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3M(MMM) - 2025 Q2 - Quarterly Report

PART I. Financial Information Financial Statements For H1 2025, 3M saw flat sales, but net income and operating cash flow declined significantly due to substantial litigation costs and legal settlement payments Consolidated Statement of Income In Q2 2025, net sales increased slightly, but net income fell sharply year-over-year due to higher operating expenses and other non-operating costs Consolidated Statement of Income Highlights (in Millions, except per share amounts) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $6,344 | $6,255 | $12,298 | $12,271 | | Operating Income | $1,140 | $1,272 | $2,386 | $2,421 | | Net Income from Continuing Operations attributable to 3M | $723 | $1,204 | $1,839 | $1,909 | | Net Income attributable to 3M | $723 | $1,145 | $1,839 | $2,073 | | Diluted EPS from Continuing Operations | $1.34 | $2.17 | $3.38 | $3.44 | | Diluted EPS | $1.34 | $2.07 | $3.38 | $3.73 | Consolidated Balance Sheet As of June 30, 2025, total assets decreased due to lower cash balances, while a larger reduction in liabilities led to an increase in total equity Consolidated Balance Sheet Highlights (in Millions) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $13,427 | $15,884 | | Cash and cash equivalents | $3,712 | $5,600 | | Total Assets | $37,989 | $39,868 | | Total Current Liabilities | $7,808 | $11,256 | | Long-term debt | $12,477 | $11,125 | | Total Liabilities | $33,638 | $35,974 | | Total Equity | $4,351 | $3,894 | Consolidated Statement of Cash Flows For H1 2025, operating activities resulted in a $1.03 billion cash outflow, a stark reversal from the prior year's inflow, driven by legal settlement payments Six Months Ended June 30 Cash Flow Highlights (in Millions) | Cash Flow Category | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(1,033) | $1,788 | | Net cash provided by (used in) investing activities | $1,290 | $(856) | | Net cash provided by (used in) financing activities | $(2,191) | $3,263 | | Net increase (decrease) in cash and cash equivalents | $(1,888) | $4,150 | Notes to Consolidated Financial Statements Notes detail the Solventum spin-off, major restructuring actions, and significant litigation accruals for PFAS and Combat Arms Earplugs Note 2. Discontinued Operations The Health Care business was spun off as Solventum on April 1, 2024, with its historical results now reported as discontinued operations - 3M completed the separation of its Health Care business (Solventum) on April 1, 2024, distributing 80.1% of shares to 3M stockholders; Solventum's historical results are now reported as discontinued operations21 - 3M's continuing involvement with Solventum includes supply and transition agreements, which generated approximately $40 million in income for Q2 2025 and $90 million for the first six months of 202522 Note 6. Restructuring Actions The company is executing major restructuring initiatives, including workforce reductions and exiting PFAS manufacturing, incurring related pre-tax charges - A structural reorganization initiative (2023-2025) is expected to impact 8,000 positions worldwide to simplify the company; as of Q2 2025, 6,900 positions have been impacted31 - The company is exiting all PFAS manufacturing by the end of 2025, a restructuring that has impacted about 1,200 positions worldwide33 Restructuring Charges (in Millions) | Period | 2023-2025 Reorganization | PFAS Exit | | :--- | :--- | :--- | | Q2 2025 Pre-tax Charge | $8 | $4 | | YTD 2025 Pre-tax Charge | $21 | $9 | | Q2 2024 Pre-tax Charge | $35 | Immaterial | | YTD 2024 Pre-tax Charge | $138 | Immaterial | Note 17. Commitments and Contingencies 3M faces extensive legal proceedings and has recorded significant liabilities for PFAS, Combat Arms Earplugs, and other matters - Aqueous Film Forming Foam (AFFF) Litigation: 3M entered into a class-action settlement to resolve drinking water claims by U.S. public water suppliers, agreeing to pay between $10.5 billion and $12.5 billion from 2024 through 2036182184 - Combat Arms Earplugs (CAE) Litigation: In August 2023, 3M reached a settlement to resolve CAE claims, agreeing to contribute up to $6.0 billion between 2023 and 2029, with an accrued liability of $2.4 billion as of June 30, 2025262263265266 - New Jersey PFAS Settlement: In May 2025, 3M agreed to a proposed Judicial Consent Order to pay the State of New Jersey up to $450 million to resolve statewide PFAS claims, recording a pre-tax charge of $281 million in Q2 2025167168 Key Litigation Accruals (as of June 30, 2025) | Litigation Matter | Accrued Liability (in Billions) | | :--- | :--- | | Other Environmental Liabilities (PFAS) | $7.4 | | Combat Arms Earplugs (CAE) | $2.4 | | Respirator Mask/Asbestos | $0.474 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports modest sales growth and improved adjusted operating margins in Q2 2025, though GAAP results were heavily impacted by litigation costs Overview Q2 2025 GAAP sales grew 1.4%, but GAAP EPS fell significantly due to litigation costs, while adjusted metrics showed underlying operational improvement - The April 1, 2024 separation of the Health Care business (Solventum) means its historical results are now reported as discontinued operations, and 3M's continuing operations are managed in three new segments282283 Q2 2025 Financial Highlights vs. Q2 2024 | Metric | GAAP | Adjusted (Non-GAAP) | | :--- | :--- | :--- | | Total Sales Change | 1.4% | 2.3% | | Organic Sales Change | 0.6% | 1.5% | | Operating Income Margin | 18.0% | 24.5% | | YoY Margin Change | (2.3) ppts | +2.9 ppts | | Earnings Per Diluted Share (EPS) | $1.34 | $2.16 | | YoY EPS Change | (38)% | +12% | Results of Operations In Q2 2025, sales growth was led by Asia Pacific, while SG&A expenses and the effective tax rate increased significantly due to litigation and tax law changes - SG&A as a percent of sales increased from 18.1% to 19.9% in Q2 2025, largely due to increased net costs for the PFAS-related New Jersey Settlement292293 - The GAAP effective tax rate for Q2 2025 was 26.6%, a significant increase from 14.4% in Q2 2024296 Q2 2025 vs Q2 2024 Sales Growth by Geography | Region | Total Sales Change | Organic Sales Change | | :--- | :--- | :--- | | Americas | 0.0% | 0.6% | | Asia Pacific | 3.6% | 2.3% | | EMEA | 2.5% | (2.3)% | | Worldwide | 1.4% | 0.6% | Performance by Business Segment In Q2 2025, the Safety and Industrial segment led sales growth, while all three segments expanded operating margins despite varied market conditions - Safety and Industrial growth was driven by electrical markets, industrial adhesives and tapes, and abrasives, benefiting from new product innovation and commercial strategies307 - Transportation and Electronics sales were negatively impacted by the planned exit of manufactured PFAS products and weakness in auto builds; excluding special items, adjusted organic sales grew 1.0%311314 - Consumer segment growth was supported by new product launches and increased investment in advertising in the home improvement division, partially offset by soft consumer discretionary spending322 Q2 2025 Performance by Business Segment | Business Segment | Sales (Millions) | Total Sales Change | Operating Income (Millions) | Operating Margin | | :--- | :--- | :--- | :--- | :--- | | Safety and Industrial | $2,857 | 3.6% | $721 | 25.3% | | Transportation and Electronics | $2,130 | (0.6)% | $462 | 21.7% | | Consumer | $1,270 | 0.6% | $268 | 21.1% | Financial Condition and Liquidity Liquidity remains strong, but H1 2025 operating cash flow was negative and net debt increased due to significant legal settlement payments and share repurchases - Operating cash flow for the first six months of 2025 was a negative $1.03 billion, a $2.8 billion decrease from the prior year, primarily due to $3.1 billion in payments for the PWS and CAE legal settlements350 - In the first six months of 2025, 3M repurchased $2.2 billion of its own stock under a new $7.5 billion authorization and paid $786 million in dividends to shareholders355356 - 3M intends to divest its 19.9% ownership stake in Solventum, valued at $2.6 billion as of June 30, 2025, within five years of the April 2024 spin-off335 Net Debt (Non-GAAP, in Millions) | Component | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total debt | $13,146 | $13,044 | | Less: Cash, cash equivalents and marketable securities | $4,230 | $7,744 | | Net debt | $8,916 | $5,300 | Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in its market risk exposures since the end of the 2024 fiscal year - There have been no material changes in the company's market risk disclosures concerning foreign currency, interest rates, and commodity prices since the 2024 Annual Report364 Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures are effective as of the end of the quarter365 - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting366 PART II. Other Information Legal Proceedings This section references the detailed discussion of significant legal matters provided in Note 17 of the financial statements - The discussion of legal proceedings is incorporated by reference from Note 17 of the financial statements369 Risk Factors 3M faces material risks from PFAS and CAE litigation, the planned exit from PFAS manufacturing, the Solventum spin-off, and external economic pressures - PFAS Risks: The company faces material risks from PFAS-related liabilities, ongoing litigation (including the PWS Settlement), evolving global regulations, and its plan to exit all PFAS manufacturing by the end of 2025374377381 - CAE Settlement Risks: The $6.0 billion Combat Arms Earplugs settlement is subject to risks, including potential future claims from non-participants and the outcome of any appeals or challenges402 - Solventum Spin-off Risks: The separation of the health care business presents risks, including failure to realize expected benefits, costs exceeding estimates, potential negative impacts on business relationships, and liabilities under separation agreements403404 - External and Operational Risks: The company is exposed to risks from worldwide economic and geopolitical conditions, foreign currency fluctuations, supply chain disruptions, and cybersecurity threats370373393395 Unregistered Sales of Equity Securities and Use of Proceeds A new $7.5 billion share repurchase program was authorized in February 2025, under which the company repurchased $922 million of stock in Q2 2025 - A new share repurchase program for up to $7.5 billion was authorized in February 2025, replacing the prior program408 Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Value Remaining for Purchase (Millions) | | :--- | :--- | :--- | :--- | | April 1 - June 30, 2025 | 6,535,611 | $141.06 | $5,655 (as of June 30) |