3M CO (MMM)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader of 3M’s financial statements with a narrative from the perspective of management. The MD&A should be read in conjunction with 3M's consolidated financial statements and the accompanying notes to the consolidated financial statements. 3M’s MD&A is presented in the following sections:

•Overview

•Results of Operations

•Performance by Business Segment

•Financial Condition and Liquidity

•Forward-Looking Statements

Forward-looking statements in Part I, Item 2 may involve risks and uncertainties that could cause results to differ materially from those projected (refer to the section entitled "Forward-Looking Statements" in Part I, Item 2 and described in Part I, Item 1A, "Risk Factors" of the Company's Form 10-K for the year ended December 31, 2025 for discussion of these risks and uncertainties).

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Overview

3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products and services.

As discussed in Note 1, certain changes are reflective in this document for all applicable periods presented. Effective in the first and second quarters of 2026, the Company made changes to the measure of segment operating performance and segment composition used by its CODM, impacting the disclosed measure of segment profit (business segment operating income). Further details are provided in Note 16.

3M manages its operations in three operating business segments: Safety and Industrial; Transportation and Electronics; and Consumer. From a geographic perspective, "EMEA" refers to Europe, the Middle East, and Africa on a combined basis.

Unless otherwise noted, all year-over-year ("YoY") comparisons in this MD&A refer to the second quarter and the first six months of 2026 compared with the second quarter and first six months of 2025.

Financial highlights for the second quarter and the first six months of 2026:

(a)    The Company refers to various "adjusted" amounts or measures on an “adjusted" basis. These exclude special items. These non-GAAP measures are further described and reconciled to the most directly comparable GAAP financial measures in the Certain amounts adjusted for special items - (non-GAAP measures) section below.

(b)    Organic sales change (which includes both organic volume and selling price impacts), is defined as the change in net sales, absent the impacts from foreign currency translation and acquisitions, net of divestitures. 3M believes this information is useful to investors and management in understanding ongoing operations and in analysis of ongoing operating trends.

Net sales change was driven by strength in industrial, safety, semiconductor and data center—supported by commercial excellence and innovation. This strength was partially offset by weakness in consumer/consumer electronics, and the YoY impact of the manufactured PFAS products special item.

GAAP operating margins were affected by the YoY impact of special items. The primary drivers were higher losses on business divestitures, and transformation costs. These drivers were partially offset by lower net costs for significant litigation and PFAS exit, which on a year-to-date basis reflect increased insurance recoveries (discussed in Note 15).

Outside of special items, both GAAP and adjusted operating margins reflect benefits from growth, productivity, and favorable foreign currency impacts, partially offset by tariff impacts, cost dis-synergies (following the exit of PFAS manufacturing and the 2024 spin of Solventum), and growth investments.

GAAP EPS YoY was affected by the net impact of special items, including those impacting operating income discussed above, as well as by the impact of changes in Solventum's share price (which was a YoY benefit in the second quarter and YoY headwind in the first six months of 2026).

Outside of special items, both GAAP and adjusted EPS reflect the operating margin drivers discussed above, while non-operating benefits were primarily driven by a lower share count. On a year-to-date basis, EPS also benefited from favorable tax timing.

3M completed its exit of PFAS manufacturing by the end of 2025. As discussed in Note 15, the Company continues to address PFAS manufactured prior to exit through treatment, remediation, and disposition of its assets and interests in manufacturing facilities, which may include dismantling, cleaning, and repurposing. Decisions or circumstances associated with the extent and type of remaining activity at particular locations and impacts on assets and potential obligations, among other factors, could result in additional expenses.

Additional information regarding certain items impacting pre-2026 periods that may also be relevant in 2026 can be found in the Overview section of Part II, Item 7 as well as in further sections of 3M’s 2025 Annual Report on Form 10-K.

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Results of Operations

Net Sales: Discussion of business segment results is provided in the Performance by Business Segment section. Information regarding sales by geographic area is included below.

(c)    Acquisition and divestiture sales change impacts are measured separately for the first twelve months post-transaction.

