Note 1 in 3M’s ~~Current Report on Form 8-K dated May 8,~~ 2018 ~~(which updated 3M’s 2017~~ Annual Report on Form ~~10-K)~~10-K provides additional information the Company considers in determining the exchange rate used relative to its Venezuelan subsidiary as well as factors which could lead to its deconsolidation. The Company continues to monitor these circumstances. Changes in applicable exchange rates or exchange mechanisms may continue in the future. These changes could impact the rate of exchange applicable to remeasure the Company’s net monetary assets (liabilities) denominated in VES. As ~~of September 30, 2018, the Company had~~described therein, a ~~balance of net monetary assets denominated in VES of less than 2 million VES and the DICOM exchange rate was approximately 62 VES per U.S. dollar. A~~ need to deconsolidate the Company’s Venezuelan subsidiary’s operations ~~may result~~results from a lack of exchangeability of VES-denominated cash coupled with an acute degradation in the ability to make key operational decisions due to

government regulations in Venezuela. ~~Based upon~~3M continued to review changes in these underlying factors such as the ability to access various exchange mechanisms; the impact of government regulations on the Company’s ability to manage its Venezuelan subsidiary’s capital structure, purchasing, product pricing, and labor relations; and the current political and economic situation within Venezuela. In light of circumstances, including the country’s unstable environment and heightened unrest leading to sustained lack of demand, and expectation that these circumstances will continue for the foreseeable future, during May 2019, 3M concluded it no longer met the criteria of control in order to continue consolidating its Venezuelan operations. As a ~~review of factors~~result, as of ~~September 30, 2018,~~May 31, 2019, the Company ~~continues~~began reflecting its interest in the Venezuelan subsidiary as an equity investment that does not have a readily determinable fair value. This resulted in a pre-tax charge of $162 million within other expense (income) in the second quarter of 2019. The charge primarily relates to ~~consolidate its Venezuelan subsidiary. As~~$144 million of ~~September 30, 2018, the balance of~~foreign currency translation losses associated with foreign currency movements before Venezuela was accounted for as a highly inflationary economy and pension elements previously included in accumulated other comprehensive loss along with write-down of intercompany receivable and investment balances associated with this ~~subsidiary was approximately $145 million,~~subsidiary. Beginning May 31, 2019, 3M’s consolidated balance sheets and statements of operations no longer include the ~~amount of intercompany receivables due from this subsidiary~~Venezuelan entity’s operations other than an immaterial equity investment and ~~its equity balance were not significant.~~associated loss or income thereon largely only to the extent, if any, that 3M provides support or materials and receives funding or dividends.

3M has subsidiaries in Argentina, the operating income of which iswas less than one half of one percent of 3M’s consolidated operating income for ~~2017.~~2018. Based on various indices, Argentina’s cumulative three-year inflation rate exceeded 100 percent in the second quarter of 2018, thus being considered highly inflationary. As a result, beginning in the third quarter of 2018, the financial statements of the Argentine subsidiaries were remeasured as if their functional currency were that of their parent. As of September 30, ~~2018,~~2019, the Company had a balance of net monetary assets denominated in Argentine pesos (ARS) of approximately ~~300~~430 million ARS and the exchange rate was approximately 4157 ARS per U.S. dollar.

Earnings Per Share

The difference in the weighted average 3M shares outstanding for calculating basic and diluted earnings per share attributable to 3M common shareholders is a result of the dilution associated with the Company’s stock-based compensation plans. Certain options outstanding under these stock-based compensation plans were not included in the computation of diluted earnings per share attributable to 3M common shareholders because they would ~~not~~ have had ~~a dilutive~~an anti-dilutive effect ~~(3.2~~(11.9 million average options for the three months ended September 30, 2019; 8.0 million average options for the nine months ended September 30, 2019; 3.2 million average options for the three months ended September 30, 2018; 2.8 million average options for the nine months ended September 30, ~~2018; insignificant for the three months ended September 30, 2017, 1.1 million average options for the nine months ended September 30, 2017)~~2018). The computations for basic and diluted earnings per share follow:

Earnings Per Share Computations


	Three months ended				Nine months ended
	September 30,				September 30,

									Three months ended				Nine months ended
									September 30,				September 30,
(Amounts in millions, except per share amounts)	2018		2017		2018		2017		2019		2018		2019		2018
Numerator:
Net income attributable to 3M	$	1,543	$	1,429	$	4,002	$	4,335	$	1,583	$	1,543	$	3,601	$	4,002


Denominator:
Denominator for weighted average 3M common shares outstanding – basic		585.6		597.6		591.1		597.9		576.5		585.6		577.2		591.1
Dilution associated with the Company’s stock-based compensation plans		12.8		15.1		14.0		14.6		6.5		12.8		8.7		14.0
Denominator for weighted average 3M common shares outstanding – diluted		598.4		612.7		605.1		612.5		583.0		598.4		585.9		605.1


Earnings per share attributable to 3M common shareholders – basic	$	2.64	$	2.39	$	6.77	$	7.25	$	2.75	$	2.64	$	6.24	$	6.77
Earnings per share attributable to 3M common shareholders – diluted	$	2.58	$	2.33	$	6.61	$	7.08	$	2.72	$	2.58	$	6.15	$	6.61

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New Accounting Pronouncements

See the Company’s ~~Current Report on Form 8-K dated May 8,~~ 2018 ~~(which updated 3M’s 2017~~ Annual Report on Form ~~10-K)~~10-K for a more detailed discussion of the standards in the tables that follow, except for those pronouncements issued subsequent to the most recent Form 10-K filing date for which separate, more detailed discussion is provided ~~below.~~below as applicable.



Standards Adopted During the Current Fiscal Year
Standard		Relevant Description	Effective Date for 3M	Impact and Other Matters
~~ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers~~ ~~(as amended by ASU Nos. 2015-14, 2016-08, 2016-10, 2016-12, and 2016-20) and related ASU No. 2017-10,~~ ~~Determining the Customer of the Operation Services~~		~~~~Provides a single comprehensive model to be used in the accounting for revenue arising from contracts with customers and supersedes most previous revenue recognition guidance, including industry-specific guidance. ~~~~Core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ~~Requires disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.~~ ~~Specifies the accounting for some costs to obtain or fulfill a contract with a customer.~~	~~January 1, 2018~~	~~See Note 2 for detailed discussion and disclosures.~~ ~~Adopted using a modified retrospective approach. January 1, 2018 balance of retained earnings was increased by less than $2 million.~~
~~ASU No. 2016-01,~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~	~~~~Requires investments in equity securities in an entity that do not result in consolidation and are not accounted for under the equity method to be measured at fair value with changes therein reflected in net income. ~~Simplifies the impairment assessment and allows for a fair value measurement alternative for equity investments without a readily determinable fair value.~~ ~~Eliminates the previous cost method of accounting for certain equity securities that did not have readily determinable fair values.~~	~~January 1, 2018~~	~~Measurement alternative adopted prospectively.~~ ~~See the preceding “Changes to Significant Accounting Policies” section for impact.~~
~~ASU No. 2016-16,~~ ~~Intra-Entity Transfers of Assets Other Than Inventory~~	~~Exempts income tax accounting that requires companies to defer the income tax effects of certain intercompany transactions only for intercompany inventory transactions.~~ ~~The exception no longer applies to intercompany sales and transfers of other assets (e.g., intangible assets).~~	~~January 1, 2018~~	~~Adopted using a modified retrospective approach. January 1, 2018 balance of retained earnings was decreased by less than $2 million.~~
~~ASU No. 2017-01,~~ ~~Clarifying the Definition of a Business~~	~~Narrows the previous definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business.~~	~~January 1, 2018~~	~~Adopted prospectively with no immediate impact.~~ ~~Fewer sets of transferred assets and activities are expected to be considered businesses.~~
~~ASU No.~~ ~~2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets~~	~~Largely impacts the sale of nonfinancial assets (such as real estate and intellectual property) that do not constitute a business, when the purchaser is not a customer.~~ ~~Seller applies certain recognition and measurement principles of ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers, even though the purchaser is not a customer.~~	~~January 1, 2018~~	~~Adopted coincident with the adoption of ASU No. 2014-09 with no material impact.~~

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~~Standards Adopted During the Current Fiscal Year (continued)~~
~~Standard~~	~~Relevant Description~~	~~Effective Date for 3M~~	~~Impact and Other Matters~~
~~ASU No. 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~	~~Changes previous classification of net periodic defined benefit pension and postretirement benefit costs within operating expenses.~~ ~~~~Requires that only the service cost component of net periodic benefit cost be included in operating expenses and that only the service cost component is eligible for capitalization into assets such as inventory. ~~~~Specifies that other net periodic benefit costs components (such as interest, expected return on plan assets, prior service cost amortization and actuarial gain/loss amortization) would be reported outside of operating income.	~~January 1, 2018~~	~~Adopted on a retrospective basis.~~ ~~~~No impact on previously reported income before income taxes and net income attributable to 3M. However, non-service cost components of net periodic benefit costs in prior periods have been reclassified from operating expenses and are now reported outside of operating income within other expense (income), net. ~~See the “Basis of Presentation” section above for impact of this ASU’s adoption on prior period income statement amounts.~~ ~~Prospective impact on costs capitalized into assets was not material.~~
~~ASU No. 2017-09,~~ ~~Scope of Modification Accounting~~	~~Provides that fewer changes to the terms of share-based payment awards will require accounting under the modification model (which generally would have required additional compensation cost).~~	~~January 1, 2018~~	~~Adopted prospectively with no immediate impact.~~ ~~3M does not typically make changes to the terms or conditions of its issued share-based payments.~~
~~ASU No. 2017-09,~~ ~~Scope of Modification Accounting~~	~~Provides that fewer changes to the terms of share-based payment awards will require accounting under the modification model (which generally would have required additional compensation cost).~~	~~January 1, 2018~~	~~Adopted prospectively with no immediate impact.~~ ~~3M does not typically make changes to the terms or conditions of its issued share-based payments.~~


~~Standards Issued and Not Yet Adopted~~
~~Standard~~	~~Relevant Description~~	~~Effective Date for 3M~~	~~Impact and Other Matters~~
ASU No. 2016-02, Leases (as amended by ASU Nos. 2018-10, 2018-11, 2018-20, and ~~2018-11)~~2019-01)	~~Introduces~~Provides a lessee model that requires entities to recognize assets and liabilities for most leases, but recognize expenses on their income statements in a manner similar to ~~current~~previous accounting. This ASU does not make fundamental changes to ~~existing~~previous lessor accounting.	January 1, 2019	~~~~As amended, provides for retrospective transition applied to earliest period presented or an adoption method by which entities would not need to recast the comparative periods presented. 3M does not plan on recasting prior periods as it adopts this ASU. ~~~~3M continues to evaluate the ASU’s impact on its consolidated results of operations and financial condition, has conducted initial analysis, executed project management relative to the process of adopting this ASU including implementing a new lease accounting system, conducted detailed contract reviews, and is finalizing its assessment of adoption impacts. ~~~~See Note 15 for detailed discussion and disclosures. Adopted using the modified retrospective approach Impact on January 1, 2019 includes a $14 million increase in ~~3M’s Current Report on Form 8-K dated May 8, 2018 (which updated 3M’s 2017 Annual Report on Form 10-K) provides information regarding rent expense for operating leases~~the balance of retained earnings and ~~minimum~~recording of additional lease ~~payments for capital~~assets and ~~operating leases under existing lease guidance.~~ ~~See the “Relevant New Standards Issued Subsequent to Most Recent Annual Report” below for further discussion on ASU Nos. 2018-10 and 2018-11 issued in July 2018.~~

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			liabilities of $0.8 billion each
~~Standards Issued and Not Yet Adopted (continued)~~
~~Standard~~	~~Relevant Description~~	~~Effective Date for 3M~~	~~Impact and Other Matters~~
~~ASU No. 2016-13,~~ ~~Measurement of Credit Losses on Financial Instruments~~	~~Introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities.~~ ~~~~Amends the current other-than-temporary impairment model for available-for-sale debt securities. For such securities with unrealized losses, entities will still consider if a portion of any impairment is related only to credit losses and therefore recognized as a reduction in income.	~~January 1, 2020~~	~~Required to make a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.~~ ~~3M is currently assessing this ASU’s impact.~~
ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities	~~~~Shortens the amortization period to the earliest call date for the premium related to certain callable debt securities that have explicit, noncontingent call features and are callable at a fixed price and preset date.	January 1, 2019	~~~~3M’s marketable security portfolio includes limited instances of callable debt securities held at a premium. ~~3M does not expect~~ The adoption of this ASU todid not have a material impact.
ASU No. 2017-11, (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception		~~~~Amends (1) the classification of financial instruments with down-round features as liabilities or equity by revising certain guidance relative to evaluating if they must be accounted for as derivative instruments and (2) the guidance on recognition and measurement of freestanding equity-classified instruments.	January 1, 2019	~~~~No financial instruments with down-round features have been issued. ~~3M does not expect~~ The adoption of this ASU todid not have a material impact.
ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, and related ASU No. 2018-16	~~~~Amends ~~existing~~previous guidance to simplify application of hedge accounting in certain situations and allow companies to better align their hedge accounting with risk management activities. ~~~~ Simplifies related accounting by eliminating requirement to separately measure and report hedge ineffectiveness. ~~~~ Expands an entity’s ability to hedge nonfinancial and financial risk components.		January 1, 2019		~~~~See Note 12 for additional details. The adoption of this ASU did not have a material impact
ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income		Permits entities to reclassify, to retained earnings, the one-time income tax effects stranded in accumulated other comprehensive income arising from the change in the U.S. federal corporate tax rate as a result of the Tax Cuts and Jobs Act of 2017.	January 1, 2019	See Note 8 for additional discussion. Impact on January 1, 2019 includes increases of $0.9 billion in each of retained earnings and accumulated other comprehensive loss. See also the preceding “Changes to Significant Accounting Policies” section.
ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting		Aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees. Clarifies that any share-based payment issued to a customer should be evaluated under ASC 606, Revenue from Contracts with Customers	January 1, 2019	The adoption of this ASU did not have a material impact as 3M does not issue share-based payments to nonemployees or customers

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Standards Adopted During the Current Fiscal Year (continued)
Standard	Relevant Description	Effective Date for 3M	Impact and Other Matters
ASU No. 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made	Clarifies that a contribution is conditional if the arrangement includes both a barrier for the recipient to be entitled to the assets transferred and a right of return for the assets transferred. Recognition of contribution expense is deferred for conditional arrangements and is immediate for unconditional arrangements.	January 1, 2019	Adopted prospectively with no immediate impact.
ASU No. 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities	Changes how entities evaluate decision-making fees under the variable interest guidance. Indirect interests held through related parties under common control will be considered on a proportionate basis rather than in their entirety.	January 1, 2019	Adoption of this ASU did not have a material impact as 3M does not have significant involvement with entities subject to consolidation considerations impacted by variable interest entity model factors.
ASU No. 2018-18, Clarifying the Interaction between Topic 808 and Topic 606	Clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606, Revenue from Contracts with Customers, when the counterparty is a customer. Precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction.	January 1, 2019	Adoption of this ASU did not have a material impact as 3M has limited collaborative arrangements.
ASU No. 2017-09, Scope of Modification Accounting	●Provides that fewer changes to the terms of share-based payment awards will require accounting under the modification model (which generally would have required additional compensation cost).	January 1, 2018	●Adopted prospectively with no immediate impact. ●3M does not typically make changes to the terms or conditions of its issued share-based payments.


Standards Issued and Not Yet Adopted
Standard	Relevant Description	Effective Date for 3M	Impact and Other Matters
ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (in conjunction with ASU No. 2018-19, 2019-04 and 2019-05)	Introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. Amends the current other-than-temporary impairment model for available-for-sale debt securities. For such securities with unrealized losses, entities will still consider if a portion of any impairment is related only to credit losses and therefore recognized as a reduction in income.	January 1, 2020	Required to make a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is ~~adopted~~. adopted. ~~~~ 3M continues to evaluate this ASU’s impact on its consolidated results of operations and financial condition. Based on the analysis completed to date and due to the nature and extent of 3M’s financial instruments in scope for this ASU (primarily accounts receivable) and the historical, current and expected credit quality of its customers, 3M does not expect this ASU to have a material impact. on its consolidated results of operations and financial condition. See the “Relevant New Standards Issued Subsequent to Most Recent Annual Report” below for further discussion on ASU No. 2019-04 and 2019-05 issued in April 2019 and May 2019, respectively.
ASU No. 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement	Eliminates, amends, and adds disclosure requirements for fair value measurements, primarily related to Level 3 fair value measurements.	January 1, 2020	As this ASU relates to disclosures only, there will be no impact to 3M’s consolidated results of operations and financial condition.
ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract	Aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service arrangement (i.e. hosting arrangement) with the guidance on capitalizing costs in ASC 350-40, Internal-Use Software	January 1, 2020	ASU permits either prospective or retrospective transition. As 3M utilizes limited cloud-computing services where significant implementation costs are incurred, the Company does not expect this ASU to have a material impact.

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Relevant New Standards Issued Subsequent to Most Recent Annual Report

In ~~February 2018,~~April 2019, the FASB issued ASU No. ~~2018-02,~~ ~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits entities~~2019-04, Codification Improvements to ~~reclassify, to retained earnings, the one-time income tax effects stranded~~Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 – Financial Instruments and in accumulated other comprehensive income (AOCI) arising from the change in the U.S. federal corporate tax rate as a result of the Tax Cuts and Jobs Act of 2017. An entity that elects to make this reclassification must consider all items in AOCI that have tax effects stranded as a result of the tax rate change, and must disclose the reclassification of these tax effects as well as the entity’s policy for releasing income tax effects from AOCI. The ASU may be applied either retrospectively or as of the beginning of the period of adoption. For 3M, the ASU is effective January 1, 2019. While this ASU will have no impact on 3M’s results of operations, the Company is currently assessing this standard’s impact on its consolidated financial condition.

~~In June 2018,~~May 2019, the FASB issued ASU No. ~~2018-07,~~ ~~Improvements~~2019-05, Targeted Transition Relief to ~~Nonemployee Share-Based Payment Accounting~~,Topic 326, Financial Instruments – Credit Losses. ASU No. 2019-04 provides narrow-scope amendments to help apply these recent standards, while ASU No. 2019-05 provides the option to make a one-time fair value election regarding certain assets which ~~largely aligns the measurement and classification guidance~~is not applicable for share-based payments to nonemployees with the guidance for share-based payments to employees. The ASU also clarifies that any share-based payment issued to a customer should be evaluated under ASC 606, ~~Revenue from Contracts with Customers. The ASU requires a modified retrospective transition approach. For~~ 3M ~~the ASU is effective~~ as ~~of January 1, 2019. Because~~ the Company does not ~~grant share-based payments to nonemployees or customers, this ASU will not~~ have ~~a material impact on its consolidated results of operations and financial condition.~~

~~In June 2018,~~any assets carried under the ~~FASB issued ASU No. 2018-08,~~ ~~Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made~~.fair value option. The ASU applies to entities that receive or make contributions, which primarily are not-for-profit entities but also affects business entities that make contributions. In the context of business entities that make contributions, the FASB clarified

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that a contribution is conditional if the arrangement includes both a barrier for the recipient to be entitled to the assets transferred and a right of return for the assets transferred (or a right of release of the business entity’s obligation to transfer assets). The recognition of contribution expense is deferred for conditional arrangements and is immediate for unconditional arrangements. The ASU requires modified prospective transition to arrangements that have not been completed as of the effective date ~~or that are entered into after the effective date, but full retrospective application to each period presented~~for 3M is ~~permitted. For 3M, the ASU is effective as of~~ January 1, ~~2019.~~2020 with early adoption permitted for certain amendments. The Company does not expect this ASU to have a material impact on its consolidated results of operations and financial condition.

~~In July 2018, the FASB issued ASU No. 2018-10,~~ ~~Codification Improvements to Topic 842, Leases, which amends ASU No. 2016-02,~~ ~~Leases~~. The new ASU includes certain clarifications to address potential narrow-scope implementation issues which the Company is incorporating into its assessment and adoption of ASU No. 2016-02. This ASU has the same transition requirements and effective date as ASU No. 2016-02, which for 3M is January 1, 2019.

~~In July 2018, the FASB issued ASU No. 2018-11,~~ ~~Leases (Topic 842):Targeted Improvements, which amends ASU No. 2016-02,~~ ~~Leases~~. The new ASU offers an additional transition method by which entities may elect not to recast the comparative periods presented in financial statements in the period of adoption and allows lessors to elect a practical expedient to not separate lease and nonlease components when certain conditions are met. This ASU has the same transition requirements and effective date as ASU No. 2016-02, which for 3M is January 1, 2019.

~~In August 2018, the FASB issued ASU No. 2018-13,~~ ~~Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, amends, and adds disclosure requirements for fair value measurements.~~ The amended and new disclosure requirements primarily relate to Level 3 fair value measurements. For 3M, the ASU is effective as of January 1, 2020. The removal and amendment of certain disclosures may be early adopted with retrospective application while the new disclosure requirements are to be applied prospectively. As this ASU relates only to disclosures, there will be no impact to the Company’s consolidated results of operations and financial condition.

~~In August 2018, the FASB issued ASU No. 2018-14,~~ ~~Changes to the Disclosure Requirements for Defined Benefit Plans, which makes minor changes to the disclosure requirements related to defined benefit pension and other postretirement plans. The ASU requires a retrospective transition approach.~~ ~~For 3M, the ASU is effective as of January 1, 2021. As this ASU relates only to disclosures, there will be no impact to the Company’s consolidated results of operations and financial condition.~~

~~In August 2018, the FASB issued~~ ~~ASU No. 2018-15,Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~, which aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service arrangement (i.e. hosting arrangement) with the guidance on capitalizing costs in ASC 350-40, ~~Internal-Use Software. The ASU permits either a prospective or retrospective transition approach.~~ ~~For 3M, the ASU is effective as of January 1, 2020. The Company is currently assessing this standard’s impact on its consolidated results of operations and financial condition.~~

NOTE 2. Revenue

~~The Company adopted ASU No. 2014-09 and related standards (collectively, Accounting Standards Codification (ASC) 606,~~ ~~Revenue from Contracts with Customers~~), as described in Note 1, on January 1, 2018 using the modified retrospective method of adoption. Prior periods have not been restated. Due to the cumulative net impact of adopting ASC 606, the January 1, 2018 balance of retained earnings was increased by less than $2 million, primarily relating to the accelerated recognition for software installation service and training revenue. This cumulative impact reflects retrospective application of ASC 606 only to contracts that were not completed as of January 1, 2018. Further, the Company applied the practical expedient permitting the effect of all contract modifications that occurred before January 1, 2018 to be aggregated in the transition accounting. The impact of applying ASC 606 as compared with previous guidance applied to revenues and costs was not material for the three and nine months ended September 30, 2018.

~~Performance Obligations:~~

The Company sells a wide range of products to a diversified base of customers around the world and has no material concentration of credit risk or significant payment terms extended to customers. The vast majority of 3M’s customer arrangements contain a single performance obligation to transfer manufactured goods as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and, therefore, not distinct.~~However, to a limited extent 3M also enters into customer~~

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arrangements that involve intellectual property out-licensing, multiple performance obligations (such as equipment, installation and service), software with coterminous post-contract support, services and non-standard terms and conditions.

Revenue is recognized when control of goods has transferred to customers. For the majority of the Company’s customer arrangements, control transfers to customers at a point-in-time when goods/services have been delivered as that is generally when legal title, physical possession and risks and rewards of goods/services transfers to the customer. In limited arrangements, control transfers over time as the customer simultaneously receives and consumes the benefits as 3M completes the performance obligation(s).

Revenue is recognized at the transaction price which the Company expects to be entitled. When determining the transaction price, 3M estimates variable consideration applying the portfolio approach practical expedient under ASC 606. The main sources of variable consideration for 3M are customer rebates, trade promotion funds, and cash discounts. These sales incentives are recorded as a reduction to revenue at the time of the initial sale using the most-likely amount estimation method. The most-likely amount method is based on the single most likely outcome from a range of possible consideration outcomes. The range of possible consideration outcomes are primarily derived from the following inputs: sales terms, historical experience, trend analysis, and projected market conditions in the various markets served. Because 3M serves numerous markets, the sales incentive programs offered vary across businesses, but the most common incentive relates to amounts paid or credited to customers for achieving defined volume levels or growth objectives. There are no material instances where variable consideration is constrained and not recorded at the initial time of sale. Free goods are accounted for as an expense and recorded in cost of sales. Product returns are recorded as a reduction to revenue based on anticipated sales returns that occur in the normal course of business. 3M primarily has assurance-type warranties that do not result in separate performance obligations. Sales, use, value-added, and other excise taxes are not recognized in revenue. The Company has elected to present revenue net of sales taxes and other similar taxes.

For substantially all arrangements recognized over time, the Company applies the “right to invoice” practical expedient. As a result, 3M recognizes revenue at the invoice amount when the entity has a right to invoice a customer at an amount that corresponds directly with the value to the customer of the Company’s performance completed to date.

For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using 3M’s best estimate of the standalone selling price of each distinct good or service in the contract.

~~The Company did not recognize any material revenue in the current reporting period for performance obligations that were fully satisfied in previous periods.~~

Contract Balances:

Deferred revenue (current portion) as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 was ~~$614~~$605 million and ~~$513~~$617 million, respectively, and primarily relates to revenue that is recognized over time for one-year software license contracts, the changes in balance of which are related to the satisfaction or partial satisfaction of these contracts. The balance also contains a deferral for goods that are in-transit at period end for which control transfers to the customer upon delivery. Approximately $80 million and $560 million of the December 31, 2018 balance was recognized as revenue during the three and nine months ended September 30, 2019, respectively, while approximately $70 million and $460 million of the December 31, 2017 balance was recognized as revenue during the the three and nine months ended September 30, 2018, respectively. The amount of noncurrent deferred revenue is not ~~considered~~ significant.

~~Exemptions and Practical Expedients Applied or Elected:~~

~~3M applies ASC 606 utilizing the following allowable exemptions or practical expedients:~~

~~Exemption to not disclose the unfulfilled performance obligation balance for contracts with an original length of one year or less.~~

~~Practical expedient relative to costs of obtaining a contract by expensing sales commissions when incurred because the amortization period would have been one year or less.~~

~~Portfolio approach practical expedient relative to estimation of variable consideration.~~

~~“Right to invoice” practical expedient based on 3M’s right to invoice the customer at an amount that reasonably represents the value to the customer of 3M’s performance completed to date.~~

~~Election to present revenue net of sales taxes and other similar taxes.~~

~~Sales-based royalty exemption permitting future intellectual property out-licensing royalty payments to be excluded from the otherwise required remaining performance obligations disclosure.~~

1411

Table of Contents

Disaggregated revenue information:

The Company views the following disaggregated disclosures as useful to understanding the composition of revenue recognized during the respective reporting periods:


	Three months ended				Nine months ended
	September 30,				September 30,

									Three months ended				Nine months ended
									September 30,				September 30,
Net Sales (Millions)	2018		2017		2018		2017		2019		2018		2019		2018
Abrasives	$	427	$	441	$	1,375	$	1,308	$	345	$	362	$	1,079	$	1,171
Adhesives and Tapes		1,164		1,170		3,482		3,341		696		734		2,075		2,191
Automotive Aftermarket										310		334		929		1,038
Closure and Masking Systems										282		300		835		920
Communication Markets										—		8		—		169
Electrical Markets										298		315		911		949
Personal Safety										813		864		2,656		2,745
Roofing Granules										101		83		293		283
Other Safety and Industrial										4		21		18		76
Total Safety and Industrial Business Segment									$	2,849	$	3,021	$	8,796	$	9,542

Advanced Materials		314		281		935		855	$	319	$	313	$	961	$	932
Automotive and Aerospace		499		490		1,577		1,487		485		509		1,486		1,610
Automotive Aftermarket		397		414		1,253		1,249
Separation and Purification		224		228		698		667
Other Industrial		(2)		(1)		(5)		(2)
Total Industrial Business Group	$	3,023	$	3,023	$	9,315	$	8,905

Commercial Solutions	$	439	$	444	$	1,426	$	1,344		437		436		1,361		1,415
Personal Safety		881		732		2,800		2,160
Roofing Granules		83		98		283		291
Electronics										1,001		1,101		2,759		2,951
Transportation Safety		259		279		752		877		261		260		745		758
Other Safety and Graphics		(2)		(2)		(3)		(2)
Total Safety and Graphics Business Group	$	1,660	$	1,551	$	5,258	$	4,670

Other Transportation and Electronics										—		—		—		(1)
Total Transportation and Electronics Business Segment									$	2,503	$	2,619	$	7,312	$	7,665

Drug Delivery	$	102	$	137	$	340	$	378	$	99	$	102	$	301	$	340
Food Safety		83		78		249		227		86		82		254		246
Health Information Systems		208		197		618		583		296		208		853		618
Medical Solutions		734		756		2,282		2,199		737		732		2,294		2,273
Oral Care		317		318		1,013		984		312		317		991		1,013
Separation and Purification Sciences										191		203		602		631
Other Health Care		1		(1)		(1)		(2)		—		(1)		(5)		(3)
Total Health Care Business Group	$	1,445	$	1,485	$	4,501	$	4,369	$	1,721	$	1,643	$	5,290	$	5,118

Electronics	$	1,103	$	1,095	$	2,959	$	2,856
Energy		339		419		1,170		1,236
Other Electronics and Energy		1		1		1		4
Total Electronics and Energy Business Group	$	1,443	$	1,515	$	4,130	$	4,096


Consumer Health Care	$	96	$	111	$	298	$	317	$	97	$	97	$	297	$	300
Home Care		249		263		773		777		242		249		747		773
Home Improvement		518		517		1,472		1,385		612		579		1,739		1,694
Stationery and Office		362		376		1,012		1,008		361		367		1,006		1,022
Other Consumer		10		12		30		34		12		10		32		30
Total Consumer Business Group	$	1,235	$	1,279	$	3,585	$	3,521	$	1,324	$	1,302	$	3,821	$	3,819


Corporate and Unallocated	$	35	$	3	$	47	$	6	$	28	$	35	$	98	$	47
Elimination of Dual Credit		(689)		(684)		(2,016)		(1,900)		(434)		(468)		(1,292)		(1,371)
Total Company	$	8,152	$	8,172	$	24,820	$	23,667	$	7,991	$	8,152	$	24,025	$	24,820

1512

Table of Contents

Three months ended September 30, 2019

Net Sales (Millions)

United States

Asia Pacific

Europe, Middle East and Africa

Latin America and Canada

Other Unallocated

Worldwide

Safety and Industrial

1,153

713

626

356

2,849

Transportation and Electronics

594

1,390

363

157

(1)

2,503

Health Care

827

360

388

145

1,721

Consumer

843

233

136

112

—

1,324

Corporate and Unallocated

—

Elimination of Dual Credit

(150)

(207)

(49)

(27)

(1)

(434)

Total Company

3,292

2,490

1,465

744

—

7,991

Nine months ended September 30, 2019

Net Sales (Millions)

United States

Asia Pacific

Europe, Middle East and Africa

Latin America and Canada

Other Unallocated

Worldwide

Safety and Industrial

3,498

2,190

2,035

1,073

—

8,796

Transportation and Electronics

1,796

3,917

1,138

463

(2)

7,312

Health Care

2,477

1,121

1,253

438

5,290

Consumer

2,342

745

413

321

—

3,821

Corporate and Unallocated

(1)

Elimination of Dual Credit

(462)

(591)

(158)

(81)

—

(1,292)

Total Company

9,742

7,383

4,682

2,220

(2)

24,025


	Three months ended September 30, 2018
Net Sales (Millions)		United States		Asia Pacific		Europe, Middle East and Africa		Latin America and Canada		Other Unallocated		Worldwide
Safety and Industrial		$	1,208	$	788	$	665	$	361	$	(1)	$	3,021
Transportation and Electronics			627		1,464		378		149		1		2,619
Health Care			740		357		399		146		1		1,643
Consumer			818		237		137		110		—		1,302
Corporate and Unallocated			36		—		—		—		(1)		35
Elimination of Dual Credit			(164)		(225)		(52)		(25)		(2)		(468)
Total Company		$	3,265	$	2,621	$	1,527	$	741	$	(2)	$	8,152


	Nine months ended September 30, 2018
Net Sales (Millions)		United States		Asia Pacific		Europe, Middle East and Africa		Latin America and Canada		Other Unallocated		Worldwide
Safety and Industrial		$	3,726	$	2,397	$	2,296	$	1,126	$	(3)	$	9,542
Transportation and Electronics			1,838		4,151		1,218		458		—		7,665
Health Care			2,248		1,114		1,303		453		—		5,118
Consumer			2,273		778		438		330		—		3,819
Corporate and Unallocated			43		—		—		3		1		47
Elimination of Dual Credit			(471)		(639)		(178)		(81)		(2)		(1,371)
Total Company		$	9,657	$	7,801	$	5,077	$	2,289	$	(4)	$	24,820

Three months ended September 30, 2018

Net Sales (Millions)

United States

Asia Pacific

Europe, Middle East and Africa

Latin America and Canada

Other Unallocated

Worldwide

Industrial

$
1,137

$
898

$
683

$
308

$
(3)

$
3,023

Safety and Graphics

678

411

381

191

(1)

1,660

Health Care

687

282

340

137

(1)

1,445

Electronics and Energy

212

1,079

95

57

—

1,443

Consumer

779

221

129

107

(1)

1,235

Corporate and Unallocated

34

(1)

(2)

—

4

35

Elimination of Dual Credit

(262)

(269)

(99)

(59)

—

(689)

Total Company

$
3,265

$
2,621

$
1,527

$
741

$
(2)

$
8,152

Nine months ended September 30, 2018

Net Sales (Millions)

United States

Asia Pacific

Europe, Middle East and Africa

Latin America and Canada

Other Unallocated

Worldwide

Industrial

$
3,419

$
2,712

$
2,245

$
942

$
(3)

$
9,315

Safety and Graphics

2,077

1,327

1,260

595

(1)

5,258

Health Care

2,092

873

1,115

423

(2)

4,501

Electronics and Energy

685

2,889

371

186

(1)

4,130

Consumer

2,131

729

408

318

(1)

3,585

Corporate and Unallocated

42

(1)

(1)

3

4

47

Elimination of Dual Credit

(789)

(728)

(321)

(178)

—

(2,016)

Total Company

$
9,657

$
7,801

$
5,077

$
2,289

$
(4)

$
24,820

Three months ended September 30, 2017

Net Sales (Millions)

United States

Asia Pacific

Europe, Middle East and Africa

Latin America and Canada

Other Unallocated

Worldwide

Industrial

$
1,111

$
883

$
700

$
331

$
(2)

$
3,023

Safety and Graphics

612

393

352

195

(1)

1,551

Health Care

730

263

354

140

(2)

1,485

Electronics and Energy

233

1,069

142

71

—

1,515

Consumer

785

242

139

112

1

1,279

Corporate and Unallocated

3

(1)

—

1

—

3

Elimination of Dual Credit

(251)

(269)

(98)

(66)

—

(684)

Total Company

$
3,223

$
2,580

$
1,589

$
784

$
(4)

$
8,172

Nine months ended September 30, 2017

Net Sales (Millions)

United States

Asia Pacific

Europe, Middle East and Africa

Latin America and Canada

Other Unallocated

Worldwide

Industrial

$
3,307

$
2,546

$
2,105

$
950

$
(3)

$
8,905

Safety and Graphics

1,832

1,194

1,067

578

(1)

4,670

Health Care

2,117

784

1,060

410

(2)

4,369

Electronics and Energy

697

2,775

421

203

—

4,096

Consumer

2,066

732

404

319

—

3,521

Corporate and Unallocated

6

—

—

1

(1)

6

Elimination of Dual Credit

(734)

(696)

(286)

(184)

—

(1,900)

Total Company

$
9,291

$
7,335

$
4,771

$
2,277

$
(7)

$
23,667

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NOTE 3. Acquisitions and Divestitures

Acquisitions:

3M makes acquisitions of certain businesses from time to time that are aligned with its strategic intent with respect to, among other factors, growth markets and adjacent product lines or technologies. Goodwill resulting from business combinations is largely attributable to the existing workforce of the acquired businesses and synergies expected to arise after 3M’s acquisition of these businesses.


	2019 Acquisition Activity
			Finite-Lived
			Intangible-Asset
(Millions)			Weighted-Average
Asset (Liability)	*MModal**		Lives (Years)
Accounts receivable	$	77
Other current assets		2
Property, plant, and equipment		8
Purchased finite-lived intangible assets:
Customer related intangible assets		275	14
Other technology-based intangible assets		160	6
Definite-lived tradenames		11	6
Purchased goodwill		508
Other assets		59
Accounts payable and other liabilities		(124)
Interest bearing debt		(251)
Deferred tax asset/(liability)		(21)

Net assets acquired	$	704

Supplemental information:
Cash paid	$	708
Less: Cash acquired		4
Cash paid, net of cash acquired	$	704

Purchased identifiable finite-lived intangible assets related to acquisitions which closed in the nine months ended September 30, 2019 totaled $446 million. The associated finite-lived intangible assets acquired will be amortized on a systematic and rational basis (generally straight line) over a weighted-average life of 11 years (lives ranging from 6 to 14 years).

In February 2019, 3M completed the acquisition of the technology business of M*Modal for $0.7 billion of cash, net of cash acquired, and assumption of $0.3 billion of M*Modal’s debt. Based in Pittsburgh, Pennsylvania, M*Modal is a leading healthcare technology provider of cloud-based, conversational artificial intelligence-powered systems that help physicians efficiently capture and improve the patient narrative. The allocation of purchase consideration related to M*Modal is considered preliminary with provisional amounts primarily related to certain tax-related and contingent liability amounts. 3M expects to finalize the allocation of purchase price within the one-year measurement-period following the acquisition. Net sales and operating loss (inclusive of transaction and integration costs) of this business included in 3M’s consolidated results of operations for the third quarter of 2019 were approximately $75 million and $5 million, respectively. Net sales and operating loss (inclusive of transaction and integration costs) of this business included in 3M’s consolidated results of operations for the first nine months of 2019 were approximately $200 million and $40 million, respectively. Proforma information related to the acquisition has not been included as the impact on the Company’s consolidated results of operations was not considered material.

In October 2019, 3M completed the acquisition of Acelity Inc. and its KCI subsidiaries for cash of approximately $4.5 billion, subject to closing and other adjustments, and assumption of $2.5 billion of debt and related items (see also Note 10). Acelity is a leading global medical technology company focused on advanced wound care and specialty surgical applications marketed under the KCI brand. This transaction will be reflected within the Company’s Health Care business. Due to the limited amount of time since the October acquisition date and the limitations on access to Acelity information prior to the acquisition date, the preliminary allocation of purchase consideration is incomplete at this time. As a result, the Company is unable to provide the amounts recognized as of the

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acquisition date for the major classes of assets acquired and liabilities assumed, including the information required for valuation of intangible assets and goodwill.

There were ~~no business combinations~~0 acquisitions that closed during the nine months ended September 30, 2018.

As discussed in 3M’s Current Report on Form 8-K dated May 8, 2018 (which updated 3M’s 2017 Annual Report on Form 10-K), in October 2017, 3M completed the acquisition of Scott Safety for $2.0 billion of cash, net of cash acquired. Adjustments in 2018 to the purchase price allocation were approximately $7 million and related to identification of certain immaterial acquired assets, tax-related and contingent liabilities, and resolution of certain acquired working capital and other purchase price adjustments with the seller. The change to provisional amounts did not result in material impacts to results of operations in 2018 or any portion related to earlier quarters in the measurement period. The allocation of purchase consideration related to Scott Safety was completed in the third quarter of 2018.Divestitures:

~~Divestitures:~~

3M may divest certain businesses from time to time based upon ~~reviews~~review of the Company’s portfolio considering, among other items, factors relative to the extent of strategic and technological alignment and optimization of capital deployment, in addition to considering if selling the businesses results in the greatest value creation for the Company and ~~its~~for shareholders.

~~2018~~2019 divestitures:

During the first quarter of 2019, the Company sold certain oral care technology comprising a business and reflected an earnout on a previous divestiture resulting in an aggregate immaterial gain.

In ~~February 2018,~~August 2019, 3M closed on the sale of its gas and flame detection business, a leader in fixed and portable gas and flame detection, to Teledyne Technologies Incorporated. This business has annual sales of approximately $120 million. The transaction resulted in a pre-tax gain of $112 million that was reported within the Company’s Safety and Industrial business.

In August 2019, 3M entered into an agreement with Avon Rubber p.l.c. to purchase 3M’s advanced ballistic-protection business for $91 million, subject to closing and other adjustments, plus contingent considerations of up to $25 million depending on the outcome of pending tenders. The business, with annual sales of approximately $85 million, consists of ballistic helmets, body armor, flat armor and related helmet-attachment products serving government and law enforcement. The transaction, which is subject to customary closing conditions and regulatory approvals, is expected to be completed in late 2019 or early 2020. The Company reflected an immaterial impact in the third quarter of 2019 within the Transportation and Electronics business as a result of measuring this disposal group at the lower of its carrying amount or fair value less cost to sell.

2018 divestitures:

During 2018, as described in Note 3 in 3M’s 2018 Annual Report on Form 10-K, the Company divested a number of businesses including: certain personal safety product offerings primarily focused on noise, environmental and heat stress monitoring to TSI, Inc. This business has annual sales of approximately $15 million. The transaction resulted in a pre-tax gain of less than $20 million that was reported within the Company’s Safety and Graphics business.

~~In addition, during the first quarter of 2018, 3M divested~~monitoring; a polymer additives compounding ~~business, formerly part of the Company’s Industrial business, and reflected a gain on final closing adjustments from a prior divestiture which, in aggregate, were not material.~~

~~In May 2018, 3M divested~~business; an abrasives glass products ~~business, formerly part of the Company’s Industrial business, with annual sales of approximately $10 million. The transaction resulted in a pre-tax gain of less than $15 million.~~

~~In June 2018, 3M completed the sale of~~business; and substantially all of its Communication Markets ~~Division to Corning Incorporated. This business, with annual sales of approximately $400 million, consists of optical fiber~~Division.

Operating income and ~~copper passive connectivity solutions~~held for the telecommunications industry including 3M’s xDSL, FTTx, and structured cabling solutions and, in certain countries, telecommunications system integration services. 3M received cash proceeds of $772 million and reflected a pre-tax gain of $494 million as a result of this divestiture, which was reported within the Company’s Electronics and Energy business. The sale ~~of the telecommunications system integration services portion of the business based in Germany for approximately $30 million remains pending and is expected to be completed by the end of 2018.~~

~~2017 divestitures:~~

During 2017, as described in Note 2 in 3M’s Current Report on Form 8-K dated May 8, 2018 (which updated 3M’s 2017 Annual Report on Form 10-K), the Company divested of a number of business including its: safety prescription eyewear; identity management; tolling and automated license/number plate recognition; electronic monitoring; and electrical marking/labeling businesses.

~~Table of Contents~~

amounts:

The aggregate operating income of these businesses was approximately ~~$25~~$30 million and ~~$20 million~~immaterial in the first nine months of 2018 and ~~2017,~~2019, respectively. The approximate amounts of major assets and liabilities associated with disposal groups classified as held-for-sale as of ~~September 30,~~December 31, 2018 were not material and as of ~~December 31, 2017~~September 30, 2019 included the following:

December 31,

(Millions)

2017

Accounts receivable

$
25

Property, plant and equipment (net)

20


	September 30,
(Millions)	2019
Inventory	$	25
Property, plant and equipment		10
Intangible assets		35

In addition, ~~an immaterial amount and~~ approximately ~~$275~~$10 million of goodwill was estimated to be attributable to disposal groups classified as held-for-sale as of September 30, ~~2018 and December 31, 2017, respectively,~~2019, based upon relative fair value. The amounts above have not been segregated and are classified within the existing corresponding line items on the Company’s consolidated balance sheet.

Refer to Note 23 in 3M’s ~~Current Report on Form 8-K dated May 8,~~ 2018 ~~(which updated 3M’s 2017~~ Annual Report on Form ~~10-K)~~10-K for more information on 3M’s acquisitions and divestitures.

