Significant Accounting Policies

12 Months Ended

Dec. 31, 2025

Note 1. Significant Accounting Policies

Nature of Operations and Basis of Presentation: 3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products. As used herein, the term “3M” or “Company” refers to 3M Company and subsidiaries unless the context indicates otherwise.

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). Preparation of the consolidated financial statements requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and notes. Such estimates and assumptions are subject to inherent uncertainties which may result in actual amounts differing from these estimates. The financial statements consolidate all applicable subsidiaries; intercompany transactions and balances are eliminated.

With the exception of subsidiaries operating in highly inflationary economies, which are not material to 3M, local currencies generally are considered the functional currencies outside the United States. Assets and liabilities for operations in local-currency environments are translated at month-end exchange rates of the period reported. Income and expense items are translated at average monthly currency exchange rates in effect during the period. Cumulative translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in shareholders’ equity.

Certain amounts in prior periods’ consolidated financial statements have been reclassified to conform to current period presentation.

Cash and Cash Equivalents: Cash and cash equivalents consist of cash and temporary investments with maturities of three months or less when acquired.

Investments: 3M invests in both marketable and equity securities. These securities are classified as current or non-current based on their availability for use in current operations.

Marketable securities, which include available-for-sale debt securities, are recorded at fair value with unrealized gains and losses recognized in accumulated other comprehensive income.

Equity securities primarily relate to 3M's ownership interest in Solventum, which 3M accounts for as an equity investment with a readily determinable fair value. This investment was reclassified as a current equity investment (included in other current assets) in 2025. Equity securities that do not result in consolidation or are not accounted for under the equity method are measured at fair value, with changes in fair value reflected in net income. For equity investments without readily determinable fair values, 3M applies the measurement alternative — recording them at cost, less impairment, and adjusted for observable price changes in orderly transactions.

3M regularly reviews investment securities for impairment. For debt securities, an impairment relating to credit losses is recorded through an allowance for credit losses. Changes in the allowance are recognized in earnings in the period of the change. Any impairment that has not been recorded through an allowance for credit losses is recorded through accumulated other comprehensive income as a component of shareholders’ equity. Amounts are reclassified out of accumulated other comprehensive income and into earnings upon sale or when portions of the impairment related and unrelated to credit losses change.

Inventories: Inventories are stated at the lower of cost or net realizable value, which is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Cost is generally determined on a first-in, first-out basis.

Property, Plant and Equipment (PP&E) and Definite-Lived Intangible Assets: Property, plant and equipment, including capitalized interest and internal direct engineering costs, are recorded at cost. The Company capitalizes direct costs of services used in the development of, and external software acquired for use as, internal-use software. These software amounts are reported within machinery and equipment in PP&E. Depreciation of PP&E is generally computed using the straight-line method. Internal-use software elements of PP&E are depreciated over a period of three to seven years. 3M records capital-related government grants earned as reductions to the cost of PP&E and associated unpaid liabilities.

Major classes of PP&E, along with their original useful lives (as applicable) are as follows:


(Millions)	Original lives	December 31, 2025		December 31, 2024
Land		$	202	$	200
Buildings and leasehold improvements	10 to 40 years	7,729		7,432
Machinery and equipment	3 to 15 years	15,328		14,780
Construction in progress		663		994
Gross property, plant and equipment		23,922		23,406
Accumulated depreciation		(16,821)		(16,018)
Property, plant and equipment - net		$	7,101	$	7,388

Definite lived intangible asset types include customer-related, patent, other technology-based, tradename and other intangible assets acquired from independent parties. These assets are amortized on a systematic and rational basis (generally straight-line) representative of the asset's use. Refer to Note 5 for amortizable lives and additional details on intangible assets. Costs related to internally developed intangible assets, such as patents, are expensed as incurred, within “Research, development and related expenses”. 3M also expenses costs incurred to renew or extend the term of intangible assets.

Fully depreciated PP&E, other than capitalized internally developed software, is retained in PP&E and accumulated depreciation accounts until disposal. Upon disposal, assets and related accumulated depreciation are removed from the accounts, and the net amount, less proceeds from disposal, is charged or credited to operations. Definite-lived intangible assets are removed from their respective gross asset and accumulated amortization accounts when they are no longer in use.

PP&E and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. The amount of the impairment loss recorded equals the excess of the asset’s (or asset group's) carrying value over its fair value, which is generally determined using a discounted cash flow analysis.