Cost of Sales measured as a percent of sales: Increases in the second quarter and first six months of 2026 were primarily due to cost dis-synergies following the exit of PFAS manufacturing and headwinds from rising oil prices and tariff impacts, partially offset by ongoing manufacturing productivity initiatives. See also Certain Expenses Impacting Multiple Line Items within Results of Operations subsection further below.

SG&A measured as a percent of sales: Decreases in the second quarter and first six months of 2026 were primarily driven by lower net costs from significant litigation. See also Certain Expenses Impacting Multiple Line Items within Results of Operations subsection further below.

R&D measured as a percent of sales: 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.

Loss on Business Divestitures measured as a percent of sales: Applicable information on 2026 items is discussed in Note 3.

Other Expense (Income), Net: See Note 6 for a detailed breakout of this line item.

Interest expense (net of interest income): decreased YoY driven by a reduction in interest expense on debt and reduced imputed interest associated with obligations resulting from the PWS Settlement and the CAE Settlement (discussed in Note 15).

The non-service pension and postretirement net period cost decreased in the second quarter and first six months of 2026 YoY. See also Certain Expenses Impacting Multiple Line Items within Results of Operations subsection further below.

Solventum ownership - change in value resulted in a YoY tailwind of $310 million in the second quarter of 2026 and YoY headwind of $389 million in the first six months of 2026, as Solventum's share price increased during the second quarter of 2026 compared a decrease in 2025 and decreased during the first six months of 2026 compared to an increase in 2025.

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The primary factors that decreased the Company's effective tax rate YoY for the three months ended June 30, 2026 were the tax impacts of 3M's retained ownership interest in Solventum and the tax impacts of net costs of significant litigation, partially offset by the loss on business divestiture.

The primary factors that decreased the Company's effective tax rate YoY for the six months ended June 30, 2026 were the increased tax benefits from stock-based compensation and the tax impacts of net costs of significant litigation, partially offset by the loss on business divestiture and the tax impa

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of 3M’s financial statements with a narrative from the perspective of management. 3M’s MD&A is presented in the following sections:

•Overview

•Results of Operations

•Performance by Business Segment

•Performance by Geographic Area

•Critical Accounting Estimates

•New Accounting Pronouncements

•Financial Condition and Liquidity

•Financial Instruments

Forward-looking statements in Item 7 may involve risks and uncertainties that could cause results to differ materially from those projected (refer to the section entitled Cautionary Note Concerning Factors That May Affect Future Results in Item 1 and the risk factors provided in Item 1A for discussion of these risks and uncertainties).

Additional information about results of operations and financial condition for 2024 and 2023 (including the detailed discussion of the prior year 2024 to 2023 year-over-year changes) can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations sections in 3M's Annual Report on Form 10-K for the year ended December 31, 2024.

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Overview

3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products and services. As discussed in Note 1, certain changes are reflective in this document for all applicable periods presented.

As discussed in Note 2, on April 1, 2024, 3M completed the separation of its Health Care business (the Separation) through a pro rata distribution of 80.1% of the outstanding shares of Solventum Corporation (Solventum) to 3M stockholders. As a result, Solventum became an independent public company, 3M no longer consolidated Solventum into 3M’s financial results and the historical net income of Solventum, and applicable assets and liabilities included in the Separation were reported in 3M's consolidated financial statements as discontinued operations.

3M manages its continuing operations in three operating business segments: Safety and Industrial; Transportation and Electronics; and Consumer. From a geographic perspective, EMEA refers to Europe, the Middle East, and Africa on a combined basis.

Unless otherwise noted, any sales change analysis compares 2025 with 2024, year-on-year (YoY).

Financial highlights for 2025 and 2024:

(a)    The Company refers to various "adjusted" amounts or measures on an “adjusted" basis. These exclude special items. These non-GAAP measures are further described and reconciled to the most directly comparable GAAP financial measures in the Certain amounts adjusted for special items - (non-GAAP measures) section below.

(b)    Organic sales change (which includes both organic volume and selling price impacts), is defined as the change in net sales, absent the impacts from foreign currency translation and acquisitions, net of divestitures. 3M believes this information is useful to investors and management in understanding ongoing operations and in analysis of ongoing operating trends.