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NOTE 4. Goodwill and Intangible Assets

~~There were no~~Goodwill from acquisitions ~~that closed~~totaled $508 million during the first nine months of 2018. The acquisition activity in the following table relates to the net impact of adjustments to the preliminary allocation of purchase price within the one year measurement period following prior acquisitions, which increased goodwill by $7 million during the nine months ended September 30, 2018. Divestiture activity within the Electronics and Energy business segment relates to the sale of substantially all of the Communication Markets Division.2019. The amounts in the “Translation and other” ~~column~~row in the following table primarily relate to changes in foreign currency exchange rates. The goodwill ~~balances~~balance by business segment as of December 31, ~~2017~~2018 and September 30, ~~2018,~~2019, follow:

Goodwill

December 31, 2017

Acquisition

Divestiture

Translation

September 30, 2018

(Millions)

Balance

activity

activity

and other

Balance

Industrial

$
2,678

$
—

$
(4)

$
(50)

$
2,624

Safety and Graphics

4,419

7

(8)

(53)

4,365

Health Care

1,682

—

—

(20)

1,662

Electronics and Energy

1,524

—

(247)

(11)

1,266

Consumer

210

—

—

(4)

206

Total Company

$
10,513

$
7

$
(259)

$
(138)

$
10,123


(Millions)	Safety and Industrial		Transportation and Electronics		Health Care		Consumer		Total Company
Balance as of December 31, 2018		4,716		1,857		3,248		230		10,051
Acquisition activity		—		—		508		—		508
Divestiture activity		(49)		—		—		—		(49)
Translation and other		(51)		(27)		(53)		31		(100)
Balance as of September 30, 2019	$	4,616	$	1,830	$	3,703	$	261	$	10,410

Accounting standards require that goodwill be tested for impairment annually and between annual tests in certain circumstances such as a change in reporting units or the testing of recoverability of a significant asset group within a reporting unit. At 3M, reporting units ~~generally~~ correspond to a division.

As described in Note ~~16,~~17, effective in the second quarter of 2019, the Company realigned its former 5 business segments into 4 to enable the Company to better serve global customers and markets. In addition, effective in the first quarter of ~~2018,~~2019, the Company changed its business segment reporting in its continuing effort to improve the alignment of its businesses around markets and customers. In addition, certain shared film manufacturing and supply technology platform resources formerly reflected within the Electronics and Energy business segment were combined with other shared and centrally managed material resource centers of expertise within Corporate and Unallocated. For any product changes that resulted in reporting unit changes, the Company applied the relative fair value method to determine the impact on goodwill of the associated reporting units. During the first ~~quarter~~and second quarters of ~~2018,~~2019, the Company completed its assessment of any potential goodwill impairment for reporting units impacted by this new structure and determined that no0 impairment existed.

~~Table of Contents~~

Acquired Intangible Assets

The carrying amount and accumulated amortization of acquired finite-lived intangible assets, in addition to the balance of non-amortizable intangible assets, as of September 30, ~~2018,~~2019, and December 31, ~~2017,~~2018, follow:


	September 30,		December 31,
(Millions)	2019		2018
Customer related intangible assets	$	2,525	$	2,291
Patents		536		542
Other technology-based intangible assets		727		576
Definite-lived tradenames		673		664
Other amortizable intangible assets		122		125
Total gross carrying amount	$	4,583	$	4,198

Accumulated amortization — customer related		(1,107)		(998)
Accumulated amortization — patents		(493)		(487)
Accumulated amortization — other technology-based		(382)		(333)
Accumulated amortization — definite-lived tradenames		(300)		(276)
Accumulated amortization — other		(89)		(88)
Total accumulated amortization	$	(2,371)	$	(2,182)

Total finite-lived intangible assets — net	$	2,212	$	2,016

Non-amortizable intangible assets (primarily tradenames)		635		641
Total intangible assets — net	$	2,847	$	2,657

September 30,

December 31,

(Millions)

2018

2017

Customer related intangible assets

$
2,301

$
2,332

Patents

544

561

Other technology-based intangible assets

578

583

Definite-lived tradenames

664

678

Other amortizable intangible assets

125

207

Total gross carrying amount

$
4,212

$
4,361

Accumulated amortization — customer related

(966)

(874)

Accumulated amortization — patents

(486)

(489)

Accumulated amortization — other technology based

(323)

(292)

Accumulated amortization — definite-lived tradenames

(268)

(256)

Accumulated amortization — other

(86)

(162)

Total accumulated amortization

$
(2,129)

$
(2,073)

Total finite-lived intangible assets — net

$
2,083

$
2,288

Non-amortizable intangible assets (primarily tradenames)

643

648

Total intangible assets — net

$
2,726

$
2,936

Table of Contents

Certain tradenames acquired by 3M ~~does~~are not ~~amortize certain acquired tradenames~~amortized because they have been in existence for over 55 years, have a history of leading-market share positions, have been and are intended to be continuously renewed, and the associated products of which are expected to generate cash flows for 3M for an indefinite period of time.

Amortization expense ~~for acquired intangible assets~~ for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 follows:


	Three months ended				Nine months ended
	September 30,				September 30,

									Three months ended				Nine months ended
									September 30,				September 30,
(Millions)	2018		2017		2018		2017		2019		2018		2019		2018
Amortization expense	$	61	$	51	$	188	$	162	$	69	$	61	$	208	$	188

Expected amortization expense for acquired amortizable intangible assets recorded as of September 30, ~~2018:~~2019:


	Remainder of												After

															Remainder of												After
(Millions)	2018		2019		2020		2021		2022		2023		2023		2019		2020		2021		2022		2023		2024		2024
Amortization expense	$	62	$	241	$	229	$	220	$	206	$	175	$	950	$	69	$	264	$	256	$	242	$	213	$	183	$	950

The preceding expected amortization expense is an estimate. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, changes in foreign currency exchange rates, impairment of intangible assets, accelerated amortization of intangible assets and other events. The table above excludes the impact of the carrying value of finite-lived intangible assets associated with disposal groups classified as held-for-sale at September 30, 2019. See Note 3 for additional details. 3M expenses the costs incurred to renew or extend the term of intangible assets.

~~Table of Contents~~

NOTE 5. Restructuring Actions and Exit Activities

~~2018~~2019 Restructuring Actions:

During the second quarter of 2019, in light of a slower than expected 2019 sales, management approved and committed to undertake certain restructuring actions. These actions impacted approximately 2,000 positions worldwide, including attrition. The Company recorded a second quarter 2019 pre-tax charge of $148 million. The restructuring charges were recorded in the income statement as follows:


(Millions)	Second Quarter 2019
Cost of sales	$	18
Selling, general and administrative expenses		89
Research, development and related expenses		5
Total operating income impact		112
Other expense (income), net		36
Total income before taxes impact	$	148

The operating income impact of these restructuring charges are summarized by business segment as follows:


	Second Quarter 2019
(Millions)	Employee-Related		Asset-Related		Total
Safety and Industrial	$	11	$	—	$	11
Transportation and Electronics		8		—		8
Health Care		6		—		6
Consumer		5		—		5
Corporate and Unallocated		42		40		82
Total Operating Expense	$	72	$	40	$	112

The 2019 actions included a voluntary early retirement incentive (further discussed in Note 11), the charge for which is included in other expense (income), net above.

Table of Contents

Restructuring actions, including cash and non-cash impacts, follow:


(Millions)	Employee-Related		Asset-Related		Total
Expense incurred in the second quarter of 2019	$	108	$	40	$	148
Non-cash changes		(36)		(40)		(76)
Cash payments		(41)		—		(41)
Adjustments		(14)		—		(14)
Accrued restructuring action balances as of September 30, 2019	$	17	$	—	$	17

Remaining activities related to this restructuring are expected to be completed largely through the first quarter of 2020.

2018 Restructuring Actions:

During the second quarter and fourth quarter of 2018, management approved and committed to undertake certain restructuring actions related to addressing corporate functional costs following the Communication Markets Division divestiture. These actions affected approximately ~~900~~1,200 positions worldwide and resulted in a second quarter 2018 pre-tax charge of $105 million and a fourth quarter pre-tax charge of $22 million, net of adjustments for reductions in cost estimates of $10 million, essentially all within Corporate and Unallocated.

The restructuring charges were recorded in the income statement as follows:



(Millions)	Second Quarter 2018		Second Quarter 2018		Fourth Quarter 2018
Cost of sales	$	12	$	12	$	15
Selling, general and administrative expenses		89		89		16
Research, development and related expenses		4		4		1
Total	$	105	$	105	$	32

~~Components of these restructuring~~Restructuring actions, including cash and non-cash impacts, follow:



(Millions)	Employee-Related		Employee-Related		Asset-Related		Total
Expense incurred in the second quarter of 2018	$	105
Expense incurred in the second quarter and fourth quarter of 2018			$	125	$	12	$	137
Non-cash changes				—		(12)		(12)
Cash payments		(12)		(24)		—		(24)
Adjustments		(7)		(17)		—		(17)
Accrued restructuring action balances as of September 30, 2018	$	86
Accrued restructuring action balances as of December 31, 2018			$	84	$	—	$	84
Cash payments				(68)		—		(68)
Adjustments				(3)		—		(3)
Accrued restructuring action balances as of September 30, 2019			$	13	$	—	$	13

Remaining activities related to this restructuring are expected to be largely completed through ~~the first half of~~ 2019.

~~2017 Restructuring Actions:~~

During the second quarter of 2017, management approved and committed to undertake certain restructuring actions primarily focused on portfolio and footprint optimization. These actions affected approximately 1,300 positions worldwide and resulted in a second quarter 2017 pre-tax charge of $99 million.

~~Components of these restructuring actions, including cash and non-cash impacts, follow:~~

(Millions)

Employee-Related

Expense incurred in the second quarter of 2017

$
99

Cash payments

(8)

Adjustments

(3)

Accrued restructuring action balances as of December 31, 2017

$
88

Cash payments

(17)

Adjustments

(27)

Accrued restructuring action balances as of September 30, 2018

$
44

Remaining activities related to this restructuring are expected to be largely completed by the end of 2018. A portion of the adjustments detailed above include certain severance accruals taken in 2017, the obligation for which was relieved and reflected as part of the gain on divestiture when that business was sold in 2018.

~~2017 Exit Activities:~~

~~During the first quarter of 2017, the Company recorded net pre-tax charges of $24 million related to exit activities. These charges related to employee reductions, primarily in Western Europe.~~

2018

Table of Contents

NOTE 6. Supplemental Income Statement Information

Other expense (income), net consists of the following:

Three months ended

Nine months ended

September 30,

September 30,

(Millions)

2018

2017

2018

2017

Interest expense

$
85

$
57

$
255

$
156

Interest income

(15)

(13)

(52)

(33)

Pension and postretirement net periodic benefit cost (benefit)

(19)

(33)

(59)

(96)

Total

$
51

$
11

$
144

$
27


	Three months ended				Nine months ended
	September 30,				September 30,
(Millions)	2019		2018		2019		2018
Interest expense	$	109	$	85	$	324	$	255
Interest income		(26)		(15)		(64)		(52)
Pension and postretirement net periodic benefit cost (benefit)		(38)		(19)		(73)		(59)
Loss on deconsolidation of Venezuelan subsidiary		—		—		162		—
Total	$	45	$	51	$	349	$	144

Pension and postretirement net periodic benefit costs described in the table above include all components of defined benefit plan net periodic benefit costs except service cost, which is reported in various operating expense lines. Pension and postretirement net periodic benefit costs for the nine months ended September 30, 2019 include a second quarter charge related to the voluntary early retirement incentive program announced in May 2019. Refer to Note 11 for additional details on the voluntary early retirement incentive program in addition to the components of pension and postretirement net periodic benefit costs.

In the second quarter of 2019, the Company incurred a charge of $162 million related to the deconsolidation of its Venezuelan subsidiary. Refer to Note 1 for additional details.

NOTE 7. Supplemental Equity and Comprehensive Income Information

Cash dividends declared and paid totaled $1.44 and $1.36 per share for the first, second and third quarters 2019 and 2018, respectively, or $4.32 and $4.08 per share for the first nine months of 2019 and 2018, respectively.

Consolidated Changes in Equity

Three months ended September 30, 2019


			3M Company Shareholders
			Common						Accumulated
			Stock and						Other
			Additional						Comprehensive		Non-
			Paid-in		Retained		Treasury		Income		controlling
(Millions)	Total		Capital		Earnings		Stock		(Loss)		Interest
Balance at June 30, 2019	$	10,142	$	5,821	$	41,362	$	(29,828)	$	(7,272)	$	59

Net income		1,588				1,583						5
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment		(202)								(200)		(2)
Defined benefit pension and post-retirement plans adjustment		76								76		—
Cash flow hedging instruments		8								8		—
Total other comprehensive income (loss), net of tax		(118)
Dividends declared		(828)				(828)
Stock-based compensation		49		49
Reacquired stock		(141)						(141)
Issuances pursuant to stock option and benefit plans		72				(32)		104
Balance at September 30, 2019	$	10,764	$	5,870	$	42,085	$	(29,865)	$	(7,388)	$	62

Table of Contents

Nine Months Ended September 30, 2019


			3M Company Shareholders
			Common						Accumulated
			Stock and						Other
			Additional						Comprehensive		Non-
			Paid-in		Retained		Treasury		Income		controlling
(Millions)	Total		Capital		Earnings		Stock		(Loss)		Interest
Balance at December 31, 2018	$	9,848	$	5,652	$	40,636	$	(29,626)	$	(6,866)	$	52

Impact of adoption of ASU No. 2018-02 (See Note 1)		—				853				(853)
Impact of adoption of ASU No. 2016-02 (See Note 1)		14				14
Net income		3,612				3,601						11
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment		(2)								(1)		(1)
Defined benefit pension and post-retirement plans adjustment		356								356		—
Cash flow hedging instruments		(24)								(24)		—
Total other comprehensive income (loss), net of tax		330
Dividends declared		(2,488)				(2,488)
Stock-based compensation		218		218
Reacquired stock		(1,211)						(1,211)
Issuances pursuant to stock option and benefit plans		441				(531)		972
Balance at September 30, 2019	$	10,764	$	5,870	$	42,085	$	(29,865)	$	(7,388)	$	62

Three months ended September 30, 2018


			3M Company Shareholders
			Common						Accumulated
			Stock and						Other
			Additional						Comprehensive		Non-
			Paid-in		Retained		Treasury		Income		controlling
(Millions)	Total		Capital		Earnings		Stock		(Loss)		Interest
Balance at June 30, 2018	$	10,428	$	5,559	$	39,442	$	(27,617)	$	(7,019)	$	63

Net income		1,546				1,543						3
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment		(112)								(109)		(3)
Defined benefit pension and post-retirement plans adjustment		114								114		—
Cash flow hedging instruments		46								46		—
Total other comprehensive income (loss), net of tax		48
Dividends declared		(794)				(794)
Stock-based compensation		47		47
Reacquired stock		(1,058)						(1,058)
Issuances pursuant to stock option and benefit plans		94				(71)		165
Balance at September 30, 2018	$	10,311	$	5,606	$	40,120	$	(28,510)	$	(6,968)	$	63

3M Company Shareholders

Common

Accumulated

Stock and

Other

Additional

Comprehensive

Non-

Paid-in

Retained

Treasury

Income

controlling

(Millions)

Total

Capital

Earnings

Stock

(Loss)

Interest

Balance at June 30, 2018

$
10,428

$
5,559

$
39,442

$
(27,617)

$
(7,019)

$
63

Net income

1,546

1,543

3

Other comprehensive income (loss), net of tax:

Cumulative translation adjustment

(112)

(109)

(3)

Defined benefit pension and post-retirement plans adjustment

114

114

—

Cash flow hedging instruments - unrealized gain (loss)

46

46

—

Total other comprehensive income (loss), net of tax

48

Dividends declared

(794)

(794)

Stock-based compensation

47

47

Reacquired stock

(1,058)

(1,058)

Issuances pursuant to stock option and benefit plans

94

(71)

165

Balance at September 30, 2018

$
10,311

$
5,606

$
40,120

$
(28,510)

$
(6,968)

$
63

2120

Table of Contents

Nine months ended September 30, 2018


			3M Company Shareholders
			Common						Accumulated
			Stock and						Other
			Additional						Comprehensive		Non-
			Paid-in		Retained		Treasury		Income		controlling

															3M Company Shareholders
															Common						Accumulated
															Stock and						Other
															Additional						Comprehensive		Non-
															Paid-in		Retained		Treasury		Income		controlling
(Millions)	Total		Capital		Earnings		Stock		(Loss)		Interest		Total		Capital		Earnings		Stock		(Loss)		Interest
Balance at December 31, 2017	$	11,622	$	5,361	$	39,115	$	(25,887)	$	(7,026)	$	59	$	11,622	$	5,361	$	39,115	$	(25,887)	$	(7,026)	$	59


Net income		4,014				4,002						12		4,014				4,002						12
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment		(441)								(433)		(8)		(441)								(433)		(8)
Defined benefit pension and post-retirement plans adjustment		344								344		—		344								344		—
Cash flow hedging instruments - unrealized gain (loss)		147								147		—
Cash flow hedging instruments														147								147		—
Total other comprehensive income (loss), net of tax		50												50
Dividends declared		(2,406)				(2,406)								(2,406)				(2,406)
Stock-based compensation		245		245										245		245
Reacquired stock		(3,621)						(3,621)						(3,621)						(3,621)
Issuances pursuant to stock option and benefit plans		407				(591)		998						407				(591)		998
Balance at September 30, 2018	$	10,311	$	5,606	$	40,120	$	(28,510)	$	(6,968)	$	63	$	10,311	$	5,606	$	40,120	$	(28,510)	$	(6,968)	$	63

~~Three months ended September 30, 2017~~

3M Company Shareholders

Common

Accumulated

Stock and

Other

Additional

Comprehensive

Non-

Paid-in

Retained

Treasury

Income

controlling

(Millions)

Total

Capital

Earnings

Stock

(Loss)

Interest

Balance at June 30, 2017

$
11,644

$
5,253

$
38,793

$
(25,466)

$
(6,989)

$
53

Net income

1,433

1,429

4

Other comprehensive income (loss), net of tax:

Cumulative translation adjustment

44

45

(1)

Defined benefit pension and post-retirement plans adjustment

80

80

—

Cash flow hedging instruments - unrealized gain (loss)

(49)

(49)

—

Total other comprehensive income (loss), net of tax

75

Dividends declared

(701)

(701)

Stock-based compensation

58

58

Reacquired stock

(394)

(394)

Issuances pursuant to stock option and benefit plans

87

(67)

154

Balance at September 30, 2017

$
12,202

$
5,311

$
39,454

$
(25,706)

$
(6,913)

$
56

~~Table of Contents~~

~~Nine months ended September 30, 2017~~

3M Company Shareholders

Common

Accumulated

Stock and

Other

Additional

Comprehensive

Non-

Paid-in

Retained

Treasury

Income

controlling

(Millions)

Total

Capital

Earnings

Stock

(Loss)

Interest

Balance at December 31, 2016

$
10,343

$
5,070

$
37,907

$
(25,434)

$
(7,245)

$
45

Net income

4,344

4,335

9

Other comprehensive income (loss), net of tax:

Cumulative translation adjustment

269

267

2

Defined benefit pension and post-retirement plans adjustment

241

241

—

Cash flow hedging instruments - unrealized gain (loss)

(176)

(176)

—

Total other comprehensive income (loss), net of tax

334

Dividends declared

(2,104)

(2,104)

Stock-based compensation

241

241

Reacquired stock

(1,547)

(1,547)

Issuances pursuant to stock option and benefit plans

591

(684)

1,275

Balance at September 30, 2017

$
12,202

$
5,311

$
39,454

$
(25,706)

$
(6,913)

$
56

Changes in Accumulated Other Comprehensive Income (Loss) Attributable to 3M by Component

Three months ended September 30, 2019


							Total
			Defined Benefit		Cash Flow		Accumulated
			Pension and		Hedging		Other
	Cumulative		Postretirement		Instruments,		Comprehensive
	Translation		Plans		Unrealized		Income
(Millions)	Adjustment		Adjustment		Gain (Loss)		(Loss)
Balance at June 30, 2019, net of tax:	$	(1,912)	$	(5,369)	$	9	$	(7,272)
Other comprehensive income (loss), before tax:
Amounts before reclassifications		(149)		—		31		(118)
Amounts reclassified out		—		101		(21)		80
Total other comprehensive income (loss), before tax		(149)		101		10		(38)
Tax effect		(51)		(25)		(2)		(78)
Total other comprehensive income (loss), net of tax		(200)		76		8		(116)
Balance at September 30, 2019, net of tax:	$	(2,112)	$	(5,293)	$	17	$	(7,388)

Nine months ended September 30, 2019


							Total
			Defined Benefit		Cash Flow		Accumulated
			Pension and		Hedging		Other
	Cumulative		Postretirement		Instruments,		Comprehensive
	Translation		Plans		Unrealized		Income
(Millions)	Adjustment		Adjustment		Gain (Loss)		(Loss)
Balance at December 31, 2018, net of tax:	$	(2,098)	$	(4,832)	$	64	$	(6,866)
Impact of adoption of ASU No. 2018-02 (See Note 1)		(13)		(817)		(23)		(853)
Other comprehensive income (loss), before tax:
Amounts before reclassifications		(86)		153		14		81
Amounts reclassified out		142		310		(48)		404
Total other comprehensive income (loss), before tax		56		463		(34)		485
Tax effect		(57)		(107)		10		(154)
Total other comprehensive income (loss), net of tax		(1)		356		(24)		331
Balance at September 30, 2019, net of tax:	$	(2,112)	$	(5,293)	$	17	$	(7,388)

Table of Contents

Three months ended September 30, 2018


							Total
			Defined Benefit		Cash Flow		Accumulated
			Pension and		Hedging		Other
	Cumulative		Postretirement		Instruments,		Comprehensive
	Translation		Plans		Unrealized		Income

															Total
											Defined Benefit		Cash Flow		Accumulated
											Pension and		Hedging		Other
									Cumulative		Postretirement		Instruments,		Comprehensive
									Translation		Plans		Unrealized		Income
(Millions)	Adjustment		Adjustment		Gain (Loss)		(Loss)		Adjustment		Adjustment		Gain (Loss)		(Loss)
Balance at June 30, 2018, net of tax:	$	(1,962)	$	(5,046)	$	(11)	$	(7,019)	$	(1,962)	$	(5,046)	$	(11)	$	(7,019)
Other comprehensive income (loss), before tax:
Amounts before reclassifications		(110)		—		22		(88)		(110)		—		22		(88)
Amounts reclassified out		—		150		37		187		—		150		37		187
Total other comprehensive income (loss), before tax		(110)		150		59		99		(110)		150		59		99
Tax effect		1		(36)		(13)		(48)		1		(36)		(13)		(48)
Total other comprehensive income (loss), net of tax		(109)		114		46		51		(109)		114		46		51
Balance at September 30, 2018, net of tax:	$	(2,071)	$	(4,932)	$	35	$	(6,968)	$	(2,071)	$	(4,932)	$	35	$	(6,968)

Nine months ended September 30, 2018


							Total
			Defined Benefit		Cash Flow		Accumulated
			Pension and		Hedging		Other
	Cumulative		Postretirement		Instruments,		Comprehensive
	Translation		Plans		Unrealized		Income

															Total
											Defined Benefit		Cash Flow		Accumulated
											Pension and		Hedging		Other
									Cumulative		Postretirement		Instruments,		Comprehensive
									Translation		Plans		Unrealized		Income
(Millions)	Adjustment		Adjustment		Gain (Loss)		(Loss)		Adjustment		Adjustment		Gain (Loss)		(Loss)
Balance at December 31, 2017, net of tax:	$	(1,638)	$	(5,276)	$	(112)	$	(7,026)	$	(1,638)	$	(5,276)	$	(112)	$	(7,026)
Other comprehensive income (loss), before tax:
Amounts before reclassifications		(392)		—		122		(270)		(392)		—		122		(270)
Amounts reclassified out		—		452		99		551		—		452		99		551
Total other comprehensive income (loss), before tax		(392)		452		221		281		(392)		452		221		281
Tax effect		(41)		(108)		(74)		(223)		(41)		(108)		(74)		(223)
Total other comprehensive income (loss), net of tax		(433)		344		147		58		(433)		344		147		58
Balance at September 30, 2018, net of tax:	$	(2,071)	$	(4,932)	$	35	$	(6,968)
Balance at September 30, 2018, net of tax									$	(2,071)	$	(4,932)	$	35	$	(6,968)

~~Table of Contents~~

~~Three months ended September 30, 2017~~

Total

Defined Benefit

Cash Flow

Accumulated

Pension and

Hedging

Other

Cumulative

Postretirement

Instruments,

Comprehensive

Translation

Plans

Unrealized

Income

(Millions)

Adjustment

Adjustment

Gain (Loss)

(Loss)

Balance at June 30, 2017, net of tax:

$
(1,786)

$
(5,167)

$
(36)

$
(6,989)

Other comprehensive income (loss), before tax:

Amounts before reclassifications

(29)

—

(80)

(109)

Amounts reclassified out

—

119

2

121

Total other comprehensive income (loss), before tax

(29)

119

(78)

12

Tax effect

74

(39)

29

64

Total other comprehensive income (loss), net of tax

45

80

(49)

76

Balance at September 30, 2017, net of tax:

$
(1,741)

$
(5,087)

$
(85)

$
(6,913)

~~Nine months ended September 30, 2017~~

Total

Defined Benefit

Cash Flow

Accumulated

Pension and

Hedging

Other

Cumulative

Postretirement

Instruments,

Comprehensive

Translation

Plans

Unrealized

Income

(Millions)

Adjustment

Adjustment

Gain (Loss)

(Loss)

Balance at December 31, 2016, net of tax:

$
(2,008)

$
(5,328)

$
91

$
(7,245)

Other comprehensive income (loss), before tax:

Amounts before reclassifications

30

—

(255)

(225)

Amounts reclassified out

—

357

(21)

336

Total other comprehensive income (loss), before tax

30

357

(276)

111

Tax effect

237

(116)

100

221

Total other comprehensive income (loss), net of tax

267

241

(176)

332

Balance at September 30, 2017, net of tax

$
(1,741)

$
(5,087)

$
(85)

$
(6,913)

Income taxes are not provided for foreign translation relating to permanent investments in international subsidiaries, but tax effects within cumulative translation dodoes include impacts from items such as net investment hedge transactions. Reclassification adjustments are made to avoid double counting in comprehensive income items that are ~~also~~subsequently recorded as part of net income.

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Reclassifications out of Accumulated Other Comprehensive Income Attributable to 3M


	Amount Reclassified from

										Amount Reclassified from
Details about Accumulated Other	Accumulated Other Comprehensive Income									Accumulated Other Comprehensive Income
Comprehensive Income Components	Three months ended September 30,				Nine months ended September 30,				Location on Income	Three months ended September 30,				Nine months ended September 30,				Location on Income
(Millions)	2018		2017		2018		2017		Statement	2019		2018		2019		2018		Statement
Cumulative translation adjustment
Deconsolidation of Venezuelan subsidiary										$	—	$	—	$	(142)	$	—	Other income (expense), net
Total before tax											—		—		(142)		—
Tax effect											—		—		—		—	Provision for income taxes
Net of tax										$	—	$	—	$	(142)	$	—

Defined benefit pension and postretirement plans adjustments
Gains (losses) associated with defined benefit pension and postretirement plans amortization
Prior service benefit	$	20	$	21	$	58	$	65	See Note 11	$	18	$	20	$	50	$	58	See Note 11
Net actuarial loss		(170)		(140)		(510)		(422)	See Note 11		(119)		(170)		(358)		(510)	See Note 11
Deconsolidation of Venezuelan subsidiary											—		—		(2)		—	Other income (expense), net
Total before tax		(150)		(119)		(452)		(357)			(101)		(150)		(310)		(452)
Tax effect		36		39		108		116	Provision for income taxes		25		36		70		108	Provision for income taxes
Net of tax	$	(114)	$	(80)	$	(344)	$	(241)		$	(76)	$	(114)	$	(240)	$	(344)


Cash flow hedging instruments gains (losses)
Foreign currency forward/option contracts	$	(37)	$	(2)	$	(99)	$	21	Cost of sales	$	22	$	(37)	$	50	$	(98)	Cost of sales
Interest rate swap contracts		—		—		—		—	Interest expense		(1)		—		(2)		(1)	Interest expense
Total before tax		(37)		(2)		(99)		21			21		(37)		48		(99)
Tax effect		8		—		22		(8)	Provision for income taxes		(4)		8		(9)		22	Provision for income taxes
Net of tax	$	(29)	$	(2)	$	(77)	$	13		$	17	$	(29)	$	39	$	(77)
Total reclassifications for the period, net of tax	$	(143)	$	(82)	$	(421)	$	(228)		$	(59)	$	(143)	$	(343)	$	(421)

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NOTE 8. Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction as well as various state, local, and foreign jurisdictions. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years before 2005.

The IRS has completed its field examination of the Company’s U.S. federal income tax returns for the years 2005 ~~through~~to 2014, and 2016. The Company ~~protested certain IRS positions within these tax years and entered into~~is in the ~~administrative appeals~~ process ~~with the IRS. Currently, the~~of resolving open issues identified during those examinations. The Company isremains under examination by the IRS for its U.S. federal income tax returns for the years 2015, 2017 and ~~2017. As of September 30, 2018, the IRS has not proposed any significant adjustments to the Company’s tax positions for which the Company is not adequately reserved.~~

Payments relating to other proposed assessments arising from the 2005 through 2017 examinations may not be made until a final agreement is reached between the Company and the IRS on such assessments or upon a final resolution resulting from the administrative appeals process or judicial action.2018. In addition to the U.S. federal examination, there is also audit activity in several U.S. state and foreign jurisdictions.

~~The Company applies a more-likely-than-not threshold~~ As of September 30, 2019, no taxing authority has proposed significant adjustments to the ~~recognition and derecognition of uncertain~~Company’s tax ~~positions. Accordingly,~~positions for which the Company ~~recognizes~~is not adequately reserved.

It is reasonably possible that the amount of unrecognized tax ~~benefit that has a greater than 50 percent likelihood of being ultimately realized upon settlement.~~benefits could significantly change within the next 12 months. At this time, the Company is not able to estimate the range by which these potential events could impact 3M’s unrecognized tax benefits in the next 12 months. The total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 are ~~$584~~$736 million and ~~$526~~$655 million, respectively.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company recognized in the consolidated statement of income on a gross basis approximately $5 million and $8 million of expense for the three months ended September 30, 2018 and September 30, 2017, respectively, and approximately $8 million and $16 million of expense for the nine months ended September 30, 2018 and September 30, 2017, respectively. At September 30, 2018 and December 31, 2017, accrued interest and penalties in the consolidated balance sheet on a gross basis were $65 million and $68 million, respectively. Included in these interest and penalty amounts are interest and penalties related to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

The provision for income taxes is determined using the asset and liability approach. Under this approach, a valuation allowance is recorded to reduce its deferred tax assets when uncertainty regarding their realizability exists. As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had valuation allowances of ~~$73~~$70 million and ~~$81~~$67 million on its deferred tax assets, respectively.

The effective tax rate for the third quarter of ~~2018~~2019 was ~~21.3~~19.3 percent, compared to ~~28.3~~21.3 percent in the third quarter of ~~2017,~~2018, a decrease of ~~7.0~~2.0 percentage points. Primary factors that decreased the Company’s effective tax rate included ~~favorable aspects of the 2017 Tax Cuts and Jobs Act (TCJA) such as the decrease in the U.S. income tax rate and provisions incentivizing foreign-derived intangible income (FDII), in addition~~adjustments related to impacts ~~associated with composition~~ of ~~geographic~~U.S. international tax provisions, geographical income mix, ~~of income before taxes.~~and increased benefits from the R&D tax credit. These decreases were partially offset by ~~multiple factors that increased~~the tax related to the divestiture of the Company’s ~~effective tax rate. These increases were primarily driven by impacts of the TCJA such as the elimination of the domestic manufacturing deduction~~gas and ~~the global intangible low-taxed income (GILTI) provision;~~flame detection business and ~~lower excess tax benefits related to employee share-based payments.~~decreased benefit from stock options.

The effective tax rate for the first nine months of ~~2018~~2019 was ~~24.0~~19.7 percent, compared to ~~26.1~~24.0 percent in the first nine months of ~~2017,~~2018, a decrease of ~~2.1~~4.3 percentage points. Primary factors that decreased the Company’s effective tax rate included ~~favorable aspects~~significant events such as prior year measurement period adjustments related to 2017 Tax Cuts and Jobs Act (TCJA), prior year resolution of the ~~TCJA such~~ NRD lawsuit

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(as described in Note 14), geographical income mix, and increased benefits from the ~~decrease in the U.S. income~~R&D tax ~~rate and FDII, in addition to impacts associated with composition of geographic mix of income before taxes.~~credit. These decreases were partially offset by ~~impacts related~~the deconsolidation of the Venezuelan subsidiary and adjustments to uncertain tax positions. In addition, the effective tax rate decreased due to the ~~TCJA such as the first quarter 2018 measurement period adjustment to the provisional accounting~~divestiture of the ~~TCJA’s enactment (discussed further below), the elimination of the domestic manufacturing deduction~~Company’s gas and ~~the GILTI provision; and lower excess tax benefits related to employee share-based payments.~~flame detection business.

The ~~TCJA~~Tax Cuts and Jobs Act (TCJA) was enacted in December ~~2017. Among other things,~~2017, after which the TCJA reduces the U.S. federal corporate tax rate from 35 percent to 21 percent beginning in 2018, requires companies to pay a one-time transition tax on previously unremitted earnings of non-U.S. subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. The SEC staff issued Staff Accounting Bulletin ~~(SAB)~~ 118, which ~~provides guidance on accounting for enactment effects of the TCJA. SAB 118 provides~~provided a

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measurement period of up to one year from the TCJA’s enactment date for companies to complete their accounting under ASC 740. In accordance with SAB 118, to the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in its financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA. In connection with 3M’s initial analysis of the impact of the enactment of the TCJA, the Company recorded a net tax expense of $762 million in the fourth quarter of 2017. As further discussed below, duringDuring the first quarter of 2018, 3M recognized a measurement period adjustment resulting in an additional tax expense of $217 million to ~~this~~its provisional accounting. Refer to Note 10 in 3M’s 2018 Annual Report on Form 10-K for more information on the impact of TCJA.

The Company ~~made no additional adjustments~~adopted ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, as described in Note 1, on January 1, 2019. The purpose of this ASU was to allow a reclassification to retained earnings of one-time income tax effects stranded in accumulated other comprehensive income (AOCI) arising from the change in the ~~second and third quarters of 2018.~~

~~Transition~~U.S. federal corporate tax: 3M was able to make a reasonable estimate of the transition tax and recorded a provisional obligation and related income tax expense of $745 million in the fourth quarter of 2017, with an additional $132 million in the first quarter of 2018 rate as a result of ~~subsequent U.S. Internal Revenue Service guidance.~~TCJA. The ~~Company made no additional adjustments~~effect of this adoption resulted in the second and third quarters of 2018. The Company continues to gather additional information and will consider further guidance to more precisely compute the transition tax. The provisional amount may change when 3M finalizes the calculation of post-1986 foreigna reclassification between retained earnings and ~~profit previously deferred from U.S. federal taxation and finalizes~~AOCI, which increased retained earnings by approximately $0.9 billion, with an offsetting increase to accumulated other comprehensive loss for the amounts held in cash or other specified assets. The TCJA’s transition tax is payable over eight years beginning in 2018. As of September 30, 2018, 3M reflected $74 million and $733 million in current accrued income taxes and long-term income taxes payable, respectively, associated with the transition tax.same amount.

~~Remeasurement of deferred tax assets/liabilities and other impacts:~~ 3M remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent under the TCJA. In the fourth quarter of 2017, 3M recorded a net additional income tax expense of $17 million related to remeasurement of deferred tax assets/liabilities and other impacts. In the first quarter of 2018, 3M recorded an additional tax expense of $85 million as a measurement period adjustment as a result of subsequent U.S. Internal Revenue Service guidance and other impacts related to TCJA. The Company made no additional adjustments in the second and third quarters of 2018. 3M is still analyzing certain aspects of the TCJA, considering additional technical guidance, and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. This includes the potential impacts of the GILTI provision within the TCJA on deferred tax assets/liabilities. 3M also is considering other impacts of the 2017 enactment of the TCJA including, but not limited to, effects on the Company’s indefinite reinvestment assertion. 3M previously has not provided deferred taxes on unremitted earnings attributable to international companies that have been considered to be reinvested indefinitely. The full effects of underlying tax rates of the TCJA causes some reassessment of previous indefinite reinvestment assertions with respect to certain jurisdictions. While 3M was able to make a reasonable estimate of these impacts, it may be affected by other analyses related to the TCJA, including, but not limited to, the calculation of the transition tax on deferred foreign income.

While 3M has recorded current tax on GILTI relative to 2018 operations, the Company has not yet elected a policy as to whether it will recognize deferred taxes for basis differences expected to reverse as GILTI or whether 3M will account for GILTI as period costs if and when incurred.

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NOTE 9. Marketable Securities

The Company invests in asset-backed securities, certificates of deposit/time deposits, commercial paper, and other securities. The following is a summary of amounts recorded on the Consolidated Balance Sheet for marketable securities (current and non-current).



(Millions)	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Corporate debt securities	$	—	$	14
Commercial paper		304		899	$	—	$	366
Certificates of deposit/time deposits		31		76		27		10
U.S. municipal securities		3		3		3		3
Asset-backed securities:
Automobile loan related		—		16
Credit card related		—		68
Asset-backed securities total		—		84
Asset-backed securities						—		1
Current marketable securities	$	338	$	1,076	$	30	$	380


U.S. municipal securities	$	27	$	27	$	46	$	37
Non-current marketable securities	$	27	$	27	$	46	$	37


Total marketable securities	$	365	$	1,103	$	76	$	417

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, gross unrealized, gross realized, and net realized gains and/or losses (pre-tax) were not material.

The balances at September 30, ~~2018~~2019 for marketable securities by contractual maturity are shown below. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.



(Millions)	September 30, 2018		September 30, 2019
Due in one year or less	$	338	$	30
Due after one year through five years		13		13
Due after five years through ten years		14		24
Due after ten years				9
Total marketable securities	$	365	$	76

3M does not currently expect risk related to its holding in asset-backed securities to materially impact its financial condition or liquidity.

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NOTE 10. Long-Term Debt and Short-Term Borrowings

In ~~September 2018,~~February 2019, 3M issued ~~$400 million~~$2.25 billion aggregate principal amount of ~~3-year~~ fixed rate medium-term notes. These were comprised of $450 million of 3-year notes due ~~2021~~2022 with a coupon rate of ~~3.00%~~2.75%, ~~$300~~$500 million ~~aggregate principal amount~~ of ~~5.5-year fixed rate medium-term~~remaining 5-year notes due 2024 with a coupon rate of 3.25%, ~~$300~~$800 million ~~aggregate principal amount~~ of ~~5.5-year floating rate medium-term~~10-year notes due ~~2024 with a rate based on a floating three-month LIBOR index, $600 million aggregate principal amount of 10-year fixed rate medium-term notes due 2028~~2029 with a coupon rate of ~~3.625%~~3.375%, and ~~$650~~$500 million ~~aggregate principal amount~~ of ~~30-year fixed rate medium-term~~remaining 29.5-year notes due 2048 with a coupon rate of 4.00%. ~~Upon debt issuance, the Company entered into a fixed-to-floating interest rate swap on $200 million aggregate principal amount~~Issuances of the ~~3-year fixed rate medium-term~~5-year and 29.5-year notes were pursuant to a reopening of existing securities issued ~~with an interest rate based on a three-month LIBOR index.~~in September 2018.

~~As of September 30, 2018, the Company had zero commercial paper outstanding. As of December 31, 2017, the Company had approximately $745 million in commercial paper outstanding.~~

In August ~~2018,~~2019, 3M ~~repaid $450 million~~issued $3.25 billion aggregate principal amount of fixed rate registered notes. These were comprised of $500 million of 3.5-year notes due 2023 with a coupon rate of 1.75%, $750 million of 5.5-year notes due 2025 with a coupon rate of 2.00%, $1.0 billion of 10-year notes due 2029 with a coupon rate of 2.375%, and $1.0 billion of 30-year notes due 2049 with a coupon rate of 3.25%.

In September 2019, 3M entered into a credit facility expiring in July 2020 in the amount of 80 billion Japanese yen. At September 30, 2019, 69 billion Japanese yen, or approximately $640 million at September 30, 2019 exchange rates, was drawn and outstanding.

In conjunction with the October 2019 acquisition of Acelity (see Note 3), 3M assumed outstanding debt of the business, of which $445 million in principal amount of third lien senior secured notes (Third Lien Notes) maturing in 2021 with a coupon rate of 12.5% was not immediately redeemed at closing. Instead, at closing, 3M satisfied and discharged the Third Lien Notes via an in-substance defeasance, whereby 3M transferred cash equivalents and marketable securities to a trust with irrevocable instructions to redeem the Third Lien Notes on May 1, 2020. The trust assets are restricted from use in 3M’s operations and may only be used for the redemption of the Third Lien Notes. These actions, however, do not represent a legal defeasance. Therefore, following the acquisition of Acelity, this debt will be included in current portion of long-term debt and the related trust assets will be included in current assets on the Company’s consolidated balance sheet.

As of September 30, 2019, the Company had 0 commercial paper outstanding, compared to $435 million in commercial paper outstanding as of December 31, 2018.

In June 2019, 3M repaid $625 million aggregate principal amount of fixed-rate medium-term notes that matured.

~~Table~~Future Maturities of ~~Contents~~Long-term Debt

Maturities of long-term debt in the table below reflect the impact of put provisions associated with certain debt instruments and are net of the unaccreted debt issue costs such that total maturities equal the carrying value of long-term debt as of September 30, 2019. The maturities of long-term debt for the periods subsequent to September 30, 2019 are as follows (in millions):


Remainder of												After
2019		2020		2021		2022		2023		2024		2024		Total
$	105	$	1,305	$	1,671	$	1,591	$	1,796	$	1,101	$	11,225	$	18,794

NOTE 11. Pension and Postretirement Benefit Plans

The service cost component of defined benefit net periodic benefit cost is recorded in cost of sales, selling, general and administrative expenses, and research, development and related expenses. The other components of net periodic benefit cost are reflected in other expense (income), net. Components of net periodic benefit cost and other supplemental information for the the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 follow:

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Benefit Plan Information


	Three months ended September 30,
	Qualified and Non-qualified
	Pension Benefits								Postretirement
	United States				International				Benefits

													Three months ended September 30,
													Qualified and Non-qualified
													Pension Benefits								Postretirement
													United States				International				Benefits
(Millions)	2018		2017		2018		2017		2018		2017		2019		2018		2019		2018		2019		2018
Net periodic benefit cost (benefit)
Operating expense
Service cost	$	72	$	67	$	37	$	33	$	13	$	13	$	63	$	72	$	32	$	37	$	10	$	13
Non-operating expense
Interest cost	$	141	$	141	$	40	$	38	$	20	$	20	$	155	$	141	$	40	$	40	$	20	$	20
Expected return on plan assets		(272)		(259)		(78)		(71)		(21)		(21)		(260)		(272)		(75)		(78)		(20)		(21)
Amortization of prior service benefit		(6)		(5)		(4)		(3)		(10)		(13)		(6)		(6)		(3)		(4)		(9)		(10)
Amortization of net actuarial loss		126		97		29		29		15		14		91		126		20		29		8		15
Total non-operating expense (benefit)		(11)		(26)		(13)		(7)		4		—		(20)		(11)		(18)		(13)		(1)		4
Total net periodic benefit cost (benefit)	$	61	$	41	$	24	$	26	$	17	$	13	$	43	$	61	$	14	$	24	$	9	$	17


	Nine months ended September 30,
	Qualified and Non-qualified
	Pension Benefits								Postretirement
	United States				International				Benefits

													Nine months ended September 30,
													Qualified and Non-qualified
													Pension Benefits								Postretirement
													United States				International				Benefits
(Millions)	2018		2017		2018		2017		2018		2017		2019		2018		2019		2018		2019		2018
Net periodic benefit cost (benefit)
Operating expense
Service cost	$	216	$	201	$	110	$	100	$	39	$	38	$	188	$	216	$	98	$	110	$	32	$	39
Non-operating expense
Interest cost	$	423	$	425	$	120	$	112	$	60	$	59	$	466	$	423	$	118	$	120	$	62	$	60
Expected return on plan assets		(816)		(777)		(235)		(209)		(63)		(63)		(780)		(816)		(225)		(235)		(61)		(63)
Amortization of prior service benefit		(18)		(17)		(10)		(9)		(30)		(39)		(18)		(18)		(9)		(10)		(23)		(30)
Amortization of net actuarial loss		378		291		87		89		45		42		274		378		59		87		25		45
Settlements, curtailments, special termination benefits and other														35		—		1		—		—		—
Total non-operating expense (benefit)		(33)		(78)		(38)		(17)		12		(1)		(23)		(33)		(56)		(38)		3		12
Total net periodic benefit cost (benefit)	$	183	$	123	$	72	$	83	$	51	$	37	$	165	$	183	$	42	$	72	$	35	$	51

For the nine months ended September 30, ~~2018,~~2019 contributions totaling ~~$300~~$126 million were made to the Company’s U.S. and international pension plans and $3 million to its postretirement plans. For total year ~~2018,~~2019, the Company expects to contribute ~~up to $400~~approximately $200 million of cash to its global defined benefit pension and postretirement plans. The Company does not have a required minimum cash pension contribution obligation for its U.S. plans in ~~2018.~~2019. Future contributions will depend on market conditions, interest rates and other factors. 3M’s annual measurement date for pension and postretirement assets and liabilities is December 31 each year, which is also the date used for the related annual measurement assumptions.

