M Reports Fourth-Quarter and Full-Year 2022 Results

3M Reports Fourth-Quarter and Full-Year 2022 Results

ST. PAUL, Minn. - January 24, 2023 3M (NYSE MMM) today reported fourth-quarter and full-year 2022 results and provided its 2023 financial outlook.

"3M continues to focus on delivering for customers and shareholders in a challenging economic environment," said 3M chairman and CEO Mike Roman. "We posted organic growth of 0.4 percent -- versus our expectation of 1 to 3 percent -- adjusted margins of 19.1 percent, and adjusted earnings of $2.28 per share. The slower-than-expected growth was due to rapid declines in consumer-facing markets - a dynamic that accelerated in December - along with significant slowing in China due to COVID-related disruptions. As demand weakened, we adjusted manufacturing output and controlled costs, which enabled us to improve inventory levels.

"In a year impacted by inflation, global conflicts, and economic softening, our team took actions to position 3M for future success," said Roman. "We managed our portfolio - including the divestiture of our Food Safety business, planned spin-off of our Health Care business, and commitment to exit PFAS manufacturing by the end of 2025 - while continuing to work towards a mediated resolution for Combat Arms litigation. We invested in growth and productivity, while following through on sustainability commitments.

"We expect macroeconomic challenges to persist in 2023," Roman continued. "Our focus is executing the actions we initiated in 2022, and delivering the best performance for customers and shareholders. Based on what we see in our end markets, we will reduce approximately 2,500 global manufacturing roles - a necessary decision to align with adjusted production volumes."

Fourth-Quarter Highlights

Company reports GAAP earnings per share of $0.98, which included a $1.15 per share pre-tax charge relating to PFAS manufacturing exit costs adjusted for in special items.

Adjusted earnings per share of $2.28, excluding the impact of special items.

Sales of $8.1 billion, down 6 percent year-on-year, which included impacts of negative 2 percent from divestitures and negative 5 percent from foreign currency translation due to strength of U.S. dollar.

Organic sales growth of 0.4 percent year-on-year which included a 2.6 percentage point headwind from the decline in disposable respirator demand, along with the exit of Russia.

Operating cash flow was $1.9 billion, down 4 percent year-on-year, while adjusted free cash flow was $1.7 billion, up 3 percent year-on-year.

3M returned $1.4 billion to shareholders via dividends and gross share repurchases.

Full-Year Highlights

Sales of $34.2 billion, down 3 percent year-on-year, which included impacts of negative 1 percent from divestitures and negative 4 percent from foreign currency translation due to strength of U.S. dollar.

Organic sales growth of 1.2 percent year-on-year which included a 2.0 percentage point headwind from the decline in disposable respirator demand, along with the exit of Russia.

GAAP earnings per share of $10.18, up 1 percent, while adjusted earnings per share was $10.10, down 6 percent. Earnings reflect year-on-year changes in special items, headwinds from manufacturing productivity, increased raw materials logistics costs, investments, and negative foreign exchange impacts. Benefits to earnings included selling price actions, strong spending discipline, and lower shares outstanding.

Operating cash flow was $5.6 billion, down 25 percent year-on-year, while adjusted free cash flow was $4.7 billion, down 25 percent year-on-year. The declines were primarily due to lower net income and the cash impact from capitalization of R D for U.S. tax purposes.

3M returned $4.8 billion to shareholders via dividends and gross share repurchases.

Received approximately $1 billion in consideration and reduced outstanding shares by 16 million via exchange offer due to Food Safety divestiture.

2022 Results Based on New 2023 Outlook Basis

In December 2022, 3M announced it will exit per- and polyfluoroalkyl substance (PFAS) manufacturing by the end of 2025. Beginning in 2023, 3M expects to adjust for the results of these manufactured PFAS products in arriving at non-GAAP results. This expands the current adjustment for special items in 3M's non-GAAP results to include the sales and estimates of income, exit costs, and associated activity of PFAS manufacturing.

Comparable 2022 GAAP sales, earnings, and cash flow amounts are provided in the highlights section above. For additional clarity, the impact of further adjusting for 2022 PFAS manufacturing sales of $1.4 billion, estimated income of $0.22 per share and related activity on certain non-GAAP amounts on the existing versus new 2023 outlook basis is presented below

See the Supplemental Financial Information Non-GAAP Measures - New Outlook Basis section for further information regarding this change.

