6,841) | $2,073 | $(5,865) | | Basic EPS | $2.07 | $(12.35) | $3.74 | $(10.60) | | Diluted EPS | $2.07 | $(12.35) | $3.73 | $(10.60) | - Net sales for the three months ended June 30, 2024, slightly decreased to $6,255 million from $6,283 million in the prior year, while operating income significantly improved to $1,272 million from a loss of $(9,358) million[8][10] - Net income attributable to 3M saw a substantial turnaround, reporting $1,145 million for the three months ended June 30, 2024, compared to a loss of $(6,841) million in the same period last year[8][10] Consolidated Statement of Comprehensive Income (Loss) This statement presents 3M's net income and other comprehensive income components, including pension adjustments, for the specified periods Consolidated Statement of Comprehensive Income (Loss) Highlights | Metric (Millions) | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :---------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income (loss) attributable to 3M | $1,145 | $(6,841) | $2,073 | $(5,865) | | Total other comprehensive income (loss), net of tax | $674 | $98 | $627 | $241 | | Comprehensive income (loss) attributable to 3M | $1,820 | $(6,744) | $2,700 | $(5,625) | - Total other comprehensive income (loss), net of tax, significantly increased to $674 million for the three months ended June 30, 2024, from $98 million in the prior year, primarily driven by defined benefit pension and postretirement plans adjustment[11] Consolidated Balance Sheet This statement provides a snapshot of 3M's assets, liabilities, and equity at specific dates, highlighting changes in cash and total assets Consolidated Balance Sheet Highlights | Metric (Millions) | June 30, 2024 | December 31, 2023 | | :---------------- | :------------ | :---------------- | | Total assets | $43,377 | $50,580 | | Total liabilities | $39,389 | $45,712 | | Total equity | $3,988 | $4,868 | | Cash and cash equivalents | $10,083 | $5,735 | | Total current assets | $19,515 | $16,379 | | Total current liabilities | $14,345 | $15,297 | - Total assets decreased to $43,377 million at June 30, 2024, from $50,580 million at December 31, 2023, largely due to the separation of discontinued operations[14] - Cash and cash equivalents increased significantly to $10,083 million at June 30, 2024, from $5,735 million at December 31, 2023[14] Consolidated Statement of Cash Flows This statement outlines 3M's cash flows from operating, investing, and financing activities for the six-month periods, showing significant financing inflows Consolidated Statement of Cash Flows Highlights (Six Months Ended June 30) | Metric (Millions) | 2024 | 2023 | | :---------------- | :------ | :------ | | Operating activities | $1,788 | $2,784 | | Investing activities | $(856) | $(619) | | Financing activities | $3,263 | $(1,519)| | Net increase (decrease) in cash and cash equivalents | $4,150 | $603 | | Cash and cash equivalents at end of period | $10,083 | $4,258 | - Net cash provided by operating activities decreased to $1,788 million for the six months ended June 30, 2024, from $2,784 million in the prior year, primarily due to payments related to the CAE Settlement and changes in inventories[16][177] - Net cash provided by financing activities significantly increased to $3,263 million for the six months ended June 30, 2024, from a net use of $(1,519) million in the prior year, driven by proceeds from debt issuances[17][180] Notes to Consolidated Financial Statements This section provides detailed explanations of 3M's accounting policies, discontinued operations, revenue, and various financial instruments and contingencies NOTE 1. Significant Accounting Policies This note outlines the basis of presentation for the interim consolidated financial statements, confirming they are unaudited but reflect all necessary adjustments. It highlights the reclassification of Solventum's Health Care business as discontinued operations following its separation on April 1, 2024, and changes to segment reporting. The Company is also evaluating the impact of new SEC rules on climate-related disclosures - 3M completed the separation of its Health Care business (Solventum) on April 1, 2024, with Solventum's historical net income and applicable assets/liabilities now reported as discontinued operations[19] - Changes to segment information were made effective Q2 2024 due to the Solventum separation and internal business segment adjustments, impacting disaggregated revenue data[19] - The Company is evaluating the impact of new SEC rules on climate-related disclosures, which require reporting on climate-related risks and greenhouse gas emissions, with annual disclosure requirements potentially effective January 1, 2025, though currently stayed[19] NOTE 2. Discontinued Operations This note details the spin-off of 3M's Health Care business (Solventum) on April 1, 2024, as a pro rata distribution of 80.1% of shares to 3M stockholders. Solventum's historical financial results are now reported as discontinued operations. 