In May 2019 (as part of the 2019 restructuring actions discussed in Note 5), the Company began offering a voluntary early retirement incentive program to certain eligible participants of its U.S. pension plans who meet age and years of pension service requirements. The eligible participants who accepted the offer and retired by July 1, 2019 received an enhanced pension benefit. Pension benefits were enhanced by adding 1 additional year of pension service and 1 additional year of age for certain benefit calculations. Approximately 800 participants accepted the offer and retired before July 1, 2019. As a result, the Company ~~adopted ASU No. 2017-07,~~ ~~Improving~~incurred a $35 million charge related to these special termination benefits in the ~~Presentation~~second quarter of ~~Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, effective January 1, 2018 on a retrospective basis. This ASU changed how employers that sponsor defined benefit pension and/or other~~2019.

In May 2019, 3M modified the 3M Retiree Life Insurance Plan postretirement benefit ~~plans present the net periodic benefit cost~~to close it to new participants effective August 1, 2019 (which results in employees who retire on or after August 1, 2019 not being eligible to participate in the plan) and reducing the maximum life insurance and death benefit to $8,000 for deaths on or after August 1, 2019. Due to these changes, the plan was re-measured in the second quarter of 2019, resulting in a decrease to the accumulated projected benefit obligation liability of approximately $150 million and a related increase to shareholders’ equity, specifically accumulated other comprehensive income ~~statement. Under the new standard, only the service cost component of net periodic~~in addition to an immaterial income statement benefit cost is included in operating expenses and only the service cost component is eligible for capitalization into assets such as inventory. All other net periodic benefit costs components (such as interest, expected return on plan assets, prior service cost amortization and actuarial gain/loss amortization) are reported outside of operating income. See Note 1 for additional details.prospectively.

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NOTE 12. Derivatives

The Company uses interest rate swaps, currency swaps, commodity price swaps, and forward and option contracts to manage risks generally associated with foreign exchange rate, interest rate and commodity price fluctuations. The information that follows explains the various types of derivatives and financial instruments used by 3M, how and why 3M uses such instruments, how such instruments are accounted for, and how such instruments impact 3M’s financial position and performance.

3M adopted ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities as of January 1, 2019. The disclosures contained within this note have been updated to reflect the new guidance, except for prior period amounts presented, as the disclosure changes were adopted prospectively. For derivative instruments that are designated in a cash flow or fair value hedging relationship, the impact of this accounting standard was to remove the requirement to test for ineffectiveness. Prior to the adoption of this ASU, any gain or loss related to hedge ineffectiveness was recognized in current earnings. For any net investment hedges entered into on or after January 1, 2019, amounts excluded from the assessment of hedge effectiveness, including the time value of the forward contract at the inception of the hedge, are recognized in earnings using an amortization approach over the life of the hedging instrument on a straight-line basis. Any difference between the change in the fair value of the excluded component and the amount amortized into earnings during the period is recorded in cumulative translation within other comprehensive income.

Additional information with respect to derivatives is included elsewhere as follows:

●

Impact on other comprehensive income of nonderivative hedging and derivative instruments is included in Note 7.

●

Fair value of derivative instruments is included in Note 13.

●

Derivatives and/or hedging instruments associated with the Company’s long-term debt are described in Note 1112 in 3M’s ~~Current Report on Form 8-K dated May 8,~~ 2018 ~~(which updated 3M’s 2017~~ Annual Report on Form ~~10-K).~~

10-K.

Types of Derivatives/Hedging Instruments and Inclusion in Income/Other Comprehensive Income

Cash Flow Hedges:

For derivative instruments that are designated and qualify as cash flow hedges, ~~the effective portion of~~ the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings. Gains and losses on the derivative representing ~~either hedge ineffectiveness or~~ hedge components excluded from the assessment of effectiveness are recognized in current earnings.

Cash Flow Hedging - Foreign Currency Forward and Option Contracts: The Company enters into foreign exchange forward and option contracts to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies. These transactions are designated as cash flow hedges. The settlement or extension of these derivatives will result in reclassifications (from accumulated other comprehensive income) to earnings in the period during which the hedged transactions affect earnings. 3M may dedesignate these cash flow hedge relationships in advance of the occurrence of the forecasted transaction. The portion of gains or losses on the derivative instrument previously included in accumulated other comprehensive income for dedesignated hedges remains in accumulated other comprehensive income until the forecasted transaction occurs or becomes probable of not occurring. Changes in the value of derivative instruments after dedesignation are recorded in earnings and are included in the Derivatives Not Designated as Hedging Instruments section below. The maximum length of time over which 3M hedges its exposure to the variability in future cash flows of the forecasted transactions is 36 months.

Cash Flow Hedging — Interest Rate Contracts: The Company may use forward starting interest rate contracts to hedge exposure to variability in cash flows from interest payments on forecasted debt issuances. The amortization of gains and losses on forward starting interest rate swaps is included in the tables below as part of the gain/(loss) recognized in income ~~on the effective portion of derivatives~~ as a result of reclassification from accumulated other comprehensive income. Additional information regarding previously issued but terminated interest rate contracts, which have related balances within accumulated other comprehensive income being amortized over the underlying life of related debt, can be found in Note 1314 in 3M’s ~~Current Report on Form 8-K dated May 8,~~ 2018 ~~(which updated 3M’s 2017~~ Annual Report on Form ~~10-K).~~10-K.

As of December 31, 2018, the Company had $700 million of notional amount in outstanding forward starting interest rate swaps as hedges against interest rate volatility with forecasted issuances of fixed rate debt. During the first nine months of ~~2018,~~2019, the Company entered into additional forward starting interest rate swaps with a notional amount of ~~$700 million as hedges against interest rate volatility associated with forecasted issuances of fixed rate debt.~~$743 million. Concurrent with the issuance of the medium-term notes in ~~September 2018,~~February 2019 and the additional issuance of registered notes in August 2019, 3M terminated ~~$500 million~~all outstanding

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interest rate ~~swaps. The termination~~swaps related to forecasted issuances of debt. These terminations resulted in ~~an immaterial gain~~a net loss of $143 million within accumulated other comprehensive income that will be amortized over the respective lives of the debt.

The amortization of gains and losses on forward starting interest rate swaps is included in the tables below as part of the gain/(loss) reclassified from accumulated other comprehensive income into income.

As of September 30, ~~2018,~~2019, the Company had a balance of ~~$35~~$17 million associated with the after-tax net unrealized gain associated with cash flow hedging instruments recorded in accumulated other comprehensive income. This includes a remaining balance of $7$114 million (after-tax loss) related to the forward starting interest rate swaps, which will be amortized over the respective lives of the ~~debt.~~notes. Based on exchange rates as of September 30, ~~2018,~~2019, 3M expects to reclassify approximately ~~$22~~$69 million, $1$18 million, ~~$25 million, and $9~~$63 million of the after-tax net unrealized foreign exchange cash flow hedging gains to earnings over the next 12 months, over the remainder of ~~2018, in~~ 2019, and in 2020, respectively, in addition to reclassifying approximately $64 million of the after-tax net unrealized foreign exchange cash flow hedging losses to earnings after ~~2019, respectively~~2020 (with the impact offset by earnings/losses from underlying hedged items).

~~Table of Contents~~

The location in the consolidated statements of income and comprehensive income and amounts of gains and losses related to derivative instruments designated as cash flow hedges are provided in the following table. Reclassifications of amounts from accumulated other comprehensive income into income include accumulated gains (losses) on dedesignated hedges at the time earnings are impacted by the forecasted transactions.

Pretax Gain (Loss) Recognized in

Pretax Gain (Loss)

Income on Effective Portion of

Ineffective Portion of Gain

Recognized in Other

Derivative as a Result of

(Loss) on Derivative and

Comprehensive

Reclassification from

Amount Excluded from

Income on Effective

Accumulated Other

Effectiveness Testing

Three months ended September 30, 2018

Portion of Derivative

Comprehensive Income

Recognized in Income

(Millions)

Amount

Location

Amount

Location

Amount

Pretax Gain (Loss)

Recognized in Other

Pretax Gain (Loss) Reclassified

Comprehensive

from Accumulated Other

Income on Derivative

Comprehensive Income into Income

Three months ended September 30, 2019 (Millions)

Amount

Location

Amount

Foreign currency forward/option contracts

Cost of sales

(37)

Cost of sales

—

105

Cost of sales

Interest rate swap contracts

Interest expense

—

Interest expense

—

(74)

Interest expense

(1)

Total

(37)

—


Nine months ended September 30, 2018	Portion of Derivative		Comprehensive Income			Recognized in Income
(Millions)	Amount		Location	Amount		Location	Amount

Nine months ended September 30, 2019 (Millions)									Amount		Location	Amount
Foreign currency forward/option contracts	$	112	Cost of sales	$	(98)	Cost of sales	$	—	$	137	Cost of sales	$	50
Interest rate swap contracts		10	Interest expense		(1)	Interest expense		—		(123)	Interest expense		(2)
Total	$	122		$	(99)		$	—	$	14		$	48

Three months ended September 30, 2017

Portion of Derivative

Comprehensive Income

Recognized in Income

(Millions)

Amount

Location

Amount

Location

Amount

Foreign currency forward/option contracts

$
(77)

Cost of sales

$
(2)

Cost of sales

$
—

Interest rate swap contracts

(3)

Interest expense

—

Interest expense

—

Total

$
(80)

$
(2)

$
—

Nine months ended September 30, 2017

Portion of Derivative

Comprehensive Income

Recognized in Income

(Millions)

Amount

Location

Amount

Location

Amount

Foreign currency forward/option contracts

$
(249)

Cost of sales

$
21

Cost of sales

$
—

Interest rate swap contracts

(6)

Interest expense

—

Interest expense

—

Total

$
(255)

$
21

$
—

Pretax Gain (Loss) Recognized in

Pretax Gain (Loss)

Income on Effective Portion of

Ineffective Portion of Gain

Recognized in Other

Derivative as a Result of

(Loss) on Derivative and

Comprehensive

Reclassification from

Amount Excluded from

Income on Effective

Accumulated Other

Effectiveness Testing

Portion of Derivative

Comprehensive Income

Recognized in Income

Three months ended September 30, 2018 (Millions)

Amount

Location

Amount

Location

Amount

Foreign currency forward/option contracts

Cost of sales

(37)

Cost of sales

—

Interest rate swap contracts

Interest expense

—

Interest expense

—

Total

(37)

—


Nine months ended September 30, 2018 (Millions)	Amount		Location	Amount		Location	Amount
Foreign currency forward/option contracts	$	112	Cost of sales	$	(98)	Cost of sales	$	—
Interest rate swap contracts		10	Interest expense		(1)	Interest expense		—
Total	$	122		$	(99)		$	—

Fair Value Hedges:

For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivatives as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings.

Fair Value Hedging - Interest Rate Swaps: The Company manages interest expense using a mix of fixed and floating rate debt. To help manage borrowing costs, the Company may enter into interest rate swaps. Under these arrangements, the Company agrees to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. The mark-to-market of these fair value hedges is recorded as gains or losses in interest expense and is

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offset by the gain or loss of the underlying debt instrument, which also is recorded in interest expense. ~~These fair value hedges are highly effective and, thus, there is no impact on earnings due to hedge ineffectiveness.~~ Additional information regarding designated interest rate swaps can be found in Note 1314 in 3M’s ~~Current Report on Form 8-K dated May 8,~~ 2018 ~~(which updated 3M’s 2017~~ Annual Report on Form ~~10-K).~~10-K.

~~In September 2018,~~Refer to the ~~Company entered into an interest rate swap with a notional amount~~section below titled Statement of ~~$200 million that converted a portion~~Income Location and Impact of Cash Flow and Fair Value Derivative Instruments for details on the ~~Company’s $400 million aggregate principal amount~~location within the consolidated statements of ~~fixed rate medium-term notes due 2021 into a floating rate note with an interest rate based on a three-month LIBOR index~~income for amounts of gains and losses related to derivative instruments designated as ~~a hedge of its exposure to changes in~~ fair value ~~that are attributable~~hedges and similar information relative to ~~interest rate risk.~~the hedged items for the the three and nine months ended September 30, 2019.

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The location in the consolidated statements of income and amounts of gains and losses related to derivative instruments designated as fair value hedges and similar information relative to the hedged items are as ~~follows:~~follows for periods prior to 2019:


		Gain (Loss) on Derivative				Gain (Loss) on Hedged Item
		Recognized in Income				Recognized in Income
Three months ended September 30, 2018 (Millions)		~~Recognized in Income~~Location		~~Recognized in Income~~Amount
~~(Millions)~~	Location	~~Location~~	Amount		~~Amount~~	~~Location~~	~~Amount~~
Interest rate swap contracts		Interest expense		$	—	Interest expense	$	—
Total				$	—		$	—


Nine months ended September 30, 2018
(Millions)	Location	Amount		Location	Amount

Nine months ended September 30, 2018 (Millions)							Location	Amount		Location	Amount
Interest rate swap contracts	Interest expense	$	(12)	Interest expense	$	12	Interest expense	$	(12)	Interest expense	$	12
Total		$	(12)		$	12		$	(12)		$	12


~~Three months ended September 30, 2017~~
~~(Millions)~~	~~Location~~	~~Amount~~		~~Location~~	~~Amount~~
~~Interest rate swap contracts~~	~~Interest expense~~	$	—	~~Interest expense~~	$	—
~~Total~~		$	—		$	—

Nine months ended September 30, 2017

(Millions)

Location

Amount

Location

Amount

Interest rate swap contracts

Interest expense

$
(4)

Interest expense

$
4

Total

$
(4)

$
4

The following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustments for fair value hedges:


					Cumulative Amount of Fair Value Hedging
	Carrying Value of the				Adjustment Included in the Carrying Value
	Hedged Liabilities (in millions)				of the Hedged Liabilities (in millions)
Location on the Consolidated Balance Sheet	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Short-term borrowings and current portion of long-term debt	$	499	$	596	$	(1)	$	(4)
Long-term debt		771		1,276		26		18
Total	$	1,270	$	1,872	$	25	$	14

Net Investment Hedges:

The Company may use non-derivative (foreign currency denominated debt) and derivative (foreign exchange forward contracts) instruments to hedge portions of the Company’s investment in foreign subsidiaries and manage foreign exchange risk. For instruments that are designated and qualify as hedges of net investments in foreign operations and that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in cumulative translation within other comprehensive income. ~~The remainder~~Amounts excluded from the assessment of hedge effectiveness, including the time value of the forward contract at the inception of the hedge, are recognized in earnings using an amortization approach over the life of the hedging instrument on a straight-line basis. Any difference between the change in the fair value of ~~such instruments~~the excluded component and the amount amortized into earnings during the period is recorded in ~~earnings.~~cumulative translation within other comprehensive income. Recognition in earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. To the extent foreign currency denominated debt is not designated in or is dedesignated from a net investment hedge relationship, changes in value of that portion of foreign currency denominated debt due to exchange rate changes are recorded in earnings through their maturity date.

3M’s use of foreign exchange forward contracts designated in hedges of the Company’s net investment in foreign subsidiaries can vary by time period depending on when foreign currency denominated debt balances designated in such relationships are dedesignated, matured, or are newly issued and designated. Additionally, variation can occur in connection with the extent of the Company’s desired foreign exchange risk coverage.

~~During the first quarter of 2018, the Company dedesignated 300 million Euros of foreign currency denominated debt from a former net investment hedge relationship.~~

At September 30, ~~2018,~~2019, the total notional amount of foreign exchange forward contracts designated in net investment hedges was approximately 150 million ~~Euros~~euros and approximately 248 billion South Korean ~~Won,~~won, along with a principal amount of long-term debt instruments designated in net investment hedges totaling 4.1 billion ~~Euros.~~euros. The maturity dates of these derivative and nonderivative instruments designated in net investment hedges range from ~~2018~~2019 to 2031.

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The location in the consolidated statements of income and comprehensive income and amounts of gains and losses related to derivative and nonderivative instruments designated as net investment hedges are as follows. There were no0 reclassifications of the effective portion of net investment hedges out of accumulated other comprehensive income into income for the periods presented in the table below.




	Pretax Gain (Loss)
	Recognized as
	Cumulative Translation		Amount Excluded
	within Other		from Effectiveness Testing
	Comprehensive Income		Recognized in Income
Three months ended September 30, 2019 (Millions)	Amount		Location	Amount
Foreign currency denominated debt	$	177	Cost of sales	$	—
Foreign currency forward contracts		38	Cost of sales		6
Total	$	215		$	6


Nine months ended September 30, 2019 (Millions)	Amount		Location	Amount
Foreign currency denominated debt	$	205	Cost of sales	$	—
Foreign currency forward contracts		43	Cost of sales		18
Total	$	248		$	18


	Pretax Gain (Loss)
	Recognized as
	Cumulative Translation
	within Other		Ineffective Portion of Gain (Loss) on
	Comprehensive Income		Instrument and Amount Excluded
	on Effective Portion of		from Effectiveness Testing
	Instrument		Recognized in Income
Three months ended September 30, 2018 (Millions)	Amount		Location	Amount
Foreign currency denominated debt	$	(14)	Cost of sales	$	—
Foreign currency forward contracts		(3)	Cost of sales		1
Total	$	(17)		$	1


Nine months ended September 30, 2018 (Millions)	Amount		Location	Amount
Foreign currency denominated debt	$	157	Cost of sales	$	(2)
Foreign currency forward contracts		14	Cost of sales		1
Total	$	171		$	(1)

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Pretax Gain (Loss)

Recognized as

Cumulative Translation

within Other

Ineffective Portion of Gain (Loss) on

Comprehensive Income

Instrument and Amount Excluded

on Effective Portion of

from Effectiveness Testing

Three months ended September 30, 2018

Instrument

Recognized in Income

(Millions)

Amount

Location

Amount

Foreign currency denominated debt

$
(14)

Cost of sales

$
—

Foreign currency forward contracts

(3)

Cost of sales

1

Total

$
(17)

$
1

Nine months ended September 30, 2018

Comprehensive Income

Instrument and Amount Excluded

(Millions)

Amount

Location

Amount

Foreign currency denominated debt

$
157

Cost of sales

$
(2)

Foreign currency forward contracts

14

Cost of sales

1

Total

$
171

$
(1)

Three months ended September 30, 2017

Comprehensive Income

Instrument and Amount Excluded

(Millions)

Amount

Location

Amount

Foreign currency denominated debt

$
(179)

Cost of sales

$
—

Foreign currency forward contracts

(9)

Cost of sales

1

Total

$
(188)

$
1

Nine months ended September 30, 2017

Comprehensive Income

Instrument and Amount Excluded

(Millions)

Amount

Location

Amount

Foreign currency denominated debt

$
(570)

Cost of sales

$
—

Foreign currency forward contracts

(36)

Cost of sales

6

Total

$
(606)

$
6

Derivatives Not Designated as Hedging Instruments:

Derivatives not designated as hedging instruments include dedesignated foreign currency forward and ~~options~~option contracts that formerly were designated in cash flow hedging relationships (as referenced in the Cash Flow Hedges section above). In addition, 3M enters into foreign ~~exchange~~currency forward contracts to offset, in part, the impacts of certain intercompany ~~transactions, foreign currency denominated debt (not otherwise in net investment hedge relationships),~~activities and ~~to further mitigate short term currency impacts. In addition, the Company~~ enters into commodity price swaps to offset, in part, fluctuations in costs associated with the use of certain commodities and precious metals. These derivative instruments are not designated in hedging relationships; therefore, fair value gains and losses on these contracts are recorded in earnings. The Company does not hold or issue derivative financial instruments for trading purposes.

The location in the consolidated ~~statements~~statement of income and amounts of gains and losses related to derivative instruments not designated as hedging instruments are as follows:

Three months ended September 30, 2018

Nine months ended September 30, 2018

Gain (Loss) on Derivative Recognized in

Income

Three months ended September 30, 2019

Nine months ended September 30, 2019

Gain (Loss) on Derivative Recognized in

Income

(Millions)

Location

Amount

Location

Amount

Location

Amount

Location

Amount

Foreign currency forward/option contracts

Cost of sales

Foreign currency forward contracts

Interest expense

(7)

Interest expense

(98)

Interest expense

(8)

Interest expense

(26)

Total

(87)

(2)

(22)

3230

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Three months ended September 30, 2017

Nine months ended September 30, 2017

Gain (Loss) on Derivative Recognized in

Gain (Loss) on Derivative Recognized in

Income

Income

(Millions)

Location

Amount


Location

Amount

Foreign currency forward/option contracts

Cost of sales

$
3

Cost of sales

$
8

Foreign currency forward contracts

Interest expense

(67)

Interest expense

(163)

Total

$
(64)

$
(155)


	Three months ended September 30, 2018			Nine months ended September 30, 2018
	Gain (Loss) on Derivative Recognized in			Gain (Loss) on Derivative Recognized in
	Income			Income
(Millions)	Location	Amount		Location	Amount
Foreign currency forward/option contracts	Cost of sales	$	11	Cost of sales	$	11
Foreign currency forward contracts	Interest expense		(7)	Interest expense		(98)
Total		$	4		$	(87)

Statement of Income Location and Impact of Cash Flow and Fair Value Derivative Instruments

The location in the consolidated statement of income and pre-tax amounts recognized in income related to derivative instruments designated in a cash flow or fair value hedging relationship are as follows:


	Location and Amount of Gain (Loss) Recognized in Income				Location and Amount of Gain (Loss) Recognized in Income
	Three months ended September 30, 2019				Nine months ended September 30, 2019
(Millions)	Cost of sales		Other expense (income), net			Cost of Goods Sold		Other expense (income), net)
Total amounts of income and expense line items presented in the consolidated statement of income in which the effects of cash flow or fair value hedges are recorded	$	4,188	$	45	$	12,811	$	349

The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships:
Foreign currency forward/option contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	$	22	$	—	$	50	$	—
Interest rate swap contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income		—		(1)		—		(2)

Gain or (loss) on fair value hedging relationships:
Interest rate swap contracts:
Hedged items	$	—	$	1	$	—	$	(11)
Derivatives designated as hedging instruments		—		(1)		—		11

Location and Fair Value Amount of Derivative Instruments

The following tables summarize the fair value of 3M’s derivative instruments, excluding nonderivative instruments used as hedging instruments, and their location in the consolidated balance sheet. Notional amounts below are presented at period end foreign exchange rates, except for certain interest rate swaps, which are presented using the ~~contract~~ inception date’s foreign exchange rate. Additional information with respect to the fair value of derivative instruments is included in Note 13.

Gross

Assets

Liabilities

September 30, 2018

Notional

Fair

Fair

(Millions)

Amount

Location

Value Amount

Location

Value Amount

Derivatives designated as

hedging instruments

Foreign currency forward/option contracts

$
2,107

Other current assets

$
51

Other current liabilities

$
22

Foreign currency forward/option contracts

1,250

Other assets

41

Other liabilities

11

Interest rate swap contracts

600

Other current assets

—

Other current liabilities

5

Interest rate swap contracts

1,303

Other assets

25

Other liabilities

11

Total derivatives designated as hedging instruments

$
117

$
49

Derivatives not designated as

hedging instruments

Foreign currency forward/option contracts

$
3,201

Other current assets

$
21

Other current liabilities

$
62

Total derivatives not designated as hedging instruments

$
21

$
62

Total derivative instruments

$
138

$
111

Gross

Assets

Liabilities

December 31, 2017

Notional

Fair

Fair

(Millions)

Amount

Location

Value Amount

Location

Value Amount

Derivatives designated as

hedging instruments

Foreign currency forward/option contracts

$
2,204

Other current assets

$
7

Other current liabilities

$
109

Foreign currency forward/option contracts

1,392

Other assets

20

Other liabilities

56

Interest rate swap contracts

450

Other current assets

—

Other current liabilities

1

Interest rate swap contracts

1,503

Other assets

21

Other liabilities

6

Total derivatives designated as hedging instruments

$
48

$
172

Derivatives not designated as

hedging instruments

Foreign currency forward/option contracts

$
4,974

Other current assets

$
30

Other current liabilities

$
25

Total derivatives not designated as hedging instruments

$
30

$
25

Total derivative instruments

$
78

$
197


	Gross		Assets			Liabilities
September 30, 2019	Notional			Fair			Fair
(Millions)	Amount		Location	Value Amount		Location	Value Amount
Derivatives designated as
hedging instruments
Foreign currency forward/option contracts	$	2,235	Other current assets	$	128	Other current liabilities	$	2
Foreign currency forward/option contracts		1,110	Other assets		70	Other liabilities		1
Interest rate swap contracts		500	Other current assets		—	Other current liabilities		1
Interest rate swap contracts		603	Other assets		20	Other liabilities		—
Total derivatives designated as hedging instruments				$	218		$	4

Derivatives not designated as
hedging instruments
Foreign currency forward/option contracts	$	1,931	Other current assets	$	9	Other current liabilities	$	10
Total derivatives not designated as hedging instruments				$	9		$	10

Total derivative instruments				$	227		$	14

3331

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	Gross		Assets			Liabilities
December 31, 2018	Notional			Fair			Fair
(Millions)	Amount		Location	Value Amount		Location	Value Amount
Derivatives designated as
hedging instruments
Foreign currency forward/option contracts	$	2,277	Other current assets	$	74	Other current liabilities	$	12
Foreign currency forward/option contracts		1,099	Other assets		39	Other liabilities		4
Interest rate swap contracts		1,000	Other current assets		—	Other current liabilities		14
Interest rate swap contracts		1,403	Other assets		19	Other liabilities		17
Total derivatives designated as hedging instruments				$	132		$	47

Derivatives not designated as
hedging instruments
Foreign currency forward/option contracts	$	2,484	Other current assets	$	14	Other current liabilities	$	6
Total derivatives not designated as hedging instruments				$	14		$	6

Total derivative instruments				$	146		$	53

Credit Risk and Offsetting of Assets and Liabilities of Derivative Instruments

The Company is exposed to credit loss in the event of nonperformance by counterparties in interest rate swaps, currency swaps, commodity price swaps, and forward and option contracts. However, the Company’s risk is limited to the fair value of the instruments. The Company actively monitors its exposure to credit risk through the use of credit approvals and credit limits, and by selecting major international banks and financial institutions as counterparties. 3M enters into master netting arrangements with counterparties when possible to mitigate credit risk in derivative transactions. A master netting arrangement may allow each counterparty to net settle amounts owed between a 3M entity and the counterparty as a result of multiple, separate derivative transactions. As of September 30, ~~2018,~~2019, 3M has International Swaps and Derivatives Association (ISDA) agreements with 17 applicable banks and financial institutions which contain netting provisions. In addition to a master agreement with 3M supported by a primary counterparty’s parent guarantee, 3M also has associated credit support agreements in place with 16 of its primary derivative counterparties which, among other things, provide the circumstances under which either party is required to post eligible collateral (when the market value of transactions covered by these agreements exceeds specified thresholds or if a counterparty’s credit rating has been downgraded to a predetermined rating). The Company does not anticipate nonperformance by any of these counterparties.

3M has elected to present the fair value of derivative assets and liabilities within the Company’s consolidated balance sheet on a gross basis even when derivative transactions are subject to master netting arrangements and may otherwise qualify for net presentation. However, the following tables provide information as if the Company had elected to offset the asset and liability balances of derivative instruments, netted in accordance with various criteria in the event of default or termination as stipulated by the terms of netting arrangements with each of the counterparties. For each counterparty, if netted, the Company would offset the asset and liability balances of all derivatives at the end of the reporting period based on the 3M entity that is a party to the transactions. Derivatives not subject to master netting agreements are not eligible for net presentation. As of the applicable dates presented below, no0 cash collateral had been received or pledged related to these derivative instruments.

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Offsetting of Financial Assets under Master Netting Agreements with Derivative Counterparties


			Gross Amounts not Offset in the
			Consolidated Balance Sheet that are Subject
	Gross Amount of		to Master Netting Agreements
	Derivative Assets		Gross Amount of
	Presented in the		Eligible Offsetting
September 30, 2018	Consolidated		Recognized		Cash Collateral		Net Amount of

											Gross Amounts not Offset in the
											Consolidated Balance Sheet that are Subject
									Gross Amount of		to Master Netting Agreements
									Derivative Assets		Gross Amount of
									Presented in the		Eligible Offsetting
September 30, 2019									Consolidated		Recognized		Cash Collateral		Net Amount of
(Millions)	Balance Sheet		Derivative Liabilities		Received		Derivative Assets		Balance Sheet		Derivative Liabilities		Received		Derivative Assets
Derivatives subject to master netting agreements	$	138	$	45	$	—	$	93	$	227	$	9	$	—	$	218
Derivatives not subject to master netting agreements		—						—		—						—
Total	$	138					$	93	$	227					$	218


December 31, 2017

December 31, 2018
(Millions)
Derivatives subject to master netting agreements	$	78	$	27	$	—	$	51	$	146	$	38	$	—	$	108
Derivatives not subject to master netting agreements		—						—		—						—
Total	$	78					$	51	$	146					$	108

~~Table of Contents~~

Offsetting of Financial Liabilities under Master Netting Agreements with Derivative Counterparties


			Gross Amounts not Offset in the
			Consolidated Balance Sheet that are Subject
	Gross Amount of		to Master Netting Agreements
	Derivative Liabilities		Gross Amount of
	Presented in the		Eligible Offsetting
September 30, 2018	Consolidated		Recognized		Cash Collateral		Net Amount of

											Gross Amounts not Offset in the
											Consolidated Balance Sheet that are Subject
									Gross Amount of		to Master Netting Agreements
									Derivative Liabilities		Gross Amount of
									Presented in the		Eligible Offsetting
September 30, 2019									Consolidated		Recognized		Cash Collateral		Net Amount of
(Millions)	Balance Sheet		Derivative Assets		Pledged		Derivative Liabilities		Balance Sheet		Derivative Assets		Pledged		Derivative Liabilities
Derivatives subject to master netting agreements	$	111	$	45	$	—	$	66	$	14	$	9	$	—	$	5
Derivatives not subject to master netting agreements		—						—		—						—
Total	$	111					$	66	$	14					$	5


December 31, 2017

December 31, 2018
(Millions)
Derivatives subject to master netting agreements	$	197	$	27	$	—	$	170	$	53	$	38	$	—	$	15
Derivatives not subject to master netting agreements		—						—		—						—
Total	$	197					$	170	$	53					$	15

Currency Effects

3M estimates that year-on-year foreign currency transaction effects, including hedging impacts, ~~decreased~~increased pre-tax income by approximately ~~$24~~$69 million and ~~$115~~$190 million for the the three and nine months ended September 30, ~~2018.~~2019. These estimates include transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risks.

NOTE 13. Fair Value Measurements

3M follows ASC 820, Fair Value Measurements and Disclosures, with respect to assets and liabilities that are measured at fair value on a recurring basis and nonrecurring basis. Under the standard, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The standard also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar

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assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis:

~~Refer~~Investments

Investments include equity securities that are traded in an active market. Closing stock prices are readily available from active markets and are representative of fair value. 3M classifies these securities as Level 1. Investments are included within other assets on the Company’s consolidated balance sheet.

In addition to the information above, refer to Note 1415 in ~~the Current Report on Form 8-K dated May 8,~~3M’s 2018 ~~(which updated 3M’s 2017~~ Annual Report on Form ~~10-K)~~10-K for a qualitative discussion of the assets and liabilities that are measured at fair value on a recurring and nonrecurring basis, a description of the valuation methodologies used by 3M, and categorization within the valuation framework of ASC 820.

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The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis.


			Fair Value Measurements

											Fair Value Measurements
Description	Fair Value at		Using Inputs Considered as						Fair Value at		Using Inputs Considered as
(Millions)	September 30, 2018		Level 1		Level 2		Level 3		September 30, 2019		Level 1			Level 2		Level 3
Assets:
Available-for-sale:
Marketable securities:
Commercial paper	$	304	$	—	$	304	$	—	$	—	$	—	��	$	—	$	—
Certificates of deposit/time deposits		31		—		31		—		27		—			27		—
U.S. municipal securities		30		—		—		30		49		—			—		49
Investments										22		22			—		—
Derivative instruments — assets:
Foreign currency forward/option contracts		113		—		113		—		207		—			207		—
Interest rate swap contracts		25		—		25		—		20		—			20		—


Liabilities:
Derivative instruments — liabilities:
Foreign currency forward/option contracts		95		—		95		—		13		—			13		—
Interest rate swap contracts		16		—		16		—		1		—			1		—

Fair Value Measurements

Description

Fair Value at

Using Inputs Considered as

(Millions)

December 31, 2017

Level 1

Level 2

Level 3

Assets:

Available-for-sale:

Marketable securities:

Corporate debt securities

$
14

$
—

$
14

$
—

Commercial paper

899

—

899

—

Certificates of deposit/time deposits

76

—

76

—

Asset-backed securities:

Automobile loan related

16

—

16

—

Credit card related

68

—

68

—

U.S. municipal securities

30

—

—

30

Derivative instruments — assets:

Foreign currency forward/option contracts

57

—

57

—

Interest rate swap contracts

21

—

21

—

Liabilities:

Derivative instruments — liabilities:

Foreign currency forward/option contracts

190

—

190

—

Interest rate swap contracts

7

—

7

—

3634

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			Fair Value Measurements
Description	Fair Value at		Using Inputs Considered as
(Millions)	December 31, 2018		Level 1		Level 2		Level 3
Assets:
Available-for-sale:
Marketable securities:
Commercial paper	$	366	$	—	$	366	$	—
Certificates of deposit/time deposits		10		—		10		—
Asset-backed securities		1		—		1		—
U.S. municipal securities		40		—		—		40
Derivative instruments — assets:
Foreign currency forward/option contracts		127		—		127		—
Interest rate swap contracts		19		—		19		—

Liabilities:
Derivative instruments — liabilities:
Foreign currency forward/option contracts		22		—		22		—
Interest rate swap contracts		31		—		31		—

The following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis in the table above that used significant unobservable inputs ~~(Level~~(level 3).


	Three months ended				Nine months ended

									Three months ended				Nine months ended
Marketable securities — certain U.S. municipal securities only	September 30,				September 30,				September 30,				September 30,
(Millions)	2018		2017		2018		2017		2019		2018		2019		2018
Beginning balance	$	30	$	20	$	30	$	20	$	49	$	30	$	40	$	30
Total gains or losses:
Included in earnings		—		—		—		—		—		—		—		—
Included in other comprehensive income		—		—		—		—		—		—		—		—
Purchases and issuances		—		—		—		—		—		—		9		—
Sales and settlements		—		—		—		—		—		—		—		—
Transfers in and/or out of level 3		—		—		—		—		—		—		—		—
Ending balance	$	30	$	20	$	30	$	20	$	49	$	30	$	49	$	30
Change in unrealized gains or losses for the period included in earnings for securities held at the end of the reporting period		—		—		—		—		—		—		—		—

In addition, the plan assets of 3M’s pension and postretirement benefit plans are measured at fair value on a recurring basis (at least annually). Refer to Note 1213 in 3M’s ~~Current Report on Form 8-K dated May 8,~~ 2018 ~~(which updated 3M’s 2017~~ Annual Report on Form ~~10-K).~~10-K.

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis:

Disclosures are required for certain assets and liabilities that are measured at fair value, but are recognized and disclosed at fair value on a nonrecurring basis in periods subsequent to initial recognition. For 3M, such measurements of fair value relate primarily to long-lived asset impairments and adjustment in carrying value of equity securities for which the measurement alternative of cost less impairment plus or minus observable price changes is used. There were no0 material long-lived asset impairments or adjustments to equity securities using the measurement alternative for the three and nine months ended September 30, ~~2018~~2019 and three months ended September 30, 2017. During the nine months ended September 30, 2017, the Company recognized approximately $40 million in long-lived asset impairments related to its Electronics and Energy business segment, with the complete carrying amount of such assets written off and included in operating income results.2018.

Fair Value of Financial Instruments:

The Company’s financial instruments include cash and cash equivalents, marketable securities, accounts receivable, certain investments, accounts payable, borrowings, and derivative contracts. The fair values of cash equivalents, accounts receivable, accounts payable, and short-term borrowings and current portion of long-term debt approximated carrying values because of the short-term nature of these instruments. Available-for-sale marketable securities and investments, in addition to certain derivative instruments, are recorded at fair values as indicated in the preceding disclosures. ~~For~~To estimate fair values (classified as level 2) for its long-term debt, the Company utilized third-party quotes, ~~to estimate fair values (classified as level 2).~~which are derived all or in part from model prices, external sources, market

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prices, or the third-party’s internal records. Information with respect to the carrying amounts and estimated fair values of these financial instruments follow:

September 30, 2018

December 31, 2017

Carrying

Fair

Carrying

Fair

September 30, 2019

December 31, 2018

Carrying

Fair

Carrying

Fair

(Millions)

Value

Value

Long-term debt, excluding current portion

13,539

13,666

12,096

12,535

17,479

18,573

13,411

13,586

The fair values reflected above consider the terms of the related debt absent the impacts of derivative/hedging activity. The carrying amount of long-term debt referenced above is impacted by certain fixed-to-floating interest rate swaps that are designated as fair value hedges and by the designation of certain fixed rate Eurobond securities issued by the Company as hedging instruments of the Company’s net investment in its European subsidiaries. A number of 3M’s fixed-rate bonds were trading at a premium at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 due to lower interest rates and tighter credit spreads compared to issuance levels.

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NOTE 14. Commitments and Contingencies

��

Legal Proceedings:

The Company and some of its subsidiaries are involved in numerous claims and lawsuits, principally in the United States, and regulatory proceedings worldwide. These include various products liability (involving products that the Company now or formerly manufactured and sold), intellectual property, ~~and~~ commercial claims and lawsuits, ~~including those brought under the antitrust laws,~~ and environmental proceedings. Unless otherwise stated, the Company is vigorously defending all such litigation. The outcomes of legal proceedings and regulatory matters are often difficult to predict. Any determination that the Company’s operations or activities are not, or were not, in compliance with applicable laws or regulations could result in the imposition of fines, civil or criminal penalties, and equitable remedies, including disgorgement, debarment or injunctive relief. Additional information about the Company’s process for disclosure and recording of liabilities and insurance receivables related to legal proceedings can be found in Note 1516 “Commitments and Contingencies” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017 as updated by the Company’s Current Report on Form 8-K dated May 8,~~ 2018.

The following sections first describe the significant legal proceedings in which the Company is involved, and then describe the liabilities and associated insurance receivables the Company has accrued relating to its significant legal proceedings.

Respirator Mask/Asbestos Litigation

As of September 30, ~~2018,~~2019, the Company is a named defendant, with multiple co-defendants, in numerous lawsuits in various courts that purport to represent approximately ~~2,255~~1,770 individual claimants, compared to approximately ~~2,230~~2,320 individual claimants with actions pending at December 31, ~~2017.~~2018.

The vast majority of the lawsuits and claims resolved by and currently pending against the Company allege use of some of the Company’s mask and respirator products and seek damages from the Company and other defendants for alleged personal injury from workplace exposures to asbestos, silica, coal mine dust or other occupational dusts found in products manufactured by other defendants or generally in the workplace. A minority of the lawsuits and claims resolved by and currently pending against the Company generally allege personal injury from occupational exposure to asbestos from products previously manufactured by the Company, which are often unspecified, as well as products manufactured by other defendants, or occasionally at Company premises.

The Company’s current volume of new and pending matters is substantially lower than it experienced at the peak of filings in 2003. The Company expects that filing of claims by unimpaired claimants in the future will continue to be at much lower levels than in the past. Accordingly, the number of claims alleging more serious injuries, including mesothelioma, ~~and~~ other malignancies, and black lung disease, will represent a greater percentage of total claims than in the past. ~~The~~Over the past twenty years, the Company has prevailed in ~~thirteen~~14 of the ~~fourteen cases taken to trial, including eleven of the twelve~~15 cases tried to verdict (such trials occurred in 1999, 2000, 2001, 2003, 2004, 2007, 2015, and the cases tried in 2016, 2017, and 2018-described below), and an appellate reversal in 2005 of the 2001 jury verdict adverse to the Company. The remaining case, tried in 2009, was dismissed by the court at the close of plaintiff’s evidence, based on the court’s legal finding that the plaintiff had not presented sufficient evidence to support a jury ~~verdict.~~(including the lawsuits in 2018 described below). In ~~August 2016,~~2018, 3M received a ~~unanimous~~jury verdict in its favor ~~from a jury~~ in 2 lawsuits – 1 in California state court in ~~Kentucky,~~February and the other in 3M’s first respirator trial involving coal mine dust. The estate of the plaintiff alleged that the 3M 8710 respirator is defective and caused his death because it did not protect him from harmful coal mine dust. The jury rejected plaintiff’s claim and returned a verdict finding no liability against 3M. The verdict is final as the plaintiff did not file an appeal. In September 2017, 3M received a unanimous verdict in its favor from a jury inMassachusetts state court in ~~Kentucky in 3M’s second respirator trial~~December – both involving ~~coal mine dust. The jury ultimately determined~~allegations that ~~the plaintiff’s claims~~3M respirators were barred by the statute of limitations. In November 2017, the court denied the plaintiff’s motion for a new trial. The plaintiff did not file an appeal, thereby ending the litigation. In February 2018, 3M received a verdict in its favor from a jury in state court in California. The plaintiff alleged that the 3M 8710 respirator was defective and ~~caused his mesothelioma because it did not~~failed to protect ~~him from~~the plaintiffs against asbestos fibers. ~~The jury rejected plaintiff’s claim and returned a verdict finding no liability against 3M.~~ In April 2018, a jury in state court in Kentucky found 3M’s 8710 respirators failed to protect ~~two~~2 coal miners from coal mine dust and awarded ~~aggregate~~ compensatory damages of approximately $2 million and punitive damages totaling $63 million. In August 2018, the trial court entered judgment and the Company has appealed. ~~The Company believes liability in this case is not probable~~During March and ~~estimable. In June 2018,~~April 2019, the Company ~~also settled~~agreed in principle to settle a ~~number~~substantial

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majority of the coal mine dust lawsuits in Kentucky and West Virginia for ~~an amount that was not material to~~$340 million, including the ~~Company.~~$65 million jury verdict in April 2018 in the Kentucky case mentioned above currently on appeal.

The Company has demonstrated in these past trial proceedings that its respiratory protection products are effective as claimed when used in the intended manner and in the intended circumstances. Consequently, the Company believes that claimants are unable to establish that their medical conditions, even if significant, are attributable to the Company’s respiratory protection products. Nonetheless the Company’s litigation experience indicates that claims of persons ~~with malignant conditions~~alleging more serious injuries, including mesothelioma, other malignancies, and black lung disease, are costlier to resolve than

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the claims of unimpaired persons, and it therefore believes the average cost of resolving pending and future claims on a per-claim basis will continue to be higher than it experienced in prior periods when the vast majority of claims were asserted by medically unimpaired claimants.

As previously reported, the State of West Virginia, through its Attorney General, filed a complaint in 2003 against the Company and two other manufacturers of respiratory protection products in the Circuit Court of Lincoln County, West Virginia, and amended its complaint in 2005. The amended complaint seeks substantial, but unspecified, compensatory damages primarily for reimbursement of the costs allegedly incurred by the State for worker’s compensation and healthcare benefits provided to all workers with occupational pneumoconiosis and unspecified punitive damages. The case was inactive from the fourth quarter of 2007 until late 2013, other than a case management conference in March 2011. In November 2013, the State filed a motion to bifurcate the lawsuit into separate liability and damages proceedings. At the hearing on the motion, the court declined to bifurcate the lawsuit. NoNaN liability has been recorded for this matter because the Company believes that liability is not probable and estimable at this time. In addition, the Company is not able to estimate a possible loss or range of loss given the lack of any meaningful discovery responses by the State of West Virginia, the otherwise minimal activity in this case and the fact that the complaint asserts claims against two other manufacturers where a defendant’s share of liability may turn on the law of joint and several liability and by the amount of fault, if any, a jury might allocate to each defendant if the case is ultimately tried.

Respirator Mask/Asbestos Liabilities and Insurance ~~Receivables:~~Receivables

The Company regularly conducts a comprehensive legal review of its respirator mask/asbestos liabilities. The Company reviews recent and historical claims data, including without limitation, (i) the number of pending claims filed against the Company, (ii) the nature and mix of those claims (i.e., the proportion of claims asserting usage of the Company’s mask or respirator products and alleging exposure to each of asbestos, silica, coal or other occupational dusts, and claims pleading use of asbestos-containing products allegedly manufactured by the Company), (iii) the costs to defend and resolve pending claims, and (iv) trends in filing rates and in costs to defend and resolve claims, (collectively, the “Claims Data”). As part of its comprehensive legal review, the Company regularly provides the Claims Data to a third party with expertise in determining the impact of Claims Data on future filing trends and costs. The third party assists the Company in estimating the costs to defend and resolve pending and future claims. The Company uses these estimates to develop its best estimate of probable liability.