Full-Year 2023 Outlook

3M's full-year expectations for 2023 include the following

-6 to -2 percent adjusted total sales growth reflecting the following

-3 percent to flat adjusted organic sales growth , includes -2 percentage point impact from disposable respirator decline and exit of Russia

-2 to -1 percent adjusted foreign currency translation impact

-1 percent adjusted divestiture impact

Adjusted earnings per share of $8.50 to $9.00, versus 2022 of $9.88 on a comparable basis

2023 adjusted earnings per share include -$0.55 to -$0.80 of combined year-on-year headwinds from the decline in disposable respirator demand, exit of Russia, foreign currency translation, and divestitures

Adjusted operating cash flow of $5.8 to $6.3 billion contributing to 90% to 100% adjusted free cash flow conversion

These expectations reflect changes in certain of 3M's non-GAAP measures beginning in 2023 as discussed in the preceding section.

3M expects to record a pre-tax restructuring charge of $75 to $100 million in the first quarter of 2023. This pre-tax charge and associated savings is included in the company's full-year 2023 outlook.

As further discussed at * within the Supplemental Financial Information Non-GAAP Measures - New Outlook Basis section, 3M cannot, without unreasonable effort, forecast certain items required to develop meaningful comparable GAAP financial measures and, therefore, does not provide them on a forward-looking basis reflecting these items.

3M will conduct an investor teleconference at 9 a.m. EST (8 a.m. CST) today. Investors can access this conference via the following

Live webcast at http investors.3M.com.

Call 800-762-2596 within the U.S. or +1 212-231-2916 outside the U.S. Please join the call at least 10 minutes before the start time.

Go to 3M's Investor Relations website at http investors.3M.com and click on "Quarterly Earnings."

Call 800-633-8284 within the U.S. or +1 402-977-9140 outside the U.S. (for both U.S. and outside the U.S., the access code is 22024173). The telephone replay will be available until 11 30 a.m. EST (10 30 a.m. CST) on January 31, 2023.

Forward-Looking Statements

This news release contains forward-looking information about 3M's financial results and estimates and business prospects that involve substantial risks and uncertainties. You can identify these statements by the use of words such as anticipate, estimate, expect, aim, project, intend, plan, believe, will, should, could, target, forecast and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or business plans or prospects. Among the factors that could cause actual results to differ materially are the following (1) worldwide economic, political, regulatory, international trade, geopolitical, capital markets and other external conditions and other factors beyond the Company's control, including inflation, recession, military conflicts, natural and other disasters or climate change affecting the operations of the Company or its customers and suppliers (2) risks related to unexpected events such as the public health crises associated with the coronavirus (COVID-19) global pandemic (3) foreign currency exchange rates and fluctuations in those rates (4) liabilities related to certain fluorochemicals, including lawsuits concerning various PFAS-related products and chemistries, and claims and governmental regulatory proceedings and inquiries related to PFAS in a variety of jurisdictions (5) legal proceedings, including significant developments that could occur in the legal and regulatory proceedings described in the Company's Annual Report on Form 10-K for the year ended Dec. 31, 2021, as updated by the Company's Current Report on Form 8-K dated April 26, 2022, and any subsequent quarterly reports on Form 10-Q (the Reports ) (6) competitive conditions and customer preferences (7) the timing and market acceptance of new product and service offerings (8) the availability and cost of purchased components, compounds, raw materials and energy due to shortages, increased demand and wages or supply chain interruptions (9) unanticipated problems or delays with the phased implementation of a global enterprise resource planning (ERP) system, or security breaches and other disruptions to the Company's information technology infrastructure (10) the impact of acquisitions, strategic alliances, divestitures, and other strategic events resulting from portfolio management actions and other evolving business strategies, and possible organizational restructuring (11) operational execution, including scenarios where the Company generates fewer productivity improvements than planned (12) financial market risks that may affect the Company's funding obligations under defined benefit pension and postretirement plans (13) the Company's credit ratings and its cost of capital (14) tax-related external conditions, including changes in tax rates, laws or regulations (15) matters relating to the proposed spin-off of the Company's Health Care business, including whether the transaction will be completed, or if completed, will be on the expected terms the risk that the expected benefits will not be realized the risk that the costs or dis-synergies will exceed the anticipated amounts the ability to satisfy the various closing conditions potential business disruption the diversion of management time the impact of the transaction (or its pendency) on the Company's ability to retain talent potential impacts on the Company's relationships with its customers, suppliers, employees, regulators and other counterparties the ability to realize the desired tax treatment (including whether an Internal Revenue Service private letter ruling will be sought or obtained) the risk that any consents or approvals required will not be obtained risks associated with financings that may be undertaken and indebtedness that may be incurred in connection with the transaction (16) matters relating to the voluntary chapter 11 proceedings of the Company's subsidiary Aearo Technologies and certain of its affiliates (the "Aearo Entities"), including legal risks related to the chapter 11 proceedings potential impacts to the Company's reputation and its relationships with customers, suppliers, employees, regulators and other counterparties and community members potential impacts to the Company's liquidity or results of operations, including risks related to the amount that will be necessary to fully and finally resolve all of the Company's obligations to make payments to resolve such claims under the terms of its funding and indemnification agreement with the Aearo Entities and the Aearo Entities' ability to navigate the chapter 11 proceedings to obtain approval and consummation of a plan of reorganization and (17) matters relating to the Company's plans to exit PFAS manufacturing and discontinue use of PFAS across its product portfolio (the "exit"), including the actual timing, costs and financial impact of such exit the Company's ability to complete such exit, on the anticipated timing or at all potential governmental or regulatory actions relating to PFAS manufacturing and production, or the Company's exit plans the Company's ability to identify and manufacture acceptable substitutes for the discontinued products, and the possibility that such substitutes will not achieve the anticipated or desired commercial or operational results potential litigation relating to the Company's exit plans and the possibility that the planned exit will involve greater costs than anticipated, or otherwise have negative impacts on the Company's relationships with its customers and other counterparties. Changes in such assumptions or factors could produce significantly different results. A further description of these factors is located in the Reports under Cautionary Note Concerning Factors That May Affect Future Results and Risk Factors in Part I, Items 1 and 1A (Annual Report) and in Part I, Item 2 and Part II, Item 1A (Quarterly Reports). The Company assumes no obligation to update any forward-looking statements discussed herein as a result of new information or future events or developments.