3M retains an ownership interest in Solventum, measured at fair value, and expects to monetize it over time. Various agreements were established to govern the ongoing relationship between 3M and Solventum - 3M completed the spin-off of Solventum Corporation on April 1, 2024, distributing 80.1% of shares to 3M stockholders, making Solventum an independent public company[20] - The historical net income, assets, and liabilities of Solventum are now reported as discontinued operations in 3M's financial statements[20] Net Income (Loss) from Discontinued Operations, Net of Taxes (Millions) | Metric | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :---------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net sales | $— | $2,042 | $1,987 | $4,018 | | Net income (loss) from discontinued operations, net of taxes | $(59) | $330 | $164 | $644 | - 3M recorded a decrease in shareholders' equity for the net book value of assets and liabilities transferred in the Separation, net of 3M's retained ownership[20] NOTE 3. Revenue This note provides disaggregated revenue information by division and geographic area for the three and six months ended June 30, 2024 and 2023. Overall net sales remained relatively stable year-over-year, with some shifts in divisional and regional performance Net Sales by Business Segment (Millions) | Business Segment | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :----------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Safety and Industrial | $2,759 | $2,765 | $5,491 | $5,544 | | Transportation and Electronics | $2,143 | $2,191 | $4,247 | $4,241 | | Consumer | $1,263 | $1,293 | $2,403 | $2,485 | | Total Company | $6,255 | $6,283 | $12,271 | $12,338 | Net Sales by Geographic Area (Millions) | Geographic Area | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :---------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Americas | $3,480 | $3,396 | $6,630 | $6,568 | | Asia Pacific | $1,721 | $1,776 | $3,489 | $3,590 | | Europe, Middle East and Africa | $1,054 | $1,111 | $2,152 | $2,180 | | Worldwide | $6,255 | $6,283 | $12,271 | $12,338 | - Americas net sales increased for both the three and six months ended June 30, 2024, while Asia Pacific and Europe, Middle East and Africa saw slight decreases[26] NOTE 4. Divestitures This note primarily references the completion of the Health Care business separation (Solventum) on April 1, 2024, as a significant divestiture. Further details on this transaction and its financial reporting impact are provided in Note 2 - The primary divestiture in 2024 was the separation of the Health Care business (Solventum) on April 1, 2024, through a pro rata distribution of 80.1% of its shares to 3M stockholders[28] - The historical net income and applicable assets and liabilities of Solventum are reported as discontinued operations in 3M's consolidated financial statements[28] NOTE 5. Goodwill and Intangible Assets This note details the carrying amounts of goodwill and acquired intangible assets. Goodwill decreased slightly due to translation and other adjustments, while acquired finite-lived intangible assets saw minor changes in gross carrying amount and accumulated amortization. The Company continues to amortize definite-lived intangible assets Goodwill by Business Segment (Millions) | Business Segment | December 31, 2023 | June 30, 2024 | | :----------------- | :---------------- | :------------ | | Safety and Industrial | $4,542 | $4,500 | | Transportation and Electronics | $1,512 | $1,502 | | Consumer | $270 | $258 | | Corporate and Unallocated | $58 | $58 | | Total Company | $6,382 | $6,318 | Acquired Intangible Assets (Millions) | Category | June 30, 2024 | December 31, 2023 | | :----------------- | :------------ | :---------------- | | Total gross carrying amount | $2,459 | $2,474 | | Total accumulated amortization | $(1,773) | $(1,731) | | Indefinite lived intangible assets | $580 | $580 | | Total intangible assets — net | $1,266 | $1,323 | - Goodwill decreased by $64 million from December 31, 2023, to June 30, 2024, primarily due to changes in foreign currency exchange rates[27] Amortization Expense (Millions) | Period | 2024 | 2023 | | :----------------- | :--- | :--- | | Three months ended June 30 | $27 | $29 | | Six months ended June 30 | $54 | $59 | NOTE 6. Restructuring Actions 3M is undertaking structural reorganization actions from 2023 to 2025, impacting approximately 8,000 positions worldwide with expected pre-tax charges of $700-$800 million. Additional actions in Q2 2024 impacted 700 positions, resulting in a $35 million pre-tax charge. The Company is also exiting PFAS manufacturing by the end of 2025, with related workforce actions leading to an $8 million pre-tax charge in Q2 2024 - 3M's structural reorganization (2023-2025) is expected to impact ~8,000 positions globally, with an estimated pre-tax charge of $700-$800 million[31] Restructuring Charges (Millions) | Period | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :----------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total