Net sales change was driven by strength in safety and general industrial and supported by commercial excellence and new product introductions. These were partially offset by known softness in auto aftermarket, roofing granules, commercial vehicles, and consumer, and the YoY impact of the manufactured PFAS products special item.

GAAP operating margins were affected by the YoY impact of special items. These primarily included an increase in net costs for significant litigation impacting operating income from the 2025 PFAS-related New Jersey Settlement and updates to site remediation obligations (discussed in Note 17), partially offset by increased insurance recoveries; manufactured PFAS products impacts; a 2025 charge associated with divestiture activity (discussed in Note 4); and 2025 transformation costs.

Outside of special items, both GAAP and adjusted operating margins reflect benefits from growth, productivity, and lower restructuring costs (apart from the transformation costs special item), partially offset by growth investments and tariff impacts. Additionally, margins YoY were impacted by cost dis-synergies (from the exit of PFAS manufacturing and 2024 spin of Solventum); by transition service agreement reimbursement from Solventum, which began in the second quarter of 2024; and by the lower extent of stock-based compensation grants (see the Certain Expenses Impacting Multiple Line Items within Results of Operation discussion below).

GAAP EPS YoY was affected by the net impact of special items. In addition to special items relative to operating income discussed above, this primarily included the YOY impact of the change in value of Solventum ownership, a $0.8 billion pre-tax pension settlement charge in 2024 (as discussed in Note 13), and the YOY impact of imputed interest associated with obligations resulting from significant litigation.

Outside of special items, both GAAP and adjusted EPS reflect the impact of the other operating income items discussed above, as well as a 2025 gain on the sale of an investment (see the Income from Unconsolidated Subsidiaries, Net of Taxes discussion below) and the impact of lower share count. These were partially offset by higher non-operating net interest expense and pension expense (both apart from special items).

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3M completed its exit of PFAS manufacturing at the end of 2025 as discussed in Part I, Item 1A, “Risk Factors” of this document. Decisions or circumstances associated with the extent and type of remaining activity at particular locations and impacts on assets and potential obligations, among other factors, could result in additional expenses.

Results of Operations

Net Sales: Percent change information compares 2025 and 2024, unless otherwise indicated. Discussion of business segment results is provided in the Performance by Business Segment section. Information regarding sales by geographic area is included below.

(c)    Acquisition and divestiture sales change impacts are measured separately for the first twelve months post-transaction and, beginning April 2024, include, within divestitures, the impact of commercial agreements associated with the separation of Solventum.

Cost of Sales measured as a percent of sales: Increases in 2025 were primarily due to foreign currency impacts; tariffs; the exit of manufactured PFAS products; and net costs for significant litigation for updates to site remediation obligations partially, offset by ongoing procurement and logistics savings; and quality cost improvement. Additionally, cost of sales in 2025, was impacted by cost dis-synergies (from the exit of PFAS manufacturing and 2024 spin of Solventum). Decreases in 2024 were primarily due to ongoing manufacturing productivity, procurement and logistics savings net of inflation, along with lower YoY restructuring charges compared to 2023. See also Certain Expenses Impacting Multiple Line Items within Results of Operations subsection further below.

SG&A measured as a percent of sales: Decreases in 2025 were primarily impacted by lower YoY restructuring charges, ongoing cost discipline and productivity, and benefits from insurance recoveries in 2025. These were partially offset by net costs for significant litigation impacting operating income from the 2025 PFAS-related New Jersey Settlement. Additionally, in 2025, SG&A was impacted by the transition service agreement reimbursement, and cost dis-synergies (from the exit of PFAS manufacturing and 2024 spin of Solventum). Decreases in 2024 were primarily driven by lower YoY net costs for significant litigation and restructuring charges compared to 2023. See also Certain Expenses Impacting Multiple Line Items within Results of Operations subsection further below.

R&D measured as a percent of sales: 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 spending also reflects the Company's continued focus on innovation through growth investments and new product introduction. See also Certain Expenses Impacting Multiple Line Items within Results of Operations subsection further below.

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Loss on Business Divestitures measured as a percent of sales: Applicable information is discussed in Note 4, including a write-down for a business classified as held for sale in 2025.

Other Expense (Income

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