3M Company and Subsidiaries

CONSOLIDATED STATEMENT OF INCOME

(Millions, except per-share amounts)

3M Company and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEET

(Dollars in millions)

3M Company and Subsidiaries

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in millions)

3M Company and Subsidiaries

SUPPLEMENTAL FINANCIAL INFORMATION

3M Company and Subsidiaries

SUPPLEMENTAL FINANCIAL INFORMATION

NON-GAAP MEASURES (CONTINUED)

(a)In addition to reporting financial results in accordance with U.S. GAAP, 3M also provides non-GAAP measures that adjust for the impacts of special items. Special items for the periods presented include the items described in the section entitled "Description of Special Items". Operating income (loss), segment operating income (loss), income before taxes, net income, earnings per share, and the effective tax rate are all measures for which 3M provides the reported GAAP measure and a measure adjusted for special items. The adjusted measures are not in accordance with, nor are they a substitute for, GAAP measures. While the Company includes certain items in its measure of segment operating performance, it also considers these non-GAAP measures in evaluating and managing its operations. The Company believes that discussion of results adjusted for special items is useful to investors in understanding underlying business performance, while also providing additional transparency to the special items. Special items impacting operating income (loss) are reflected in Corporate and Unallocated, except as described with respect to net costs for significant litigation and PFAS manufacturing exit costs in the "Description of Special Items" section. The determination of these items may not be comparable to similarly titled measures used by other companies.

In the first quarter of 2022, the Company changed the extent of matters and charges benefits it includes within special items with respect to net costs for significant litigation. Previously, 3M included net costs, when significant, associated with changes in accrued liabilities related to respirator mask asbestos litigation and PFAS-related other environmental matters, along with the associated tax impacts. The non-GAAP measure changes involved including net costs for litigation related to 3M's Combat Arms Earplugs, expanding net costs to include external legal fees and insurance recoveries associated with the applicable matters in addition to changes in accrued liabilities, and to include all such net costs for the applicable matters, not just when considered significant. The information provided herein reflects the impacts of these changes for all periods presented.

3M Company and Subsidiaries

SUPPLEMENTAL FINANCIAL INFORMATION

NON-GAAP MEASURES (CONTINUED)

(b)Adjusted net cash provided by (used in) operating activities, adjusted free cash flow and adjusted free cash flow conversion are not defined under U.S. GAAP. Therefore, they should not be considered a substitute for income or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines adjusted net cash provided by (used in) operating activities as net cash provided by operating activities, adjusted for special items. The Company defines adjusted free cash flow as adjusted net cash provided by (used in) operating activities less purchases of property, plant and equipment. Cash payments associated with special items in the determination of adjusted net cash provided by (used in) operating activities are reflected net of applicable tax using the U.S. statutory corporate tax rate during the period of payment. It should not be inferred that the entire adjusted free cash flow amount is available for discretionary expenditures. The Company defines adjusted free cash flow conversion as adjusted free cash flow divided by net income attributable to 3M, adjusted for special items. Special items for the periods presented include the items described in section entitled "Description of Special Items". The Company believes adjusted net cash provided by (used in) operating activities, adjusted free cash flow and adjusted free cash flow conversion are meaningful to investors as they are useful measures of performance and the Company uses these measures as an indication of the strength of the Company and its ability to generate cash.