operating income impact | $35 | $202 | $138 | $252 | - PFAS exit actions (by end of 2025) led to an $8 million pre-tax charge in Q2 2024 for workforce actions, primarily impacting cost of sales within the Transportation and Electronics segment[32] Accrued Restructuring Action Balance (Millions) | Category | Employee-Related | Asset-Related and Other | Total | | :----------------- | :--------------- | :---------------------- | :---- | | Balance as of December 31, 2023 | $99 | $— | $99 | | Incremental expense incurred in Q2 2024 | $24 | $11 | $35 | | Cash payments | $(92) | $— | $(92) | | Balance as of June 30, 2024 | $89 | $— | $89 | NOTE 7. Supplemental Income (Loss) Statement Information This note details the components of 'Other expense (income), net,' which includes interest expense, interest income, pension and postretirement net periodic benefit cost, and the change in value of Solventum ownership. A significant pension settlement charge and a benefit from the change in Solventum's value impacted the current quarter's results Other Expense (Income), Net (Millions) | Metric | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :----------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Interest expense | $322 | $144 | $663 | $267 | | Interest income | $(143) | $(47) | $(253) | $(88) | | Pension and postretirement net periodic benefit cost (benefit) | $796 | $(25) | $785 | $(51) | | Solventum ownership - change in value | $(1,113) | $— | $(1,113) | $— | | Total | $(138) | $72 | $82 | $128 | - A $795 million pension settlement charge significantly impacted pension and postretirement net periodic benefit cost in Q2 2024[33] - 3M recognized a $1.1 billion benefit from the change in value of its retained ownership interest in Solventum common stock as of June 30, 2024[33] NOTE 8. Supplemental Equity and Comprehensive Income (Loss) Information This note provides a detailed breakdown of changes in equity and accumulated other comprehensive income (loss) (AOCI) attributable to 3M. Key movements include net income, the Solventum spin-off impact, dividends declared, and significant adjustments in defined benefit pension and postretirement plans Consolidated Changes in Equity (Millions) | Metric (Millions) | Balance at Dec 31, 2023 | Net income (loss) | Solventum spin-off | Dividends declared | Balance at June 30, 2024 | | :---------------- | :---------------------- | :---------------- | :----------------- | :----------------- | :----------------------- | | Total 3M Company shareholders' equity | $4,807 | $2,073 | $(2,169) | $(1,221) | $3,916 | Changes in Accumulated Other Comprehensive Income (Loss) Attributable to 3M (AOCI) (Millions) | Component | Balance at Dec 31, 2023 | Total other comprehensive income (loss), net of tax | Solventum spin-off | Balance at June 30, 2024 | | :---------- | :---------------------- | :-------------------------------------------------- | :----------------- | :----------------------- | | Cumulative Translation Adjustment | $(2,506) | $(353) | $64 | $(2,795) | | Defined benefit pension and postretirement plans adjustment | $(4,218) | $961 | $520 | $(2,737) | | Cash flow hedging instruments, unrealized gain (loss) | $(54) | $19 | $— | $(35) | | Total AOCI | $(6,778) | $627 | $584 | $(5,567) | - The Solventum spin-off resulted in a $(2,169) million impact on total equity and a $584 million impact on AOCI[35][40] - Cash dividends declared were $1.51 per share for Q1 2024 and $0.70 per share for Q2 2024, resetting post-Solventum spin[154][181] NOTE 9. Income Taxes This note discusses 3M's income tax provisions, highlighting a lower effective tax rate for Q2 2024 due to the PWS settlement charge in 2023 and the benefit from the change in Solventum ownership value. It also addresses unrecognized tax benefits, deferred tax assets, and the impact of the OECD's Pillar Two global minimum tax Effective Tax Rate on Continuing Operations Basis | Period | 2024 | 2023 | | :----------------- | :------ | :------ | | Three months ended June 30 | 14.4 % | 24.0 % | | Six months ended June 30 | 18.1 % | 24.6 % | - The effective tax rate for Q2 2024 was 14.4% on pre-tax income, down from 24.0% on a pre-tax loss in Q2 2023, primarily due to the 2023 PWS Settlement charge and the 2024 benefit from Solventum ownership change in value[43] - Unrecognized tax benefits that would affect the effective tax rate totaled $691 million as of June 30, 2024, up from $671 million at December 31, 2023[43] - A valuation allowance related to the difference in basis of the retained ownership interest in Solventum increased the valuation allowance balance to $1,474 million as of June 30, 2024, from $689 million at December 31, 2023[43] - The OECD's Pillar Two global minimum tax did not significantly impact 3M's Q2 2024 results and is not expected to have a significant impact on 2024 financial results[43] NOTE 10. Earnings (Loss) Per Share This note details the calculation of basic and diluted earnings (loss) per