Developments may occur that could affect the Company’s estimate of its liabilities. These developments include, but are not limited to, significant changes in (i) the key assumptions underlying the Company’s accrual, including, the number of future claims, the nature and mix of those claims, the average cost of defending and resolving claims, and in maintaining trial readiness (ii) trial and appellate outcomes, (iii) the law and procedure applicable to these claims, and (iv) the financial viability of other co-defendants and insurers.

As a result of the settlements-in-principle of the coal mine dust lawsuits mentioned above, the Company’s assessment of other current and expected coal mine dust lawsuits (including the costs to resolve all current and expected coal mine dust lawsuits in Kentucky and West Virginia), its review of its respirator mask/asbestos liabilities, and ~~as a result of~~ the cost of resolving claims of persons who claim more serious injuries, including mesothelioma, ~~and~~ other malignancies, and black lung disease, the Company increased its accruals in the first nine months of ~~2018~~2019 for respirator mask/asbestos liabilities by ~~$56 million.~~$337 million, of which $313 million pre-tax (or $238 million after tax ($0.40 per diluted share)) was accrued in the first quarter of 2019. In the first nine months of ~~2018,~~2019, the Company made payments for legal ~~fees~~defense costs and settlements of ~~$64~~$390 million related to the respirator mask/asbestos litigation. As of September 30, ~~2018,~~2019, the Company had an accrual for respirator mask/asbestos liabilities (excluding Aearo accruals) of ~~$600~~$620 million. This accrual represents the Company’s best estimate of probable loss and reflects an estimation period for future claims that may be filed against the Company approaching the year 2050. The Company cannot estimate the amount or upper end of the range of amounts by which the liability may exceed the accrual the Company has established because of the (i) inherent difficulty in projecting the number of claims that have not yet been asserted or the time period in which future claims may be asserted, (ii) the complaints nearly always assert claims against multiple defendants where the damages alleged are typically not attributed to individual defendants so that a

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defendant’s share of liability may turn on the law of joint and several liability, which can vary by state, (iii) the multiple factors described above that the Company considers in estimating its liabilities, and (iv) the several possible developments described above that may occur that could affect the Company’s estimate of liabilities.

As of September 30, ~~2018,~~2019, the Company’s receivable for insurance recoveries related to the respirator mask/asbestos litigation was $4 million. The Company continues to seek coverage under the policies of certain insolvent and other insurers. Once those claims for coverage are resolved, the Company will have collected substantially all of its remaining insurance coverage for respirator mask/asbestos claims.

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Respirator Mask/Asbestos Litigation — Aearo Technologies

On April 1, 2008, a subsidiary of the Company purchased the stock of Aearo Holding Corp., the parent of Aearo Technologies (“Aearo”). Aearo manufactured and sold various products, including personal protection equipment, such as eye, ear, head, face, fall and certain respiratory protection products.

As of September 30, ~~2018,~~2019, Aearo and/or other companies that previously owned and operated Aearo’s respirator business (American Optical Corporation, Warner-Lambert LLC, AO Corp. and Cabot Corporation (“Cabot”)) are named defendants, with multiple co-defendants, including the Company, in numerous lawsuits in various courts in which plaintiffs allege use of mask and respirator products and seek damages from Aearo and other defendants for alleged personal injury from workplace exposures to asbestos, silica-related, coal mine dust, or other occupational dusts found in products manufactured by other defendants or generally in the workplace.

As of September 30, ~~2018,~~2019, the Company, through its Aearo subsidiary, had accruals of ~~$29~~$24 million for product liabilities and defense costs related to current and future Aearo-related asbestos and silica-related claims. This accrual represents the Company’s best estimate of Aearo’s probable loss and reflects an estimation period for future claims that may be filed against Aearo approaching the year 2050. Responsibility for legal costs, as well as for settlements and judgments, is currently shared in an informal arrangement among Aearo, Cabot, American Optical Corporation and a subsidiary of Warner Lambert and their respective insurers (the “Payor Group”). Liability is allocated among the parties based on the number of years each company sold respiratory products under the “AO Safety” brand and/or owned the AO Safety Division of American Optical Corporation and the alleged years of exposure of the individual plaintiff. Aearo’s share of the contingent liability is further limited by an agreement entered into between Aearo and Cabot on July 11, 1995. This agreement provides that, so long as Aearo pays to Cabot a quarterly fee of $100,000, Cabot will retain responsibility and liability for, and indemnify Aearo against, any product liability claims involving exposure to asbestos, silica, or silica products for respirators sold prior to July 11, 1995. Because of the difficulty in determining how long a particular respirator remains in the stream of commerce after being sold, Aearo and Cabot have applied the agreement to claims arising out of the alleged use of respirators involving exposure to asbestos, silica or silica products prior to January 1, 1997. With these arrangements in place, Aearo’s potential liability is limited to exposures alleged to have arisen from the use of respirators involving exposure to asbestos, silica, or silica products on or after January 1, 1997. To date, Aearo has elected to pay the quarterly fee. Aearo could potentially be exposed to additional claims for some part of the pre-July 11, 1995 period covered by its agreement with Cabot if Aearo elects to discontinue its participation in this arrangement, or if Cabot is no longer able to meet its obligations in these matters.

Developments may occur that could affect the estimate of Aearo’s liabilities. These developments include, but are not limited to: (i) significant changes in the number of future claims, (ii) significant changes in the average cost of resolving claims, (iii) significant changes in the legal costs of defending these claims, (iv) significant changes in the mix and nature of claims received, (v) trial and appellate outcomes, (vi) significant changes in the law and procedure applicable to these claims, (vii) significant changes in the liability allocation among the co-defendants, (viii) the financial viability of members of the Payor Group including exhaustion of available insurance coverage limits, and/or (ix) a determination that the interpretation of the contractual obligations on which Aearo has estimated its share of liability is inaccurate. The Company cannot determine the impact of these potential developments on its current estimate of Aearo’s share of liability for these existing and future claims. If any of the developments described above were to occur, the actual amount of these liabilities for existing and future claims could be significantly larger than the amount accrued.

Because of the inherent difficulty in projecting the number of claims that have not yet been asserted, the complexity of allocating responsibility for future claims among the Payor Group, and the several possible developments that may occur that could affect the estimate of Aearo’s liabilities, the Company cannot estimate the amount or range of amounts by which Aearo’s liability may exceed the accrual the Company has established.

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Environmental Matters and Litigation

The Company’s operations are subject to environmental laws and regulations including those pertaining to air emissions, wastewater discharges, toxic substances, and the handling and disposal of solid and hazardous wastes enforceable by national, state, and local authorities around the world, and private parties in the United States and abroad. These laws and regulations provide, under certain circumstances, a basis for the remediation of contamination, for restoration of or compensation for damages to natural resources, and for personal injury and property damage claims. The Company has incurred, and will continue to incur, costs and capital expenditures in complying with these laws and regulations, defending personal injury and property damage claims, and modifying its business operations in light of its environmental responsibilities. In its effort to satisfy its environmental responsibilities and comply with

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environmental laws and regulations, the Company has established, and periodically updates, policies relating to environmental standards of performance for its operations worldwide.

Under certain environmental laws, including the United States Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and similar state laws, the Company may be jointly and severally liable, typically with other companies, for the costs of remediation of environmental contamination at current or former facilities and at off-site locations. The Company has identified numerous locations, most of which are in the United States, at which it may have some liability. Please refer to the section entitled “Environmental Liabilities and Insurance Receivables” that follows for information on the amount of the accrual.

Environmental Matters

As previously reported, the Company has been voluntarily cooperating with ongoing reviews by local, state, federal (primarily the U.S. Environmental Protection Agency (EPA)), and international agencies of possible environmental and health effects of various perfluorinated compounds, including perfluorooctanoate (“PFOA”), perfluorooctane sulfonate (“PFOS”), perfluorohexane sulfonate (“PFHxS”), or other per- and polyfluoroalkyl substances (collectively “PFAS”). As a result of its phase-out decision in May 2000, the Company no longer manufactures certain PFAS compounds ~~referred to as “perfluorooctanyl compounds,”~~ including PFOA, PFOS, PFHxS, and their pre-cursor compounds. The ~~company~~Company ceased manufacturing and using the vast majority of ~~the perfluorooctanyl~~these compounds within approximately two years of the phase-out announcement and ceased all manufacturing and the last significant use of this chemistry by the end of 2008. The Company continues to manufacture a variety of shorter chain length PFAS compounds, including, but not limited to, pre-cursor compounds to perfluorobutane sulfonate (PFBS). These compounds are used as input materials to a variety of products, including engineered fluorinated fluids, fluoropolymers and fluorelastomers, as well as surfactants, additives, and coatings. Through its ongoing life cycle management and its raw material composition identification processes associated with the Company’s policies covering the use of all persistent and bio-accumulative materials, the Company continues to review, control or eliminate the presence of certain PFAS in purchased materials or as byproducts in some of 3M’s current fluorochemical manufacturing processes, products, and waste streams.

Regulatory activities concerning PFOA and/or PFOS continue in the United States, Europe and elsewhere, and before certain international bodies. These activities include gathering of exposure and use information, risk assessment, and consideration of regulatory approaches. As the database of studies of both PFOA and PFOS has expanded, the EPA has developed human health effects documents summarizing the available data from these studies. In February 2014, the EPA initiated external peer review of its draft human health effects documents for PFOA and PFOS. The peer review panel met in August 2014. In May 2016, the EPA announced lifetime health advisory levels for PFOA and PFOS at 70 parts per trillion (ppt) (superseding the provisional levels established by the EPA in 2009 of 400 ppt for PFOA and 200 ppt for PFOS). Where PFOA and PFOS are found together, EPA recommends that the concentrations be added together, and the lifetime health advisory for PFOA and PFOS combined is also 70 ppt. Lifetime health advisories, which are non-enforceable and non-regulatory, provide information about concentrations of drinking water contaminants at which adverse health effects are not expected to occur over the specified exposure duration. ~~In an effort to~~To collect exposure information under the Safe Drinking Water Act, the EPA published on May 2, 2012 a list of unregulated substances, including ~~six PFAS,~~6-PFAS chemicals, required to be monitored during the period 2013-2015 by public water system suppliers to determine the extent of their occurrence. Through January 2017, the EPA reported results for 4,920 public water supplies nationwide. Based on the 2016 lifetime health advisory, 13 public water supplies exceed the level for PFOA and 46 exceed the level for PFOS (unchanged from the July 2016 EPA summary). A technical advisory issued by EPA in September 2016 on laboratory analysis of drinking water samples stated that 65 public water supplies had exceeded the combined level for PFOA and PFOS. These results are based on ~~one~~1 or more samples collected during the period 2012-2015 and do not necessarily reflect current conditions of these public water supplies. EPA reporting does not identify the sources of the PFOA and PFOS in the public water supplies.

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The Company is continuing to make progress in its work, under the supervision of state regulators, to address its historic disposal of PFAS-containing waste associated with manufacturing operations at ~~the~~its Decatur, ~~Alabama,~~Alabama; Cottage Grove, ~~Minnesota,~~Minnesota; and Cordova, Illinois plants. As previously reported, the Company entered into a voluntary remedial action agreement with the Alabama Department of Environmental Management (ADEM) to address the presence of PFAS in the soil at the Company’s manufacturing facility in Decatur, Alabama. Pursuant to a permit issued by ADEM, for approximately ~~twenty~~20 years, the Company incorporated its wastewater treatment plant sludge containing PFAS in fields at its Decatur facility. After a review of the available options to address the presence of PFAS in the soil, ADEM agreed that the preferred remediation option is to use a multilayer cap over the former sludge incorporation areas on the manufacturing site with subsequent groundwater migration controls and treatment. Implementation of that plan continues, and ~~is expected to be~~construction of the cap was substantially completed in 2018.

The Company continues to work with the Minnesota Pollution Control Agency (MPCA) pursuant to the terms of the previously disclosed May 2007 Settlement Agreement and Consent Order to address the presence of certain PFAS in the soil and groundwater at

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former disposal sites in Washington County, Minnesota (Oakdale and Woodbury) and at the Company’s manufacturing facility at Cottage Grove, Minnesota. Under this agreement, the Company’s principal obligations include (i) evaluating releases of certain PFAS from these sites and proposing response actions; (ii) providing treatment or alternative drinking water upon identifying any level exceeding a Health Based Value (“HBV”) or Health Risk Limit (“HRL”) (i.e., the amount of a chemical in drinking water determined by the Minnesota Department of Health (MDH) to be safe for human consumption over a lifetime) for certain PFAS for which a HBV and/or HRL exists as a result of contamination from these sites; (iii) remediating identified sources of other PFAS at these sites that are not controlled by actions to remediate PFOA and PFOS; and (iv) sharing information with the MPCA about certain perfluorinated compounds. During 2008, the MPCA issued formal decisions adopting remedial options for the former disposal sites in Washington County, Minnesota (Oakdale and Woodbury). In August 2009, the MPCA issued a formal decision adopting remedial options for the Company’s Cottage Grove manufacturing facility. During the spring and summer of 2010, 3M began implementing the agreed upon remedial options at the Cottage Grove and Woodbury sites. 3M commenced the remedial option at the Oakdale site in late 2010. At each location the remedial options were recommended by the Company and approved by the MPCA. Remediation work has been completed at the Oakdale and Woodbury sites, and they are in an operational maintenance mode. Remediation ~~will continue~~continues at the Cottage Grove site during ~~2018.~~2019.

In August 2014, the Illinois EPA approved a request by the Company to establish a groundwater management zone at its manufacturing facility in Cordova, Illinois, which includes ongoing pumping of impacted site groundwater, groundwater monitoring and routine reporting of results.

In May 2017, the MDH issued new HBVs for PFOS and PFOA. The new HBVs are 35 ppt for PFOA and 27 ppt for PFOS. In connection with its announcement the MDH stated that “Drinking water with PFOA and PFOS, even at the levels above the updated values, does not represent an immediate health risk. These values are designed to reduce long-term health risks across the population and are based on multiple safety factors to protect the most vulnerable citizens, which makes them overprotective for most of the residents in our state.” In December 2017, the MDH issued a new HBV for perfluorobutane sulfonate (PFBS) of 2 ~~ppb.~~parts per billion (ppb). In February 2018, the MDH published reports finding no unusual rates of certain cancers or adverse birth outcomes (low birth rates or premature births) among residents of Washington and Dakota ~~counties~~Counties in Minnesota. In April 2019, the MDH issued a new HBV for PFOS of 15 ppt and a new HBV for PFHxS of 47 ppt.

~~The~~In May 2018, the EPA announced a four-step PFAS action plan, ~~in May 2018 regarding PFAS,~~ which includes evaluating the need to set Safe Drinking Water Act maximum contaminant levels (MCLs) for PFOA and PFOS and beginning the steps necessary to designate PFOA and PFOS as “hazardous substances” under CERCLA. In November 2018, the EPA asked for public comment on draft toxicity assessments for 2 PFAS compounds, including PFBS. In February 2019, the EPA issued a PFAS Action Plan that outlines short- and long-term actions the EPA is taking to address PFAS – actions that include developing a national drinking water determination for PFOA and PFOS, strengthening enforcement authorities and evaluating cleanup approaches, nationwide drinking water monitoring for PFAS, expanding scientific knowledge for understanding and managing risk from PFAS, and developing consistent risk communication tools for communicating with other agencies and the public. With respect to groundwater contaminated with PFOA and PFOS, the EPA released draft interim recommendations in April 2019, aiming to provide guidance for screening levels and preliminary remediation goals to inform final clean-up levels of contaminated sites.

The U.S.Agency for Toxic Substances and Disease Registry (ATSDR) within the Department of Health and Human Services released a draft Toxicological Profile for PFAS for public review and comment in June 2018. In the draft report, ATSDR proposed draft Minimal Risk Levels (MRLs) for PFOS, PFOA and several other PFAS. An MRL is an estimate of the daily human exposure to a

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hazardous substance that is likely to be without appreciable risk of adverse non-cancer health effects over a specified duration of exposure. MRLs are not intended to define cleanup or action levels for ATSDR or other agencies. In August 2018, 3M submitted comments on the ATSDR proposal, noting that there are major shortcomings with the current draft, especially with the MRLs, and that the ATSDR’s profile must reflect the best science and full weight of evidence known about these chemicals.

In several states, the state legislature or the state environmental agency have been ~~considering~~evaluating or have taken actions ~~that would evaluate~~related to cleanup standards, groundwater values or drinking water values for PFOS, PFOA, and other PFAS.

The Company cannot predict what additional regulatory actions arising from the foregoing or other proceedings and activities, if any, may be taken regarding such compounds or the consequences of any such actions.

Litigation Related to Historical PFAS Manufacturing Operations in Alabama

As previously reported, a former employee filed a ~~purported~~putative class action lawsuit in 2002 in the Circuit Court of Morgan County, Alabama (the “St. John case”), seeking unstated damages and alleging that the plaintiffs suffered fear, increased risk, subclinical injuries, and property damage from exposure to certain perfluorochemicals at or near the Company’s Decatur, Alabama, manufacturing facility. The court in 2005 granted the Company’s motion to dismiss the named plaintiff’s personal injury-related claims on the basis that such claims are barred by the exclusivity provisions of the state’s Workers Compensation Act. The plaintiffs’ counsel filed an amended complaint in November 2006, limiting the case to property damage claims on behalf of a ~~purported~~putative class of residents and property owners in the vicinity of the Decatur plant. In June 2015, the plaintiffs filed an amended complaint adding

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additional defendants, including BFI Waste Management Systems of Alabama, LLC; BFI Waste Management of North America, LLC; the City of Decatur, Alabama; Morgan County, Alabama; Municipal Utilities Board of Decatur; and Morgan County, Alabama, d/b/a Decatur Utilities.

In 2005, the judge – in a second ~~purported~~putative class action lawsuit filed by ~~three~~3 residents of Morgan County, Alabama, seeking unstated compensatory and punitive damages involving alleged damage to their property from emissions of certain perfluorochemical compounds from the Company’s Decatur, Alabama, manufacturing facility that formerly manufactured those compounds (the “Chandler case”) – granted the Company’s motion to abate the case, effectively putting the case on hold pending the resolution of class certification issues in the St. John case. Despite the stay, plaintiffs filed an amended complaint seeking damages for alleged personal injuries and property damage on behalf of the named plaintiffs and the members of a ~~purported~~putative class. No further action in the case is expected unless and until the stay is lifted.

In February 2009, a resident of Franklin County, Alabama, filed a ~~purported~~putative class action lawsuit in the Circuit Court of Franklin County (the “Stover case”) seeking compensatory damages and injunctive relief based on the application by the Decatur utility’s wastewater treatment plant of wastewater treatment sludge to farmland and grasslands in the state that allegedly contain PFOA, PFOS and other perfluorochemicals. The named plaintiff seeks to represent a class of all persons within the State of Alabama who have had PFOA, PFOS, and other perfluorochemicals released or deposited on their property. In March 2010, the Alabama Supreme Court ordered the case transferred from Franklin County to Morgan County. In May 2010, consistent with its handling of the other matters, the Morgan County Circuit Court abated this case, putting it on hold pending the resolution of the class certification issues in the St. John case.

In October 2015, West Morgan-East Lawrence Water & Sewer Authority (Water Authority) filed an individual complaint against 3M Company, Dyneon, L.L.C, and Daikin America, Inc., in the U.S. District Court for the Northern District of Alabama. The complaint also includes representative plaintiffs who brought the complaint on behalf of themselves, and a class of all owners and possessors of property who use water provided by the Water Authority and ~~five~~5 local water works to which the Water Authority supplies water (collectively, the “Water Utilities”). The complaint seeks compensatory and punitive damages and injunctive relief based on allegations that the defendants’ chemicals, including PFOA and PFOS from their manufacturing processes in Decatur, have contaminated the water in the Tennessee River at the water intake, and that the chemicals cannot be removed by the water treatment processes utilized by the Water Authority. In ~~September 2016,~~April 2019, 3M and the ~~court granted 3M’s motion~~Water Authority settled the lawsuit described above for $35 million, which will fund a new water filtration system, with 3M indemnification of the Water Authority from liability resulting from the resolution of the currently pending and future lawsuits against the Water Authority alleging liability or damages related to dismiss plaintiffs’ trespass claims with prejudice, negligence claims for personal injuries, and private nuisance claims, and denied the motion to dismiss the plaintiffs’ negligence claims for property damage, public nuisance, abatement of nuisance, battery and wantonness.3M PFAS.

In June 2016, the Tennessee Riverkeeper, Inc. (Riverkeeper), a non-profit corporation, filed a lawsuit in the U.S. District Court for the Northern District of Alabama against 3M; BFI Waste Systems of Alabama; the City of Decatur, Alabama; and the Municipal Utilities Board of Decatur, Morgan County, Alabama. The complaint alleges that the defendants violated the Resource Conservation and Recovery Act in connection with the disposal of certain PFAS through their ownership and operation of their respective sites. The

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complaint further alleges such practices may present an imminent and substantial endangerment to health and/or the environment and that Riverkeeper has suffered and will continue to suffer irreparable harm caused by defendants’ failure to abate the endangerment unless the court grants the requested relief, including declaratory and injunctive relief. The St. John and Tennessee Riverkeeper cases, which relate to the 3M plant in Decatur, are stayed through November 2019.

In August 2016, a group of over 200 plaintiffs filed a putative class action against West Morgan-East Lawrence Water and Sewer Authority (Water Authority), 3M, Dyneon, Daikin, BFI, and the City of Decatur in state court in Lawrence County, Alabama. Plaintiffs are residents of Lawrence, Morgan and other counties who are or have been customers of the Water Authority. They contend defendants have released PFAS that contaminate the Tennessee River and, in turn, their drinking water, causing damage to their health and properties. In January 2017, the court in the St. John case, discussed above, stayed this litigation pending resolution of the St. John case.

In January 2017, several hundred plaintiffs sued 3M, its subsidiary Dyneon, and Daikin America in Lawrence and Morgan Counties, Alabama. The plaintiffs are owners of property, residents, and holders of property interests who receive their water from the West Morgan-East Lawrence Water and Sewer Authority (Water Authority). They assert common law claims for negligence, nuisance, trespass, wantonness, and battery, and they seek injunctive relief and punitive damages. The plaintiffs contend that the defendants own and operate manufacturing and disposal facilities in Decatur that have released and continue to release PFOA, PFOS and related chemicals into the groundwater and surface water of their sites, resulting in discharge into the Tennessee River. The plaintiffs also contend that the defendants have discharged into Bakers Creek and the Decatur Utilities Dry Creek Wastewater Treatment Plant,

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which, in turn, discharges wastewater containing these chemicals into the Tennessee River. The plaintiffs contend that, as a result of the alleged discharges, the water supplied by the Water Authority to the plaintiffs was, and is, contaminated with PFOA, PFOS, and related chemicals at a level dangerous to humans.

In November 2017, a ~~purported~~putative class action (the “King” case) was filed against 3M, its subsidiary Dyneon, Daikin America, and the West Morgan-East Lawrence Water and Sewer Authority (Water Authority) in the U.S. District Court for the Northern District of Alabama. The plaintiffs are residents of Lawrence and Morgan County, Alabama who receive their water from the Water Authority. They assert various common law claims, including negligence, nuisance, wantonness, and fraudulent concealment, and they seek injunctive relief, attorneys’ fees, compensatory and punitive damages for their alleged personal injuries. The plaintiffs contend that the defendants own and operate manufacturing and disposal facilities in Decatur that have released and continue to release PFOA, PFOS and related chemicals into the groundwater and surface water of their sites, resulting in discharge into the Tennessee River. The plaintiffs also contend that the defendants have discharged chemicals into the Decatur Utilities Dry Creek Wastewater Treatment Plant, which, in turn, discharged wastewater containing these chemicals into the Tennessee River. The plaintiffs contend that, as a result of the alleged discharges, the water supplied by the Water Authority to the plaintiffs was, and is, contaminated with PFOA, PFOS, and related chemicals at a level dangerous to humans.

In January 2018, certain property owners in Trinity, Alabama filed a lawsuit against 3M, Dyneon, and ~~three~~3 unnamed defendants in the U.S. District Court for the Northern District of Alabama. The plaintiffs assert claims for negligence, strict liability, trespass, nuisance, wanton and reckless conduct, and citizen suit claims for violation of the Resource Conservation and Recovery Act. They allege these claims arise from the defendants’ contamination of their property by disposal of PFAS in a landfill located on their property. The plaintiffs seek compensatory and punitive damages and a court order directing the defendants to remediate all PFAS contamination on their property. In September 2018, the case was dismissed by stipulation of the parties.

In ~~September~~March 2018, an individual plaintiff filed a lawsuit in the U.S. District Court for the Northern District of Alabama raising allegations and claims substantially similar to those asserted by plaintiffs in the King case.

In July 2019, 3M ~~has not yet been served~~announced that it had initiated an investigation into the possible presence of PFAS in ~~this case.~~3 closed municipal landfills in Decatur that accepted waste from 3M’s Decatur plant and other companies in the 1960s through the 1980s. 3M is working with local and state entities as it conducts its investigation and will report the results and recommended remedial action, if any, to those entities and the public.

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Litigation Related to Historical PFAS Manufacturing Operations in Minnesota

In July 2016, the City of Lake Elmo filed a lawsuit in the U.S. District Court for the District of Minnesota against 3M alleging that the City suffered damages from drinking water supplies contaminated with PFAS, including costs to construct alternative sources of drinking water. ~~Trial is scheduled~~In April 2019, 3M and the City of Lake Elmo agreed to ~~begin in September 2019.~~settle the lawsuit for less than $5 million.

State Attorneys General Litigation related to PFAS

Minnesota.In December 2010, the State of Minnesota, by its Attorney General, filed a lawsuit in Hennepin County District Court against 3M to recover damages (including unspecified assessment costs and reasonable attorney’s fees) for alleged injury to, destruction of, and loss of use of certain of the State’s natural resources under the Minnesota Environmental Response and Liability Act (MERLA) and the Minnesota Water Pollution Control Act (MWPCA), as well as statutory nuisance and common law claims of trespass, nuisance, and negligence with respect to the presence of PFAS in the groundwater, surface water, fish or other aquatic life, and sediments (the “NRD Lawsuit”). The State also sought declarations under MERLA that 3M is responsible for all damages the State may suffer in the future for injuries to natural resources from releases of PFAS into the environment, and that 3M is responsible for compensation for future loss or destruction of fish, aquatic life, and other damages under the MWPCA. In September 2017, the State’s damages expert submitted a report that contended the State incurred $5 billion in damages. In November 2017, the State of Minnesota filed a motion for leave to amend its complaint to seek punitive damages from 3M, and 3M filed a motion for summary judgment contending, among other things, that the State’s claims were barred by the applicable statute of limitations. In December 2017, the court urged the parties to attempt to resolve the litigation before trial, and in January 2018, the court appointed a mediator to facilitate that process. In February 2018, 3M and the State of Minnesota reached a resolution of the NRD Lawsuit. Under the terms of the settlement, 3M agreed to provide an $850 million grant to the State for a special “3M Water Quality and Sustainability Fund.” This Fund will enable projects that support water sustainability in the Twin Cities East Metro region, such as continued delivery of water to residents and enhancing groundwater recharge to support sustainable growth. The projects will also result in habitat and recreation improvements, such as fishing piers, trails, and open space preservation. 3M recorded a pre-tax charge of $897 million, inclusive of legal fees and other related obligations, in the first quarter of 2018 associated with the resolution of this matter.

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~~In June 2018, the~~New York. The State of New York, by its Attorney General, has filed 3 lawsuits (in June 2018, February 2019, and July 2019) against 3M and other defendants seeking to recover the costs incurred in responding to PFAS contamination allegedly caused by Aqueous Film Forming Foam (AFFF) manufactured by 3M and others. Each of the 3 suits was filed in Albany County Supreme Court before being removed to federal court and transferred to the multi-district litigation (MDL) proceedings for AFFF cases, which is discussed further below. The state is seeking compensatory and punitive damages, and injunctive and equitable relief in the form of a monetary fund for the State’s reasonably expected future damages, and/or requiring defendants to perform investigative and remedial work in response to the threats and/or injuries they have caused.

Ohio. In December 2018, the State of Ohio, by its Attorney General, filed a lawsuit in ~~Albany Country Supreme~~the Common Pleas Court of Lucas County, Ohio against 3M, Tyco Fire Products LP, Chemguard, Inc., Buckeye Fire Equipment Co., National Foam, Inc., and ~~Kidde-Fenwal, Inc.~~Angus Fire Armour Corp., seeking injunctive relief and compensatory and punitive damages for remediation costs and alleged injury to ~~recover (1) the costs incurred in responding~~Ohio natural resources from AFFF manufacturers. This case was removed to federal court and transferred to the MDL.

New Jersey. In March 2019, the New Jersey Attorney General filed 2 actions against 3M, DuPont, and Chemours on behalf of the New Jersey Department of Environmental Protection (NJDEP), the NJDEP’s commissioner, and the New Jersey Spill Compensation Fund regarding alleged discharges at 2 DuPont facilities in Pennsville, New Jersey (Salem County) and Parlin, New Jersey (Middlesex County). 3M is included as a defendant in both cases because it allegedly supplied PFOA to DuPont for use at the facilities at issue. Both cases expressly seek to have the defendants pay all costs necessary to investigate, remediate, assess, and restore the affected natural resources of New Jersey.DuPont removed these cases to federal court, where they remain pending in the early stages of litigation.

In May 2019, the New Jersey Attorney General and NJDEP filed a lawsuit against 3M, DuPont, and six other companies, alleging natural resource damages from AFFF products and seeking damages, including punitive damages, and associated fees. This case was removed to federal court and transferred to the AFFF MDL.

New Hampshire. In May 2019, the New Hampshire Attorney General filed 2 lawsuits alleging contamination ~~caused~~of the state’s drinking water supplies and other natural resources by ~~Aqueous Film Forming Foam (AFFF) manufactured by~~PFAS chemicals. The first lawsuit was filed against 3M and ~~others; (2) damages for injury~~seven co-defendants,

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alleging PFAS contamination resulting from the use of AFFF products at several sites around the state. This case was removed to ~~destruction~~federal court and transferred to the AFFF MDL. The second suit asserts PFAS contamination from non-AFFF sources and names 3M, DuPont, and Chemours as defendants. This suit remains pending in state court in early stages of ~~and loss~~litigation.

Vermont. In June 2019, the Vermont Attorney General filed 2 lawsuits alleging contamination of the ~~State’s~~state’s drinking water supplies and other natural resources by PFAS chemicals. The first lawsuit was filed against 3M and ten co-defendants, alleging PFAS contamination resulting from the use of AFFF products at several sites around the state. This case was removed to federal court and transferred to the AFFF MDL. The second suit asserts PFAS contamination from non-AFFF sources and names 3M and several entities related ~~recreational series;~~to DuPont and ~~(3) property damage.~~Chemours as defendants. This suit remains pending in state court in early stages of litigation.

Michigan.In July 2018, the now former governor of Michigan requested that the now former Michigan Attorney General file a lawsuit against 3M and others related to PFAS in a public letter. ~~The~~In May 2019, the new Michigan Attorney General ~~has not yet determined whether he will do so.~~issued a request for proposal seeking outside legal expertise in pursuing claims against manufacturers, distributors, and other responsible parties related to PFAS.

Guam. In September 2019, the Attorney General of Guam filed a lawsuit against 3M and other defendants relating to contamination of the territory’s drinking water supplies and other natural resources by PFAS, allegedly resulting from the use of AFFF products at several sites around the island.

Aqueous Film Forming Foam (AFFF) Environmental Litigation

3M manufactured and marketed AFFF for use in firefighting at airports and military bases from approximately 1963 to ~~2000.~~2002. As of September 30, ~~2018, 75~~2019, 130 putative class action and other lawsuits have been filed against 3M ~~and~~(along with other ~~defendants~~defendants) in various state and federal courts ~~in Colorado, Delaware, Florida, Massachusetts, New York, Pennsylvania, and Washington~~ where current or former airports, military bases, or fire training facilities are or were located. As previously noted, some of these cases have been brought by state or territory attorneys generals. In these cases, plaintiffs typically allege that certain PFAS used in AFFF contaminated the soil and groundwater where AFFF was used and seek damages for loss of use and enjoyment of properties, diminished property values, investigation costs, remediation costs, and in some cases, personal injury and funds for medical monitoring. Several companies have been sued along with 3M, including but not limited to Ansul Co. (acquired by Tyco, Inc.), Angus Fire, Buckeye Fire Protection Co., Chemguard, Chemours, DuPont, National Foam, Inc., and United Technologies ~~Corp~~.Corp.

In December 2018, the U.S. Judicial Panel on Multidistrict Litigation granted motions to transfer and consolidate all AFFF cases pending in federal courts to the U.S. District Court for the District of South Carolina to be managed in an MDL proceeding to centralize pre-trial proceedings. Additional AFFF cases continue to be transferred into the MDL as they are filed or removed to federal court. As of September 30, 2019, there were 125 cases in the MDL, 119 of which name 3M as a defendant. The parties in the MDL are currently in the process of conducting discovery.

In June 2019, several subsidiaries of Valero Energy Corporation, an independent petroleum refiner, filed 8 AFFF cases against 3M and other defendants, including DuPont/Chemours, National Foam, Buckeye Fire Equipment, and Kidde-Fenwal, in various state courts. Plaintiffs seek damages that allegedly have been or will be incurred in investigating and remediating PFAS contamination at their properties and replacing or disposing of AFFF products containing long-chain PFAS. Although 2 of these cases have been removed to federal court and transferred to the AFFF MDL, 6 cases remain pending in state courts where they are in early stages of litigation.

In September 2019, an individual plaintiff filed an AFFF lawsuit against 3M, together with the State of Alaska, Chemguard, Tyco Fire Equipment Co., DuPont, Chemours and other co-defendants, in state court in Alaska. Plaintiff in this case seeks property damages and medical monitoring on behalf of a putative class. Also in September 2019, 3M was named a defendant, together with Tyco Fire Products, Chemguard, Buckeye Fire Protection and other co-defendants, in an AFFF action filed by individual plaintiffs in state court of New York. Plaintiffs in the New York case seek damages for alleged property damage and personal injuries, as well as injunctive relief in the form of medical monitoring and property testing and remediation.

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Other PFAS-related Environmental Litigation

3M manufactured and ~~marketed certain~~sold products containing ~~PFAS~~various perfluorooctanyl compounds (PFOA and PFOS), including Scotchgard, for several decades. Starting in 2017, 3M has been served with individual and putative class action complaints in various state and federal courts alleging, among other things, that 3M’s customers’ improper disposal of PFOA and PFOS resulted in the contamination of groundwater or surface water. The plaintiffs in these cases generally allege that 3M failed to warn its customers about the hazards of improper disposal of the product. They also generally allege that contaminated groundwater has caused various injuries, including personal injury, loss of use ~~by customers in~~and enjoyment of their ~~manufacturing process. As of September 30, 2018, the following cases~~properties, diminished property values, investigation costs, and remediation costs. Several companies have been ~~filed against~~sued along with 3M, ~~another manufacturer,~~including Saint-Gobain Performance Plastics Corp., Honeywell International Inc. f/k/a Allied-Signal Inc. and/or AlliedSignal Laminate Systems, Inc., E.I. DuPont De Nemours and ~~their customers in connection with the use~~Co., and ~~disposal of these products.~~various carpet manufacturers.

In ~~September 2017, three complaints were~~New York, 3M is defending 47 individual cases and 1 putative class action filed in the U.S. District Court for the Northern District of New York and 4 additional cases filed in New York state court against 3M, Saint-Gobain Performance Plastics Corp. (“Saint-Gobain”), Honeywell International Inc. ~~(“Honeywell”)~~ and E.I. DuPont De Nemours and Company. Plaintiffs allege that 3M manufactured and sold PFOA that was used for manufacturing purposes at Saint-Gobain’s and Honeywell’s facilities located in the Village of Hoosick Falls and the Town of Hoosick. Plaintiffs claim that the drinking water around Hoosick Falls became contaminated with unsafe levels of PFOA due to the activities of the defendants and allege that they suffered bodily injury due to the ingestion and inhalation of PFOA. Plaintiffs seek unstated compensatory, consequential, and punitive damages, as well as attorneys’ fees and costs.

In ~~December 2017, plaintiffs filed a punitive~~Michigan, 1 consolidated putative class action is pending in ~~federal court~~the U.S. District Court for the Western District of Michigan against 3M and Wolverine World Wide (Wolverine) and Waste Management, Inc., alleging negligence, trespass, intentional and negligent infliction of emotional distress, battery, products liability, public and private nuisance, fraudulent concealment, and unjust enrichment. Each count was filed against each defendant.other defendants. The action arises from Wolverine’s allegedly improper disposal of materials and wastes, including 3M Scotchgard, related to ~~their~~Wolverine’s shoe manufacturing operations. Plaintiffs allege Wolverine used 3M Scotchgard in its manufacturing process and that chemicals from 3M’s product ~~have~~ contaminated the environment ~~after being disposed of near~~and drinking water ~~sources.~~sources after disposal. In addition to the 1 consolidated federal court putative class action, as of September 30, ~~2018,~~2019, 3M has been named as a defendant in ~~122~~254 private individual actions in Michigan state court based on similar allegations. NaN of these cases have been selected for bellwether trials beginning in 2020. Wolverine also filed a third-party complaint against 3M in a suit by the State of Michigan and intervenor townships that seeks to compel Wolverine to investigate and address contamination associated with its historic disposal activity. 3M filed an answer and counterclaims to Wolverine’s third-party complaint in June 2019. In September 2019, the parties (including 3M as third-party defendant) engaged in mediation, but resolution of the case was not reached. 3M and Wolverine have scheduled further mediation in late October 2019. 3M is ~~aware of additional cases filed against Wolverine~~also a defendant, together with Georgia-Pacific as co-defendant, in a putative class action in federal court in Michigan ~~state court in which 3M~~brought by residents of Parchment, who allege that the municipal drinking water is ~~likely~~contaminated from waste generated by a paper mill owned by Georgia-Pacific’s corporate predecessor. Defendants have moved to ~~be added as a defendant~~dismiss certain claims in the ~~future.~~complaint, and the parties have begun discovery on the remaining claims.

In Alabama, 3M is defending ~~two~~2 lawsuits filed in state court by local public water suppliers relating to 3M’s sale of PFAS-containing products to carpet manufacturers in Georgia. The plaintiffs in these cases allege that the carpet manufacturers improperly discharged ~~PFAS~~PFOA and PFOS into the surface water and groundwater, contaminating drinking water supplies of cities located downstream along the Coosa River.

In Delaware, 3M is defending 1 putative class action brought by individuals alleging PFAS contamination of their water supply resulting from the operations of local metal plating facilities. Plaintiffs allege that 3M supplied PFAS to the metal plating facilities. DuPont/Chemours and the metal platers have also been named as defendants. 3M removed the case from state court to federal court, and plaintiffs have filed a motion to remand.

In Maine, 3M is defending 1 individual action in state court relating to contamination of drinking water and dairy farm operations by PFAS from wastewater sludge. Plaintiffs contend that PFAS entered the wastewater via discharge from another company’s facility in Kennebunk, Maine.

In New Jersey, 3M is defending an action brought in federal court by Middlesex Water Company, alleging PFAS contamination of its water wells. The case is currently in the early stages of discovery. 3M has moved to dismiss the complaint and, separately, moved to transfer the case to the AFFF MDL. On a separate matter, 3M was dismissed without prejudice from a class action that was previously pending in federal court in New Jersey, relating to the DuPont Chambers Works plant.

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In October 2018, 3M and other defendants, including DuPont and Chemours, were named in a putative class action in the U.S. District Court for the Southern District of Ohio brought by the named plaintiff, a firefighter allegedly exposed to PFAS chemicals through his use of firefighting foam, purporting to represent a putative class of all U.S. individuals with detectable levels of PFAS in their blood. The plaintiff brings claims for negligence, battery, and conspiracy and seeks injunctive relief, including an order “establishing an independent panel of scientists” to evaluate PFAS. 3M and other entities jointly filed a motion to dismiss in February 2019. In September 2019, the court denied the defendants’ motion.

In March 2019, the New Jersey Department of Environmental Protection (NJDEP) issued a directive, information request and notice to Solvay, DuPont, Chemours, and 3M relating to PFAS. The NJDEP, in its effort to obtain a “full understanding” of Respondents’ historical and current “development, manufacture, transport, use, storage, release, discharge, and/or disposal of PFAS in New Jersey,” requested information from each respondent and a collective meeting with the NJDEP to discuss costs to “investigate, test, treat, cleanup, and remove” PFAS from New Jersey’s environment.

Other PFAS-related Matters

In July 2019, the Company received a written request from the Subcommittee on Environment of the Committee on Oversight and Reform, U.S. House of Representatives, seeking certain documents and information relating to the Company’s manufacturing and distribution of PFAS products. The Company is cooperating with this request. In September 2019, a 3M representative testified before and responded to questions from the Subcommittee on Environment with respect to PFAS and the Company’s environmental stewardship initiatives.

The Company operates under a 2009 consent order issued under the federal Toxic Substances Control Act (TSCA) for the manufacture and use of 2 perfluorinated materials (FBSA and FBSEE) at its Decatur, Alabama site that does not permit release of these materials into “the waters of the United States.” In March 2019, the Company halted the manufacture, processing, and use of these materials at the site upon learning that these materials may have been released from certain specified processes at the Decatur site into the Tennessee River. In April 2019, the Company voluntarily disclosed the releases to the U.S. Environmental Protection Agency (EPA) and the Alabama Department of Environmental Management (ADEM). During June and July 2019, the Company took steps to fully control the aforementioned processes by capturing all wastewater produced by the processes and by treating all air emissions. These processes have been back on line and in operation since July 2019. The Company continues to cooperate with the EPA and ADEM in their investigations and will work with the regulatory authorities to demonstrate full compliance with the release restrictions.

The Company is authorized to discharge wastewater from its Decatur plant pursuant to the terms of a Clean Water Act National Pollutant Discharge Elimination System (NPDES) permit issued by ADEM. The NPDES permit requires the Company to report on a monthly and quarterly basis the quality and quantity of pollutants discharged to the Tennessee River. In June 2019, the Company voluntarily disclosed to the EPA and ADEM that it had included incorrect values in certain of its monthly and quarterly reports. The Company has submitted the corrected values to both EPA and ADEM.

As part of the ongoing work with EPA and ADEM to address compliance matters at the Decatur facility, the Company announced in September 2019 that it had elected to temporarily idle certain other manufacturing processes at 3M Decatur. The Company is reviewing its operations at the plant as it works to re-start the idled processes and ensure operations are in compliance with environmental regulatory requirements and Company policies and procedures. The Company is also reviewing operations at its other plants with similar manufacturing processes, such as those in Cordova, Illinois and Cottage Grove, Minnesota, to ensure those operations are in compliance with applicable environmental regulatory requirements and Company policies and procedures. The Company will continue to work with relevant state and federal agencies as it conducts these reviews. The Company cannot predict at this time the outcomes of resolving these compliance matters or what potential actions may be taken by the regulatory agencies.

In July 2019, Heavy & General Laborers’ Locals 472 & 172 Welfare Fund filed a putative securities class action against 3M Company, its former Chairman and CEO, current Chairman and CEO, and current CFO in the U.S. District Court for the District of New Jersey. In August 2019, an individual plaintiff filed a similar putative securities class action in the same district. Plaintiffs allege that defendants made false and misleading statements regarding 3M's exposure to liability associated with PFAS, and bring claims for damages under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 against all defendants, and under Section 20(a) of the Securities and Exchange Act of 1934 against the individual defendants. The suit is in the early stages of litigation.

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Other Environmental Litigation

In July 2018, the Company, along with more than 120 other companies, was served with a complaint seeking cost recovery and contribution towards the cleaning up of approximately ~~eight~~8 miles of the Lower Passaic River in New Jersey. The plaintiff, Occidental Chemical Corporation, alleges that it agreed to design and pay the estimated $165 million cost to remove and cap sediment containing

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~~eight~~ 8 chemicals of concern, including PCBs and dioxins. The complaint seeks to spread those costs among the defendants, including the Company. The Company’s involvement in the case relates to its past use of ~~two~~2 commercial drum conditioning facilities in New Jersey. Whether, and to what extent, the Company may be required to contribute to the costs at issue in the case remains to be determined.