3M Company and Subsidiaries

SUPPLEMENTAL FINANCIAL INFORMATION

NON-GAAP MEASURES (CONTINUED)

3M Company and Subsidiaries

SUPPLEMENTAL FINANCIAL INFORMATION

NON-GAAP MEASURES (CONTINUED)

3M Company and Subsidiaries

SUPPLEMENTAL FINANCIAL INFORMATION

NON-GAAP MEASURES (CONTINUED)

(c)Adjusted EBITDA and adjusted EBITDA margin are not defined under U.S. GAAP. Therefore, adjusted EBITDA and adjusted EBITDA margin should not be considered a substitute for other measures prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines adjusted EBITDA as net income attributable to 3M, adjusted for net income (loss) attributable to noncontrolling interest, (income) loss from unconsolidated subsidiaries, provision for income taxes, other expense (income), depreciation and amortization expense, and special items. For business segments, the Company defines adjusted EBITDA as business segment operating income (loss) (3M's measure of segment operating performance) adjusted for depreciation and amortization expense and special items. The Company defines adjusted EBITDA margin as adjusted EBITDA divided by net sales. Special items for the periods presented include the items described in the section entitled "Description of Special Items". The Company considers these non-GAAP measures in evaluating and managing the Company's operations. The Company believes adjusted EBITDA and adjusted EBITDA margin are meaningful to investors as they provide useful analyses of ongoing underlying operating trends.

3M Company and Subsidiaries

SUPPLEMENTAL FINANCIAL INFORMATION

NON-GAAP MEASURES (CONTINUED)

(d)Net debt is not defined under U.S. GAAP and may not be computed the same as similarly titled measures used by other companies. The Company defines net debt as total debt less the total of cash, cash equivalents and current and long-term marketable securities. 3M believes net debt is meaningful to investors as 3M considers net debt and its components to be an important indicator of liquidity and a guiding measure of capital structure strategy.

Description of Special Items

In addition to reporting financial results in accordance with U.S. GAAP, the Company also provides various non-GAAP measures that incorporate adjustments for the impacts of special items. Special items incorporated in the preparation of these non-GAAP measures for the periods presented include the items described below

Net costs for significant litigation

These relate to 3M's respirator mask asbestos, PFAS-related other environmental, and Combat Arms Earplugs matters. Net costs include the impacts of changes in accrued liabilities, external legal fees, and insurance recoveries, along with the associated tax impacts. Prior to initiating voluntary chapter 11 bankruptcy proceedings in July 2022, net costs related to Combat Arms Earplugs and Aearo-respirator mask asbestos matters along with non-Aearo respirator mask asbestos matters were reflected as special items in the Safety and Industrial business segment. During the bankruptcy period, net costs related to Combat Arms Earplugs and Aearo-respirator mask asbestos matters are reflected as corporate special items in Corporate and Unallocated. In the fourth quarter of 2022 and 2021, 3M made payments of approximately $226 million and $200 million, respectively, related to net costs for significant litigation. In the full year of 2022 and 2021, 3M made payments of approximately $907 million and $458 million, respectively, related to net costs for significant litigation.

These include costs related to separating and divesting substantially an entire business segment of 3M following public announcement of its intended divestiture. In the fourth quarter and full year of 2022, 3M made payments of approximately $8 million and $11 million, respectively, associated with divestiture costs.

Gain loss on sale of businesses divestitures

In 2022, 3M recorded a pre-tax gain of $2.7 billion ($2.7 billion after tax) related to the split-off and combination of its Food Safety business with Neogen Corporation. In the fourth quarter and full year of 2022, 3M made payments of approximately $34 million related to closing costs of the transaction that were part of the determination of the gain thereon.

Divestiture-related restructuring actions

In the third quarter of 2022, following the split-off of the Food Safety business, management approved and committed to undertake certain restructuring actions addressing corporate functional costs across 3M in relation to the magnitude of amounts previously allocated to the divested business. In the fourth quarter of 2022 and 2021, 3M made payments of approximately $29 million and $1 million, respectively, associated with divestiture-related restructuring actions. In the full year of 2022 and 2021, 3M made payments of approximately $34 million and $8 million, respectively, associated with divestiture-related restructuring actions.

3M Company and Subsidiaries