share, highlighting the significant improvement in EPS from continuing operations and overall EPS compared to the prior year, which included substantial losses Earnings (Loss) Per Share Attributable to 3M Common Shareholders | Metric | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :----------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | EPS from continuing operations — basic | $2.17 | $(12.94) | $3.44 | $(11.76) | | EPS from discontinued operations — basic | $(0.10) | $0.59 | $0.30 | $1.16 | | Total EPS — basic | $2.07 | $(12.35) | $3.74 | $(10.60) | | Diluted EPS from continuing operations | $2.17 | $(12.94) | $3.44 | $(11.76) | | Total Diluted EPS | $2.07 | $(12.35) | $3.73 | $(10.60) | - Basic and diluted EPS from continuing operations significantly improved to $2.17 for Q2 2024, compared to a loss of $(12.94) in Q2 2023[46][47] - Weighted average 3M common shares outstanding (basic) remained stable at approximately 553.8 million for Q2 2024[45] NOTE 11. Marketable Securities This note summarizes 3M's marketable securities portfolio, which primarily consists of certificates of deposit/time deposits, commercial paper, and various debt securities. The total marketable securities increased significantly from December 31, 2023, to June 30, 2024 Marketable Securities (Millions) | Category | June 30, 2024 | December 31, 2023 | | :----------------- | :------------ | :---------------- | | Current marketable securities | $255 | $50 | | Non-current marketable securities | $34 | $20 | | Total marketable securities | $289 | $70 | - Total marketable securities increased from $70 million at December 31, 2023, to $289 million at June 30, 2024[47][48] Marketable Securities by Contractual Maturity (Millions) | Maturity | Amount | | :----------------- | :----- | | Due in one year or less | $255 | | Due after one year through five years | $25 | | Due after five years through ten years | $9 | | Total marketable securities | $289 | NOTE 12. Long-Term Debt and Short-Term Borrowings This note details 3M's debt profile, showing a decrease in total debt associated with continuing operations. It highlights the repayment of $1.1 billion in medium-term notes and $1.8 billion in commercial paper. Solventum's debt issuances prior to its separation are noted as transferred obligations - 3M had no commercial paper outstanding at June 30, 2024, a decrease from $1.8 billion at December 31, 2023[51][180] - Total debt associated with continuing operations decreased due to $2.9 billion in debt maturities, including $1.1 billion in medium-term notes and $1.8 billion in commercial paper repayment[51][174] Future Maturities of Long-Term Debt (Millions) | Period | Amount | | :----------- | :----- | | Remainder of 2024 | $53 | | 2025 | $1,868 | | 2026 | $1,540 | | 2027 | $847 | | 2028 | $818 | | 2029 | $1,790 | | After 2029 | $6,167 | | Total | $13,083| NOTE 13. Pension and Postretirement Benefit Plans This note outlines the components of net periodic benefit cost for pension and postretirement plans. Effective April 1, 2024, approximately $2.7 billion of benefit obligations and $2.4 billion of plan assets were transferred to Solventum. A significant non-cash pension settlement charge of $795 million was recorded in Q2 2024 due to transferring U.S. pension payment obligations to an insurance company - Approximately $2.7 billion of benefit obligations and $2.4 billion of plan assets for certain pension and postretirement benefit plans were transferred to Solventum on April 1, 2024[53] - A non-cash pension settlement charge of approximately $795 million was recorded in Q2 2024 due to transferring U.S. pension payment obligations and related plan assets to an insurance company[33][55] Total Net Periodic Benefit Cost (Benefit) - Continuing Operations (Millions) | Period | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :----------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Qualified and Non-qualified Pension Benefits (U.S.) | $848 | $28 | $892 | $56 | | Qualified and Non-qualified Pension Benefits (International) | $(13) | $— | $(25) | $(2) | | Postretirement Benefits | $9 | $3 | $18 | $6 | NOTE 14. Supplier Finance Program Obligations This note describes 3M's supplier finance programs, where the Company pays participating banks for confirmed invoices on original maturity dates. Suppliers can request early payment from banks. Outstanding balances of confirmed invoices increased from December 31, 2023, to June 30, 2024 - 3M's outstanding balances of confirmed invoices in supplier finance programs were approximately $320 million at June 30, 2024, up from $270 million at December 31, 2023[58] - These obligations are included within accounts payable on 3M's consolidated balance sheet[58] NOTE 15. Derivatives This note details 3M's use of interest rate swaps and forward/option contracts to manage foreign exchange and interest rate risks. It provides information on cash flow hedges, fair value hedges, net investment hedges, and derivatives not designated as