3M Q4 2008 Company Earnings

LeadingThrough Innovation

© 3M 2009 All Rights Reserved.

2008 Fourth Quarter Business Review(unaudited)

2

This presentation contains forward-looking information about 3M’s financial results and estimates and business prospects that involve substantial risks and uncertainties. You can identify these statements by the

use of words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will,” “target,”“forecast” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or business plans or prospects. Among the factors that could cause actual results to

differ materially are the following: (1) worldwide economic and capital markets conditions; (2) competitive conditions and customer preferences; (3) foreign currency exchange rates and fluctuations in those rates;

(4) the timing and acceptance of new product offerings; (5) the availability and cost of purchased components, compounds, raw materials and energy (including oil and natural gas and their derivatives) due to shortages, increased demand or supply interruptions (including those caused by natural and other disasters and other

events); (6) the impact of acquisitions, strategic alliances, divestitures, and other unusual events resulting from portfolio management actions and other evolving business strategies, and possible organizational

restructuring; (7) generating fewer productivity improvements than estimated; and (8) legal proceedings, including significant developments that could occur in the legal and regulatory proceedings described in the

company’s Annual Report on Form 10-K for the year ended December 31, 2007 and its subsequent Quarterly Reports on Form 10-Q (the “Reports”). Changes in such assumptions or factors could produce significantly

different results. A further description of these factors is located in the Reports under “Risk Factors” in Part I, Item 1A (Annual Report) and in Part II, Item 1A (Quarterly Report). The information contained in this

presentation is as of the date indicated. The company assumes no obligation to update any forward-looking statements contained in this presentation as a result of new information or future events or developments.

Forward Looking Statements

3

George W. Buckley3M Chairman, President and CEO

4

Reduced over 2,400 permanent positions in Q4; more likely in 2009– One-time net cost of $219M, with 2009 savings of $235M

Temporarily furloughed > 1,000 additional factory workersMaintaining only essential contract workersDeferring merit pay increases– 2009 savings of $100M

Modifying policy on banked vacation– $100M savings in both 2009 and 2010

Cutting 2009 cap ex by > 30%Halting stock repurchases until environment improves

Actions

5

FY08 P&L Highlights: Comparison vs. Last Year

($ in Millions)Except per share amounts 2007 2008 ChangeNet Sales $24,462 $25,269 3.3%Gross Margin 48.2% 47.5% -0.7 ptsSG&A $4,907 $5,134 4.6%R&D and related exp. $1,372 $1,391 1.4%Op. Income $5,512 $5,487 -0.4%Op. Income % 22.5% 21.7% -0.8 ptsTax Rate 31.8% 30.9% -0.9 ptsNet Income $3,648 $3,654 0.2%EPS $4.98 $5.17 3.8%

3Mex. Optical

6.5%----

5.2%3.4%9.2%

+0.5 pts

*Excludes special items. Refer to 3M’s January 29th, 2009 press release for a complete list and explanation of these items.

6

Q408 P&L Highlights: Comparison vs. Last Year

($ in Millions)Except per share amounts Q4 2007 Q4 2008 ChangeNet Sales $6,206 $5,509 -11.2%Gross Margin 46.9% 45.1% -1.8 ptsSG&A $1,267 $1,175 -7.3%R&D and related exp. $357 $337 -5.6%Op. Income $1,290 $974 -24.4%Op. Income % 20.8% 17.7% -3.1 ptsTax Rate 30.7% 27.6% -3.1 ptsNet Income $863 $676 -21.6%EPS $1.19 $0.97 -18.5%

3Mex. Optical

-8.1%-0.7 pts-6.7%-3.5%

-14.2%-1.3 pts


7

Sales Recap: Q408 vs. Q407

US Int’l WW

Sales growth - USD (6.0%) (14.1%) (11.2%)

Less: divestiture impact (0.7%) (0.1%) (0.3%)

Growth adjusted for divestitures (5.3%) (14.0%) (10.9%)