For environmental matters and litigation ~~matters~~ described above, nounless otherwise stated, 0 liability has been recorded as the Company believes liability in those matters is not probable and estimable and the Company is not able to estimate a possible loss or range of loss at this time. The Company’s environmental liabilities and insurance receivables are described below.

Environmental Liabilities and Insurance Receivables

The Company periodically examines whether the contingent liabilities related to the environmental matters and litigation described above are probable and estimable based on experience and developments in those matters. During the first quarter of 2019, the EPA issued its PFAS Action Plan and the Company settled the litigation with the Water Authority (both matters are described in more detail above). The Company completed a comprehensive review with the assistance of environmental consultants and other experts regarding environmental matters and litigation related to historical PFAS manufacturing operations in Minnesota, Alabama, Gendorf Germany, and at 4 former landfills in Alabama. As a result of these developments and of that review, the Company increased its accrual for “other environmental liabilities” by $235 million pre-tax (including the settlement with the Water Authority) or $186 million after tax ($0.32 per diluted share) in the first quarter of 2019. As of September 30, ~~2018,~~2019, the Company had recorded liabilities of ~~$29~~$241 million for “other environmental liabilities.” This accrual represents the Company’s best estimate of the probable loss: (i) to implement the Settlement Agreement and Consent Order with the MPCA (including the best estimate of the probable liability under the settlement of the NRD Lawsuit with the State of Minnesota for interim treatment of municipal and private wells), (ii) the remedial action agreement with ADEM, (iii) mitigation plans for the presence of PFAS in the soil and groundwater at 2 former disposal sites in Washington County, Minnesota (Oakdale and Woodbury), (iv) to cover certain environmental matters and litigation in which 3M is a defendant related to the manufacture and disposal of PFAS at 5 3M facilities, including 3 in the United States and 2 in Europe. The Company is not able to estimate a possible loss or range of loss in excess of the established accruals at this time.

As of September 30, 2019, the Company had recorded liabilities of $20 million for estimated non-PFAS related “environmental ~~remediation”~~remediation liabilities” costs ~~based upon an evaluation of currently~~to clean up, treat, or remove hazardous substances at current or former 3M manufacturing or third-party sites. The Company evaluates available facts with respect to each individual site each quarter and ~~also recorded related insurance receivables of $8 million. The Company~~ records liabilities for remediation costs on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies or the Company’s commitment to a plan of action. Liabilities for estimated costs of environmental remediation, depending on the site, are based primarily upon internal or third-party environmental studies, and estimates as to the number, participation level and financial viability of any other potentially responsible parties, the extent of the contamination and the nature of required remedial actions. The Company adjusts recorded liabilities as further information develops or circumstances change. The Company expects that it will pay the amounts recorded over the periods of remediation for the applicable sites, currently ranging up to 20 years.

As of September 30, 2018, the Company had recorded liabilities of $69 million for “other environmental liabilities” based upon an evaluation of currently available facts to implement the Settlement Agreement and Consent Order with the MPCA (including the best estimate of the probable liability under the settlement of the NRD Lawsuit for interim treatment of municipal and private wells), the remedial action agreement with ADEM, as well as presence in the soil and groundwater at the Company’s manufacturing facilities in Decatur, Alabama, and Cottage Grove, Minnesota, and at two former disposal sites in Washington County, Minnesota (Oakdale and Woodbury). The Company expects that most of the spending will occur over the next four years.

It is difficult to estimate the cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. Developments may occur that could affect the Company’s current assessment, including, but not limited to: (i) changes in the information available regarding the environmental impact of the Company’s operations and products; (ii) changes in environmental regulations, changes in permissible levels of specific compounds in drinking water sources, or changes in enforcement theories and policies, including efforts to recover natural resource damages; (iii) new and evolving analytical and remediation techniques; (iv) success in allocating liability to other potentially responsible parties; and (v) the financial viability of other potentially responsible parties and third-party indemnitors. For sites included in both “environmental remediation liabilities” and “other environmental liabilities,” at which remediation activity is largely complete and remaining activity relates primarily to operation and maintenance of the remedy, including required post-remediation monitoring, the Company believes the exposure to loss in excess of the amount accrued would not be material to the Company’s consolidated results of operations or financial condition.

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However, for locations at which remediation activity is largely ongoing, the Company cannot estimate a possible loss or range of loss in excess of the associated established accruals for the reasons described above.

~~Other Matters~~

~~Department of Labor Investigation~~

The ~~U.S. Department~~Company has both pre-1986 general and product liability occurrence coverage and post-1985 occurrence reported product liability and other environmental coverage for environmental matters and litigation. As of ~~Labor (DOL) notified 3M in April 2015 that it had commenced an investigation of 3M’s pension plan pursuant~~September 30, 2019, the Company’s receivable for insurance recoveries related to the ~~federal Employee Retirement Income Security Act~~environmental matters and litigation was $33 million. The Company increased its receivable for insurance recoveries by $25 million in the first quarter of ~~1974, as amended (ERISA).~~2019. The ~~DOL has stated its investigation relates~~insurance receivable was not changed in the third quarter of 2019. Various factors could affect the timing and amount of recovery of this and future expected increases in the receivable, including (i) delays in or avoidance of payment by insurers; (ii) the extent to ~~certain private equity investments, plan expenses, securities lending,~~which insurers may become insolvent in the future, (iii) the outcome of negotiations with insurers, and ~~distributions~~(iv) the scope of ~~plan benefits. In response~~the insurers’ purported defenses and exclusions to certain DOL requests, 3M produced documents and made employees available for interviews. In December 2016, the DOL issued certain subpoenas to 3M and 3M Investment Management Corp. relating to this investigation. 3M has produced additional responsive documents and is cooperating with the DOL in its investigation. In June 2018, the DOL issued a letter indicating that it did not intend to take further action.avoid coverage.

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Product Liability Litigation

As of September 30, ~~2018,~~2019, the Company is a named defendant in 2 lawsuits involving ~~approximately 4,955~~2 plaintiffs (compared to approximately ~~4,270~~5,015 plaintiffs at December 31, ~~2017)~~2018) who allege the Bair Hugger™ patient warming system caused a surgical site infection. ~~Nearly all of the lawsuits are pending in federal court in Minnesota.~~ The plaintiffs claim they underwent various joint arthroplasty, cardiovascular, and other surgeries and later developed surgical site infections due to the use of the Bair Hugger™ patient warming system (the Bair Hugger™ product line was acquired by 3M as part of the 2010 acquisition of Arizant, Inc., a ~~leading~~ manufacturer of patient warming solutions designed to prevent hypothermia and maintain normal body temperature in surgical settings). The ~~complaints~~plaintiffs seek damages and other relief based on theories of strict liability, negligence, breach of express and implied warranties, failure to warn, design and manufacturing defect, fraudulent and/or negligent misrepresentation/concealment, unjust enrichment, and violations of various state consumer fraud, deceptive or unlawful trade practices and/or false advertising acts. ~~One case, from the U.S. District Court for the Western District of Tennessee is a putative nationwide class action.~~

The U.S. Judicial Panel on Multidistrict Litigation ~~(MDL)~~(JPML) granted the plaintiffs’ motion to transfer and consolidate all cases pending in federal courts to the U.S. District Court for the District of Minnesota to be managed in a multi-district proceeding during the pre-trial phase of the litigation. In 2017, the U.S. District Court and the Minnesota state courts denied the plaintiffs’ motions to amend their complaints to add claims for punitive damages.litigation (MDL) proceeding. At a joint hearing before the U.S. District Court and the Minnesota State court, on the parties’ motion to exclude each other’s experts, and 3M’s motion for summary judgment with respect to general causation, the federal court did not exclude the plaintiffs’ experts and denied 3M’s motion for summary judgment on general causation. In June 2019, the MDL judge heard oral arguments on 3M’s motion for reconsideration. In July 2019, the U.S. District Court reconsidered that decision, excluded several of the plaintiffs’ causation experts, and granted summary judgment for 3M in all cases pending in the MDL. Plaintiffs have appealed that decision to the U.S. Court of Appeals for the Eighth Circuit. Plaintiffs also previously appealed a May 2018 jury verdict in favor of 3M in the first bellwether trial in the MDL and the dismissal of another bellwether case.

In January 2018, the Minnesota state court, inafter hearing the same arguments, excluded plaintiffs’ experts and granted 3M’s motion for summary judgment on general causation, dismissing all 61 cases pending before the state court in Minnesota. Plaintiffs ~~have~~ appealed that ruling and the state court’s punitive damages ~~ruling, and oral argument before~~ruling. In January 2019, the Minnesota Court of Appeals ~~is scheduled~~affirmed the Minnesota state court orders in ~~November 2018.~~their entirety. The Minnesota Supreme Court denied plaintiffs’ petition for review. Final dismissal was entered in April 2019, effectively ending the Minnesota state court cases.

3M has been defending 1 active state court action in Hidalgo County, Texas, which combines Bair Hugger product liability claims with medical malpractice claims. In ~~April 2018,~~August 2019, the U.S. District Court managing the MDL entered an order enjoining the individual plaintiff from pursuing his claims in Texas state court because he had previously filed and dismissed a claim in the MDL. The plaintiff has appealed the order to the U.S. Court of Appeals for the Eighth Circuit.

During the third quarter of 2019, 3M also defended 4 actions filed in Missouri state court. 3M removed these cases to federal court ~~partially granted 3M’s motion for summary judgment in~~and moved to transfer them to the ~~first bellwether case, leaving for trial a claim for strict liability based upon design defect. The court dismissed~~MDL. NaN cases have been transferred to the ~~plaintiff’s claims for negligence, failure~~MDL. Plaintiffs opposed transfer to ~~warn,~~the MDL and ~~common law and statutory fraud. In~~have filed motions to remand the trial of the first bellwether case in May 2018, the jury returned a unanimous verdict in 3M’s favor finding that the Bair Hugger™ patient warming system was not defective and was not the cause of the plaintiff’s injury.cases to Missouri state court.

In June 2016, the Company was served with a putative class action filed in the Ontario Superior Court of Justice for all Canadian residents who underwent various joint arthroplasty, cardiovascular, and other surgeries and later developed surgical site infections due to the use of the Bair Hugger™ patient warming system. The representative plaintiff seeks relief (including punitive damages) under Canadian law based on theories similar to those asserted in the MDL. No

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NaN liability has been recorded for the Bair Hugger™ litigation because the Company believes that any such liability is not probable and estimable at this time.

In September 2011, 3M Oral Care launched Lava Ultimate CAD/CAM dental restorative material. The product was originally indicated for inlay, onlay, veneer, and crown applications. In June 2015, 3M Oral Care voluntarily removed crown applications from the product’s instructions for use, following reports from dentists of patients’ crowns debonding, requiring additional treatment. The product remains on the market for other applications. 3M communicated with the U.S. Food and Drug Administration, as well as regulators outside the United States. 3M also informed customers and distributors of its action, offered to accept return of unused materials and provide refunds. In May 2018, 3M reached a preliminary settlement for an amount that did not have a material impact to the Company of the lawsuit pending in the U.S. District Court for the District of Minnesota that sought certification of a class of dentists in the United States and its territories. In September 2019, the court issued an order granting final approval of the settlement.

Aearo Technologies sold Dual-Ended Combat Arms – Version 2 earplugs starting in about 2003. 3M acquired Aearo Technologies in 2008 and sold these earplugs from 2008 through 2015, when the product was discontinued. In December 2018, a military veteran filed an individual lawsuit against 3M in the San Bernardino Superior Court in California alleging that he sustained personal injuries while serving in the military caused by 3M’s Dual-Ended Combat Arms earplugs – Version 2. The ~~settlement~~plaintiff asserts claims of product liability and fraudulent misrepresentation and concealment. The plaintiff seeks various damages, including medical and related expenses, loss of income, and punitive damages. As of September 30, 2019, the Company is ~~subject~~a named defendant in approximately 2,245 lawsuits (including 13 putative class actions) in various state and federal courts that purport to represent approximately 11,297 individual claimants making similar allegations. In April 2019, the U.S. Judicial Panel on Multidistrict Litigation granted motions to transfer and consolidate all cases pending in federal courts to the ~~court’s approval~~U.S. District Court for the Northern District of Florida to be managed in a multi-district litigation (MDL) proceeding to centralize pre-trial proceedings. The court conducted a case management conference in June 2019 on a discovery plan and ~~certification of the settlement class, with a right of class members to opt-out of the settlement and bring individual claims against the Company.~~scheduling. Discovery is underway.

For product liability litigation matters described in this section for which a liability has been recorded, ~~the Company believes~~ the amount recorded is not material to the Company’s consolidated results of operations or financial condition. In addition, the Company is not able to estimate a possible loss or range of loss in excess of the established accruals at this time.

Compliance Matter

The Company, through its internal processes, discovered certain travel activities and related funding and record keeping issues raising concerns, arising from marketing efforts by certain business groups based in China. The Company initiated an internal investigation to determine whether the expenditures may have violated the U.S. Foreign Corrupt Practices Act (FCPA) or other potentially applicable anti-corruption laws.The Company has retained outside counsel and a forensic accounting firm to assist with the investigation. In July 2019, the Company voluntarily disclosed this investigation to both the Department of Justice and Securities and Exchange Commission and is cooperating with both agencies. The Company cannot predict at this time the outcome of its investigation or what potential actions may be taken by the Department of Justice or Securities and Exchange Commission.

NOTE 15. Leases

The Company adopted ASU No. 2016-02 and related standards (collectively ASC 842, Leases), which replaced previous lease accounting guidance, on January 1, 2019 using the modified retrospective method of adoption. 3M elected the transition method expedient which allows entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of electing this transition method, prior periods have not been restated. Due to the cumulative net impact of adopting ASC 842, the January 1, 2019 balance of retained earnings was increased by $14 million, primarily relating to previously deferred gains from sale-leaseback transactions. In addition, adoption of the new standard resulted in the recording of right of use assets and associated lease liabilities of $0.8 billion each as of January 1, 2019. The Company’s accounting for finance leases (previously called capital leases) remains substantially unchanged. ASC 842 did not have a material impact on 3M’s consolidated income statement. 3M elected the package of practical expedients permitted under the transition guidance within ASC 842, which includes not reassessing lease classification of existing leases. The Company did not elect the hindsight practical expedient.

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3M determines if an arrangement is a lease upon inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The right to control the use of an asset includes the right to obtain substantially all of the economic benefits of the underlying asset and the right to direct how and for what purpose the asset is used. 3M determines certain service agreements that contain the right to use an underlying asset are not leases because 3M does not control how and for what purpose the identified asset is used. Examples of such agreements include master supply agreements, product processing agreements, warehouse and distribution services agreements, power purchase agreements, and transportation purchase agreements.

Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate present value is 3M’s incremental borrowing rate or, if available, the rate implicit in the lease. 3M determines the incremental borrowing rate for each lease based primarily on its lease term and the economic environment of the applicable country or region.

As a lessee, the Company leases distribution centers, office space, land, and equipment. Certain 3M lease agreements include rental payments adjusted annually based on changes in an inflation index. 3M’s leases do not contain material residual value guarantees or material restrictive covenants. Lease expense is recognized on a straight-line basis over the lease term.

Certain leases include 1 or more options to renew, with terms that can extend the lease term up to five years. 3M includes options to renew the lease as part of the right of use lease asset and liability when it is reasonably certain the Company will exercise the option. In addition, certain leases contain fair value purchase and termination options with an associated penalty. In general, 3M is not reasonably certain to exercise such options.

For the measurement and classification of its lease agreements, 3M groups lease and non-lease components into a single lease component for all underlying asset classes. Variable lease payments primarily include payments for non-lease components, such as maintenance costs, payments for leased assets used beyond their noncancelable lease term as adjusted for contractual options to terminate or renew, and payments for non-components such as sales tax. Certain 3M leases contain immaterial variable lease payments based on number of units produced.

The components of lease expense are as follows:


	Three months ended		Nine months ended
(Millions)	September 30, 2019		September 30, 2019
Operating lease cost	$	78	$	229
Finance lease cost:
Amortization of assets		5		15
Interest on lease liabilities		—		1
Variable lease cost		26		68
Total net lease cost	$	109	$	313

Income related to sub-lease activity is immaterial for the Company.

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Supplemental balance sheet information related to leases is as follows:


	Location on Face of	As of:
(Millions unless noted)	Balance Sheet	September 30, 2019
Operating leases:
Operating lease right of use assets	Operating lease right of use assets	$	834

Current operating lease liabilities	Operating lease liabilities - current	$	241
Noncurrent operating lease liabilities	Operating lease liabilities		584
Total operating lease liabilities		$	825

Finance leases:
Property and equipment, at cost	Property, plant and equipment	$	235
Accumulated amortization	Property, plant and equipment (accumulated depreciation)		(99)
Property and equipment, net		$	136

Current obligations of finance leases	Other current liabilities	$	18
Finance leases, net of current obligations	Other liabilities		116
Total finance lease liabilities		$	134

Weighted average remaining lease term (in years):
Operating leases			5.7
Finance leases			9.2
Weighted average discount rate:
Operating leases			3.3	%
Finance leases			3.8	%

Supplemental cash flow and other information related to leases is as follows:


	Nine months ended
(Millions)	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	231
Operating cash flows from finance leases		1
Financing cash flows from finance leases		12

Right of use assets obtained in exchange for lease liabilities:
Operating leases		288
Finance leases		58

Gain on sale leaseback transactions, net		59

In the first quarter of 2019, 3M sold and leased-back certain recently constructed machinery and equipment in return for municipal securities, which in aggregate, were recorded as a finance lease asset and obligation of approximately $9 million. In the third quarter of 2019, the Company sold an office location involving a leaseback resulting in a $59 million gain. Refer to Note 9 in 3M’s 2018 Annual Report on Form 10-K for additional non-cash details associated with prior activity.

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Maturities of lease liabilities were as follows:


	September 30, 2019
(Millions)	Finance Leases		Operating Leases
Remainder of 2019	$	8	$	73
2020		20		241
2021		16		168
2022		15		123
2023		15		85
After 2023		67		211
Total	$	141	$	901
Less: Amounts representing interest		(7)		(76)
Present value of future minimum lease payments		134		825
Less: Current obligations		18		241
Long-term obligations	$	116	$	584

As of September 30, 2019, the Company has additional operating lease commitments that have not yet commenced of approximately $29 million. These commitments pertain to 3M’s right of use buildings.

Disclosures related to periods prior to adoption of new lease standard:

Capital and Operating Leases:
Rental expense under operating leases was $393 million in 2018, $343 million in 2017 and $318 million in 2016. It is 3M’s practice to secure renewal rights for leases, thereby giving 3M the right, but not the obligation, to maintain a presence in a leased facility. 3M has the following primary capital leases:

●

In 2003, 3M recorded a capital lease asset and obligation of approximately 34 million British Pound (GBP), or approximately $43 million at December 31, 2018, exchange rates, for a building in the United Kingdom (with a lease term of 22 years).

●

3M sold and leased-back certain recently constructed machinery and equipment in return for municipal securities, which in aggregate, were recorded as a capital lease asset and obligation of approximately $13 million in 2018, $13 million in 2017, and $12 million in 2016, with an average remaining lease term remaining of 15 years at December 31, 2018.

Minimum lease payments under capital and operating leases with non-cancelable terms in excess of one year as of December 31, 2018, were as follows:


			Operating
(Millions)	Capital Leases		Leases
2019	$	18	$	283
2020		16		208
2021		14		153
2022		12		122
2023		12		92
After 2023		32		253
Total	$	104	$	1,111
Less: Amounts representing interest		12
Present value of future minimum lease payments		92
Less: Current obligations under capital leases		17
Long-term obligations under capital leases	$	75

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NOTE ~~15.~~16. Stock-Based Compensation

The 3M 2016 Long-Term Incentive Plan provides for the issuance or delivery of up to 123,965,000 shares of 3M common stock pursuant to awards granted under the plan. Awards may be issued in the form of incentive stock options, nonqualified stock options, progressive stock options, stock appreciation rights, restricted stock, restricted stock units, other stock awards, and performance units and performance shares. ~~The~~As of September 30, 2019, the remaining shares available for grant under the LTIP Program are ~~26.3 million as of September 30, 2018.~~22.1 million.

The Company’s annual stock option and restricted stock unit grant is made in February to provide a strong and immediate link between the performance of individuals during the preceding year and the size of their annual stock compensation grants. The grant to eligible employees uses the closing stock price on the grant date. Accounting rules require recognition of expense under a non-substantive vesting period approach, requiring compensation expense recognition when an employee is eligible to retire. Employees are considered eligible to retire at age 55 and after having completed ten years of service. This retiree-eligible population represents 3837 percent of the annual grant stock-based compensation ~~award expense dollars;~~expense; therefore, higher stock-based compensation expense is recognized in the first quarter.

In addition to the annual grants, the Company makes other minor grants of stock options, restricted stock units and other stock-based grants. The Company issues cash settled restricted stock units and stock appreciation rights in certain countries. These grants do not result in the issuance of common stock and are considered immaterial by the Company.

Amounts recognized in the financial statements with respect to stock-based compensation programs, which include stock options, restricted stock, restricted stock units, performance shares and the General Employees’ Stock Purchase Plan (GESPP), are provided in the following table. Capitalized stock-based compensation amounts were not material for the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.

Stock-Based Compensation Expense


	Three months ended				Nine months ended
	September 30,				September 30,

									Three months ended				Nine months ended
									September 30,				September 30,
(Millions)	2018		2017		2018		2017		2019		2018		2019		2018
Cost of sales	$	8	$	9	$	40	$	41	$	8	$	8	$	39	$	40
Selling, general and administrative expenses		35		45		177		186		33		35		151		177
Research, development and related expenses		7		6		41		39		7		7		40		41
Stock-based compensation expenses	$	50	$	60	$	258	$	266	$	48	$	50	$	230	$	258
Income tax benefits	$	(20)	$	(35)	$	(137)	$	(257)	$	(12)	$	(20)	$	(120)	$	(137)
Stock-based compensation expenses (benefits), net of tax	$	30	$	25	$	121	$	9	$	36	$	30	$	110	$	121

Stock Option Program

The following table summarizes stock option activity during the nine months ended September 30, ~~2018:~~2019:

Weighted

Average

Weighted

Remaining

Aggregate

Number of

Average

Contractual

Intrinsic Value

Weighted

Average

Weighted

Remaining

Aggregate

Number of

Average

Contractual

Intrinsic Value

(Options in thousands)

Options

Exercise Price

Life (months)

(millions)

Options

Exercise Price

Life (months)

(millions)

Under option —

January 1

34,965

125.73

34,569

138.98

Granted:

Annual

3,211

233.19

3,457

200.80

Exercised

(2,974)

91.16

(3,390)

90.13

Forfeited

(106)

187.42

(96)

198.89

September 30

35,096

138.30

2,613

34,540

149.80

910

Options exercisable

September 30

26,624

121.37

2,379

27,295

135.36

910

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Stock options vest over a period from one year to three years with the expiration date at 10 years from date of grant. As of September 30, ~~2018,~~2019, there was ~~$84~~$79 million of compensation expense that has yet to be recognized related to non-vested stock option based awards. This expense is expected to be recognized over the remaining weighted-average vesting period of 22 months. The total intrinsic values of stock options exercised were ~~$411~~$368 million and ~~$526~~$411 million during the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Cash received from options exercised was ~~$270~~$304 million and ~~$468~~$270 million for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The Company’s actual tax benefits realized for the tax deductions related to the exercise of employee stock options were ~~$87~~$77 million and ~~$179~~$87 million for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

For the primary ~~2018~~2019 annual stock option grant, the weighted average fair value at the date of grant was calculated using the Black-Scholes option-pricing model and the assumptions that follow.

Stock Option Assumptions


	Annual
	2018

				Annual
				2019
Exercise price	$	233.63		$	201.12
Risk-free interest rate		2.7	%		2.6	%
Dividend yield		2.4	%		2.5	%
Expected volatility		21.0	%		20.4	%
Expected life (months)		78			79
Black-Scholes fair value	$	41.59		$	34.19

Expected volatility is a statistical measure of the amount by which a stock price is expected to fluctuate during a period. For the ~~2018~~2019 annual grant date, the Company estimated the expected volatility based upon the following three volatilities of 3M stock: the median of the term of the expected life rolling volatility; the median of the most recent term of the expected life volatility; and the implied volatility on the grant date. The expected term assumption is based on the weighted average of historical grants.

Restricted Stock and Restricted Stock Units

The following table summarizes restricted stock and restricted stock unit activity during the nine months ended September 30, ~~2018:~~2019:

Weighted

Average

Number of

Grant Date

Weighted

Average

Number of

Grant Date

(Shares in thousands)

Fair Value

Shares

Fair Value

Nonvested balance —

As of January 1

1,994

162.60

1,789

180.02

Granted

Annual

467

233.61

564

200.41

Other

208.36

181.09

Vested

(633)

164.40

(686)

148.24

Forfeited

(34)

186.02

(50)

190.88

As of September 30

1,800

180.11

1,630

200.12

As of September 30, ~~2018,~~2019, there was ~~$92~~$90 million of compensation expense that has yet to be recognized related to non-vested restricted stock ~~units~~ and restricted ~~stock.~~stock units. This expense is expected to be recognized over the remaining weighted-average vesting period of 23 months. The ~~intrinsic~~total fair value of restricted stock ~~units~~ and restricted stock units that vested during the nine months ended September 30, 2019 and 2018 ~~and 2017~~ was ~~$154~~$136 million and ~~$135~~$154 million, respectively. The Company’s actual tax benefits realized for the tax deductions related to the vesting of restricted stock ~~units~~ and restricted stock units was ~~$29~~$26 million and ~~$44~~$29 million for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

Restricted stock units granted generally vest three years following the grant date assuming continued employment. Dividend equivalents equal to the dividends payable on the same number of shares of 3M common stock accrue on these restricted stock units during the vesting period, although no0 dividend equivalents are paid on any of these restricted stock units that are forfeited prior to the

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vesting date. Dividends are paid out in cash at the vest date on restricted stock units. Since the rights to dividends are forfeitable, there is no0 impact on basic earnings per share calculations. Weighted average restricted stock unit shares outstanding are included in the computation of diluted earnings per share.

Performance Shares

Instead of restricted stock units, the Company makes annual grants of performance shares to members of its executive management. The ~~2018~~2019 performance criteria for these performance shares (organic volume growth, return on invested capital, free cash flow conversion, and ~~earning~~earnings per share growth) were selected because the Company believes that they are important drivers of long-term stockholder value. The number of shares of 3M common stock that could actually be delivered at the end of the three-year performance period may be anywhere from 0% to 200% of each performance share granted, depending on the performance of the Company during such performance period. When granted, these performance shares are awarded at 100% of the estimated number of shares at the end of the three-year performance period and are reflected under “Granted” in the table below. Non-substantive vesting requires that expense for the performance shares be recognized over one or three years depending on when each individual became a 3M executive. The ~~2018~~ performance share ~~grant accrues dividends,~~grants accrue dividends; therefore, the grant date fair value is equal to the closing stock price on the date of grant. Since the rights to dividends are forfeitable, there is no impact on basic earnings per share calculations. Weighted average performance shares whose performance period is complete are included in computation of diluted earnings per share.

The following table summarizes performance share activity during the nine months ended September 30, ~~2018:~~2019:

Weighted

Average

Number of

Grant Date

Weighted

Average

Number of

Grant Date

(Shares in thousands)

Fair Value

Shares

Fair Value

Undistributed balance —

As of January 1

686

171.90

562

188.96

Granted

166

229.13

162

207.49

Distributed

(206)

159.82

(210)

162.16

Performance change

(49)

196.85

(72)

206.51

Forfeited

(28)

204.09

(22)

209.93

As of September 30

569

189.19

420

205.34

As of September 30, ~~2018,~~2019, there was ~~$31~~$20 million of compensation expense that has yet to be recognized related to performance shares. This expense is expected to be recognized over the remaining weighted-average earnings period of 1019 months. The total fair ~~values~~value of performance shares that were distributed were ~~$48~~$45 million and ~~$55~~$48 million for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The Company’s actual tax benefits realized for the tax deductions related to the distribution of performance shares were ~~$11~~$9 million and ~~$15~~$11 million for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

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NOTE ~~16.~~17. Business Segments

3M’s businesses are organized, managed and internally grouped into segments based on differences in markets, products, technologies and services. 3M manages its operations in ~~five~~4 business segments: ~~Industrial;~~ Safety and ~~Graphics;~~Industrial; Transportation and Electronics; Health Care; ~~Electronics and Energy;~~ and Consumer. 3M’s ~~five~~4 business segments bring together common or related 3M technologies, enhancing the development of innovative products and services and providing for efficient sharing of business resources. Transactions among reportable segments are recorded at cost. 3M is an integrated enterprise characterized by substantial intersegment cooperation, cost allocations and inventory transfers. Therefore, management does not represent that these segments, if operated independently, would report the operating income information shown. The difference between operating income and pre-tax income relates to ~~interest income and interest~~other expense (income), which ~~are~~is not allocated to business segments. Further information about which is included in Note 6.

Effective in the second quarter of 2019, to enable the Company to better serve global customers and markets, the Company made the following changes to its business segments:

Realignment of the Company’s business segments ~~along with non-service cost components of pension and postretirement net periodic benefit costs.~~from 5 to 4

AsThe Company realigned its former 5 business segments into 4: Safety and Industrial; Transportation and Electronics; Health Care; and Consumer. Existing divisions were largely realigned to this new structure. In addition, certain retail auto care product lines formerly in the Automotive Aftermarket Division (now within the Safety and Industrial business segment) were moved to the Construction and Home Improvement Division (within the Consumer business segment). Also, product lines relating to the refrigeration filtration business, formerly included in the Separation and Purification Sciences Division (now within the Health Care business segment) were moved to Other Safety and Industrial (within the Safety and Industrial business segment). 3M business segment reporting measures include dual credit to business segments for certain sales and operating income. Dual credit, which is based on which business segment provides customer account activity with respect to a particular product sold in a specific country, was reduced as a result of the closer alignment between customer account activity and their respective markets. The 4 business segments are as follows:

Safety and Industrial: This segment includes businesses that serve the global industrial, electrical and safety markets. This business segment consists of personal safety, adhesives and tapes, abrasives, closure and masking systems, electrical markets, automotive aftermarket, and roofing granules. This segment also includes the Communication Markets Division (which was substantially sold in 2018) and the refrigeration filtration product lines (within Other Safety and Industrial).

Transportation and Electronics: This segment includes businesses that serve global transportation and electronic original equipment manufacturer (OEM) customers. This business segment consists of electronics (display materials and systems, electronic materials solutions), automotive and aerospace, commercial solutions, advanced materials, and transportation safety.

Health Care: This business segment serves the global healthcare industry and includes medical solutions, oral care, separation and purification sciences, health information systems, drug delivery systems, and food safety.

Consumer: This business serves global consumers and consists of home improvement, stationery and office supplies, home care, and consumer health care. This segment also includes, within the Construction and Home Improvement Division, certain retail auto care product lines.

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In addition, as part of 3M’s continuing effort to improve the alignment of its businesses around markets and customers, the Company made the following changes, effective in the first quarter of ~~2018,~~2019, and other revisions impacting business segment reporting:

~~Consolidation~~Continued alignment of customer account activity ~~within international countries – expanding dual credit reporting~~

●

~~The~~As part of 3M’s regular customer-focus initiatives, the Company ~~consolidated its~~realigned certain customer account activity (“sales district”) to correlate with the primary divisional product offerings in ~~each country into centralized sales districts for certain~~various countries ~~that make up approximately 70 percent of 3M’s 2017 international net sales. Expansion of these initiatives, which previously had been deployed only in the U.S., reduces the~~and reduce complexity for customers when interacting with multiple 3M businesses. This largely impacted the amount of dual credit certain business segments receive as a result of sales district attribution. 3M business segment reporting measures include dual credit to business segments for certain sales and ~~related~~ operating income. This dual credit is based on which business segment provides customer account activity with respect to a particular product sold in a specific country. ~~The expansion of alignment of customer accounts~~

Creation of Closure and Masking Systems Division and Medical Solutions Division

●

3M created the Closure and Masking Systems Division, which combines the masking tape, packaging tape and personal care portfolios formerly within ~~additional countries increased~~Industrial Adhesives and Tapes Division in the attribution of dual credit across 3M’s business segments. Additionally, certain sales and operating income results for electronic bonding product lines that were previously equally divided between the Electronics and Energy business segment and theformer Industrial business segment ~~are now reported similarly~~into a separate division also within the former Industrial business segment. 3M created the Medical Solutions Division in the Health Care business segment, which combines the former Critical and Chronic Care Division and Infection Prevention Division (which were also both within the Health Care business segment).

Additional actions impacting business segment reporting

●

The business associated with certain safety products sold through retail channels in the Asia Pacific region was realigned from the Personal Safety Division within the former Safety and Graphics business segment to ~~dual credit.~~

~~Centralization of manufacturing and supply technology platforms~~

~~Certain shared film~~the Construction and Home Improvement Division within the Consumer business segment. In addition, certain previously non-allocated costs related to manufacturing and ~~supply~~ technology ~~platform resources formerly reflected within the Electronics and Energy business segment were combined with other shared and~~of centrally managed material resource centers of expertise within Corporate and ~~Unallocated.~~

Unallocated are now reflected as being allocated to the business segments.

~~In addition, as discussed in Note 1, 3M adopted ASU N0. 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~, effective January 1, 2018 on a retrospective basis. As a result, operating income for 3M’s business segments has been revised to reflect non-service cost components of pension and postretirement net periodic benefit costs within other expense (income), net.

The financial information presented herein reflects the impact of the preceding changes for all periods presented.

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Business Segment Information


	Three months ended				Nine months ended
	September 30,				September 30,

									Three months ended				Nine months ended
									September 30,				September 30,
(Millions)	2018		2017		2018		2017		2019		2018		2019		2018
Net Sales
Industrial	$	3,023	$	3,023	$	9,315	$	8,905
Safety and Graphics		1,660		1,551		5,258		4,670
Safety and Industrial									$	2,849	$	3,021	$	8,796	$	9,542
Transportation and Electronics										2,503		2,619		7,312		7,665
Health Care		1,445		1,485		4,501		4,369		1,721		1,643		5,290		5,118
Electronics and Energy		1,443		1,515		4,130		4,096
Consumer		1,235		1,279		3,585		3,521		1,324		1,302		3,821		3,819
Corporate and Unallocated		35		3		47		6		28		35		98		47
Elimination of Dual Credit		(689)		(684)		(2,016)		(1,900)		(434)		(468)		(1,292)		(1,371)
Total Company	$	8,152	$	8,172	$	24,820	$	23,667	$	7,991	$	8,152	$	24,025	$	24,820


Operating Income
Industrial	$	667	$	672	$	2,110	$	1,910
Safety and Graphics		412		411		1,375		1,661
Safety and Industrial									$	765	$	697	$	2,062	$	2,753
Transportation and Electronics										631		726		1,746		2,051
Health Care		446		467		1,341		1,304		459		475		1,406		1,443
Electronics and Energy		457		430		1,659		1,011
Consumer		291		311		770		732		308		300		809		811
Corporate and Unallocated		(77)		(112)		(1,329)		(256)		(40)		(57)		(858)		(1,293)
Elimination of Dual Credit		(180)		(171)		(502)		(459)		(112)		(125)		(316)		(341)
Total Company	$	2,016	$	2,008	$	5,424	$	5,903	$	2,011	$	2,016	$	4,849	$	5,424

Corporate and unallocated operating income includes a variety of miscellaneous items, such as corporate investment gains and losses, certain derivative gains and losses, certain insurance-related gains and losses, certain litigation and environmental expenses, corporate restructuring charges and certain under- or over-absorbed costs (e.g. pension, stock-based compensation) that the Company may choose not to allocate directly to its business segments. Corporate and Unallocated also includes sales, costs, and income from

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contract manufacturing, transition services and other arrangements with the acquirer of ~~substantially~~ all of the Communication Markets Division following its divestiture in ~~June~~ 2018. Because this category includes a variety of miscellaneous items, it is subject to fluctuation on a quarterly and annual basis.

3M business segment reporting measures include dual credit to business segments for certain sales and related operating income. Management evaluates each of its ~~five~~4 business segments based on net sales and operating income performance, including dual credit reporting to further incentivize sales growth. As a result, 3M reflects additional (“dual”) credit to another business segment when the customer account activity (“sales district”) with respect to the particular product sold to the external customer is provided by a different business segment. This additional dual credit is largely reflected at the division level. For example, ~~certain respirators~~privacy screen protection products are primarily sold by the ~~Personal Safety~~Display Materials and Systems Division within the ~~Safety~~Transportation and ~~Graphics~~Electronics business segment; however, acertain sales ~~district~~districts within the ~~Industrial~~Consumer business segment ~~provides~~provide the ~~contact~~customer account activity for sales of the product to particular customers. In this example, the non-primary selling segment ~~(Industrial)~~(Consumer) would also receive credit for the associated net sales initiated through its sales district and the related approximate operating income. The assigned operating income related to dual credit activity may differ from operating income that would result from actual costs associated with such sales. The offset to the dual credit business segment reporting is reflected as a reconciling item entitled “Elimination of Dual Credit,” such that sales and operating income in total are unchanged.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM*

~~To the Shareholders and Board of Directors of 3M Company~~

~~Results of Review of Financial Statements~~

We have reviewed the accompanying consolidated balance sheet of 3M Company and its subsidiaries as of September 30, 2018 and the related consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2018 and 2017 and the consolidated statements of cash flows~~for the nine-month periods ended September 30, 2018 and 2017,~~including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

~~We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated~~balance sheet of the Company as of December 31, 2017, and the related consolidated statements of income and comprehensive income, of changes in equity, and of cash flows for the year then ended (not presented herein), and in our report dated February 8, 2018, except for the change in the manner in which the Company presents and classifies certain pension and postretirement net periodic benefit costs in the statement of income discussed in Notes 1 and 5 and in the composition of reportable segments discussed in Notes 3 and 17, as to which the date is May 8, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

~~Basis for Review Results~~

~~These interim financial statements are the responsibility of the Company’s management.~~We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

~~/s/ PricewaterhouseCoopers LLP~~

~~Minneapolis, Minnesota~~

~~October 25, 2018~~

*Pursuant to Rule 436(c) of the Securities Act of 1933 (“Act”) this should not be considered a “report” within the meaning of Sections 7 and 11 of the Act and the independent registered public accounting firm liability under Section 11 does not extend to it.

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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. 3M’s MD&A is presented in the following sections:

●

Overview

●

Results of Operations

●

Performance by Business Segment

●

Financial Condition and Liquidity

●

Cautionary Note Concerning Factors That May Affect Future Results

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 “Cautionary Note Concerning Factors That May Affect Future Results” in Part I, Item 2 and the risk factors provided in Part II, Item 1A for discussion of these risks and uncertainties).

OVERVIEW

~~OVERVIEW~~

3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products and services. As more fully described in both the Performance by Business Segment section in MD&A and in Note ~~16,~~17, effective in the second quarter of 2019, the Company realigned its former five business segments into four to enable the Company to better serve global customers and markets. In addition, certain product lines were moved to better align with their respective end customers. Earlier in the first quarter of ~~2018,~~2019, the Company changed its business segment reporting in its continuing effort to improve the alignment of businesses around markets and customers. These changes included ~~consolidation~~the realignment of certain customer account activity ~~into centralized sales districts within certain~~in various countries ~~that make up approximately 70 percent of 3M’s 2017 international net sales, impacting~~(affecting dual credit ~~reporting, in addition to~~reporting), creation of the ~~centralization of manufacturing~~Closure and ~~supply technology platforms within Corporate~~Masking Systems and ~~Unallocated.~~Medical Solutions divisions, and certain other actions that impacted segment reporting. Business segment information presented herein reflects the impact of these changes for all periods presented.

3M manages its operations in ~~five~~four operating business segments: ~~Industrial;~~ Safety and ~~Graphics;~~Industrial; Transportation and Electronics; Health Care; ~~Electronics and Energy;~~ and Consumer. From a geographic perspective, any references to EMEA refer to Europe, Middle East and Africa on a combined basis.

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Earnings per share attributable to 3M common shareholders – diluted:

The following table provides the increase (decrease) in diluted earnings per share for the the three and nine months ended September 30, ~~2018~~2019 compared to ~~2017.~~2018.


	Three months ended		Nine months ended

					Three months ended		Nine months ended
(Earnings per diluted share)	September 30, 2018		September 30, 2018		September 30, 2019		September 30, 2019
Same period last year	$	2.33	$	7.08	$	2.58	$	6.61
Significant litigation-related charges						—		1.16
TCJA measurement period adjustment						—		0.36
Same period last year, excluding significant litigation-related charges and TCJA measurement period adjustment					$	2.58	$	8.13
Increase/(decrease) in earnings per share - diluted, due to:
2017 divestiture of identity management business		—		(0.54)
2018 divestiture of Communication Markets Division, net of related restructuring actions						—		(0.48)
Organic growth/productivity and other		0.12		0.71		(0.16)		(0.46)
Acquisitions/other divestiture gains		0.01		0.02
Communication Markets Division stranded costs and prior year lost income		(0.03)		(0.04)
Second quarter 2019 restructuring actions						—		(0.21)
Acquisitions/divestitures						0.10		0.03
Foreign exchange impacts		(0.08)		(0.02)		0.05		—
Legal-related charges		—		(0.07)
Other expense		(0.05)		(0.14)
Income tax rate, excluding Tax Cuts and Jobs Act (TCJA) measurement period adjustment		0.22		0.56
Income tax rate						0.08		(0.06)
Shares of common stock outstanding		0.06		0.09		0.07		0.20
2018 divestiture of Communication Markets Division, net of related restructuring actions		—		0.48
Current period, excluding MN Natural Resource Damages (NRD) resolution and TCJA measurement period adjustment	$	2.58	$	8.13
TCJA measurement period adjustment		—		(0.36)
MN NRD resolution		—		(1.16)
Current period, excluding significant litigation-related charges and Venezuelan deconsolidation					$	2.72	$	7.15
Significant litigation-related charges						—		0.72
Loss on deconsolidation of Venezuelan subsidiary						—		0.28
Current period	$	2.58	$	6.61	$	2.72	$	6.15

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For the third quarter of ~~2018,~~2019, net income attributable to 3M was ~~$1.543~~$1.583 billion, or ~~$2.58~~$2.72 per diluted share compared to ~~$1.429~~$1.543 billion or ~~$2.33~~$2.58 per diluted share in the same period last year, an increase of 115.4 percent on a per diluted share basis. For the first nine months of ~~2018,~~2019, net income attributable to 3M was ~~$4.002~~$3.601 billion, or ~~$6.61~~$6.15 per diluted share compared to ~~$4.335~~$4.002 billion or ~~$7.08~~$6.61 per diluted share in the same period last year, a decrease of 77.0 percent on a per diluted share basis. ~~Excluding~~

The Company refers to various “adjusted” amounts or measures on an “adjusted basis”. These exclude the ~~first quarter 2018 pre-tax impact of $897 million~~2019 charge related to the ~~resolution~~deconsolidation of the ~~Minnesota natural resource damages (NRD) matter~~Company’s Venezuelan subsidiary, the 2018 and 2019 significant litigation-related charges, and the ~~$217 million~~2018 measurement period ~~adjustment relative~~adjustments to the ~~accounting for~~provisional amounts recorded in December 2017 from the ~~2017~~ enactment of the Tax Cuts and Jobs Act (TCJA), net income was $4.929 billion, or $8.13 per diluted share, an increase of 15 percent on a per diluted share basis compared to the first nine months of 2017. The Company refers to various measures excluding the Minnesota NRD resolution and TCJA measurement period adjustment.. These non-GAAP measures are further described and reconciled to the most directly comparable GAAP financial measures in the Certain amounts adjusted for impacts of deconsolidation of the Company’s Venezuelan subsidiary, significant litigation-related charges and measurement period adjustments to the impact of the enactment of the Tax Cuts and Jobs Act (TCJA) - (non-GAAP measures)section ~~that follows.~~below.

There were no items related to the determination of non-GAAP measures described above for either of the third quarters of 2019 or 2018. However, for the first nine months of 2019 compared to the same period in 2018, on an adjusted basis, net income attributable to 3M was $4.187 billion, or $7.15 per diluted share versus $4.929 billion, or $8.13 per diluted share, respectively, which was a decrease of 12.1 percent on a per diluted share basis.

In the first nine months of 2019, while 3M experienced sales growth in its Consumer and Health Care segments, this was more than offset by declines in 3M’s Safety and Industrial and Transportation and Electronics segments. These two businesses were impacted by weakness in certain end markets (China, automotive and electronics) and channel inventory adjustments, particularly within Asia Pacific and the United States. Earnings were also impacted by second quarter restructuring and actions taken by 3M to lower production volumes and reduce inventories to improve cash flow. Partially offsetting these impacts were benefits in the third quarter from the restructuring actions, as well as net gains related to property sales.