hedging instruments, along with their impact on comprehensive income and the balance sheet - As of June 30, 2024, the Company had a $35 million after-tax net unrealized loss associated with cash flow hedging instruments recorded in accumulated other comprehensive income (loss)[59] Pretax Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivative Cash Flow Hedges (Millions) | Metric | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :----------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Foreign currency forward/option contracts | $23 | $72 | $84 | $78 | Fair Value of Derivative Instruments (Millions) | Category | June 30, 2024 Assets | Dec 31, 2023 Assets | June 30, 2024 Liabilities | Dec 31, 2023 Liabilities | | :----------------- | :------------------- | :------------------ | :------------------------ | :----------------------- | | Derivatives designated as hedging instruments | $86 | $79 | $106 | $120 | | Derivatives not designated as hedging instruments | $— | $5 | $1 | $7 | | Total derivative instruments | $86 | $84 | $107 | $127 | - Year-on-year foreign currency transaction effects, including hedging impacts, increased pre-tax income from continuing operations by approximately $2 million for the three months ended June 30, 2024, but decreased it by $19 million for the six months ended June 30, 2024[64] NOTE 16. Fair Value Measurements This note provides information on assets and liabilities measured at fair value on a recurring basis, categorized by valuation input levels. It highlights marketable securities, Solventum common stock (Level 1), and derivative instruments. The fair value of long-term debt is also presented, generally lower than its carrying value Assets Measured at Fair Value on a Recurring Basis (Millions) | Category | June 30, 2024 | December 31, 2023 | | :----------------- | :------------ | :---------------- | | Marketable securities | $289 | $70 | | Solventum common stock | $1,817 | $— | | Derivative instruments — assets | $86 | $84 | - Solventum Corporation common stock, held by 3M, is classified as a Level 1 asset and valued at $1,817 million as of June 30, 2024[68] Long-Term Debt Carrying Value vs. Fair Value (Millions) | Metric | June 30, 2024 | December 31, 2023 | | :----------------- | :------------ | :---------------- | | Carrying Value | $11,781 | $13,088 | | Fair Value | $10,374 | $11,859 | NOTE 17. Commitments and Contingencies This extensive note details 3M's involvement in numerous legal proceedings and regulatory matters, including respirator mask/asbestos litigation, environmental matters (especially PFAS-related), and product liability litigation (Combat Arms Earplugs). It outlines the Company's accounting for liabilities and insurance receivables, the impact of the Solventum spin-off on liability allocation, and significant settlements like the PWS Settlement and CAE Settlement - 3M is involved in numerous claims and lawsuits, including product liability, intellectual property, commercial, antitrust, federal healthcare program related laws, securities, and environmental laws[70] - The Solventum spin-off allocated PFAS-related liabilities, with 3M retaining most historical PFAS liabilities and Solventum retaining liabilities from its business post-April 1, 2024, with specific exceptions[74] Accrued Liabilities for Significant Litigation (Millions) | Category | June 30, 2024 | | :----------------- | :------------ | | Respirator mask/asbestos liabilities (excluding Aearo) | $552 | | Aearo-related asbestos, silica-related and coal mine dust claims | $53 | | Other environmental liabilities (PFAS-related) | $11,300 | | Combat Arms Earplugs liabilities | $4,500 | - 3M entered into a class-action settlement (PWS Settlement) to resolve public water system drinking water claims regarding PFAS, with 3M paying $10.5 billion to $12.5 billion from 2024 through 2036. A pre-tax charge of $10.3 billion was recorded in Q2 2023[99] - 3M and Aearo Entities entered into the CAE Settlement to resolve Combat Arms Earplugs litigation, with 3M contributing $6.0 billion between 2023 and 2029. A pre-tax charge of $4.2 billion was recorded in Q3 2023[117] - In Q2 2024, 3M received $51 million for insurance recoveries related to the Combat Arms Earplugs litigation, with a $72 million receivable as of June 30, 2024[117] NOTE 18. Stock-Based Compensation This note details 3M's stock-based compensation programs, including stock options and restricted stock units. The 2024 annual grant was made in May, after the Solventum spin-off, impacting the timing of expense recognition. Awards for Solventum employees converted to Solventum awards, and 3M employee awards were adjusted to preserve intrinsic value - The 2024 annual stock option and restricted stock unit grant was made in May, after the April 1, 2024, Solventum separation, shifting the typical Q1 expense recognition[118][119][155] - All outstanding stock-based compensation awards for Solventum employees converted to Solventum awards and were cancelled from 3M