Asset Retirement Obligations: A liability is initially recorded at fair value for an asset retirement obligation associated with the retirement of tangible long-lived assets in the period in which the obligation is incurred, provided a reasonable estimate of fair value can be made. Over time, the liability is accreted for the change in its present value, and the initial capitalized cost is depreciated over the remaining useful life of the related asset. 3M cannot reasonably estimate the fair value of certain conditional asset retirement obligations due to the nature of specific conditions and the uncertain outcome of related commercial activities.

The asset retirement obligation liability reflected in other current liabilities and other liabilities was as follows:


(Millions)	December 31, 2025		December 31, 2024
Asset retirement obligation	$	202	$	195

Goodwill and Indefinite-Lived Intangible Assets: Goodwill and indefinite-lived intangible assets (namely certain tradenames) are not amortized and are assessed for impairment annually — in the fourth quarter for goodwill and the third quarter for indefinite-lived intangible assets — and whenever events or circumstances indicate that the carrying amount may be impaired. Impairment testing for goodwill is performed at the reporting-unit level, which at 3M primarily corresponds to a division. An impairment loss is recognized when the carrying value of a reporting unit’s net assets exceeds its estimated fair value. The estimated fair value of a reporting unit is determined using a market approach based on comparable company information, such as EBITDA (earnings before interest, taxes, depreciation, and amortization) multiples, or, in some cases, using a discounted cash-flow analysis. An impairment loss is recognized for an indefinite-lived intangible asset when its fair value — generally determined using a discounted cash-flow model — is less than its carrying value.

Restructuring Actions: Restructuring actions generally include significant actions involving employee-related severance charges, contract termination costs, and impairment or accelerated depreciation or amortization of assets associated with such actions. Employee-related severance charges are largely based upon distributed employment policies and substantive severance plans. These charges are reflected in the quarter in which the actions are probable and the amounts are estimable, which typically occurs when management approves the associated actions. Severance amounts for which affected employees are required, in certain circumstances, to render service in order to receive benefits at their termination dates are measured as of the date such benefits were communicated to the applicable employees and recognized as expense over the employees’ remaining service periods. Contract termination and other charges primarily reflect costs to terminate a contract before the end of its term (measured at fair value when the Company provides notice to the counterparty) or costs that will continue to be incurred under the contract for its remaining term without economic benefit to the Company.

Revenue (Sales) Recognition: The Company sells 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.

Revenue is recognized when control of goods transfers to customers. For the majority of the Company’s customer arrangements, control transfers to customers at a point-in-time when goods or services are delivered, as this generally represents when legal title, physical possession, and the risks and rewards of ownership transfer to the customer.

Revenue is recognized at the transaction price to which the Company expects to be entitled. When determining the transaction price, 3M estimates variable consideration using the portfolio approach practical expedient. The main sources of variable consideration for 3M are customer incentives such as 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, derived from sales terms, historical experience, trend analysis, and projected market conditions in the markets 3M serves.

Accrued customer incentives reflected within other current liabilities were as follows:


(Millions)	December 31, 2025		December 31, 2024
Accrued customer incentives	$	624	$	607

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 expenses 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 excluded from revenue. The Company has elected to present revenue net of sales taxes and other similar taxes.

The Company applies the "right-to-invoice" practical expedient, as the amount invoiced to customers reasonably corresponds to the value of 3M’s performance completed to date.

The Company applies the practical expedient related to costs of obtaining a contract by expensing sales commissions when incurred because the amortization period would have been one year or less as the Company does not have material costs related to obtaining a contract with amortization periods greater than one year for any year presented.

Warranties/Guarantees: 3M’s accrued product warranty liabilities, guarantees of loans with third parties, and other guarantee arrangements are not material.

Accounts Receivable and Allowances: Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains allowances for bad debts, cash discounts, and various other items for potential credit losses. The Company determines the allowances based on historical write-off experience, current expectations of future credit losses informed by industry and regional economic data, and historical cash discounts. The allowances are reviewed on a monthly basis. The allowances for bad debts as well as the provision for credit losses, write-off activity and recoveries for the periods presented are not material. The Company does not have any significant off-balance-sheet credit exposure related to its customers.

Advertising and Merchandising: These costs are charged to operations in the period incurred, and were as follows:


(Millions)	2025		2024		2023
Advertising and merchandising costs	$	233	$	216	$	201

Research, Development and Related Expenses: Research and development expenses cover basic scientific research and the application of scientific advances in the development of new and improved products and their uses. Related expenses primarily include technical support; costs associated with internally developed patents; amortization of certain acquired technology; and gains or losses associated with certain corporate approved investments in R&D-related ventures.