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Additional discussion related to the components of the year-on-year change in earnings per diluted share follows:

~~2017 divestiture of identity management business~~:

~~In May 2017,~~ 3M completed the related sale or transfer of control, as applicable of its identity management business and reflected a pre-tax gain of $457 million, which was reported within the Company’s Safety and Graphics business. The earnings per share impact reflects the specific income tax rate used for this divestiture.

~~Organic growth/productivity and other:~~

Third quarter and first nine months year-on-year benefits include higher organic local-currency sales, selling price increases, and business transformation, which is having a positive impact on 3M’s productivity efforts. Higher raw material costs partially offset these year-on-year benefits.

Lower year-on-year restructuring (other than activity related to the Communication Markets Division divestiture) and portfolio and footprint actions increased pre-tax earnings by approximately $23 million and $249 million in the third quarter and first nine months of 2018, respectively. These charges included $24 million related to exit activities and $80 million in asset charges, accelerated depreciation and other costs taken in the first quarter of 2017, $99 million in restructuring actions and $51 million in asset charges, accelerated depreciation and other costs taken in the second quarter of 2017, in addition to $35 million in asset charges, accelerated depreciation and other costs taken in the third quarter of 2017.

Lost operating income (loss) from divested businesses other than Communication Markets Division was neutral year-on-year to earnings per diluted share for the third quarter of 2018 and increased earnings per diluted share by 2 cents for the first nine months of 2018.

~~Acquisitions/other divestiture gains:~~

In aggregate, acquisitions and year-on-year divestitures gains (other than the sale of the Communication Markets Division and identity management business) increased earnings per diluted share by 1 cent year-on-year for the third quarter of 2018 and increased earnings per diluted share by 2 cents for the first nine months of 2018.

~~Communication Markets Division stranded costs and prior year lost income:~~

Remaining stranded costs in addition to lost operating income from the divestiture of the Communication Markets Division decreased earnings per diluted share by 3 cents and 4 cents year-on-year for the third quarter of 2018 and first nine months of 2018, respectively.

~~Foreign exchange impacts:~~

Foreign currency impacts (net of hedging) decreased pre-tax earnings by approximately $65 million and approximately $15 million, or the equivalent of 8 cents and 2 cents per diluted share, for the third quarter and first nine months of 2018, respectively, excluding the impact of foreign currency changes on tax rates.

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~~Legal-related charges~~

In the second quarter of 2018, 3M reached agreements in principle on a number of respiratory mask/asbestos claims and an oral care product liability matter, the implications of which resulted in an increase in certain legal accruals. Refer to Note 14 for further details.

~~Other expense:~~

Third quarter and first nine month’s interest expense (net of interest income) increased $26 million and $80 million year-on-year, respectively, as a result of higher U.S. average debt balances and higher borrowing costs.

On a combined basis, higher defined benefit pension and postretirement service cost expense and defined contribution expense, in addition to lower income related to non-service cost components of pension and postretirement expense, increased expense year-on-year.

~~Income tax rate, excluding Tax Cuts and Jobs Act (TCJA) measurement period adjustment:~~

The effective tax rate for the third quarter of 2018 was 21.3 percent, a decrease of 7.0 percentage points versus 2017. The effective tax rate for the first nine months of 2018 was 24.0 percent, an decrease of 2.1 percentage points versus 2017.

The effect of income taxes on items that had specific tax rates are reflected within their respective diluted earnings per share impacts in the table above for both the three and nine months ended September 30, 2018. Additionally, as discussed in the section below, excluding the Minnesota NRD Resolution and measurement period adjustment related to TCJA, the effective income tax rate was 20.0 percent in first nine months of 2018, a decrease of 6.1 percentage points versus 2017.

Factors that decreased the effective tax rate for the third quarter of 2018 primarily related to the favorable aspects of the TCJA such as the decrease in the U.S. income tax rate and provisions incentivizing foreign-derived intangible income (FDII), in addition to impacts associated with composition of geographic mix of income before taxes. This decrease was partially offset by the impacts of TCJA, such as the elimination of the domestic manufacturing deduction and the global intangible low-taxed income (GILTI) provision; as well as unfavorable changes related to lower excess tax benefits related to employee share-based payments. Refer to Note 8 for additional details.

~~Shares of common stock outstanding:~~

Lower shares outstanding increased earnings per share by 6 cents and 9 cents per diluted share for the third quarter and first nine months of 2018, respectively. Weighted-average diluted shares outstanding in the third quarter and first nine months of 2018 declined 2.3 percent and 1.2 percent year-on-year, respectively, which benefited earnings per share. The decrease in the outstanding weighted-average diluted shares relates to the Company’s purchase of $1.1 billion and $3.6 billion of its own stock in the third quarter and first nine months of 2018, respectively.

2018 divestiture of Communication Markets Division, net of related restructuring actions and exit activities:

●

In June 2018, 3M completed the sale of substantially all of its Communication Markets Division and reflected a pre-tax gain of $494 million as a result of this divestiture, which was reported within the Company’s ~~Electronics~~Safety and ~~Energy business~~.Industrial business. During the second quarter of 2018, management approved and committed to undertake certain restructuring actions related to addressing corporate functional costs following the Communication Markets Division divestiture. These actions affected approximately 900 positions worldwide and resulted in a second quarter 2018 pre-tax charge of $105 million. The aggregate net impact of the gain on sale and related restructuring actions increased earnings per share by 48 cents per diluted share for thefirst nine months of 2018 and reflects the specific income tax rate associated with these items.

~~Operating income, operating income margin, income before taxes, net income,~~Organic growth/productivity and other:

●

Negative organic local-currency sales growth as a result of weakness in certain end markets and channel inventory adjustments, along with actions taken by 3M to lower production volumes and reduce inventories to improve cash flow, reduced earnings per diluted share. Partially offsetting these impacts were benefits from restructuring actions taken in the second quarter of 2019, as well as net gains related to property sales.

●

On a combined basis, lower defined benefit pension and postretirement service cost expense decreased expense year-on-year.

●

Higher income related to non-service cost components of pension and postretirement expense, decreased expense year-on-year.

●

Interest expense (net of interest income) increased $13 million and $57 million for the third quarter and first nine months of 2019, respectively, as a result of higher U.S. average debt balances, partially offset by the year-on-year increase in interest income driven by higher balances in cash, cash equivalents and marketable securities resulting from the proceeds from debt issuances in advance of the October 2019 Acelity acquisition.

Second quarter 2019 restructuring actions:

●

During the second quarter of 2019, in light of a slower than expected 2019 sales, management approved and committed to undertake certain restructuring actions. These actions span all business groups, functions and geographies, with emphasis on corporate structure and underperforming areas of the portfolio. These actions impacted approximately 2,000 positions worldwide, including attrition. The Company recorded a second quarter 2019 pre-tax charge of $148 million, or 21 cents per diluted share for the first nine months of 2019. This amount reflects the specific income tax rate associated with these items. See Note 5 for additional details.

Acquisitions/divestitures:

●

Acquisition impacts, which are measured for the first twelve months post-transaction, relate to the acquisition of M*Modal (first quarter 2019), but also include costs leading up to the October 2019 acquisition of Acelity. These items collectively decreased earnings per diluted share by 4 cents and 10 cents year-on-year for the third quarter and first nine months of 2019, respectively. The net impacts related to M*Modal included income from operations, more than offset by transaction and integration costs. Interest expense related to financing costs of M*Modal is also included. Expenses related to the October 2019 acquisition of Acelity, largely relate to financing costs in advance of the close of the acquisition.

●

Divestiture impacts include the incremental year-on-year pre-tax gain on divestitures and the lost operating income from divested businesses (other than lost income related to the divestiture of the Communication Markets Division). These items collectively increased earnings per diluted share by 14 cents and 17 cents year-on-year for the third quarter and first nine months of 2019, respectively. The net impacts included 14 cents for both the third quarter and first nine months of 2019 related to the gain from the third quarter 2019 divestiture of the Company’s gas and flame detection business. The first nine months of 2019 also includes 7 cents from the second quarter 2019 “held for sale” tax benefit related to the legal entities associated with the divestiture. Other incremental year-on-year gains/losses on divestitures and the lost operating income from divested businesses decreased earnings per share by an immaterial amount and 4 cents year-on-year for the third quarter and first nine months of 2019, respectively.

●

In addition to divestiture impacts above, remaining stranded costs and lost operating income related to the 2018 divestiture of the Communication Markets Division decreased earnings per diluted share by 4 cents year-on-year for first nine months of 2019. The impact for the third quarter was immaterial.

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Foreign exchange impacts:

●

Foreign currency impacts (net of hedging) increased pre-tax earnings year-on-year by approximately $39 million and $3 million, or the equivalent of 5 cents per diluted share and an immaterial amount for the third quarter and first nine months of 2019, respectively, excluding the impact of foreign currency changes on tax rates.

Income tax rate:

●

As disclosed above, certain items above reflect specific income tax rates associated with those items. Overall, the effective tax rate for the third quarter of 2019 was 19.3 percent, a decrease of 2.0 percentage points versus 2018. The effective tax rate for the first nine months of 2019 was 19.7 percent, a decrease of 4.3 percentage points versus 2018. Excluding the significant litigation-related charges in the first quarter of 2018 and 2019, measurement period adjustment related to TCJA in the first quarter of 2018, and the deconsolidation of the Venezuelan subsidiary (as discussed below), the effective tax rate decreased 0.6 percentage points year-on-year for the first nine months of 2019.

●

Factors that decreased the effective tax rate for the third quarter included adjustments related to impacts of U.S. international tax provisions, geographical income mix, and increased benefits from the R&D tax credit. These decreases were partially offset by the tax related to the divestiture of the Company’s gas and flame detection business and decreased benefit from stock options. Factors that decreased the effective tax rate for the first nine months of 2019 included prior year measurement period adjustments related to 2017 Tax Cuts and Jobs Act (TCJA), prior year resolution of the NRD lawsuit (as described in Note 14), geographical income mix, and increased benefits from the R&D tax credit. These decreases were partially offset by the deconsolidation of the Venezuelan subsidiary, and adjustments to uncertain tax positions. In addition, the effective tax rate decreased due to the divestiture of the Company’s gas and flame detection business. Refer to Note 8 for additional details.

Shares of common stock outstanding:

●

Lower shares outstanding increased earnings per share year-on-year by 7 cents and 20 cents per diluted share for the third quarter and first nine months of 2019. Weighted-average diluted shares outstanding in the third quarter and first nine months of 2019 declined 2.6 percent and 3.2 percent year-on-year, respectively, which benefited earnings per share. The decrease in the outstanding weighted-average diluted shares relates to the Company’s purchase of $142 million and $1.2 billion of its own stock in the third quarter and first nine months of 2019, respectively.

Certain amounts adjusted for impacts of deconsolidation of the ~~Minnesota NRD resolution~~Company’s Venezuelan subsidiary, significant litigation-related charges and ~~the~~ measurement period ~~adjustment~~adjustments to the impact of the enactment of the Tax Cuts and Jobs Act (TCJA) - (non-GAAP measures):

AsIn the first quarter of 2019, the Company recorded significant litigation-related charges of $548 million ($424 million after tax) related to historical PFAS (certain perfluorinated compounds) manufacturing operations and coal mine dust respirator mask lawsuits as further discussed in Note ~~14,~~14. These were reflected in ~~February~~cost of sales ($223 million) and selling, general and administrative expense ($325 million). In the first quarter of 2018, 3Mthe Company recorded significant litigation-related charges of $897 million ($710 million after tax) from the previously disclosed agreement reached ~~an agreement~~ with the State of Minnesota that resolved the ~~previously disclosed~~ Natural Resource Damages (NRD) lawsuit, ~~filed by the State against the Company related to certain PFAS present~~essentially all of which were reflected in ~~the environment. Under the terms of the settlement, 3M agreed to provide an $850 million grant to the State for a special “3M Water Quality~~selling, general and Sustainability Fund.” This Fund will enable projects that support water sustainability in the Twin Cities East Metro region, such as continued delivery of water to residents and enhancing groundwater recharge to support sustainable growth. The projects will also result in habitat and recreation improvements, such as fishing piers, trails, and open space preservation. 3M recorded

~~Table of Contents~~

~~a pre-tax charge of $897 million, inclusive of legal fees and other related obligations, in the first quarter of 2018 associated with the resolution of this matter.~~administrative expense.

~~As further described in Note 8, during~~During the first quarter of 2018, 3M recorded a tax expense of $217 million related to a measurement period adjustment to the provisional amounts recorded in December 2017 from the enactment of the ~~Tax Cuts and Jobs Act (TCJA). 3M’s provisional accounting continues~~TCJA as further discussed in Note 8.

In the second quarter of 2019, 3M recorded a pre-tax charge of $162 million related to ~~be subject to adjustment during~~ the ~~measurement period~~deconsolidation of ~~up to one year following~~ the ~~December 2017 enactment of TCJA.~~Company’s Venezuelan subsidiary as further discussed in Note 1.

In addition to reporting financial results in accordance with U.S. GAAP, the Company also provides non-GAAP measures that adjust for the impacts of deconsolidation of the ~~NRD resolution~~Company’s Venezuelan subsidiary, significant litigation-related charges and measurement period adjustment to the impact of enactment of the TCJA. These items represent significant charges that impacted the Company’s financial results. Operating income, 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 an adjusted measure. The adjusted measures are not in accordance with, nor are they a substitute for, GAAP measures. The Company considers these non-GAAP measures in evaluating and managing the Company’s operations. The Company believes that discussion of results adjusted for these items is meaningful to investors as it

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provides a useful analysis of ongoing underlying operating trends. The determination of these items may not be comparable to similarly titled measures used by other companies.

Nine months ended September 30,

2017

2018

Adjusted income, operating income margin, earnings per share, & effective tax rate (non-GAAP measures) (Dollars in millions, except per share amounts)

Reported GAAP Measure

Reported GAAP Measure

Adjustment for Measurement Period Accounting of TCJA

Adjustment for MN NRD Resolution

Adjusted Non-GAAP Measure

Net sales

$
23,667

$
24,820

$
—

$
—

$
24,820

Operating income

$
5,903

$
5,424

$
—

$
897

$
6,321

Operating income margin

24.9
%

21.9
%

25.5
%

Income before taxes

$
5,876

$
5,280

$
—

$
897

$
6,177

Provision for income taxes

$
1,532

$
1,266

$
(217)

$
187

$
1,236

Effective tax rate

26.1
%

24.0
%

20.0
%

Net income attributable to 3M

$
4,335

$
4,002

$
217

$
710

$
4,929

Earnings per diluted share

$
7.08

$
6.61

$
0.36

$
1.16

$
8.13

Earnings per diluted share percent change

(6.6)
%

14.8
%


(Dollars in millions, except per share amounts)		Operating Income	Operating Income Margin			Income Before Taxes			Provision for Income Taxes	Effective Tax Rate			Net Income Attributable to 3M		Earnings Per Diluted Share	Earnings per diluted share percent change

Nine months ended September 30, 2018 GAAP	$	5,424	21.9	%	$	5,280		$	1,266	24.0	%	$	4,002	$	6.61
Adjustment for significant litigation-related charges		897				897			187				710		1.16
Adjustment for measurement period accounting of TCJA									(217)				217		0.36
Nine months ended September 30, 2018 adjusted amounts (non-GAAP measures)	$	6,321	25.5	%	$	6,177		$	1,236	20.0	%	$	4,929	$	8.13

Nine months ended September 30, 2019 GAAP	$	4,849	20.2	%	$	4,500	��	$	888	19.7	%	$	3,601	$	6.15	(7.0)	%
Adjustment for significant litigation-related charges		548				548			124				424		0.72
Adjustment for loss on deconsolidation of Venezuelan subsidiary						162			—				162		0.28
Nine months ended September 30, 2019 adjusted amounts (non-GAAP measures)	$	5,397	22.5	%	$	5,210		$	1,012	19.4	%	$	4,187	$	7.15	(12.1)	%

Sales and operating income by business segment:

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The following tables contain sales and operating income results by business segment for the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018. Refer to the section entitled “Performance by Business Segment” later in MD&A for additional discussion concerning ~~2018~~2019 versus ~~2017~~2018 results, including Corporate and Unallocated. Refer to Note 1617 for additional information on business segments, including Elimination of Dual Credit.


	Three months ended September 30,
	2018				2017				% change
	Net		Oper.		Net		Oper.		Net		Oper.

													Three months ended September 30,
													2019				2018				% change
													Net		Oper.		Net		Oper.		Net		Oper.
(Dollars in millions)	Sales		Income		Sales		Income		Sales		Income		Sales		Income		Sales		Income		Sales		Income
Business Segments
Industrial	$	3,023	$	667	$	3,023	$	672	—	%	(0.7)	%
Safety and Graphics		1,660		412		1,551		411	7.0		0.4
Safety and Industrial													$	2,849	$	765	$	3,021	$	697	(5.7)	%	9.6	%
Transportation and Electronics														2,503		631		2,619		726	(4.4)		(13.1)
Health Care		1,445		446		1,485		467	(2.8)		(4.4)			1,721		459		1,643		475	4.7		(3.2)
Electronics and Energy		1,443		457		1,515		430	(4.8)		6.2
Consumer		1,235		291		1,279		311	(3.4)		(6.7)			1,324		308		1,302		300	1.7		2.3
Corporate and Unallocated		35		(77)		3		(112)	—		—			28		(40)		35		(57)	—		—
Elimination of Dual Credit		(689)		(180)		(684)		(171)	—		—			(434)		(112)		(468)		(125)	—		—
Total Company	$	8,152	$	2,016	$	8,172	$	2,008	(0.2)	%	0.4	%	$	7,991	$	2,011	$	8,152	$	2,016	(2.0)	%	(0.2)	%

Nine months ended September 30,

2019

2018

% change

Net

Oper.

Net

Oper.

Net

Oper.

(Dollars in millions)

Sales

Income

Sales

Income

Sales

Income

Business Segments

Safety and Industrial

8,796

2,062

9,542

2,753

(7.8)

(25.1)

Transportation and Electronics

7,312

1,746

7,665

2,051

(4.6)

(14.9)

Health Care

5,290

1,406

5,118

1,443

3.3

(2.5)

Consumer

3,821

809

3,819

811

0.1

(0.3)

Corporate and Unallocated

(858)

(1,293)

—

Elimination of Dual Credit

(1,292)

(316)

(1,371)

(341)

—

Total Company

24,025

4,849

24,820

5,424

(3.2)

(10.6)


	Three months ended September 30, 2019
Worldwide Sales Change	Organic local-								Total sales
By Business Segment	currency sales		Acquisitions		Divestitures		Translation		change

Safety and Industrial	(3.3)	%	—	%	(0.8)	%	(1.6)	%	(5.7)	%
Transportation and Electronics	(3.4)		—		—		(1.0)		(4.4)
Health Care	2.0		4.4		—		(1.7)		4.7
Consumer	2.6		—		—		(0.9)		1.7
Total Company	(1.3)	%	0.9	%	(0.3)	%	(1.3)	%	(2.0)	%


	Nine months ended September 30, 2019
Worldwide Sales Change	Organic local-								Total sales
By Business Segment	currency sales		Acquisitions		Divestitures		Translation		change

Safety and Industrial	(3.5)	%	—	%	(1.8)	%	(2.5)	%	(7.8)	%
Transportation and Electronics	(2.7)		—		—		(1.9)		(4.6)
Health Care	2.0		3.8		—		(2.5)		3.3
Consumer	1.7		—		—		(1.6)		0.1
Total Company	(1.1)	%	0.8	%	(0.7)	%	(2.2)	%	(3.2)	%

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Nine months ended September 30,

2018

2017

% change


Net

Oper.

Net

Oper.

Net


Oper.

(Dollars in millions)

Sales

Income

Sales

Income

Sales

Income

Business Segments

Industrial

$
9,315

$
2,110

$
8,905

$
1,910

4.6
%

10.5
%
Safety and Graphics

5,258

1,375

4,670

1,661

12.6
%

(17.2)
%
Health Care

4,501

1,341

4,369

1,304

3.0
%

2.8
%
Electronics and Energy

4,130

1,659

4,096

1,011

0.8
%

64.1
%
Consumer

3,585

770

3,521

732

1.8
%

5.1
%
Corporate and Unallocated

47

(1,329)

6

(256)

—

—

Elimination of Dual Credit

(2,016)

(502)

(1,900)

(459)

—

—

Total Company

$
24,820

$
5,424

$
23,667

$
5,903

4.9
%

(8.1)
%

Three months ended September 30, 2018

Worldwide Sales Change

Organic local-

Total sales

By Business Segment

currency sales

Acquisitions

Divestitures

Translation

change

Industrial

2.2
%
—
%
(0.1)
%
(2.1)
%
—
%
Safety and Graphics

2.2

8.9

(1.9)

(2.2)

7.0

Health Care

(1.1)

—

—

(1.7)

(2.8)

Electronics and Energy

2.3

—

(6.1)

(1.0)

(4.8)

Consumer

(2.0)

—

—

(1.4)

(3.4)

Total Company

1.3
%
1.7
%
(1.5)
%
(1.7)
%
(0.2)
%

Nine months ended September 30, 2018

Worldwide Sales Change

Organic local-

Total sales

By Business Segment

currency sales

Acquisitions

Divestitures

Translation

change

Industrial

3.4
%
—
%
(0.1)
%
1.3
%
4.6
%
Safety and Graphics

5.8

9.8

(4.2)

1.2

12.6

Health Care

1.7

0.1

—

1.2

3.0

Electronics and Energy

3.0

—

(3.2)

1.0

0.8

Consumer

1.3

—

—

0.5

1.8

Total Company

3.3
%
1.9
%
(1.4)
%
1.1
%
4.9
%

~~Table of Contents~~

Sales by geographic area:

Percent change information compares the third quarter and first nine months of ~~2018~~2019 with the same period last year, unless otherwise indicated. From a geographic perspective, any references to EMEA refer to Europe, Middle East and Africa on a combined basis.


	Three months ended September 30, 2018
							Europe,			Latin
	United			Asia			Middle East			America/			Other
	States			Pacific			& Africa			Canada			Unallocated		Worldwide

																		Three months ended September 30, 2019
																								Europe,			Latin
																		United			Asia			Middle East			America/			Other
																		States			Pacific			& Africa			Canada			Unallocated		Worldwide
Net sales (millions)	$	3,265		$	2,621		$	1,527		$	741		$	(2)	$	8,152		$	3,292		$	2,490		$	1,465		$	744		$	—	$	7,991
% of worldwide sales		40.1	%		32.1	%		18.7	%		9.1	%		—		100.0	%		41.2	%		31.2	%		18.3	%		9.3	%		—		100.0	%
Components of net sales change:
Volume — organic		(0.9)	%		3.0	%		(2.5)	%		(0.1)	%		—		0.1	%		(1.5)	%		(4.0)	%		0.6	%		2.3	%		—		(1.6)	%
Price		1.4			0.2			1.6			2.2			—		1.2			0.4			(0.4)			1.4			0.5			—		0.3
Organic local-currency sales		0.5			3.2			(0.9)			2.1			—		1.3			(1.1)			(4.4)			2.0			2.8			—		(1.3)
Acquisitions		2.3			0.5			2.9			0.8			—		1.7			2.1			0.1			—			0.1			—		0.9
Divestitures		(1.5)			(0.6)			(2.9)			(1.5)			—		(1.5)			(0.2)			—			(1.3)			—			—		(0.3)
Translation		—			(1.5)			(3.0)			(6.9)			—		(1.7)			—			(0.7)			(4.8)			(2.3)			—		(1.3)
Total sales change		1.3	%		1.6	%		(3.9)	%		(5.5)	%		—		(0.2)	%		0.8	%		(5.0)	%		(4.1)	%		0.6	%		—		(2.0)	%


Total sales change:
Industrial		2.3	%		1.6	%		(2.5)	%		(7.0)	%		—		—	%
Safety and Graphics		10.6	%		4.6	%		8.0	%		(1.9)	%		—		7.0	%
Safety and Industrial																			(4.5)	%		(9.5)	%		(5.8)	%		(1.2)	%		—		(5.7)	%
Transportation and Electronics																			(5.4)	%		(5.1)	%		(4.0)	%		5.1	%		—		(4.4)	%
Health Care		(5.9)	%		7.4	%		(3.8)	%		(3.0)	%		—		(2.8)	%		11.8	%		1.1	%		(2.9)	%		(1.1)	%		—		4.7	%
Electronics and Energy		(9.3)	%		0.9	%		(32.7)	%		(19.4)	%		—		(4.8)	%
Consumer		(0.9)	%		(8.7)	%		(7.8)	%		(4.6)	%		—		(3.4)	%		3.1	%		(1.6)	%		(0.7)	%		1.2	%		—		1.7	%


Organic local-currency sales change:
Industrial		2.3	%		3.4	%		1.1	%		1.4	%		—		2.2	%
Safety and Graphics		1.4	%		4.9	%		0.7	%		1.3	%		—		2.2	%
Safety and Industrial																			(4.2)	%		(8.2)	%		1.9	%		1.1	%		—		(3.3)	%
Transportation and Electronics																			(5.4)	%		(4.7)	%		0.6	%		6.8	%		—		(3.4)	%
Health Care		(6.0)	%		10.1	%		(1.4)	%		3.9	%		—		(1.1)	%		2.6	%		1.4	%		1.8	%		1.3	%		—		2.0	%
Electronics and Energy		4.8	%		2.7	%		(5.2)	%		1.3	%		—		2.3	%
Consumer		(0.9)	%		(7.1)	%		(5.4)	%		4.7	%		—		(2.0)	%		3.1	%		(1.0)	%		4.6	%		3.8	%		—		2.6	%

Additional information beyond what is included in the preceding table is as follows:

●

In the Asia Pacific geographic area, China/Hong Kong total sales decreased 11 percent and organic local-currency sales decreased 9 percent. In Japan, total sales increased 8year-on-year by 6 percent and organic local-currency sales increased 103 percent. In Japan, total sales decreased 9 percent and organic local-currency sales decreased 7 percent. Excluding electronics, Japan had a total sales decrease of 1 percent, while organic local-currency sales increased 1 percent.

●

In the EMEA geographic area, Central/East Europe and Middle East/Africa total sales decreased by 6 percent due in part to foreign currency translation impacts, while organic local-currency sales increased 4 percent. West Europe total sales declined 3 percent and organic local-currency sales decreased 2 percent.

In the Latin America/Canada geographic area, total sales ~~decreased 1 percent~~ in Mexico ~~while~~increased 5 percent and organic local-currency sales increased 36 percent. In Canada, total sales ~~decreased 3~~increased 6 percent ~~driven by foreign currency translation impacts, while~~and organic local-currency sales ~~growth was flat.~~increased 7 percent. In Brazil, total sales decreased 153 percent asand organic local-currency sales ~~growth of 5 percent was more than offset by foreign currency translation impacts.~~

decreased 1 percent.

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	Nine months ended September 30, 2018
							Europe,			Latin
	United			Asia			Middle East			America/			Other
	States			Pacific			& Africa			Canada			Unallocated		Worldwide

																		Nine months ended September 30, 2019
																								Europe,			Latin
																		United			Asia			Middle East			America/			Other
																		States			Pacific			& Africa			Canada			Unallocated		Worldwide
Net sales (millions)	$	9,657		$	7,801		$	5,077		$	2,289		$	(4)	$	24,820		$	9,742		$	7,383		$	4,682		$	2,220		$	(2)	$	24,025
% of worldwide sales		38.9	%		31.4	%		20.5	%		9.2	%		—		100.0	%		40.6	%		30.7	%		19.5	%		9.2	%		—		100.0	%
Components of net sales change:
Volume — organic		1.6	%		4.4	%		0.2	%		2.1	%		—		2.3	%		(1.0)	%		(3.1)	%		(1.8)	%		0.4	%		—		(1.7)	%
Price		1.1			0.2			1.6			1.7			—		1.0			0.5			0.1			1.3			1.0			—		0.6
Organic local-currency sales		2.7			4.6			1.8			3.8			��		3.3			(0.5)			(3.0)			(0.5)			1.4			—		(1.1)
Acquisitions		2.6			0.6			3.0			0.9			—		1.9			2.0			—			0.1			0.1			—		0.8
Divestitures		(1.4)			(0.6)			(2.4)			(1.4)			—		(1.4)			(0.6)			(0.2)			(1.9)			(0.7)			—		(0.7)
Translation		—			1.8			4.0			(2.8)			—		1.1			—			(2.2)			(5.5)			(3.8)			—		(2.2)
Total sales change		3.9	%		6.4	%		6.4	%		0.5	%		—		4.9	%		0.9	%		(5.4)	%		(7.8)	%		(3.0)	%		—		(3.2)	%


Total sales change:
Industrial		3.4	%		6.5	%		6.6	%		(0.9)	%		—		4.6	%
Safety and Graphics		13.3	%		11.1	%		18.1	%		2.9	%		—		12.6	%
Safety and Industrial																			(6.1)	%		(8.6)	%		(11.4)	%		(4.6)	%		—		(7.8)	%
Transportation and Electronics																			(2.3)	%		(5.7)	%		(6.6)	%		0.9	%		—		(4.6)	%
Health Care		(1.2)	%		11.3	%		5.2	%		3.0	%		—		3.0	%		10.2	%		0.7	%		(3.9)	%		(3.4)	%		—		3.3	%
Electronics and Energy		(1.8)	%		4.1	%		(11.8)	%		(8.5)	%		—		0.8	%
Consumer		3.1	%		(0.4)	%		0.9	%		(0.4)	%		—		1.8	%		3.1	%		(4.2)	%		(5.8)	%		(2.8)	%		—		0.1	%


Organic local-currency sales change:
Industrial		3.4	%		4.1	%		2.6	%		3.3	%		—		3.4	%
Safety and Graphics		5.5	%		7.4	%		5.6	%		3.8	%		—		5.8	%
Safety and Industrial																			(4.7)	%		(5.1)	%		(1.8)	%		0.6	%		—		(3.5)	%
Transportation and Electronics																			(2.3)	%		(4.1)	%		(1.3)	%		3.9	%		—		(2.7)	%
Health Care		(1.3)	%		9.2	%		1.0	%		5.6	%		—		1.7	%		1.9	%		3.6	%		1.6	%		0.6	%		—		2.0	%
Electronics and Energy		4.3	%		3.6	%		(2.3)	%		0.9	%		—		3.0	%
Consumer		3.1	%		(2.4)	%		(2.9)	%		3.9	%		—		1.3	%		3.1	%		(1.6)	%		0.2	%		1.4	%		—		1.7	%

Additional information beyond what is included in the preceding table is as follows:

●

In the Asia Pacific geographic area, China/Hong Kong total sales ~~increased 14 percent and organic local-currency sales increased 11 percent. In Japan, total sales~~ decreased 29 percent and organic local-currency sales decreased 35 percent. ~~Excluding electronics,~~In Japan, ~~had a~~both total sales ~~increase of 4 percent~~ and organic local-currency sales ~~increased 3~~decreased 2 percent.

●

In the EMEA geographic area, Central/East Europe and Middle East/Africa total sales increased 2 percent and organic local-currency sales increased 5 percent. West Europe total sales grew 8 percent, driven by foreign currency translation impacts, while organic local-currency sales increased 1 percent.

In the Latin America/Canada geographic area, total sales ~~increased 2 percent~~ in Mexico asincreased 1 percent and organic local-currency sales increased 3 percent. In Canada, total sales increased 61 percent, ~~driven by~~as organic local-currency sales growth of 54 percent ~~in addition to~~was partially offset by foreign currency translation impacts. In Brazil, total sales decreased 86 percent, as organic local-currency sales growth of 52 percent was more than offset by foreign currency translation impacts.

Managing currency risks:

The ~~weaker~~stronger U.S. dollar had a ~~positive~~negative impact on sales in the third quarter and first nine months of 2019 compared to the same period last year. Net of the Company’s hedging strategy, foreign currency positively impacted earnings in the third quarter of 2019 and was neutral in the first nine months of ~~2018~~2019 compared to the same ~~period last year, which was partially offset by the negative impact of the strengthening dollar in the third quarter of 2018 compared to the same period~~periods last year. 3M utilizes a number of tools to hedge currency risk related to earnings. 3M uses natural hedges such as pricing, productivity, hard currency and hard currency-indexed billings, and localizing source of supply. 3M also uses financial hedges to mitigate currency risk. In the case of more liquid currencies, 3M hedges a portion of its aggregate exposure, using a 12, 24 or 36 month horizon, depending on the currency in question. For less liquid currencies, financial hedging is frequently more expensive with more limitations on tenor. Thus, this risk is largely managed via local operational actions using natural hedging tools as discussed above. In either case, 3M’s hedging approach is designed to mitigate a portion of foreign currency risk and reduce volatility, ultimately allowing time for 3M’s businesses to respond to changes in the marketplace.

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Financial condition:

3M generated ~~$4.181~~$4.732 billion of operating cash flows in the first nine months of ~~2018, a decrease~~2019, an increase of ~~$199~~$551 million when compared to the first nine months of ~~2017,~~2018, with this ~~decrease~~increase primarily due to the ~~Minnesota NRD resolution.~~lower year-on-year significant litigation-related charges and the timing of associated payments that impacted both the first quarter of 2019 and first quarter of 2018 in addition to working capital improvements. Refer to the section entitled “Financial Condition and Liquidity” later in MD&A for a discussion of items impacting cash flows.

In ~~February 2016,~~November 2018, 3M’s Board of Directors ~~authorized~~replaced the Company’s February 2016 repurchase program with a new repurchase program. This new program authorizes the repurchase of up to $10 billion of 3M’s outstanding common stock, with no pre-established end date. In the first nine months of ~~2018,~~2019, the Company purchased ~~$3.6~~$1.2 billion of its own stock, compared to ~~$1.6~~$3.6 billion of stock purchases in the first nine months of ~~2017.~~2018. As of September 30, ~~2018,~~2019, approximately ~~$1.5~~$8.2 billion remained available under the ~~February 2016~~ authorization. The Company ~~expects~~continues to expect to purchase ~~$4.0~~$1.0 billion to ~~$5.0~~$1.5 billion of its own stock ~~in 2018.~~during the full-year 2019. In ~~January 2018,~~February 2019, 3M’s Board of Directors declared a first-quarter ~~2018~~2019 dividend of ~~$1.36~~$1.44 per share, an increase of 166 percent. This marked the ~~60th~~61st consecutive year of dividend increases for 3M. In May ~~2018,~~2019, 3M’s Board of Directors declared a ~~second quarter 2018~~second-quarter dividend of ~~$1.36~~$1.44 per share. In August ~~2018,~~2019, 3M’s Board of Directors declared a ~~third quarter 2018~~third-quarter dividend of ~~$1.36~~$1.44 per share.

3M currently has an AA- credit rating with a ~~stable~~negative outlook from Standard & Poor’s and has an A1 credit rating with a stable outlook from Moody’s Investors Service. The Company generates significant ongoing cash flow and has proven access to capital markets funding throughout business cycles.

3M expects to contribute ~~up to $400~~approximately $200 million of cash to its global defined benefit pension and postretirement plans in ~~2018.~~2019. The Company does not have a required minimum cash pension contribution obligation for its U.S. plans in ~~2018.~~2019.

RESULTS OF OPERATIONS

Net Sales:

Refer to the preceding “Overview” section and the “Performance by Business Segment” section later in MD&A for additional discussion of sales change.

Operating Expenses:


	Three months ended						Nine months ended
	September 30,						September 30,

													Three months ended						Nine months ended
													September 30,						September 30,
(Percent of net sales)	2018		2017		Change		2018		2017		Change		2019		2018		Change		2019		2018		Change
Cost of sales	51.0	%	49.7	%	1.3	%	50.7	%	50.6	%	0.1	%	52.4	%	51.0	%	1.4	%	53.3	%	50.7	%	2.6	%
Selling, general and administrative expenses	19.0		20.0		(1.0)		23.9		20.6		3.3		18.2		19.0		(0.8)		21.2		23.9		(2.7)
Research, development and related expenses	5.3		5.7		(0.4)		5.6		6.0		(0.4)		5.5		5.3		0.2		5.8		5.6		0.2
Gain on sale of businesses	—		—		—		(2.1)		(2.1)		—		(1.3)		—		(1.3)		(0.5)		(2.1)		1.6
Operating income margin	24.7	%	24.6	%	0.1	%	21.9	%	24.9	%	(3.0)	%	25.2	%	24.7	%	0.5	%	20.2	%	21.9	%	(1.7)	%

3M expects global defined benefit pension and postretirement service cost expense in ~~2018~~2019 to ~~increase~~decrease by approximately ~~$26~~$60 million pre-tax when compared to ~~2017,~~2018, which impacts cost of sales; selling, general and administrative expenses (SG&A); and research, development and related expenses (R&D). The year-on-year ~~increase~~decrease in defined benefit pension and postretirement service cost ~~expense and defined contribution~~ expense for the third quarter and first nine months of ~~2018~~2019 was approximately $4$17 million and ~~$29~~$47 million, respectively.

The Company is investing in an initiative called business transformation, with these investments impacting cost of sales, SG&A, and R&D. Business transformation encompasses the ongoing multi-year phased implementation of an enterprise resource planning (ERP) system on a worldwide basis, as well as changes in processes and internal/external service delivery across 3M.

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Cost of Sales:

Cost of sales includes manufacturing, engineering and freight costs.

Cost of sales, measured as a percent of sales, increased in both the third quarter and first nine months of 2019. Increases in the third quarter compared to the same period last year primarily related to cost absorption penalties from lower production volumes as all businesses worked to reduce inventories and improve cash flow. In the first nine months of 2019, in addition to the costs of the inventory reduction actions undertaken to improve cash flow, the increase in cost of sales was primarily due to significant litigation-related charges taken in the first quarter of 2019 (as discussed earlier in the Certain amounts adjusted for impacts of deconsolidation of the Company’s Venezuelan subsidiary, significant litigation-related charges and measurement period adjustments to the impact of the enactment of the Tax Cuts and Jobs Act (TCJA) - (non-GAAP measures) section). These factors were partially offset by selling price increases, which increased net sales year-on-year by 0.3 percent and 0.6 percent in the third quarter and first nine months of 2019, respectively.

Selling, General and Administrative Expenses:

SG&A in dollars decreased 5.9 percent and 14.0 percent in the third quarter and first nine months of 2019, respectively, when compared to the same period last year. The decrease in the third quarter primarily relates to indirect cost reductions. The decrease in the first nine months of 2019 primarily relate to indirect cost reductions and lower year-on-year impact related to significant litigation-related charges (as discussed earlier in the Certain amounts adjusted for impacts of deconsolidation of the Company’s Venezuelan subsidiary, significant litigation-related charges and measurement period adjustments to the impact of the enactment of the Tax Cuts and Jobs Act (TCJA) - (non-GAAP measures) section).

Research, Development and Related Expenses:

R&D in dollars increased $13 million and $6 million in the third quarter and first nine months of 2019, respectively, when compared to the same period last year. R&D, measured as a percent of sales, increased in the third quarter and first nine months of 2018 primarily due to foreign currency effects (net of hedge losses). Additionally, cost of sales for the first nine months of 2018 were increased by the second quarter 2018 Communication Markets Division related restructuring charges2019, as discussed in Note 5. This increase was partially offset by 2017 portfolio and supply chain footprint optimization charges that did not repeat in 2018, and selling price increases. Selling prices increased net sales year-on-year by 1.2 percent and 1.0 percent in third quarter and first nine months of 2018, respectively. These were partially offset by raw material cost increases and higher defined benefit pension and postretirement service cost expense and defined contribution expense.

~~Selling, General and Administrative Expenses:~~

SG&A in dollars decreased 5.5 percent and increased 21.5 percent in the third quarter and first nine months of 2018, respectively, when compared to the same period last year. The decrease in the third quarter of 2018 primarily relates to 2017 portfolio and supply chain footprint optimization charges that did not repeat in 2018. The increase in the first nine months is primarily associated with the Communication Markets Division-related restructuring charges (as discussed in Note 5) and the charge related to the Minnesota NRD resolution (as discussed earlier in the “Operating income, operating income margin, income before taxes, net income, earnings per share, and effective tax rate adjusted for impacts of the Minnesota NRD resolution and the measurement period adjustment to the impact of the enactment of the Tax Cuts and Jobs Act (TCJA) - (non-GAAP measures)~~” section and further in Note 14).~~

~~Research, Development and Related Expenses:~~

R&D in dollars decreased $38 million in both the third quarter of 2018 and first nine months of 2018, respectively, when compared to the same period last year. The decrease primarily relates to R&D no longer incurred related to the Communication Markets Division, which was divested in the second quarter of 2018. 3M continued to invest in its key initiatives, including R&D aimed at disruptive innovation programs with the potential to create entirely new markets and disrupt existing markets.

Gain on Sale of Businesses:

InDuring the first quarter of ~~2018, 3M closed on~~2019, the ~~sale of~~Company sold certain ~~personal safety product offerings primarily focused on noise, environmental, and heat stress monitoring. In addition, 3M divested~~oral care technology comprising a ~~polymer additives compounding business, formerly part of the Company’s Industrial~~ business and reflected an earnout on a ~~gain on final closing adjustments from a prior~~previous divestiture ~~which,~~resulting in an aggregate ~~were not material. These divestitures resulted in a gain on sale of businesses of $24 million.~~

Inimmaterial gain. During the ~~second~~third quarter of ~~2018, 3M completed~~2019, the ~~sale~~Company sold its gas and flame detection business for a pre-tax gain of substantially all of its Communication Markets Division to Corning Incorporated. This business consists of optical fiber and copper passive connectivity solutions for the telecommunications industry including 3M’s xDSL, FTTx, and structured cabling solutions and, in certain countries, telecommunications system integration services. This divestiture resulted in a gain on sale of $494 million, which was reported within the Company’s Electronics and Energy business. 3M also divested an abrasives glass products business, formerly part of the Company’s Industrial business, which resulted in a gain on sale of less than $15$112 million. Refer to Note 3 for additional ~~detail~~details on ~~these~~ divestitures.

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Operating Income:

3M uses operating income as one of its primary business segment performance measurement tools. Refer to the table below for a reconciliation of operating income margins for the the three and nine months ended September 30, ~~2018 versus 2017.~~2019 and 2018.


	Three months ended		Nine months ended

					Three months ended		Nine months ended
(Percent of net sales)	September 30, 2018		September 30, 2018		September 30, 2019		September 30, 2019
Same period last year	24.6	%	24.9	%	24.7	%	21.9	%
Significant litigation-related charges					—		3.6
Same period last year, excluding significant litigation-related charges					24.7	%	25.5	%
Increase/(decrease) in operating income margin, due to:
2017 divestiture of identity management business	—		(1.9)
2018 divestiture of Communication Markets Division, net of related restructuring actions					—		(1.6)
Organic volume/productivity and other	0.7		1.5		(1.6)		(1.9)
Acquisitions/other divestiture gains	(0.3)		(0.3)
Communication Markets Division stranded costs	(0.1)		—
Second quarter 2019 restructuring actions					—		(0.5)
Acquisitions/divestitures					1.0		0.1
Selling price and raw material impact	0.3		0.3		0.3		0.4
Foreign exchange impacts	(0.5)		(0.4)		0.8		0.5
Legal-related charges	—		(0.2)
2018 divestiture of Communication Markets Division, net of related restructuring actions	—		1.6
Current period, excluding MN Natural Resource Damages (NRD) resolution	24.7	%	25.5	%
MN NRD resolution	—		(3.6)
Current period, excluding significant litigation-related charges					25.2	%	22.5	%
Significant litigation-related charges					—		(2.3)
Current period	24.7	%	21.9	%	25.2	%	20.2	%

Operating income margins increased ~~0.1~~0.5 percentage ~~point~~points in the third quarter of ~~2018~~2019 when compared to the third quarter of ~~2017,~~2018, and ~~declined 3.0~~decreased 1.7 percentage points in the first nine months of ~~2018~~2019 when compared to the first nine months of ~~2017.~~2018. Excluding the significant litigation-related charges, operating margins decreased 3.0 percentage points to 22.5 percent in the first nine months of 2019 when compared to the first nine months of 2018. Refer to the Certain amounts adjusted for impacts of deconsolidation of the Company’s Venezuelan subsidiary, significant litigation-related charges and measurement period adjustments to the impact of the enactment of the Tax Cuts and Jobs Act (TCJA) - (non-GAAP measures) section above for additional details on the significant litigation-related charges.

Additional discussion related to the components of the year-on-year change in operating income margins follows:

~~2017 divestiture of identity management business:~~

~~Operating income margins decreased year-on-year due to the gain on the May 2017 divestiture of the Company’s former identity management business.~~

~~Organic volume/productivity and other:~~

Operating income margins increased year-on-year due to benefits from organic local-currency growth and productivity, in addition to lower year-on-year portfolio and supply chain footprint optimization charges.