plans[119] Stock-Based Compensation Expense (Millions) | Metric | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :----------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Stock-based compensation expenses | $154 | $35 | $180 | $155 | | Income tax benefits | $(33) | $(4) | $(14) | $(28) | | Stock-based compensation expenses (benefits), net of tax | $121 | $31 | $166 | $127 | NOTE 19. Business Segments This note details 3M's three continuing business segments: Safety and Industrial, Transportation and Electronics, and Consumer. It outlines changes in segment composition effective Q2 2024 due to the Solventum separation, including the elimination of the Health Care segment and the addition of an 'Other' category for transition activities. It also describes internal divisional realignments - 3M manages its continuing operations in three business segments: Safety and Industrial; Transportation and Electronics; and Consumer[120] - The former Health Care business segment was eliminated in Q2 2024 due to the Solventum separation, with its historical results now reported as discontinued operations[121] - A new 'Other' category was added to reflect activity from transition arrangement agreements and operations of former Health Care businesses divested prior to the Separation[122] Net Sales by Business Segment (Millions) | Business Segment | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :----------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Safety and Industrial | $2,759 | $2,765 | $5,491 | $5,544 | | Transportation and Electronics | $2,143 | $2,191 | $4,247 | $4,241 | | Consumer | $1,263 | $1,293 | $2,403 | $2,485 | | Total Company | $6,255 | $6,283 | $12,271 | $12,338 | Operating Performance by Business Segment (Millions) | Business Segment | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :----------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Safety and Industrial | $612 | $534 | $1,269 | $1,135 | | Transportation and Electronics | $428 | $410 | $909 | $704 | | Consumer | $219 | $235 | $435 | $414 | | Total Company operating income (loss) | $1,272 | $(9,358) | $2,421 | $(8,492) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on 3M's financial performance, condition, and liquidity for the quarter ended June 30, 2024. It discusses the impact of the Solventum spin-off, segment reporting changes, and various special items affecting earnings. Key areas covered include sales trends, operating expenses, income taxes, and cash flow dynamics Overview The overview highlights 3M's status as a diversified global manufacturer and the significant impact of the April 1, 2024, Solventum spin-off, which led to its Health Care business being reported as discontinued operations and changes in segment reporting. It also introduces non-GAAP measures adjusted for special items like litigation costs and manufactured PFAS products, providing a clearer view of ongoing operations - 3M completed the separation of its Health Care business (Solventum) on April 1, 2024, with its historical net income and applicable assets and liabilities reported as discontinued operations[127] - Segment information was updated in Q2 2024 due to the Solventum separation and internal business segment changes, impacting disaggregated revenue data[127] Earnings (Loss) from Continuing Operations Per Diluted Share (Increases/Decreases) | Metric | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2024 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Same period last year | $(12.94) | $(11.76) | | Total special items | $14.33 | $14.41 | | Same period last year, excluding special items | $1.39 | $2.65 | | Current period, excluding special items | $1.93 | $3.64 | | Current period | $2.17 | $3.44 | - Total organic growth/productivity and other impacts resulted in a net year-on-year increase of $0.31 per share for Q2 2024, driven by volume growth, productivity, spending discipline, and restructuring[131] - Foreign currency impacts (net of hedging) decreased operating income from continuing operations by approximately $24 million for Q2 2024[133] Results of Operations This section analyzes changes in net sales, operating expenses (Cost of Sales, SG&A, R&D), other expense (income), net, and income taxes. Cost of sales and SG&A decreased as a percentage of sales, driven by productivity initiatives, lower raw material costs, and the absence of the prior year's PWS settlement charge. Stock compensation expense increased due to the timing of the 2024 annual grant post-Solventum spin-off Operating Expenses as Percent of Net Sales | Expense Category | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :--------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Cost of sales | 57.1 % | 59.3 % | 57.5 % | 60.6 % | | SG&A | 18.1 % | 184.9 % | 18.4 % | 103.4 % | | R&D | 4.5 % | 4.7 % | 4.4 % | 4.8 % | | Operating income (loss) margin | 20.3 % | (148.9) % | 19.7 % | (68.8) % | - Cost of sales as a percent of sales decreased in Q2 2024 due to manufacturing productivity and lower