Environmental: Reserves for liabilities related to anticipated environmental-remediation costs are recorded when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. Environmental costs for capital projects that contribute to current or future operations generally are capitalized and depreciated over their estimated useful lives.

Income taxes: The provision for income taxes is determined using the asset and liability approach. Under this approach, deferred income taxes represent the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities. The Company records a valuation allowance to reduce its deferred tax assets when uncertainty regarding their realizability exists. The Company recognizes and measures its uncertain tax positions based on the rules under ASC 740, Income Taxes.

Stock-based compensation: The Company recognizes compensation expense for its stock-based compensation programs, which include stock options, restricted stock, restricted stock units (RSUs), performance shares, and the General Employees’ Stock Purchase Plan (GESPP). Under applicable accounting standards, the fair value of share-based compensation is determined at the grant date and the recognition of the related expense is recorded over the period in which the share-based compensation vests.

Derivatives and Hedging Activities: All derivative instruments within the scope of ASC 815, Derivatives and Hedging, are recorded on the balance sheet at fair value. All hedging instruments that qualify for hedge accounting are designated and effective as hedges, in accordance with U.S. GAAP. Instruments that do not qualify for hedge accounting are adjusted to fair value with changes recognized in current earnings. Cash flows associated with derivative instruments are classified in the statement of cash flows in the same category as the cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships. The Company does not hold or issue derivative financial instruments for trading purposes and is not a party to leveraged derivatives. See Note 15 for more information on the Company's derivative instruments and hedging programs.

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 both a recurring and nonrecurring basis.

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 at the measurement date.

The standard 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 observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability, developed 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, based on the best information available under 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 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.

Leases: 3M determines if an arrangement is a lease at inception by establishing whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. 3M has determined that certain service agreements that contain the right to use an underlying asset are not leases, as 3M does not control how and for what purpose the identified asset is used.

Operating lease right-of-use assets and liabilities are recognized as of the commencement date based on the present value of lease payments over the lease term. The discount rate used is 3M’s incremental borrowing rate or, if available, the rate implicit in the lease. 3M determines the incremental borrowing rate for leases using a portfolio approach based primarily on the lease term and the economic environment of the relevant country or region.

As a lessee, the Company leases distribution centers, office space, land, and equipment. Certain 3M lease agreements include rental payments that are 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 one or more options to renew, with terms that can extend the lease term by 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 noncancellable lease term as adjusted for contractual options to terminate or renew; additional payments related to a subsequent adjustment in an inflation index; and payments for non-components such as sales tax. Certain 3M leases contain immaterial variable lease payments that are based on production volume.

Related Party Activity: 3M does not have any material related party activity.

New Accounting Pronouncements:

In December 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU primarily requires disaggregated annual information about a company's effective tax rate reconciliation and income taxes paid. 3M adopted this ASU prospectively beginning with 2025 and the additional disclosure is included in Note 9.

The table below provides summaries of applicable new accounting pronouncements issued, but not yet adopted by 3M.


Standards issued and not yet adopted
Standard	Relevant description	Effective date for 3M	Impact and other matters
ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses	Issued in November 2024. Requires new disclosures providing further detail of a company's income statement expense line items.	Year-end December 31, 2027	As this ASU relates to disclosures only, there will be no impact to 3M’s consolidated results of operations and financial condition.
ASU No. 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets	Issued in July 2025. Provides an optional practical expedient for estimating future credit losses based on current conditions as of the balance sheet date and assuming those conditions do not change over the remaining life of the accounts receivable.	January 1, 2026	3M does not expect this ASU to have a material impact on consolidated results of operations and financial condition.
ASU No. 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software	Issued in September 2025. Removes references to prescriptive software development stages and includes an updated framework for capitalizing internal software costs in an agile environment.	January 1, 2028	3M is currently evaluating this ASU's impact on consolidated results of operations and financial condition.
ASU No. 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements	Issued in November 2025. Improves alignment of hedge accounting with risk management activities and provides guidance regarding five specific hedge accounting issues.	January 1, 2027	3M does not expect this ASU to have a material impact on consolidated results of operations and financial condition.
ASU No. 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities	Issued in December 2025. Provides recognition, measurement, and presentation guidance, as well as additional disclosure requirements, for government grants.	January 1, 2029	3M is currently evaluating this ASU's impact on consolidated results of operations and financial condition.
ASU No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements	Issued in December 2025. Clarifies the applicability of interim reporting guidance, the types of interim reporting, and the required form and content of interim financial statements.	January 1, 2028	As this ASU relates to disclosures only, there will be no impact to 3M’s consolidated results of operations and financial condition.