~~Operating income margins decreased year-on-year due to higher defined benefit pension and postretirement service cost expense and defined contribution expense.~~

~~Operating income margins increased year-on-year due to the lost lower-margin operating income from divested businesses.~~

~~Acquisitions/other divestiture gains:~~

Acquisition impacts (primarily related to Scott Safety) in addition to lower year-on-year divestiture gains other than the identity management business and Communication Markets decreased operating margins year-on-year.

~~Communication Markets Division stranded costs:~~

~~Remaining stranded costs to be addressed from the divestiture of the Communication Markets Division reduced operating margins year-on-year.~~

~~Selling price and raw material impact:~~

~~Higher selling prices, partially offset by raw material cost increases, benefited operating income margins year-on-year.~~

~~Foreign exchange impacts:~~

~~Foreign currency effects (net of hedge gains) decreased operating income margins year-on-year.~~

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~~Legal-related charges:~~

2018 divestiture of Communication Markets Division, net of related restructuring actions:

●

In June 2018, 3M completed the sale of substantially all of its Communication Markets Division and reflected a pre-tax gain of $494 million as a result of this ~~divestiture, which was reported within the Company’s Electronics and Energy business~~.divestiture. During the second quarter of 2018, management approved and committed to undertake certain restructuring actions related to addressing corporate functional costs following the Communication Markets Division divestiture. These actions resulted in a second quarter 2018 pre-tax charge of $105 million.

~~MN NRD Resolution:~~Organic volume/productivity and other:

●

Negative organic local sales volume growth as a result of weakness in certain end markets and channel inventory adjustments, along with actions taken by 3M to lower production volumes and reduce inventories to improve cash flow, reduced operating margins. Partially offsetting these impacts were benefits from restructuring actions taken in the second quarter of 2019, as well as net gains related to property sales.

●

Operating income margins increased year-on-year due to lower defined benefit pension and postretirement service cost expense.

Second quarter 2019 restructuring actions:

●

During the second quarter of 2019, in light of a slower than expected 2019 sales, management approved and committed to undertake certain restructuring. Of the associated $148 million charge, $112 million impacted operating income while $35 million associated with a voluntary retirement incentive program impacted other expense (income). See Note 5 for additional details.

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Acquisitions/divestitures:

●

Acquisition-related impacts relate to the on-going integration of M*Modal, which decreased operating income margins year-on-year.

●

Divestiture impacts (which is comprised of higher year-on-year divestiture gains other than the Communication Markets Division in addition to lost operating income from divested businesses) increased operating income margins year-on-year and was primary related to the gain from the divestiture of the Company’s gas and flame detection business.

●

Remaining stranded costs to be addressed from the 2018 divestiture of the Communication Markets Division also reduced operating margins year-on-year.

Selling price and raw material impact:

●

Higher selling prices, partially offset by raw material cost increases, benefited operating income margins year-on-year for the first nine months of 2019. Raw material costs were flat year-on-year for the third quarter 2019.

Foreign exchange impacts:

●

Foreign currency effects (net of hedge gains) increased operating income margins year-on-year.

Significant litigation-related charges:

●

Operating income margins for the first nine months of 2018 ~~decreased 3.0 percentage points year-on-year. Excluding~~and 2019 included the ~~first quarter 2018~~$897 million and $548 million impact, respectively, of ~~the Minnesota NRD resolution~~significant litigation-related charges (as discussed earlier in the “~~Operating income, operating income margin, income before taxes, net income, earnings per share, and effective tax rate~~Certain amounts adjusted for impacts of deconsolidation of the ~~Minnesota NRD resolution~~Company’s Venezuelan subsidiary, significant litigation-related charges and ~~the~~ measurement period ~~adjustment~~adjustments to the impact of the enactment of the Tax Cuts and Jobs Act (TCJA) - (non-GAAP measures)~~” section and further in Note 14), operating margins increased 0.6 percentage points for the first nine months of 2018.~~
section.

Other Expense (Income), Net:

See Note 6 for a detailed breakout of this line item.

Interest expense (net of interest income) increased in the third quarter and first nine months of ~~2018~~2019 compared to the same ~~periods~~period in ~~2017~~2018 due to higher U.S. average debt balances, partially offset by the year-on-year increase in interest income driven by higher balances in cash, cash equivalents and ~~higher borrowing costs. Interest income~~marketable securities resulting from the proceeds from debt issuances in advance of the October 2019 Acelity acquisition

Other expense (income) increased year-on-year in the first nine months 2019 primarily due to the impact of deconsolidation of the Company’s Venezuelan subsidiary. Refer to Note 1 for additional details. In addition, other expense (income) also increased year-on-year ~~for the third quarter and first nine months of 2018~~ due to ~~higher average interest rates and investment balances.~~

~~Effective January 1, 2018, in conjunction~~the charge associated with ~~3M’s adoption of ASU No. 2017-07, all pension and postretirement net periodic benefit cost components (except~~ the ~~service cost component) are reported within other expense (income), net. For additional details, refer~~voluntary retirement incentive program. Refer to Note ~~1 (Significant Accounting Policies). Year-on-year pension and postretirement net periodic benefit non-service costs increased $14 million and $37 million~~11 for ~~the third quarter and first nine months of 2018, respectively. The year-on-year increases were primarily due to an increase in the net actuarial amortization expense.~~additional details.

Provision for Income Taxes:


	Three months ended				Nine months ended
	September 30,				September 30,

									Three months ended				Nine months ended
									September 30,				September 30,
(Percent of pre-tax income)	2018		2017		2018		2017		2019		2018		2019		2018
Effective tax rate	21.3	%	28.3	%	24.0	%	26.1	%	19.3	%	21.3	%	19.7	%	24.0	%

The effective tax rate for the third quarter of ~~2018~~2019 was ~~21.3~~19.3 percent, compared to ~~28.3~~21.3 percent in ~~2017,~~the third quarter of 2018, a decrease of ~~7.0~~2.0 percentage points. The effective tax rate for the first nine months of ~~2018~~2019 was ~~24.0~~19.7 percent, compared to ~~26.1~~24.0 percent in ~~2017, an~~the first nine months 2018, a decrease of ~~2.1~~4.3 percentage points. The changes in the tax rates between years were impacted by many factors, including ~~the enactment of~~measurement period adjustments related to the Tax Cuts and Jobs Act (TCJA) ~~in December 2017~~ and ~~measurement period adjustments to~~significant litigation-related charges, and the impact from the deconsolidation of the Company’s ~~provisional accounting thereof~~Venezuelan subsidiary as further described in the Overview, “~~Operating income, operating income margin, income before taxes, net income, earnings per share, and effective tax rate~~Certain amounts adjusted for impacts of deconsolidation of the ~~Minnesota NRD resolution~~Company’s Venezuelan subsidiary, significant litigation-related charges and ~~the~~ measurement period ~~adjustment~~adjustments to the impact of the enactment of the Tax Cuts and Jobs Act (TCJA) - (non-GAAP measures)” section and in Note 8. ~~3M’s provisional accounting is subject to adjustment during~~Additional factors that impacted the ~~measurement period~~tax rates between years are further discussed in Note 8.

Table of ~~up to one year following the December 2017 enactment of the TCJA, as provided by recent SEC guidance.~~Contents

Considering the impacts of the TCJA (including the Company’s measurement period adjustments through the third quarter of 2018 to the Company’s provisional accounting for the TCJA’s enactment) and other factors, 3M currently estimates its effective tax rate for

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~~2018~~ 2019 will be approximately 2320 to 2521 percent. The tax rate can vary from quarter to quarter due to discrete items, such as the settlement of income tax audits, changes in tax laws, ~~measurement period adjustment effects on the provisional items such as the remaining analyses regarding the impact of the TCJA~~ and employee share-based payment accounting; as well as recurring factors, such as the geographic mix of income before taxes.

Refer to Note 8 for further discussion of income taxes.

Net Income Attributable to Noncontrolling Interest:


	Three months ended				Nine months ended
	September 30,				September 30,

									Three months ended				Nine months ended
									September 30,				September 30,
(Millions)	2018		2017		2018		2017		2019		2018		2019		2018
Net income attributable to noncontrolling interest	$	3	$	4	$	12	$	9	$	5	$	3	$	11	$	12

Net income attributable to noncontrolling interest represents the elimination of the income or loss attributable to non-3M ownership interests in 3M consolidated entities. The primary noncontrolling interest relates to 3M India Limited, of which 3M’s effective ownership is 75 percent.

Currency Effects:

3M estimates that year-on-year currency effects, including hedging impacts, ~~decreased~~increased pre-tax income by approximately ~~$65~~$39 million and ~~approximately $15~~$3 million ~~respectively,~~ for the third quarter of 2019 and ~~first~~ nine months ~~of 2018 compared to 2017.~~ended September 30, 2019, respectively. This estimate includes the effect of translating profits from local currencies into U.S. dollars; the impact of currency fluctuations on the transfer of goods between 3M operations in the United States and abroad; and transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risks. 3M estimates that year-on-year foreign currency transaction effects, including hedging impacts, ~~decreased~~increased pre-tax income by approximately ~~$24~~$69 million and ~~$115~~$190 million for the the three and nine months ended September 30, ~~2018.~~2019, respectively. These estimates include transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risks.

Significant Accounting Policies:

Information regarding new accounting standards is included in Note 1 to the Consolidated Financial Statements.

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PERFORMANCE BY BUSINESS SEGMENT

Disclosures relating to 3M’s business segments are provided in Note ~~16. As~~17. Effective in the second quarter of 2019, to enable the Company to better serve global customers and markets, the Company made the following changes to its business segments:

Realignment of the Company’s business segments from five to four

The Company realigned its former five business segments into four: Safety and Industrial; Transportation and Electronics; Health Care; and Consumer. Existing divisions were largely realigned to this new structure. In addition, certain retail auto care product lines formerly in the Automotive Aftermarket Division (now within the Safety and Industrial business segment) were moved to the Construction and Home Improvement Division (within the Consumer business segment). Also, product lines relating to the refrigeration filtration business, formerly included in the Separation and Purification Sciences Division (now within the Health Care business segment) were moved to Other Safety and Industrial (within the Safety and Industrial business segment). 3M business segment reporting measures include dual credit to business segments for certain sales and operating income. Dual credit, which is based on which business segment provides customer account activity with respect to a particular product sold in a specific country, was reduced as a result of the closer alignment between customer account activity and their respective markets. The four business segments are as follows:

Safety and Industrial: This segment includes businesses that serve the global industrial, electrical and safety markets. This business segment consists of personal safety, adhesives and tapes, abrasives, closure and masking systems, electrical markets, automotive aftermarket, and roofing granules. This segment also includes the Communication Markets Division (which was substantially sold in 2018) and the refrigeration filtration product lines (within Other Safety and Industrial).

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Transportation and Electronics: This segment includes businesses that serve global transportation and electronic original equipment manufacturer (OEM) customers. This business segment consists of electronics (display materials and systems, electronic materials solutions), automotive and aerospace, commercial solutions, advanced materials, and transportation safety.

Health Care: This business segment serves the global healthcare industry and includes medical solutions, oral care, separation and purification sciences, health information systems, drug delivery systems, and food safety.

Consumer: This business serves global consumers and consists of home improvement, stationery and office supplies, home care, and consumer health care. This segment also includes, within the Construction and Home Improvement Division, certain retail auto care product lines.

~~Consolidation~~Continued alignment of customer account activity ~~within international countries – expanding dual credit reporting~~

●

Creation of Closure and Masking Systems Division and Medical Solutions Division

●

3M created the Closure and Masking Systems Division, which combines the masking tape, packaging tape and personal care portfolios formerly within ~~additional countries increased~~Industrial Adhesives and Tapes Division in the attribution of dual credit across 3M’s business segments. Additionally, certain sales and operating income results for electronic bonding product lines that were previously equally divided between the Electronics and Energy business segment and theformer Industrial business segment ~~are now reported similarly to dual credit. As~~into a ~~result, previously reported aggregate~~separate division also within the former Industrial business segment. 3M created the Medical Solutions Division in the Health Care business segment, ~~net sales~~which combines the former Critical and ~~operating income for total year 2017 increased $1.568 billion~~Chronic Care Division and ~~$402 million, respectively, offset by similar increases~~Infection Prevention Division (which were also both within the Health Care business segment).

Additional actions impacting business segment reporting

●

The business associated with certain safety products sold through retail channels in the ~~elimination of dual credit net sales~~Asia Pacific region was realigned from the Personal Safety Division within the former Safety and ~~operating income amounts.~~

~~Centralization of manufacturing and supply technology platforms~~

~~Certain shared film~~Graphics business segment to the Construction and Home Improvement Division within the Consumer business segment. In addition, certain previously non-allocated costs related to manufacturing and ~~supply~~ technology ~~platform resources formerly reflected within the Electronics and Energy business segment were combined with other shared and~~of centrally managed material resource centers of expertise within Corporate and ~~Unallocated. This change resulted in a decrease in previously reported net sales and an increase in operating income for total year 2017 of $1 million and $42 million, respectively, in~~Unallocated are now reflected as being allocated to the ~~Electronics and Energy segment, offset by a corresponding increase in net sales and decrease in operating income within Corporate and Unallocated.~~

business segments.

~~In addition, as discussed in Note 1, 3M adopted ASU No. 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~, effective January 1, 2018 on a retrospective basis. As a result, operating income for 3M’s business segments has been revised to reflect non-service components of pension and postretirement net periodic benefit costs within other expense (income), net.

Business segment information presented herein reflects the impact of these changes for all periods presented. 3M manages its operations in ~~five~~four business segments. The reportable segments are ~~Industrial;~~ Safety and ~~Graphics; Electronics~~Industrial; Transportation and ~~Energy;~~Electronics; Health Care; and Consumer.

Corporate and Unallocated:

In addition to these ~~five~~four business segments, 3M assigns certain costs to “Corporate and Unallocated,” which is presented separately in the preceding business segments table and in Note ~~16.~~17. Corporate and Unallocated includes a variety of miscellaneous items, such as corporate investment gains and losses, certain derivative gains and losses, certain insurance-related gains and losses, certain litigation and environmental expenses, corporate restructuring charges and certain under- or over-absorbed costs (e.g. pension, stock-based compensation) that the Company determines not to allocate directly to its business segments. Corporate and Unallocated also includes sales, costs, and income from contract manufacturing, transition services and other arrangements with the acquirer of ~~substantially all of~~ the Communication Markets Division following its divestiture in ~~June~~ 2018. Because this category includes a variety of miscellaneous items, it is subject to fluctuation on a quarterly and annual basis.

Corporate and Unallocated operating expenses ~~were largely flat and increased by $1.1 billion~~decreased in both the third quarter and first nine months of ~~2018, respectively,~~2019, when compared to the same ~~period~~periods last year. In the first quarter of 2018 and 2019, significant litigation-related charges of $897 million and $548

Table of Contents

million, respectively, were reflected in Corporate and Unallocated. In the second quarter of 2018 and 2019, operating expenses included the restructuring charge of $105 million and $82 million, respectively, as further discussed in Note 55. In the third quarter, operating expenses were partially offset by gains related to ~~addressing corporate functional costs following~~ the ~~Communication Markets Division divestiture, net~~sale of operating income from contractual manufacturing and other arrangements described in the paragraph above. In the first quarter of 2018, the Minnesota NRD resolution ($897 million), inclusive of legal fees and other related obligations, was reflected in Corporate and Unallocated.certain properties. In addition, 3M’s defined benefit pension and postretirement service-cost expense allocation to Corporate and Unallocated ~~increased~~decreased year-on-year.

~~Table of Contents~~

Operating Business Segments:

Information related to 3M’s business segments for both the third quarter and first nine months of ~~both~~2019 and 2018 ~~and 2017~~ are presented in the tables that follow. Organic local-currency sales include both organic volume impacts plus selling price impacts. Acquisition impacts, if any, are measured separately for the first twelve months post-transaction. The divestiture impacts, if any, foreign currency translation impacts and total sales change are also provided for each business segment. Any references to EMEA relate to Europe, Middle East and Africa on a combined basis.

Refer to the preceding “Sales and operating income by geographic area” section for organic local-currency sales growth by business segment within major geographic areas.

Refer to 3M’s ~~Current Report on Form 8-K dated May 8,~~ 2018 ~~(which updated 3M’s 2017~~ Annual Report on Form ~~10-K),~~10-K, Item 1, Business, for discussion of 3M products that are included in each business segment.

Safety and Industrial Business:


	Three months ended						Nine months ended
	September 30,						September 30,
	2018			2017			2018			2017

													Three months ended						Nine months ended
													September 30,						September 30,
													2019			2018			2019			2018
Sales (millions)	$	3,023		$	3,023		$	9,315		$	8,905		$	2,849		$	3,021		$	8,796		$	9,542
Sales change analysis:
Organic local-currency		2.2	%		7.1	%		3.4	%		6.0	%		(3.3)	%		0.7	%		(3.5)	%		3.2	%
Acquisitions														—			4.6			—			4.9
Divestitures		(0.1)			(0.6)			(0.1)			(0.6)			(0.8)			(3.3)			(1.8)			(1.6)
Translation		(2.1)			0.6			1.3			(0.3)			(1.6)			(2.1)			(2.5)			1.2
Total sales change		—	%		7.1	%		4.6	%		5.1	%		(5.7)	%		(0.1)	%		(7.8)	%		7.7	%


Operating income (millions)	$	667		$	672		$	2,110		$	1,910		$	765		$	697		$	2,062		$	2,753
Percent change		(0.7)	%		6.0	%		10.5	%		(1.5)	%		9.6	%		(4.2)	%		(25.1)	%		36.9	%
Percent of sales		22.1	%		22.2	%		22.7	%		21.5	%		26.8	%		23.1	%		23.4	%		28.9	%

Third ~~Quarter 2018~~quarter 2019 results:

Sales in Safety and Industrial totaled ~~$3.0~~$2.8 billion, ~~which was flat compared to the same period last year.~~down 5.7 percent in U.S. dollars. Organic local-currency sales ~~increased 2.2~~decreased 3.3 percent, divestitures decreased sales by ~~0.1~~0.8 percent, and foreign currency translation decreased sales by ~~2.1~~1.6 percent.

On an organic local-currency sales basis:

●

Sales ~~growth was led by advanced materials, automotive and aerospace, and~~increased in roofing granules, while personal safety, abrasives, industrial adhesives and ~~tapes. Benefits included 3M’s~~tapes, electrical markets, closure and masking, and automotive ~~OEM’s increased penetration across applications such as structural tapes, adhesives, acoustics, light weighting and electronics solutions.~~

~~Automotive~~ aftermarket declined ~~as the industry saw a softer collision repair market versus prior year.~~

year-on-year.

~~Acquisitions and divestitures:~~

●

~~In October 2016, 3M sold the assets of its temporary protective films business.~~

~~In the first quarter of 2018, 3M completed the sale of its polymer additives compounding business.~~

~~In May 2018, 3M divested an abrasives glass products business.~~

~~Operating income:~~

~~Operating income margins decreased 0.1 percentage points. Third quarter 2017 included a 0.3 percentage point impact from charges related to portfolio~~Softness and ~~footprint actions.~~

~~Table of Contents~~

~~First Nine Months 2018 results:~~

~~Sales in Industrial totaled $9.3 billion, up 4.6 percent in U.S. dollars. Organic local-currency~~channel inventory reductions impacted sales ~~increased 3.4 percent, divestitures decreased sales by 0.1 percent, and foreign currency translation increased sales by 1.3 percent.~~

~~On an organic local-currency sales basis:~~

~~Sales~~ growth ~~increased in advanced materials, automotive and aerospace, abrasives, separation and purification, and industrial adhesives and tapes. Benefits included 3M’s automotive OEM’s increased penetration~~ across ~~applications such as structural tapes, adhesives, acoustics, light weighting and electronics solutions.~~

~~Automotive aftermarket sales declined, as growth in products and solutions for retail car care was more than offset by softening~~most of the ~~collision repair market.~~

Company’s safety-related and industrial-related portfolio.

~~Acquisitions and divestitures:~~Acquisitions:

●

~~In January 2016, 3M completed its sale of its pressurized polyurethane foam adhesives business (formerly known as Polyfoam).~~

~~In October 2016, 3M sold the assets of its temporary protective films business.~~

~~In the first quarter of 2018, 3M completed the sale of its polymer additives compounding business.~~

~~In May 2018, 3M divested an abrasives glass products business.~~

~~Operating income:~~

Operating income margins increased 1.2 percentage points, helped by organic sales growth across most of the portfolio in addition to benefiting from expenses related to portfolio and footprint actions taken in the first nine months of 2017 that were not repeated in the first nine months of 2018.

~~Safety and Graphics Business:~~

Three months ended

Nine months ended

September 30,

September 30,


2018

2017

2018

2017

Sales (millions)

$
1,660

$
1,551

$
5,258

$
4,670

Sales change analysis:

Organic local-currency

2.2
%

6.5
%

5.8
%

5.0
%
Acquisitions

8.9

—

9.8

—

Divestitures

(1.9)

(4.9)

(4.2)

(3.0)

Translation

(2.2)

0.8

1.2

(0.2)

Total sales change

7.0
%

2.4
%

12.6
%

1.8
%

Operating income (millions)

$
412

$
411

$
1,375

$
1,661

Percent change

0.4
%

12.0
%

(17.2)
%

45.9
%
Percent of sales

24.8
%

26.4
%

26.1
%

35.6
%

~~Third Quarter 2018 results:~~

Sales in Safety and Graphics totaled $1.7 billion, up 7.0 percent in U.S. dollars. Organic local-currency sales increased 2.2 percent, acquisitions increased sales by 8.9 percent, divestitures reduced sales by 1.9 percent, and foreign currency translation decreased sales by 2.2 percent.

~~On an organic local-currency sales basis:~~

~~Sales increased in personal safety, transportation safety, and commercial solutions.~~

~~Sales declined in roofing granules, as production slowed within the shingle manufacturing industry when compared to prior year.~~

~~Table of Contents~~

~~Acquisitions and divestitures:~~

Acquisition sales growth in 2018 reflects the acquisition of Scott Safety in October 2017. Scott Safety is a premier manufacturer of innovative products, including self-contained breathing apparatus systems ~~gas and flame detection instruments~~ and other safety devices.

Table of Contents

Divestitures:

●

2017 divestitures ~~include~~that impacted 2018 results relate to the sale of ~~its~~the safety prescription eyewear business (first quarter 2017)~~, the sale~~ and assets of ~~3M’s identity management business and tolling and automated license/number plate business (both in second quarter 2017) and electronic monitoring~~its electrical marking/labelling business (fourth quarter 2017).

●

In the first quarter of 2018, 3M completed the sale of its polymer additives compounding business.

●

In February 2018, 3M closed on the sale of certain personal safety product offerings primarily focused on noise, environmental, and heat stress monitoring.

●

In May 2018, 3M divested an abrasives glass products business.

●

In June 2018, 3M completed the sale of substantially all of its Communication Markets Division.

●

In August 2019, 3M completed the sale of its gas and flame detection business.

Operating income:

●

Operating income margins ~~decreased 1.6~~increased 3.7 percentage points, primarily impacted by the gain on the divestiture of the gas and flame detection business, which ~~included~~resulted in a ~~1.5~~net year-on-year operating income margin increase of 3.9 percentage ~~point impact related to the impact on operating margins from the Scott Safety acquisition.~~

points.

First nine months 2019 results:

~~First Nine Months 2018 results:~~

Sales in Safety and ~~Graphics~~Industrial totaled ~~$5.3~~$8.8 billion, ~~up 12.6~~down 7.8 percent in U.S. dollars. Organic local-currency sales ~~increased 5.8~~decreased 3.5 percent, ~~acquisitions increased~~divestitures decreased sales by ~~9.8 percent, divestitures reduced sales by 4.2~~1.8 percent, and foreign currency translation ~~increased~~decreased sales by ~~1.2~~2.5 percent.

On an organic local-currency sales basis:

●

Sales increased in roofing granules and personal safety, ~~commercial solutions,~~while electrical markets, industrial adhesives and ~~transportation safety.~~

tapes, abrasives, closure and masking, and automotive aftermarket declined year-on-year.

●

~~Sales declined in roofing granules due to~~Softness and channel inventory reductions impacted sales growth across most of the ~~slower production within the shingle manufacturing industry during the third quarter.~~

Company’s safety-related and industrial-related portfolio.

~~Acquisitions and divestitures:~~Acquisitions:

●

Divestitures:

●

2017 divestitures ~~include~~that impacted 2018 results relate to the sale of its safety prescription eyewear business (first quarter 2017), and assets of its electrical marking/labelling business (fourth quarter 2017).

●

In the first quarter of 2018, 3M completed the sale of its polymer additives compounding business.

●

In February 2018, 3M closed on the sale of certain personal safety product offerings primarily focused on noise, environmental, and heat stress monitoring.

●

In May 2018, 3M divested an abrasives glass products business.

●

In June 2018, 3M completed the sale of substantially all of its Communication Markets Division.

●

In August 2019, 3M completed the sale of its gas and flame detection business.

Operating income:

●

Operating income margins decreased 5.5 percentage points, primarily related to the first quarter 2018 sale of certain personal safety product offerings and the divestiture of the Communication Markets Division in the second quarter of 2018, partially offset by the third quarter 2019 divestiture of the gas and flame detection business, resulting in a net year-on-year operating income margin reduction of 3.8 percentage points. Operating income margins were also impacted by sales declines, particularly in Asia Pacific and the U.S, and actions taken by 3M to lower production volumes and reduce inventories to improve cash flow.

Table of Contents

Transportation and Electronics Business:


	Three months ended						Nine months ended
	September 30,						September 30,
	2019			2018			2019			2018
Sales (millions)	$	2,503		$	2,619		$	7,312		$	7,665
Sales change analysis:
Organic local-currency		(3.4)	%		3.0	%		(2.7)	%		3.8	%
Divestitures		—			(0.9)			—			(2.2)
Translation		(1.0)			(1.4)			(1.9)			1.3
Total sales change		(4.4)	%		0.7	%		(4.6)	%		2.9	%

Operating income (millions)	$	631		$	726		$	1,746		$	2,051
Percent change		(13.1)	%		4.4	%		(14.9)	%		(11.0)	%
Percent of sales		25.2	%		27.7	%		23.9	%		26.8	%

Third quarter 2019 results:

Sales in Transportation and Electronics totaled $2.5 billion, down 4.4 percent in U.S. dollars. Organic local-currency sales decreased 3.4 percent and foreign currency translation decreased sales by 1.0 percent.

Total sales decreased 9 percent within the electronics-related businesses and decreased 5 percent within Asia Pacific.

On an organic local-currency sales basis:

●

Sales increased in advanced materials, transportation safety and commercial solutions, while automotive and aerospace declined.

●

Automotive and aerospace was impacted by the decline in global car and light truck builds along with channel inventory reductions within its Automotive OEM business, particularly in China.

●

Sales decreased 9 percent in 3M’s electronics-related businesses, with decreases in both display materials and systems and electronics materials solutions. Electronics-related growth was impacted by soft consumer electronics, semiconductor and factory automation end markets in addition to channel inventory adjustments.

●

Sales decreased 5 percent in Asia Pacific, where 3M’s electronics business is concentrated.

Divestitures:

●

2017 divestitures that impacted 2018 results included the sale of 3M’s identity management business and tolling and automated license/number plate business (both in second quarter 2017) and electronic monitoring business (fourth quarter 2017).

~~In February 2018, 3M closed on the sale of certain personal safety product offerings primarily focused on noise, environmental, and heat stress monitoring.~~

Operating income:

●

Operating income margins decreased ~~9.5~~2.5 percentage points, primarily ~~related~~impacted by continued sales declines, particularly in Asia Pacific and the U.S, and actions taken by 3M to ~~the year-on-year impact of 2017 divestiture gains.~~

lower production volumes and reduce inventories to improve cash flow.

~~Table of Contents~~

First nine months 2019 results:

~~Health Care Business:~~

Three months ended

Nine months ended


September 30,

September 30,


2018

2017

2018

2017

Sales (millions)

$
1,445

$
1,485

$
4,501

$
4,369

Sales change analysis:

Organic local-currency

(1.1)
%

6.8
%

1.7
%

4.1
%
Acquisitions

—

—

0.1

—

Translation

(1.7)

0.8

1.2

(0.2)

Total sales change

(2.8)
%

7.6
%

3.0
%

3.9
%

Operating income (millions)

$
446

$
467

$
1,341

$
1,304

Percent change

(4.4)
%

10.3
%

2.8
%

(1.6)
%
Percent of sales

30.9
%

31.4
%

29.8
%

29.8
%

~~Third Quarter 2018 results:~~

Sales in ~~Health Care~~Transportation and Electronics totaled ~~$1.4~~$7.3 billion, down ~~2.8~~4.6 percent in U.S. dollars. Organic local-currency sales decreased ~~1.1~~2.7 percent and foreign currency translation decreased sales by 1.9 percent.

Total sales decreased 7 percent within the electronics-related businesses in addition to a 6 percent decrease in Asia Pacific.

Table of Contents

On an organic local-currency sales basis:

●

Sales increased in advanced materials and transportation safety, while commercial solutions and automotive and aerospace declined.

●

Automotive and aerospace was impacted by the decline in global car and light truck builds along with channel inventory reductions within its Automotive OEM business, particularly in China.

●

Sales decreased 5 percent in 3M’s electronics-related businesses, with decreases in both display materials and systems and electronics materials solutions. Electronics-related growth was impacted by soft consumer electronics, semiconductor and factory automation end markets in addition to channel inventory adjustments.

●

Sales decreased 4 percent in Asia Pacific, where 3M’s electronics business is concentrated.

Divestitures:

●

Operating income:

●

Operating income margins decreased 2.9 percentage points, primarily impacted by continued sales declines, particularly in Asia Pacific and the U.S, and actions taken by 3M to lower production volumes and reduce inventories to improve cash flow.

Health Care Business:


	Three months ended						Nine months ended
	September 30,						September 30,
	2019			2018			2019			2018
Sales (millions)	$	1,721		$	1,643		$	5,290		$	5,118
Sales change analysis:
Organic local-currency		2.0	%		(0.7)	%		2.0	%		2.0	%
Acquisitions		4.4			—			3.8			—
Divestitures		—			(0.2)			—			(0.1)
Translation		(1.7)			(1.7)			(2.5)			1.3
Total sales change		4.7	%		(2.6)	%		3.3	%		3.2	%

Operating income (millions)	$	459		$	475		$	1,406		$	1,443
Percent change		(3.2)	%		(5.2)	%		(2.5)	%		3.3	%
Percent of sales		26.7	%		28.9	%		26.6	%		28.2	%

Third quarter 2019 results:

Sales in Health Care totaled $1.7 billion, up 4.7 percent in U.S. dollars. Organic local-currency sales increased 2.0 percent, acquisitions increased sales by 4.4 percent, and foreign currency translation decreased sales by 1.7 percent.

On an organic local-currency sales basis:

●

Sales increased in ~~food safety,~~ health information systems, food safety, medical solutions, and oral ~~care.~~

care, while drug delivery was flat.

●

~~Sales~~Separation and purification declined ~~in medical solutions, as strong growth in vascular access and advanced wound care solutions were more than offset by weaknesses in other areas of the portfolio.~~

~~Drug delivery systems also declined~~year on year primarily due to softness in ~~project-based drug delivery business, which is highly dependent on~~ the ~~timing of regulatory approval processes and customer R&D budgets. However, the pipeline continues to strengthen and 3M expects the business to stabilize in 2019.~~

China market.

~~In developing markets, Health Care organic local-currency sales growth was led by China/Hong Kong.~~

Acquisitions:

●

In September 2017, 3M acquired Elution Technologies, LLC, a manufacturer of food safety test kits.

●

In February 2019, 3M acquired M*Modal, a leading healthcare technology provider of cloud-based, conversational artificial intelligence-powered systems that help physicians efficiently capture and improve the patient narrative.

Table of Contents

Divestitures:

●

In the first quarter of 2019, the Company sold certain oral care technology comprising a business.

Operating income:

●

Operating income margins decreased ~~0.5~~2.2 percentage points year-on-year, ~~largely due~~driven by a 1.5 percentage point impact related to ~~lower organic sales growth within~~ the ~~portfolio.~~

M*Modal acquisition.

First ~~Nine Months 2018~~nine months 2019 results:

Sales in Health Care totaled ~~$4.5~~$5.3 billion, up ~~3.0~~3.3 percent in U.S. dollars. Organic local-currency sales increased ~~1.7~~2.0 percent, acquisitions increased sales by ~~0.1~~3.8 percent, and foreign currency translation ~~increased~~decreased sales by ~~1.2~~2.5 percent.

On an organic local-currency sales basis:

●

Sales ~~growth was led by food safety,~~increased in health information systems, food safety, medical solutions and ~~medical solutions.~~

oral care, while separation and purification declined year-on-year.

●

~~Oral care sales~~Drug delivery also ~~increased, with~~declined year-on-year, as continued ~~positive growth internationally, particularly~~softness in ~~developing economies.~~

the business negatively impacted overall Health Care organic growth.

~~Sales declined in drug delivery systems.~~

Acquisitions:

●

In September 2017, 3M acquired Elution Technologies, LLC, a manufacturer of food safety test kits.

●

Divestitures:

●

In the first quarter of 2019, the Company sold certain oral care technology comprising a business.

Operating income:

●

Operating income margins ~~were flat year-on-year.~~

decreased 1.6 percentage points year-on-year, driven by a 1.9 percentage point impact related to the M*Modal acquisition.

Consumer Business:


	Three months ended						Nine months ended
	September 30,						September 30,
	2019			2018			2019			2018
Sales (millions)	$	1,324		$	1,302		$	3,821		$	3,819
Sales change analysis:
Organic local-currency		2.6	%		(2.2)	%		1.7	%		1.4	%
Acquisitions		—			0.2			—			0.2
Translation		(0.9)			(1.3)			(1.6)			0.5
Total sales change		1.7	%		(3.3)	%		0.1	%		2.1	%

Operating income (millions)	$	308		$	300		$	809		$	811
Percent change		2.3	%		(6.9)	%		(0.3)	%		4.9	%
Percent of sales		23.2	%		23.1	%		21.2	%		21.2	%

7077

Table of Contents

Third quarter 2019 results:

~~Electronics and Energy Business:~~

Three months ended

Nine months ended

September 30,

September 30,


2018

2017

2018

2017

Sales (millions)

$
1,443

$
1,515

$
4,130

$
4,096

Sales change analysis:

Organic local-currency

2.3
%

14.1
%

3.0
%

11.9
%
Divestitures

(6.1)

(0.1)

(3.2)

(0.2)

Translation

(1.0)

—

1.0

(0.2)

Total sales change

(4.8)
%

14.0
%

0.8
%

11.5
%

Operating income (millions)

$
457

$
430

$
1,659

$
1,011

Percent change

6.2
%

29.6
%

64.1
%

27.8
%
Percent of sales

31.7
%

28.4
%

40.2
%

24.7
%

~~Third Quarter 2018 results:~~

Sales in ~~Electronics and Energy~~Consumer totaled ~~$1.4~~$1.3 billion, ~~down 4.8~~a decrease of 1.7 percent in U.S. dollars. Organic local-currency sales increased ~~2.3 percent, divestitures reduced sales by 6.1~~2.6 percent and foreign currency translation decreased sales by ~~1.0~~0.9 percent.

~~Total sales within the electronics-related and energy-related businesses increased 1 percent and decreased 19 percent, respectively. Total sales increased 1 percent in Asia Pacific.~~

On an organic local-currency sales basis:

●

Sales ~~increased 1 percent~~grew in ~~3M’s electronics-related businesses, driven by strong demand for specialty fluids~~home improvement and ~~abrasives for the semiconductor~~consumer health care, while stationery and ~~data center markets within electronics materials solutions. This growth was partially offset by a decline in display materials~~office and ~~systems due to softness in consumer electronics.~~

home care declined.

●

Sales showed continued strength in the Company’s Filtrete^TM, Command^TM and Nexcare^TM brands.

Acquisitions:

~~Sales increased 6 percent in 3M’s energy-related businesses, driven by strong~~●

Acquisition sales growth in ~~renewable energy and pipe coating solutions within electrical markets.~~

~~Sales increased 3 percent~~2018 reflects certain safety products sold through retail channels in the Asia Pacific ~~where 3M’s electronics business is concentrated.~~

region from the acquisition of Scott Safety in October 2017.

~~Divestitures:~~

~~In December 2016, 3M sold the assets of its cathode battery technology out-licensing business.~~

~~In the fourth quarter of 2017, 3M sold the assets of its electrical marking/labeling business.~~

I~~n June 2018, 3M completed the sale of substantially all of its Communication Markets Division and recorded a pre-tax gain of approximately $494 million. Refer to Note 3 for additional details.~~

Operating income:

●

Operating income margins increased ~~3.3~~0.1 percentage points driven by underlying productivity gains related to organic local-currency growth. Operating margins also increased 0.8 percentage points from the lost lower-margin operating income of the former Communication Markets Division.

year-on-year.

First ~~Nine Months 2018~~nine months 2019 results:

Sales in ~~Electronics and Energy~~Consumer totaled ~~$4.1~~$3.8 billion, ~~up 0.8~~an increase of 0.1 percent in U.S. dollars. Organic local-currency sales increased ~~3.0 percent, divestitures reduced sales by 3.2 percent, and foreign currency translation increased sales by 1.0 percent.~~

~~Total sales within the electronics-related and energy-related businesses were increased 4 percent and decreased 5 percent, respectively. Total sales increased 4 percent in Asia Pacific.~~

~~On an organic local-currency sales basis:~~

Sales increased 3 percent in 3M’s electronics-related businesses, driven by increases in electronics materials solutions. This growth was partially offset by a decline in display materials and systems due to softness in consumer electronics.

~~Table of Contents~~

~~Sales increased 5 percent in 3M’s energy-related businesses, driven by electrical markets.~~

~~Sales increased 4 percent in Asia Pacific, where 3M’s electronics business is concentrated.~~

~~Divestitures:~~

~~In December 2016, 3M sold the assets of its cathode battery technology out-licensing business.~~

~~In the fourth quarter of 2017, 3M sold the assets of its electrical marking/labeling business.~~

I~~n June 2018, 3M completed the sale of substantially all of its Communication Markets Division and recorded a pre-tax gain of approximately $494 million. Refer to Note 3 for additional details.~~

~~Operating income:~~

~~Operating income margins increased 15.5 percentage points, driven by the Communication Markets Division divestiture gain.~~

~~Consumer Business:~~

Three months ended

Nine months ended


September 30,

September 30,


2018

2017

2018

2017

Sales (millions)

$
1,235

$
1,279

$
3,585

$
3,521

Sales change analysis:

Organic local-currency

(2.0)
%

3.3
%

1.3
%

1.5
%
Translation

(1.4)

0.3

0.5

0.2

Total sales change

(3.4)
%

3.6
%

1.8
%

1.7
%

Operating income (millions)

$
291

$
311

$
770

$
732

Percent change

(6.7)
%

(1.1)
%

5.1
%

(11.6)
%
Percent of sales

23.5
%

24.3
%

21.5
%

20.8
%

~~Third Quarter 2018 results:~~

~~Sales in Consumer totaled $1.2 billion, a decrease of 3.4 percent in U.S. dollars. Organic local-currency sales decreased 2.0~~1.7 percent and foreign currency translation decreased sales by ~~1.4~~1.6 percent.

On an organic local-currency sales basis:

●

Sales grew in home improvement and consumer health care, while stationery and office ~~home~~was flat. Home care ~~and consumer health care declined.~~

declined year-on-year.

●

~~Third quarter sales were~~Geographically, the U.S. showed particular strength in the Company’s Filtrete^TM and Command^TM brands, while Asia Pacific was impacted by ~~stronger than expected second quarter~~lower consumer demand for respiratory solutions.

Acquisitions:

●

Acquisition sales growth in ~~anticipation of the Company’s roll out of its ERP system~~2018 reflects certain safety products sold through retail channels in the ~~U.S.~~

Asia Pacific region from the acquisition of Scott Safety in October 2017.

Operating income:

●

Operating income margins decreased 0.8 percentage points year-on-year, impacted by the ERP deployment in the U.S, partially offset by 0.7 percentage points of portfolio and footprint actions taken in the third quarter of 2017 that were not repeated in the third quarter of 2018.

~~First Nine Months 2018 results:~~

~~Sales in Consumer totaled $3.6 billion, an increase of 1.8 percent in U.S. dollars. Organic local-currency sales increased 1.3 percent and foreign currency translation increased sales by 0.5 percent.~~

~~On an organic local-currency sales basis:~~

~~Sales grew in home improvement, building on a track record of strong performance over the past several years.~~

~~Home care and stationery and office supplies~~ were flat ~~while consumer health care declined.~~

year-on-year.

~~Operating income:~~

Operating income margins increased 0.7 percentage points year-on-year, benefiting from expenses related to portfolio and footprint actions taken in the first nine months of 2017 that were not repeated in the first nine months of 2018.

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FINANCIAL CONDITION AND LIQUIDITY

~~The~~3M maintains a strong financial position, supported by the strength and stability of ~~3M’s~~the company’s business model and ~~strong free~~ cash flow capability, ~~together~~along with its proven access to the capital ~~markets access, positions the Company~~markets. This enables 3M to ~~be able to add further leverage to~~invest in its ~~capital structure. Investing in 3M’s~~ businesses to drive organic growth, ~~remains the first priority for capital~~with deployment ~~including~~toward research and development, capital expenditures, and commercialization ~~capability.~~capability as the company’s top priority. Investment in organic growth will be supplemented by complementary acquisitions. 3M will also continue to return cash to shareholders through dividends and share repurchases. Sources for cash availability in the United States, such as ongoing cash flow from operations and access to capital markets, have historically been sufficient to fund dividend payments to shareholders, as well as funding U.S. acquisitions and other items as needed. The TCJA creates additional repatriation opportunities for 3M to access international cash positions on a continual and on-going basis and will help support U.S. capital deployments needs. For those international earnings still considered to be reinvested indefinitely, the Company currently has no plans or intentions to repatriate these funds for U.S. operations. See Note 910 in 3M’s ~~Current Report on Form 8-K dated May 8,~~ 2018 ~~(which updated 3M’s 2017~~ Annual Report on Form ~~10-K)~~10-K for further information on earnings considered to be reinvested indefinitely.

3M’s primary short-term liquidity needs are met through cash on hand and U.S. commercial paper issuances. 3M believes it will have continuous access to the commercial paper market. 3M’s commercial paper program permits the Company to have a maximum of $5 billion outstanding with a maximum maturity of 397 days from date of issuance. At September 30, ~~2018,~~2019, there was no commercial paper issued and ~~outstanding.~~outstanding, compared to $435 million outstanding at December 31, 2018.

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Total debt:

The strength of 3M’s capital structure and significant ongoing cash flows provide 3M proven access to capital markets. Additionally, the Company’s maturity profile is staggered to help ensure refinancing needs in any given year are reasonable in proportion to the total portfolio. 3M currently has an AA- credit rating with a ~~stable~~negative outlook from Standard & Poor’s and has an A1 credit rating with a stable outlook from Moody’s Investors Service.

The Company’s total debt was ~~$897 million~~$4.8 billion higher at September 30, ~~2018~~2019 when compared to December 31, ~~2017.~~2018. Increases in debt related to the first quarter and third quarter ~~2018 issuance~~2019 issuances of $2.25 billion of medium-term notes ~~net~~and $3.25 billion of ~~$450~~other registered notes, respectively, in addition to the 69 billion Japanese yen (approximately $640 million ~~repayment~~at September 30, 2019 exchange rates) outstanding from the 80 billion Japanese yen credit facility established in September 2019. The Company entered into the third quarter issuance of ~~maturing medium-term notes and~~debt in anticipation of the ~~net impact~~closing of ~~repayments and borrowings of international subsidiaries along with foreign currency effects,~~the Acelity acquisition in October 2019. These issuances were partially offset by ~~having zero~~the June 2019 repayment of $625 million aggregate principal amount of fixed-rate medium-term notes that matured in addition to lower commercial paper ~~outstanding at September 30, 2018, as compared to $745 million at December 31, 2017.~~outstanding. For discussion of repayments of and proceeds from debt refer to the following “Cash Flows from Financing Activities” section.

In conjunction with the October 2019 acquisition of Acelity Inc, of the debt assumed, 3M did not immediately settle at close $0.4 billion of notes and, instead, satisfied and discharged those notes via an in-substance defeasance. Refer to Note 10 for additional information.

Effective February 24, 2017, the Company updated its “well-known seasoned issuer” (WKSI) shelf registration statement, which registers an indeterminate amount of debt or equity securities for future issuance and sale. This replaced 3M’s previous shelf registration dated May 16, 2014. In May 2016, in connection with the WKSI shelf, 3M entered into an amended and restated distribution agreement relating to the future issuance and sale (from time to time) of the Company’s medium-term notes program (Series F), up to the aggregate principal amount of $18 billion, which was an increase from the previous aggregate principal amount up to $9 billion of the same Series.