raw material/energy costs, partially offset by stock-based compensation timing[156] - SG&A as a percent of sales significantly decreased in Q2 2024, primarily due to the $10.3 billion pre-tax charge related to the PWS settlement in Q2 2023 not recurring[156] - Stock compensation expense increased to $154 million in Q2 2024 from $35 million in Q2 2023, mainly due to the 2024 annual grant being made in May after the Solventum spin-off[155] - The non-service pension and postretirement net benefit decreased by approximately $821 million in Q2 2024, largely due to the $795 million pension settlement charge[159] Performance by Business Segment This section details the performance of 3M's three continuing business segments: Safety and Industrial, Transportation and Electronics, and Consumer. It highlights sales changes, organic growth drivers, and operating income margin shifts, noting the impact of special items and the Solventum spin-off on segment reporting and financial results Sales and Operating Income (Loss) by Business Segment (Millions) | Business Segment | 3 Months Ended June 30, 2024 Sales | 3 Months Ended June 30, 2024 Operating Income (Loss) | 3 Months Ended June 30, 2023 Sales | 3 Months Ended June 30, 2023 Operating Income (Loss) | | :----------------- | :--------------------------------- | :------------------------------------ | :--------------------------------- | :------------------------------------ | | Safety and Industrial | $2,759 | $612 | $2,765 | $534 | | Transportation and Electronics | $2,143 | $428 | $2,191 | $410 | | Consumer | $1,263 | $219 | $1,293 | $235 | - Safety and Industrial sales were down 0.2% in U.S. dollars for Q2 2024, with organic sales growth in industrial adhesives and tapes, personal safety, and automotive aftermarket[165] - Transportation and Electronics sales were down 2.2% in U.S. dollars for Q2 2024, but adjusted for PFAS manufactured products (non-GAAP), sales were up 2.6%[168] - Consumer sales were down 2.4% in U.S. dollars for Q2 2024, negatively impacted by continued softness in consumer discretionary demand[171][172] - Operating income margins for Safety and Industrial and Transportation and Electronics increased year-on-year, driven by organic volume growth, productivity, and lower restructuring charges[165][168] Financial Condition and Liquidity This section assesses 3M's financial strength, liquidity, and capital deployment strategies. It highlights a strong liquidity profile with increased cash and cash equivalents, a decrease in total debt, and the absence of commercial paper outstanding. The Company's capital allocation priorities include organic growth, acquisitions/divestitures, and returning cash to shareholders through dividends and share repurchases - 3M maintains a strong liquidity profile, with primary short-term needs met through cash on hand and U.S. commercial paper issuances[173] - The Company had no commercial paper outstanding at June 30, 2024, compared to $1.8 billion at December 31, 2023[173][180] Net Debt (Non-GAAP Measure) (Millions) | Metric | June 30, 2024 | December 31, 2023 | Change | | :----------------- | :------------ | :---------------- | :----- | | Total debt | $13,083 | $16,035 | $(2,952)| | Less: Cash, cash equivalents and marketable securities | $10,372 | $5,805 | $4,567 | | Net debt | $2,711 | $10,230 | $(7,519)| - Cash, cash equivalents, and marketable securities increased to $10.4 billion at June 30, 2024, from $5.8 billion at December 31, 2023, driven by proceeds retained from Solventum's debt issuance[175] - Cash flows from operating activities decreased by $996 million for the first six months of 2024, primarily due to $603 million in CAE Settlement payments and changes in inventories[177] - 3M expects to pay approximately $3.7 billion in July 2024 related to the PWS Settlement and CAE Settlement[182] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that 3M is exposed to market risks from adverse changes in foreign currency exchange rates, interest rates, and commodity prices. It refers to the Company's 2023 Annual Report on Form 10-K for a detailed discussion of sensitivity analysis, noting no material changes in market risk information from the end of the preceding year through June 30, 2024 - 3M is exposed to market risk from adverse changes in foreign currency exchange rates, interest rates, and commodity prices[185] - There have been no material changes in market risk information from December 31, 2023, to June 30, 2024[185] Item 4. Controls and Procedures This section confirms that 3M's management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2024, and concluded they are effective. It also states there were no material changes to internal control over financial reporting during the quarter, despite ongoing ERP system implementations and processes transferred/separated due to the Solventum spin-off - The CEO and CFO concluded that 3M's disclosure controls and procedures were effective as of June 30, 2024[186] - No material changes occurred