As of September 30, ~~2018,~~2019, the total amount of debt issued as part of the medium-term notes program (Series F), inclusive of debt issued in ~~September 2018~~February 2019 and prior years is approximately ~~$15.3~~$17.6 billion (utilizing the foreign exchange rates applicable at the time of issuance for the Euro denominated debt). Additionally, the August 2019 debt was issued under the WKSI shelf registration, but not as part of the medium-term notes program (Series F). Information with respect to long-term debt issuances and maturities for the periods presented is included in Note 1110 of this Form 10-Q and Note 12 of 3M’s ~~Current Report on Form 8-K dated May 8,~~ 2018 ~~(which updated 3M’s 2017~~ Annual Report on Form ~~10-K).~~10-K.

In March 2016, 3M amended and restated its existing $2.25 billion five-year revolving credit facility expiring in August 2019 to a $3.75 billion five-year revolving credit facility expiring in March 2021. This credit agreement includes a provision under which 3M may request an increase of up to $1.25 billion (at lenders’ discretion), bringing the total facility up to $5.0 billion. This revolving credit facility is undrawn at September 30, ~~2018.~~2019. Under the $3.75 billion credit agreement, the Company is required to maintain its EBITDA to Interest Ratio as of the end of each fiscal quarter at not less than ~~3.0~~3 to 1. This is calculated (as defined in the agreement) as the ratio of consolidated total EBITDA for the four consecutive quarters then ended to total interest expense on all funded debt for the same period. At September 30, ~~2018,~~2019, this ratio was approximately 2119 to 1. Debt covenants do not restrict the payment of

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dividends. Apart from the committed facilities, an additional ~~$281~~$283 million in stand-alone letters of credit and bank guarantees were also issued and outstanding at September 30, ~~2018.~~2019. These instruments are utilized in connection with normal business activities.

Cash, cash equivalents and marketable securities:

At September 30, ~~2018,~~2019, 3M had ~~$3.6~~$7.8 billion of cash, cash equivalents and marketable securities, of which approximately ~~$2.985~~$2.1 billion was held by the Company’s foreign subsidiaries and approximately ~~$566 million~~$5.7 billion was held by the United States. These balances are invested in bank instruments and other high-quality fixed income securities. At December 31, ~~2017,~~2018, cash, cash equivalents and marketable securities held by the Company’s foreign subsidiaries and by the United States totaled approximately ~~$3.975~~$3.1 billion and ~~$180~~$160 million, respectively. The increase from December 31, 2018 primarily relates to the proceeds from debt issuances in advance of the October 2019 acquisition of Acelity. Refer to Note 10 for additional details.

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Net Debt (non-GAAP measure):

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 important indicators of liquidity and financial position. The following table provides net debt as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.



(Millions)	September 30, 2018		December 31, 2017		Change		September 30, 2019		December 31, 2018		Change
Total debt	$	14,846	$	13,949	$	897	$	19,439	$	14,622	$	4,817
Less: Cash, cash equivalents and marketable securities		3,550		4,156		(606)		7,807		3,270		4,537
Net debt (non-GAAP measure)	$	11,296	$	9,793	$	1,503	$	11,632	$	11,352	$	280

Refer to the preceding “Total Debt” and “Cash, Cash Equivalents and Marketable Securities” sections for additional details.

Balance Sheet:

3M’s strong balance sheet and liquidity provide the Company with significant flexibility to fund its numerous opportunities going forward. The Company will continue to invest in its operations to drive growth, including continual review of acquisition opportunities.

The Company uses working capital measures that place emphasis and focus on certain working capital assets, such as accounts receivable and inventory activity.

Working capital (non-GAAP measure):




(Millions)	September 30, 2018		December 31, 2017		Change		September 30, 2019		December 31, 2018		Change
Current assets	$	14,419	$	14,277	$	142	$	18,020	$	13,709	$	4,311
Less: Current liabilities		7,336		7,687		(351)		7,821		7,244		577
Working capital (non-GAAP measure)	$	7,083	$	6,590	$	493	$	10,199	$	6,465	$	3,734

Various assets and liabilities, including cash and short-term debt, can fluctuate significantly from month to month depending on short-term liquidity needs. Working capital is not defined under U.S. generally accepted accounting principles and may not be computed the same as similarly titled measures used by other companies. The Company defines working capital as current assets minus current liabilities. 3M believes working capital is meaningful to investors as a measure of operational efficiency and short-term financial health.

Working capital increased ~~$493 million~~$3.7 billion compared with December 31, ~~2017. Current asset balance~~2018. Balance changes in current assets increased working capital by ~~$142 million,~~$4.3 billion, driven by proceeds from debt issuances in advance of the October 2019 Acelity acquisition (discussed in the cash, cash equivalents and marketable securities section above). Working capital increases were partially offset by decreases in inventories, while accounts receivable ~~and inventories~~was flat (discussed further below). Balance changes in current liabilities decreased working capital by $577 million, primarily due to increases in accruals related respirator mask/asbestos and other environmental liabilities, net of related subsequent payments (refer to Note 14 for additional details on these accruals) and the addition of the current portion of operating lease liabilities due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (refer to Note 15 for additional details on leases), partially offset by decreases in ~~cash and cash equivalents and marketable securities. Current liability balance changes increased working capital by $351 million, primarily due to decreases in~~ short-term debt.

Accounts receivable ~~increased $418~~was flat compared to December 31, 2018, as increases related to the acquisition of M*Modal were offset by decreases in receivables from lower sales. Inventory decreased $359 million from December 31, ~~2017, primarily due to increased sales. Foreign currency impacts decreased September 30,~~ 2018 accounts receivable by $156 million and acquisitions, net of divestitures, decreased accounts receivable by $22 million. Inventory increased $403 million from December 31, 2017, impacted by maintenance of additional inventory during

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~~the deployment in the U.S.~~as a result of the Company’s ~~ERP system. Foreign currency impacts decreased September 30, 2018~~commitment to improve its cash flow in response to slowing growth conditions in certain end markets and channel inventory adjustments by ~~$139 million and acquisitions, net~~customers.

Table of ~~divestitures, decreased inventory by $21 million.~~Contents

Cash Flows:

Cash flows from operating, investing and financing activities are provided in the tables that follow. Individual amounts in the Consolidated Statement of Cash Flows exclude the effects of acquisitions, divestitures and exchange rate impacts on cash and cash equivalents, which are presented separately in the cash flows. Thus, the amounts presented in the following operating, investing and financing activities tables reflect changes in balances from period to period adjusted for these effects.

Cash Flows from Operating Activities:


	Nine months ended
	September 30,

					Nine months ended
					September 30,
(Millions)	2018		2017		2019		2018


Net income including noncontrolling interest	$	4,014	$	4,344	$	3,612	$	4,014
Depreciation and amortization		1,117		1,195		1,130		1,117
Company pension and postretirement contributions		(303)		(314)		(129)		(303)
Company pension and postretirement expense		306		243		242		306
Stock-based compensation expense		258		266		230		258
Gain on sale of businesses		(530)		(490)		(111)		(530)
Income taxes (deferred and accrued income taxes)		49		144		(141)		49
Loss on deconsolidation of Venezuelan subsidiary						162		—
Accounts receivable		(596)		(595)		(14)		(596)
Inventories		(562)		(436)		255		(562)
Accounts payable		148		(25)		(222)		148
Other — net		280		48		(282)		280
Net cash provided by operating activities	$	4,181	$	4,380
Net cash provided by (used in) operating activities					$	4,732	$	4,181

Cash flows from operating activities can fluctuate significantly from period to period, as pension funding decisions, tax timing differences and other items can significantly impact cash flows.

In the first nine months of ~~2018,~~2019, cash flows provided by operating activities ~~decreased $199~~increased $551 million compared to the same period last year, with this ~~decrease~~increase primarily due to lower year-on-year significant litigation-related charges and the ~~Minnesota NRD resolution. Additional factors~~timing of associated payments in addition to continued actions in reducing inventories. Factors that decreased operating cash flows ~~were increases~~included decreases in ~~inventory~~accounts payable and ~~accounts receivable.~~accrued income taxes. The combination of accounts receivable, inventories and accounts payable increased working capital by ~~$1.010 billion~~$19 million in the first nine months of ~~2018,~~2019, compared to the working capital ~~increases~~decreases of ~~$1.056 billion~~$199 million in the first nine months of ~~2017.~~2018. Additional discussion on working capital changes is provided earlier in the “Financial Condition and Liquidity” section.

Cash Flows from Investing Activities:


	Nine months ended
	September 30,

					Nine months ended
					September 30,
(Millions)	2018		2017		2019		2018


Purchases of property, plant and equipment (PP&E)	$	(1,046)	$	(914)	$	(1,161)	$	(1,046)
Proceeds from sale of PP&E and other assets		143		18		91		143
Acquisitions, net of cash acquired		13		(12)		(704)		13
Purchases and proceeds from maturities and sale of marketable securities and investments, net		714		(310)		348		714
Proceeds from sale of businesses, net of cash sold		806		862		236		806
Other — net		8		2		45		8
Net cash provided by (used in) investing activities	$	638	$	(354)	$	(1,145)	$	638

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Investments in property, plant and equipment enable growth across many diverse markets, helping to meet product demand and increasing manufacturing efficiency. The Company expects ~~2018~~full-year 2019 capital spending to be approximately $1.6 billion to $1.7 billion as 3M continues to invest in its businesses.

3M invests in renewal and maintenance programs, which pertain to cost reduction, cycle time, maintaining and renewing current capacity, eliminating pollution, and compliance. Costs related to maintenance, ordinary repairs, and certain other items are expensed. 3M also invests in growth, which adds to capacity, driven by new products, both through expansion of current facilities and new facilities. Finally, 3M also invests in other initiatives, such as information technology (IT) and laboratory facilities.

Refer to Note 3 for information on acquisitions and divestitures. The Company is actively considering additional acquisitions, investments and strategic alliances, and from time to time may also divest certain businesses. Proceeds from sale of businesses in the first nine months of 2018 primarily relate to the sale of substantially all of 3M’s Communication Markets Division and the sale of certain personal safety product offerings primarily focused on noise, environmental, and heat stress monitoring within the Safety and Graphics business segment.

Purchases of marketable securities and investments and proceeds from maturities and sale of marketable securities and investments are primarily attributable to asset-backed securities, certificates of deposit/time deposits, commercial paper, and other securities, which are classified as available-for-sale. Refer to Note 9 for more details about 3M’s diversified marketable securities portfolio. Purchases of investments include additional survivor benefit insurance, plus investments in equity securities.

Cash Flows from Financing Activities:


	Nine months ended
	September 30,

					Nine months ended
					September 30,
(Millions)	2018		2017		2019		2018


Change in short-term debt — net	$	(698)	$	60	$	(466)	$	(698)
Repayment of debt (maturities greater than 90 days)		(456)		(650)		(871)		(456)
Proceeds from debt (maturities greater than 90 days)		2,247		—		6,116		2,247
Total cash change in debt	$	1,093	$	(590)	$	4,779	$	1,093
Purchases of treasury stock		(3,601)		(1,564)		(1,243)		(3,601)
Proceeds from issuances of treasury stock pursuant to stock option and benefit plans		401		582		437		401
Dividends paid to shareholders		(2,406)		(2,104)		(2,488)		(2,406)
Other — net		(36)		(23)		(158)		(36)
Net cash used in financing activities	$	(4,549)	$	(3,699)
Net cash provided by (used in) financing activities					$	1,327	$	(4,549)

Total debt was approximately ~~$14.8~~$19.4 billion at September 30, ~~2018~~2019 and ~~$13.9~~$14.6 billion at December 31, ~~2017.~~2018. Increases in debt related to the first quarter and third quarter ~~2018 issuance~~2019 issuances of $2.25 billion of medium-term notes ~~which was partially offset by~~and $3.25 billion of other registered notes, respectively. Repayment of debt primarily consists of the ~~$450 million~~June 2019 repayment of ~~maturing~~$625 million aggregate principal amount of fixed-rate medium-term notes that had matured, in addition to debt assumed and subsequently repaid as a result of the ~~net impact~~Company’s acquisition of ~~repayments and borrowings of international subsidiaries along with foreign currency effects, and the repayment of commercial paper.~~M*Modal. Outstanding commercial paper was zero at September 30, ~~2018,~~2019, as compared to ~~$745~~$435 million at December 31, ~~2017.~~2018. Net commercial paper issuances, ~~and~~ repayments and borrowings by international subsidiaries and the 69 billion Japanese yen (approximately $640 million at September 30, 2019 exchange rates) outstanding from the 80 billion Japanese yen credit facility established in September 2019 are largely reflected in “Change in short-term debt – net” in the preceding table. 3M’s primary short-term liquidity needs are met through cash on hand and U.S. commercial paper issuances.

Repurchases of common stock are made to support the Company’s stock-based employee compensation plans and for other corporate purposes. In ~~February 2016,~~November 2018, 3M’s Board of Directors ~~authorized~~replaced the Company’s February 2016 repurchase program with a new repurchase program. This new program authorizes the repurchase of up to $10 billion of 3M’s outstanding common stock, with no pre-established end date. In the first nine months of 2019, the Company purchased $1.2 billion of its own stock. The Company ~~expects~~continues to expect full-year ~~2018~~2019 gross share repurchases ~~will~~to be ~~in the range of $4.0~~between $1.0 billion to ~~$5.0~~$1.5 billion. For more information, refer to the table titled “Issuer Purchases of Equity Securities” in Part II, Item 2. The Company does not utilize derivative instruments linked to the Company’s stock.

3M has paid dividends each year since 1916. In ~~January 2018,~~February 2019, 3M’s Board of Directors declared a first-quarter ~~2018~~2019 dividend of ~~$1.36~~$1.44 per share, an increase of 166 percent. This is equivalent to an annual dividend of ~~$5.44~~$5.76 per share and marked the ~~60th~~61st consecutive year of dividend ~~increases for 3M.~~increases. In May ~~2018,~~2019, 3M’s Board of Directors declared a ~~third quarter 2018~~second-quarter 2019 dividend of ~~$1.36~~$1.44 per share. In August ~~2018,~~2019, 3M’s Board of Directors declared a ~~third quarter 2018~~third-quarter 2019 dividend of ~~$1.36~~$1.44 per share.

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Other cash flows from financing activities may include various other items, such as cash paid associated with certain derivative instruments, distributions to or sales of noncontrolling interests, changes in cash overdraft balances, and principal payments for capital leases.

Free Cash Flow (non-GAAP measure):

Free cash flow and free cash flow conversion are not defined under U.S. generally accepted accounting principles (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 free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. The Company defines free cash flow conversion as free cash flow divided by net income attributable to 3M. The Company believes free cash flow and 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. The first quarter of each year is typically 3M’s seasonal low for free cash flow and free cash flow conversion. In the table below details the components of free cash flow for the nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.

In the first nine months of 2019, free cash flow conversion was impacted by significant litigation-related charges and timing of associated payments, the impact from the deconsolidation of the Company’s Venezuelan subsidiary, and the impact from the Company’s gas and flame detection business divestiture gain. In the first nine months of 2018, free cash flow conversion was impacted by ~~the Minnesota NRD resolution,~~significant litigation-related charges and the measurement period adjustment relative to the accounting for the 2017 enactment of the ~~TCJA, and the divestiture of the Communication Markets Division, net of related restructuring actions.~~TCJA. Refer to the preceding “Cash Flows from Operating Activities” section for discussion of additional items that impacted operating cash flow. Refer to the proceeding “Cash Flows from Investing Activities” section for discussion on capital spending for property, plant and equipment.


	Nine months ended
	September 30,

							Nine months ended
							September 30,
(Millions)	2018			2017			2019			2018
Major GAAP Cash Flow Categories
Net cash provided by operating activities	$	4,181		$	4,380
Net cash provided by investing activities		638			(354)
Net cash used in financing activities		(4,549)			(3,699)

Net cash provided by (used in) operating activities							$	4,732		$	4,181
Net cash provided by (used in) investing activities								(1,145)			638
Net cash provided by (used in) financing activities								1,327			(4,549)

Free Cash Flow (non-GAAP measure)
Net cash provided by operating activities	$	4,181		$	4,380
Net cash provided by (used in) operating activities							$	4,732		$	4,181
Purchases of property, plant and equipment (PP&E)		(1,046)			(914)			(1,161)			(1,046)
Free cash flow	$	3,135		$	3,466		$	3,571		$	3,135
Net income attributable to 3M	$	4,002		$	4,335		$	3,601		$	4,002
Free cash flow conversion		78	%		80	%		99	%		78	%

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CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission, in materials delivered to shareholders and in press releases. In addition, the Company’s representatives may from time to time make oral forward-looking statements.

Forward-looking statements relate to future events and typically address the Company’s expected future business and financial performance. Words such as “plan,” “expect,” “aim,” “believe,” “project,” “target,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could,” “forecast” and other words and terms of similar meaning, typically identify such forward-looking statements. In particular, these include, among others, statements relating to:

●

the Company’s strategy for growth, future revenues, earnings, cash flow, uses of cash and other measures of financial performance, and market position,

●

worldwide economic, political, ~~and~~regulatory, capital markets and other external conditions, such as interest rates, foreign currency exchange rates, financial conditions of our suppliers and customers, and natural and other disasters or climate change affecting the operations of the Company or our suppliers and customers,

●

new business opportunities, product development, and future performance or results of current or anticipated products,

●

the scope, nature or impact of acquisition, strategic alliance and divestiture activities,

●

the outcome of contingencies, such as legal and regulatory proceedings,

●

future levels of indebtedness, common stock repurchases and capital spending,

●

future availability of and access to credit markets,

●

pension and postretirement obligation assumptions and future contributions,

●

asset impairments,

●

tax liabilities,

●

information technology security, and

●

the effects of changes in tax (including the Tax Cuts and Jobs Act), environmental and other laws and regulations in the United States and other countries in which we operate.

The Company assumes no obligation to update or revise any forward-looking statements.

Forward-looking statements are based on certain assumptions and expectations of future events and trends that are subject to risks and uncertainties. Actual future results and trends may differ materially from historical results or those reflected in any such forward-looking statements depending on a variety of factors. Important information as to these factors can be found in this document, including, among others, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings of “Overview,” “Financial Condition and Liquidity” and annually in “Critical Accounting Estimates.” Discussion of these factors is incorporated by reference from Part I, Item 1A, “Risk Factors,” of this document, and should be considered an integral part of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For additional information concerning factors that may cause actual results to vary materially from those stated in the forward-looking statements, see our reports on Form 10-K, 10-Q and 8-K filed with the SEC from time to time.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

In the context of Item 3, 3M is exposed to market risk due to the risk of loss arising from adverse changes in foreign currency exchange rates, interest rates and commodity prices. Changes in those factors could impact the Company’s results of operations and financial condition. For a discussion of sensitivity analysis related to these types of market risks, refer to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in 3M’s ~~Current Report on Form 8-K dated May 8,~~ 2018 ~~(which updated 3M’s 2017~~ Annual Report on Form ~~10-K).~~10-K. There have been no material changes in information that would have been provided in the context of Item 3 from the end of the preceding year until September 30, ~~2018.~~2019. However, the Company does provide risk management discussion in various places in this Quarterly Report on Form 10-Q, primarily in the Derivatives note.

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Item 4. Controls and Procedures.

a. The Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

b. There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company is implementing an enterprise resource planning (“ERP”) system on a worldwide basis, which is expected to improve the efficiency of certain financial and related transaction processes. The gradual implementation is expected to occur in phases over the next several years. The implementation of a worldwide ERP system will likely affect the processes that constitute our internal control over financial reporting and will require testing for effectiveness.

The Company completed implementation with respect to various processes/sub-processes in certain subsidiaries/locations, including aspects relative to the United States, and will continue to roll out the ERP system over the next several years. As with any new information technology application we implement, this application, along with the internal controls over financial reporting included in this process, was appropriately considered within the testing for effectiveness with respect to the implementation in these instances. We concluded, as part of its evaluation described in the above paragraphs, that the implementation of the ERP system in these circumstances has not materially affected our internal control over financial reporting.

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3M COMPANY

FORM 10-Q

For the Quarterly Period Ended September 30, ~~2018~~2019

PART II. Other Information

Item 1. Legal Proceedings.

Discussion of legal matters is incorporated by reference from Part I, Item 1, Note 14, “Commitments and Contingencies” of this document, and should be considered an integral part of Part II, Item 1, “Legal Proceedings.”

Item 1A. Risk Factors.

Provided below is a cautionary discussion of what we believe to be the most important risk factors applicable to the Company. Discussion of these factors is incorporated by reference into and considered an integral part of Part I, Item 2, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.”

* Results are impacted by the effects of, and changes in, worldwide economic, political, ~~and~~regulatory, capital markets and other external conditions. The Company operates in more than 70 countries and derives approximately 60 percent of its revenues from outside the United States. The Company’s business is subject to global competition and geopolitical risks and may be adversely affected by factors in the United States and other countries that are beyond its control, such as slower economic growth, disruptions in financial markets, economic downturns in the form of either contained or widespread recessionary conditions, inflation, elevated unemployment levels, sluggish or uneven recovery, government actions impacting international trade agreements, imposing trade restrictions such as tariffs, and retaliatory counter measures, government deficit reduction and other austerity measures in specific countries or regions, or in the various industries in which the Company operates; social, political or labor conditions in specific countries or regions; natural and other disasters ~~or climate change~~ affecting the operations of the Company or its customers and suppliers; or adverse changes in the availability and cost of capital, interest rates, tax rates, tax laws, or exchange control, ability to expatriate earnings and other regulations in the jurisdictions in which the Company operates. Natural occurrences and human activities are increasingly releasing greenhouse gases into the atmosphere, contributing to changes in the earth’s climate. Climate change, as well as related environmental and social regulations, may negatively impact the Company or its customers and suppliers, in terms of availability and cost of natural resources, sources and supply of energy, product demand and manufacturing, and the health and well-being of individuals and communities in which we operate.

* Change in the Company’s credit ratings could increase cost of funding. The Company’s credit ratings are important to 3M’s cost of capital. The major rating agencies routinely evaluate the Company’s credit profile and assign debt ratings to 3M. This evaluation is based on a number of factors, which include financial strength, business and financial risk, as well as transparency with rating agencies and timeliness of financial reporting. 3M currently has an AA- credit rating with a ~~stable~~negative outlook from Standard & Poor’s and has an A1 credit rating with a stable outlook from Moody’s Investors Service. The Company’s credit ratings have served to lower 3M’s borrowing costs and facilitate access to a variety of lenders. The addition of further leverage to the Company’s capital structure could impact 3M’s credit ratings in the future. Failure to maintain strong investment grade ratings would adversely affect the Company’s cost of funding and could adversely affect liquidity and access to capital markets.

* The Company’s results are affected by competitive conditions and customer preferences. Demand for the Company’s products, which impacts revenue and profit margins, is affected by (i) the development and timing of the introduction of competitive products; (ii) the Company’s response to downward pricing to stay competitive; (iii) changes in customer order patterns, such as changes in the levels of inventory maintained by customers and the timing of customer purchases which may be affected by announced price changes, changes in the Company’s incentive programs, or the customer’s ability to achieve incentive goals; ~~and~~ (iv) changes in customers’ preferences for our products, including the success of products offered by our competitors, and changes in customer designs for their products that can affect the demand for some of the Company’s ~~products.~~products; and (v) changes in the business environment related to disruptive technologies, such as artificial intelligence, block-chain, expanded analytics and other enhanced learnings from increasing volume of available data.

* Foreign currency exchange rates and fluctuations in those rates may affect the Company’s ability to realize projected growth rates in its sales and earnings. Because the Company’s financial statements are denominated in U.S. dollars and approximately 60 percent of the Company’s revenues are derived from outside the United States, the Company’s results of operations and its ability to realize

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projected growth rates in sales and earnings could be adversely affected if the U.S. dollar strengthens significantly against foreign currencies.

* The Company’s growth objectives are largely dependent on the timing and market acceptance of its new product offerings, including its ability to continually renew its pipeline of new products and to bring those products to market. This ability may be adversely affected by difficulties or delays in product development, such as the inability to identify viable new products, obtain adequate

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intellectual property protection, or gain market acceptance of new products. There are no guarantees that new products will prove to be commercially successful.

* The Company’s future results are subject to fluctuations in the costs and availability of purchased components, compounds, raw materials and energy, including oil and natural gas and their derivatives, due to shortages, increased demand, supply interruptions, currency exchange risks, natural disasters and other factors. The Company depends on various components, compounds, raw materials, and energy (including oil and natural gas and their derivatives) supplied by others for the manufacturing of its products. It is possible that any of its supplier relationships could be interrupted due to natural and other disasters and other events, or be terminated in the future. Any sustained interruption in the Company’s receipt of adequate supplies could have a material adverse effect on the Company. In addition, while the Company has a process to minimize volatility in component and material pricing, no assurance can be given that the Company will be able to successfully manage price fluctuations or that future price fluctuations or shortages will not have a material adverse effect on the Company.

* Acquisitions, strategic alliances, divestitures, and other unusual events resulting from portfolio management actions and other evolving business strategies, and possible organizational restructuring could affect future results. The Company monitors its business portfolio and organizational structure and has made and may continue to make acquisitions, strategic alliances, divestitures and changes to its organizational structure. With respect to acquisitions, including, for example, the recently completed acquisition of Acelity, Inc. and its KCI subsidiaries (a leading global medical technology company), future results will be affected by the Company’s ability to integrate acquired businesses quickly and obtain the anticipated synergies. The Company realigned from five to four business segments, effective April 1, 2019, to better serve its global customers and markets. Successful execution of the realignment and the associated adjustments of our portfolio and business operating model, as well as other organizational changes, will be important to the Company’s future results.

* The Company’s future results may be affected ifby its operational execution, including scenarios where the Company generates fewer productivity improvements than estimated. The Company’s financial results depend on the successful execution of its business operating plans. The Company utilizes various tools, such as Lean Six Sigma, and engages in ongoing global business transformation. Business transformation is defined as changes in processes and internal/external service delivery across 3M to move to more efficient business models to improve operational efficiency and productivity, while allowing 3M to serve customers with greater speed and efficiency. This is enabled by the ongoing multi-year phased implementation of an enterprise resource planning (ERP) system on a worldwide basis. There can be no assurance that all of the projected productivity improvements will be realized. Operational challenges, including those related to productivity improvements, could have a material adverse effect on the Company’s business, financial conditions and results of operations.

* The Company employs information technology systems to support its business, including ongoing phased implementation of an ERP system as part of business transformation on a worldwide basis over the next several years. Security breaches and other disruptions to the Company’s information technology infrastructure could interfere with the Company’s operations, compromise information belonging to the Company or its customers, suppliers, and employees, exposing the Company to liability which could adversely impact the Company’s business and reputation. In the ordinary course of business, the Company relies on centralized and local information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of businesses. Additionally, the Company collects and stores certain data, including proprietary business information, and may have access to confidential or personal information in certain of our businesses that is subject to privacy and security laws, regulations and customer-imposed controls. Despite our cybersecurity measures (including employee and third-party training, monitoring of networks and systems, patching, maintenance, and backup of systems and data), the Company’s information technology networks and infrastructure may still be vulnerable to damage, disruptions or shutdowns due to attacks by hackers, breaches, employee error or malfeasance, power outages, computer viruses, ransomware, telecommunication or utility failures, systems failures, service or cloud provider breaches, natural disasters or other catastrophic events. It is possible for such vulnerabilities to remain undetected for an extended period, up to and including several years. While we have experienced, and expect to continue to experience, these types of vulnerabilities to the Company’s information technology networks and infrastructure, none of

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them to date has had a material impact to the Company. There may be other challenges and risks as the Company upgrades and standardizes its ERP system on a worldwide basis. Any such events could result in legal claims or proceedings, liability or penalties under privacy laws, disruptions or shutdowns, and damage to the Company’s reputation, which could adversely affect the Company’s business. Although the Company maintains insurance coverage for various cybersecurity and business continuity risks, there can be no guarantee that all costs or losses incurred will be fully insured.

* The Company's defined benefit pension and postretirement plans are subject to financial market risks that could adversely impact our results. The performance of financial markets and discount rates impact the Company's funding obligations under its defined benefit plans. Significant changes in market interest rates, decreases in the fair value of plan assets and investment losses on plan assets, and relevant legislative or regulatory changes relating to defined benefit plan funding may increase the Company's funding obligations and adversely impact its results of operations and cash flows.

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* The Company’s future results may be affected by various legal and regulatory proceedings and legal compliance risks, including those involving product liability, antitrust, intellectual property, environmental, the U.S. Foreign Corrupt Practices Act and other anti-bribery ~~anti-corruption,~~laws, U.S. trade sanctions compliance, regulations of the U.S. Food and Drug Administration (FDA) and similar foreign agencies, U.S. federal healthcare program-related laws and regulations including the False Claims Act, anti-kickback laws, the Sunshine Act, or other matters. The outcome of these legal proceedings may differ from the Company’s expectations because the outcomes of litigation, including regulatory matters, are often difficult to reliably predict. Various factors or developments can lead the Company to change current estimates of liabilities and related insurance receivables where applicable, or make such estimates for matters previously not susceptible of reasonable estimates, such as a significant judicial ruling or judgment, a significant settlement, significant regulatory developments or changes in applicable law. A future adverse ruling, settlement or unfavorable development could result in future charges that could have a material adverse effect on the Company’s results of operations or cash flows in any particular period. For a more detailed discussion of the legal proceedings involving the Company and the associated accounting estimates, see the discussion in Note 14 “Commitments and Contingencies” within the Notes to Consolidated Financial Statements.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

Repurchases of 3M common stock are made to support the Company’s stock-based employee compensation plans and for other corporate purposes. In ~~February 2016,~~November 2018, 3M’s Board of Directors ~~authorized~~replaced the Company’s February 2016 repurchase program with a new repurchase program. This new program authorizes the repurchase of up to $10 billion of 3M’s outstanding common stock, with no pre-established end date.

Issuer Purchases of Equity

Securities (registered pursuant to

Section 12 of the Exchange Act)


					Maximum
					Approximate
					Dollar Value of
				Total Number of	Shares that May
				Shares Purchased	Yet Be Purchased
	Total Number of	Average Price		as Part of Publicly	under the Plans
	Shares Purchased	Paid per		Announced Plans	or Programs
Period	(1)	Share		or Programs (2)	(Millions)
January 1-31, 2019	1,723,445	$	192.18	1,723,187	$	9,065
February 1-28, 2019	1,052,365	$	204.91	1,048,301	$	8,850
March 1-31, 2019	355,200	$	204.83	355,200	$	8,777
Total January 1-March 31, 2019	3,131,010	$	197.89	3,126,688	$	8,777
April 1-30, 2019	—	$	—	—	$	8,777
May 1-31, 2019	1,172,572	$	170.30	1,172,572	$	8,578
June 1-30, 2019	1,197,673	$	169.25	1,197,673	$	8,375
Total April 1-June 30, 2019	2,370,245	$	169.77	2,370,245	$	8,375
July 1-31, 2019	240,464	$	173.41	240,358	$	8,333
August 1-31, 2019	333,679	$	161.29	332,239	$	8,280
September 1-30, 2019	276,127	$	166.25	276,127	$	8,234
Total July 1-September 30, 2019	850,270	$	166.33	848,724	$	8,234
Total January 1-September 30, 2019	6,351,525	$	183.17	6,345,657	$	8,234

Maximum

Approximate

Dollar Value of

Total Number of

Shares that May

Shares Purchased

Yet Be Purchased

Total Number of

Average Price

as Part of Publicly

under the Plans

Shares Purchased

Paid per

Announced Plans

or Programs

Period

(1)

Share

or Programs (2)

(Millions)

January 1-31, 2018

714,575

$
245.98

714,138

$
4,894

February 1-28, 2018

1,420,634

$
233.78

1,420,599

$
4,562

March 1-31, 2018

1,791,496

$
228.82

1,791,496

$
4,152

Total January 1-March 31, 2018

3,926,705

$
233.74

3,926,233

$
4,152

April 1-30, 2018

2,135,968

$
213.63

2,135,968

$
3,696

May 1-31, 2018

3,283,170

$
201.64

3,282,339

$
3,034

June 1-30, 2018

2,358,619

$
200.31

2,358,619

$
2,562

Total April 1-June 30, 2018

7,777,757

$
204.53

7,776,926

$
2,562

July 1-31, 2018

1,851,663

$
201.17

1,851,663

$
2,189

August 1-31, 2018

1,813,661

$
205.37

1,813,661

$
1,817

September 1-30, 2018

1,476,649

$
211.62

1,476,649

$
1,504

Total July 1-September 30, 2018

5,141,973

$
205.65

5,141,973

$
1,504

Total January 1-September 30, 2018

16,846,435

$
211.68

16,845,132

$
1,504

(1)

~~(1)~~

The total number of shares purchased includes: (i) shares purchased under the Board’s authorizations described above, and (ii) shares purchased in connection with the exercise of stock options.

(2)

~~(2)~~

The total number of shares purchased as part of publicly announced plans or programs includes shares purchased under the Board’s authorizations described above.

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Item 3. Defaults Upon Senior Securities. — No matters require disclosure.

Item 4. Mine Safety ~~Disclosures.~~Disclosures. Pursuant to Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), the Company is required to disclose, in connection with the mines it operates, information concerning mine safety violations or other regulatory matters in its periodic reports filed with the SEC. The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Act is included in Exhibit 95 to this quarterly report.

Item 5. Other Information.— No matters require disclosure.

Item 6. Exhibits.




	~~(12)~~	~~Calculation of ratio of earnings to fixed charges.~~
	~~(15)~~	~~A letter from the Company’s independent registered public accounting firm regarding unaudited interim consolidated financial statements.~~
	(31.1)	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
	(31.2)	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
	(32.1)	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
	(32.2)	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
	(95)	Mine Safety Disclosures.
	(101.INS)	Inline XBRL Instance ~~Document.~~Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
	(101.SCH)	Inline XBRL Taxonomy Extension Schema ~~Document.~~Document
	(101.CAL)	Inline XBRL Taxonomy Extension Calculation Linkbase ~~Document.~~Document
	(101.DEF)	Inline XBRL Taxonomy Extension Definition Linkbase ~~Document.~~Document
	(101.LAB)	Inline XBRL Taxonomy Extension Label Linkbase ~~Document.~~Document
	(101.PRE)	Inline XBRL Taxonomy Extension Presentation Linkbase ~~Document.~~Document
	(104)	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

3M COMPANY

(Registrant)

Date: October 25, ~~2018~~2019


	By	/s/ Nicholas C. Gangestad
		Nicholas C. Gangestad,

Senior Vice President and Chief Financial Officer
(Mr. Gangestad is the Principal Financial Officer and has
been duly authorized to sign on behalf of the Registrant.)

8491


~~DELAWARE~~Delaware		41-0417775
(State or other jurisdiction of incorporation)		(~~I.R.S.~~IRS Employer
~~incorporation or organization)~~		Identification No.)

3M Center, St. Paul, Minnesota		~~55144~~55144-1000
(Address of ~~principal executive offices)~~Principal Executive Offices)		(Zip Code)

(Registrant’s Telephone Number, Including Area Code) (651) 733-1110 Not Applicable
(Former Name or Former Address, if Changed Since Last Report) Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $.01 Per Share	MMM	New York Stock Exchange, Inc.
	MMM	Chicago Stock Exchange, Inc.
1.500% Notes due 2026	MMM26	New York Stock Exchange, Inc.
Floating Rate Notes due 2020		New York Stock Exchange, Inc.
0.375% Notes due 2022	MMM22A	New York Stock Exchange, Inc.
0.950% Notes due 2023	MMM23	New York Stock Exchange, Inc.
1.750% Notes due 2030	MMM30	New York Stock Exchange, Inc.
1.500% Notes due 2031	MMM31	New York Stock Exchange, Inc.


Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐
		Emerging growth company ☐


Class		Outstanding at September 30, ~~2018~~2019
Common Stock, $0.01 par value per share		~~582,287,135~~575,050,655 shares


	TABLE OF CONTENTS		BEGINNING PAGE
PART I	FINANCIAL INFORMATION

ITEM 1.	Financial Statements
	Index to Financial Statements:
	Consolidated Statement of Income	3
	Consolidated Statement of Comprehensive Income	4
	Consolidated Balance Sheet	5
	Consolidated Statement of Cash Flows	6
	Notes to Consolidated Financial Statements
	Note 1.Significant Accounting Policies	7
	Note 2.Revenue	13 11
	Note 3.Acquisitions and Divestitures	17 14
	Note 4.Goodwill and Intangible Assets	18 16
	Note 5.Restructuring Actions and Exit Activities	20 17
	Note 6.Supplemental Income Statement Information	21 19
	Note 7.Supplemental Equity and Comprehensive Income Information	21 19
	Note 8.Income Taxes	25 23
	Note 9.Marketable Securities	27 24
	Note 10. Long-Term Debt and Short-Term Borrowings	27 25
	Note 11.Pension and Postretirement Benefit Plans	28 25
	Note 12.Derivatives	29 27
	Note 13.Fair Value Measurements	35 33
	Note 14.Commitments and Contingencies	38 36
	Note 15.~~Stock-Based Compensation~~ Leases	48 49
	Note 16.~~Business Segments~~ Stock-Based Compensation	51 53
	~~Report of Independent Registered Public Accounting Firm~~Note 17. Business Segments	53 56

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Index to Management’s Discussion and Analysis:
	Overview	54 59
	Results of Operations	61 67
	Performance by Business Segment	66 71
	Financial Condition and Liquidity	73 78
	Cautionary Note Concerning Factors That May Affect Future Results	78 84

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	78 84

ITEM 4.	Controls and Procedures	79 85

PART II	OTHER INFORMATION

ITEM 1.	Legal Proceedings	80 86

ITEM 1A.	Risk Factors	80 86

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	82 89

ITEM 3.	Defaults Upon Senior Securities	83 90

ITEM 4.	Mine Safety Disclosures	83 90

ITEM 5.	Other Information	83 90

ITEM 6.	Exhibits	83 90


	September 30,		December 31,
(Dollars in millions, except per share amount)	2018		2017
Assets
Current assets
Cash and cash equivalents	$	3,185	$	3,053
Marketable securities — current		338		1,076
Accounts receivable — net		5,329		4,911
Inventories
Finished goods		2,125		1,915
Work in process		1,350		1,218
Raw materials and supplies		962		901
Total inventories		4,437		4,034
Prepaids		745		937
Other current assets		385		266
Total current assets		14,419		14,277
Property, plant and equipment		24,765		24,914
Less: Accumulated depreciation		(16,135)		(16,048)
Property, plant and equipment — net		8,630		8,866
Goodwill		10,123		10,513
Intangible assets — net		2,726		2,936
Other assets		1,377		1,395
Total assets	$	37,275	$	37,987
Liabilities
Current liabilities
Short-term borrowings and current portion of long-term debt	$	1,307	$	1,853
Accounts payable		2,029		1,945
Accrued payroll		783		870
Accrued income taxes		186		310
Other current liabilities		3,031		2,709
Total current liabilities		7,336		7,687

Long-term debt		13,539		12,096
Pension and postretirement benefits		3,183		3,620
Other liabilities		2,906		2,962
Total liabilities	$	26,964	$	26,365
Commitments and contingencies (Note 14)
Equity
3M Company shareholders’ equity:
Common stock par value, $.01 par value; 944,033,056 shares issued	$	9	$	9
Additional paid-in capital		5,597		5,352
Retained earnings		40,120		39,115
Treasury stock, at cost: 361,745,921 shares at September 30, 2018; 349,148,819 shares at December 31, 2017		(28,510)		(25,887)
Accumulated other comprehensive income (loss)		(6,968)		(7,026)
Total 3M Company shareholders’ equity		10,248		11,563
Noncontrolling interest		63		59
Total equity	$	10,311	$	11,622
Total liabilities and equity	$	37,275	$	37,987


Three months ended September 30, 2017	Previously
(Millions)	Reported		Revised		Change

Net Sales	$	8,172	$	8,172	$	—
Operating expenses
Cost of sales		4,045		4,059		14
Selling, general and administrative expenses		1,623		1,637		14
Research, development and related expenses		463		468		5
Gain on sale of businesses		—		—		—
Total operating expenses		6,131		6,164		33
Operating income	$	2,041	$	2,008	$	(33)

Other expense (income), net	$	44	$	11	$	(33)

Income before income taxes	$	1,997	$	1,997	$	—


Nine months ended September 30, 2017	Previously
(Millions)	Reported		Revised		Change

Net Sales	$	23,667	$	23,667	$	—
Operating expenses
Cost of sales		11,921		11,961		40
Selling, general and administrative expenses		4,830		4,871		41
Research, development and related expenses		1,407		1,422		15
Gain on sale of businesses		(490)		(490)		—
Total operating expenses		17,668		17,764		96
Operating income	$	5,999	$	5,903	$	(96)

Other expense (income), net	$	123	$	27	$	(96)

Income before income taxes	$	5,876	$	5,876	$	—


	December 31, 2017		Acquisition		Divestiture		Translation		September 30, 2018
(Millions)	Balance		activity		activity		and other		Balance
Industrial	$	2,678	$	—	$	(4)	$	(50)	$	2,624
Safety and Graphics		4,419		7		(8)		(53)		4,365
Health Care		1,682		—		—		(20)		1,662
Electronics and Energy		1,524		—		(247)		(11)		1,266
Consumer		210		—		—		(4)		206
Total Company	$	10,513	$	7	$	(259)	$	(138)	$	10,123


	Pretax Gain (Loss)
	Recognized as
	Cumulative Translation
	within Other		Ineffective Portion of Gain (Loss) on
	Comprehensive Income		Instrument and Amount Excluded
	on Effective Portion of		from Effectiveness Testing
Three months ended September 30, 2018	Instrument		Recognized in Income
(Millions)	Amount		Location	Amount
Foreign currency denominated debt	$	(14)	Cost of sales	$	—
Foreign currency forward contracts		(3)	Cost of sales		1
Total	$	(17)		$	1


	Gross		Assets			Liabilities
September 30, 2018	Notional			Fair			Fair
(Millions)	Amount		Location	Value Amount		Location	Value Amount
Derivatives designated as
hedging instruments
Foreign currency forward/option contracts	$	2,107	Other current assets	$	51	Other current liabilities	$	22
Foreign currency forward/option contracts		1,250	Other assets		41	Other liabilities		11
Interest rate swap contracts		600	Other current assets		—	Other current liabilities		5
Interest rate swap contracts		1,303	Other assets		25	Other liabilities		11
Total derivatives designated as hedging instruments				$	117		$	49

Derivatives not designated as
hedging instruments
Foreign currency forward/option contracts	$	3,201	Other current assets	$	21	Other current liabilities	$	62
Total derivatives not designated as hedging instruments				$	21		$	62

Total derivative instruments				$	138		$	111


	Three months ended September 30, 2018
Worldwide Sales Change	Organic local-								Total sales
By Business Segment	currency sales		Acquisitions		Divestitures		Translation		change

Industrial	2.2	%	—	%	(0.1)	%	(2.1)	%	—	%
Safety and Graphics	2.2		8.9		(1.9)		(2.2)		7.0
Health Care	(1.1)		—		—		(1.7)		(2.8)
Electronics and Energy	2.3		—		(6.1)		(1.0)		(4.8)
Consumer	(2.0)		—		—		(1.4)		(3.4)
Total Company	1.3	%	1.7	%	(1.5)	%	(1.7)	%	(0.2)	%


					Maximum
					Approximate
					Dollar Value of
				Total Number of	Shares that May
				Shares Purchased	Yet Be Purchased
	Total Number of	Average Price		as Part of Publicly	under the Plans
	Shares Purchased	Paid per		Announced Plans	or Programs
Period	(1)	Share		or Programs (2)	(Millions)
January 1-31, 2018	714,575	$	245.98	714,138	$	4,894
February 1-28, 2018	1,420,634	$	233.78	1,420,599	$	4,562
March 1-31, 2018	1,791,496	$	228.82	1,791,496	$	4,152
Total January 1-March 31, 2018	3,926,705	$	233.74	3,926,233	$	4,152
April 1-30, 2018	2,135,968	$	213.63	2,135,968	$	3,696
May 1-31, 2018	3,283,170	$	201.64	3,282,339	$	3,034
June 1-30, 2018	2,358,619	$	200.31	2,358,619	$	2,562
Total April 1-June 30, 2018	7,777,757	$	204.53	7,776,926	$	2,562
July 1-31, 2018	1,851,663	$	201.17	1,851,663	$	2,189
August 1-31, 2018	1,813,661	$	205.37	1,813,661	$	1,817
September 1-30, 2018	1,476,649	$	211.62	1,476,649	$	1,504
Total July 1-September 30, 2018	5,141,973	$	205.65	5,141,973	$	1,504
Total January 1-September 30, 2018	16,846,435	$	211.68	16,845,132	$	1,504