in the Company's internal control over financial reporting during the most recently completed fiscal quarter[186] - Ongoing implementations of new ERP systems and the separation of processes due to the Solventum spin-off did not materially affect internal control over financial reporting[186] PART II. Other Information This part covers legal proceedings, risk factors, equity security sales, debt defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings This section incorporates by reference the detailed discussion of legal matters from Note 17, 'Commitments and Contingencies,' in Part I, Item 1 of this document. It serves as a cross-reference to the comprehensive information regarding 3M's legal and regulatory exposures - Discussion of legal matters is incorporated by reference from Note 17, 'Commitments and Contingencies,' in Part I, Item 1[189] Item 1A. Risk Factors This section outlines the most important risk factors affecting 3M, including global economic and external conditions, foreign currency fluctuations, liabilities related to PFAS (including the PWS Settlement and exit plans), compliance risks, competitive conditions, supply chain vulnerabilities, cybersecurity threats, and risks associated with acquisitions, divestitures (like Solventum spin-off), and operational execution. It also addresses financial market risks for pension plans and credit ratings - 3M's results are impacted by worldwide economic, political, regulatory, international trade, and geopolitical conditions, including inflation, recession, and military conflicts[191] - The Company faces significant liabilities related to PFAS, including claims, lawsuits, and government regulatory proceedings, as well as risks associated with its plan to exit PFAS manufacturing and discontinue use across its product portfolio by the end of 2025[192][193] - Risks related to the PWS Settlement include whether anticipated participation by plaintiffs will be achieved and potential impacts on other PFAS-related matters[184][194] - The Solventum spin-off introduces risks such as unrealized benefits, higher costs, business disruption, talent retention issues, and potential tax liabilities if the transaction does not qualify as tax-free[184][206][207] - Cybersecurity incidents, supply chain interruptions, and fluctuations in raw material costs and availability pose significant operational risks[199][200] - The CAE Settlement is subject to risks regarding claimant participation, future claims from non-participants, and potential appeals or challenges[184][205] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on 3M's common stock repurchases. The Company purchased 4,170,490 shares for $95.90 average price per share during the first six months of 2024 under a $10 billion repurchase program, with approximately $3.8 billion remaining available as of June 30, 2024 - 3M's Board of Directors authorized a new repurchase program in November 2018 for up to $10 billion of common stock, with no pre-established end date[210] Issuer Purchases of Equity Securities (January 1 - June 30, 2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :----------------- | :------------------------------- | :--------------------------- | | April 1 - June 30, 2024 | 4,170,490 | $95.90 | | January 1 - June 30, 2024 | 4,170,490 | $95.90 | - As of June 30, 2024, approximately $3.8 billion remained available under the repurchase authorization[154] Item 3. Defaults Upon Senior Securities This section states that no matters require disclosure regarding defaults upon senior securities - No matters require disclosure regarding defaults upon senior securities[211] Item 4. Mine Safety Disclosures This section indicates that information concerning mine safety violations or other regulatory matters, as required by Section 1503(a) of the Dodd-Frank Act, is included in Exhibit 95 to this quarterly report - Information concerning mine safety violations or other regulatory matters is included in Exhibit 95 to this quarterly report, as required by Section 1503(a) of the Dodd-Frank Act[211] Item 5. Other Information This section includes disclosures on insider trading arrangements and policies, confirming no Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during Q2 2024. It also details 3M's intellectual property protection efforts in Iran, including renewal fee payments under a specific OFAC license - No director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the quarter ended June 30, 2024[212] - 3M paid $167 in Q2 2024 for intellectual property protection efforts in Iran, as authorized by a renewed OFAC specific license[212] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including employment letters, certifications (CEO, CFO), mine safety disclosures, and Inline XBRL documents, providing supporting documentation for the report - Exhibits include the Offer Letter of Employment for William Brown, CEO and CFO certifications (Sarbanes-Oxley Act), Mine Safety Disclosures, and various Inline XBRL documents[214][215]