Less: currency impact ----- (7.5%) (4.9%)

Total local currency growth (5.3%) (6.5%) (6.0%)

Volume – organic (13.1%) (10.1%) (11.0%)

Selling price changes 3.1% 1.0% 1.7%

Organic local currency growth (10.0%) (9.1%) (9.3%)

Volume – acquired 4.7% 2.6% 3.3%

WW

(8.1%)

(0.3%)

(7.8%)

(5.3%)

(2.5%)

(8.7%)

2.6%

(6.1%)

3.6%

Total Company Ex. Optical

Components of Total LC Growth

8

Balance Sheet & Cash Flow

(a) Includes U.S. pension contribution of $200 million in Q3 2008.(b) Excludes certain special items that impacted cash flow. Refer to 3M's January 29th, 2009 press release for an explanation of these items.Note: Refer to 3M’s January 29th, 2009 press release for a complete discussion of net working capital turns and free cash flow

(non-GAAP measures).

($ in Millions) Q4 2007 Q3 2008 Q4 2008

Free Cash Flow $1,252(b) $792(a) $662

Net W/C Turns 5.3 5.0 4.5

Inventories $2,852 $3,078 $3,013 Slowing factories

Receivables-Net $3,362 $3,763 $3,195 Slow Nov/Dec sales

Cap-ex $391 $376 $463 Expect to cut by > 30% in ‘09

Dividends Paid $341 $348 $346 ‘08 per-share increase of 4%

Share Repurchases $483 $515 $34 Preserving cash

9

2008 Global Pension & Post Retirement Benefits Status

Worldwide funded status of 85%– U.S. 89%

– International 75%

2008 actual U.S. plan asset performance of (13.6%)

2009 U.S. plan assumptions– Return on assets 8.5%

– Discount rate 6.14%

2009 estimated worldwide funding of $600M to $850M

2009 estimated EPS headwind of ($0.07) for pension and post-retirement benefits

$B

10

Full Year Highlights• Local-currency growth of 4.6%, including 3.9% from

acquisitions; 8 acquisitions closed including Meguiar’s• Outstanding sales growth in adhesives and tapes,

automotive aftermarket and abrasives businesses• Strong market penetration in BRICP • Announced new Renewable Energy unit to address

global demand for alternative power sources• Full-year profit increase of 2.4% with strong operating

margins of 19.7%

19.1% 14.3%

Operating Income MarginsQ4 ’07 Q4‘08

(11.3%)

+2.4%

(33.4%)

+7.6%

Q4 ‘07 Q4 ‘08 Q4 ‘07 Q4 ‘08Sales Operating Income

2007 2008 2007 2008Sales Operating Income

Operating Income Margins2007 200820.7% 19.7%

Fourth Quarter

Full Year

Segment Highlights – Industrial & Transportation


Q4 Highlights• Local-currency sales down 6.3% including 3.2% benefit

from acquisitions• Positive sales growth in automotive aftermarket with

especially good growth in autobody abrasives; operating income growth in energy markets

• Local-currency sales declines in all regions• Operating margins of 14.3%

11

27.5% 28.7%

+4.5%

+13.0%

(2.1%)


Operating Income Margins2007 2008

Operating Income MarginsQ4 ’07 Q4 ‘0827.0% 28.9%


+8.2%Full Year

Segment Highlights – Health CareFourth Quarter


Q4 Highlights• Local-currency sales growth of 4.5% including 2.2%

from acquisitions• Solid growth in core infection prevention and skin &

wound care products• Entered licensing contract in drug delivery to

collaborate on dry powder inhalation technology• Sales growth led by the US and Asia Pacific• Excellent operating margin of 28.9% with operating

income up 4.5%

Full Year Highlights• 6.8% local-currency sales growth including 1.7% from 4

closed acquisitions in 2008, including TOP-Service, Imtec and Solumed

• Double-digit growth in medical, dental and orthodontic businesses

• Sales growth in all geographic regions, led by double-digit growth in Asia Pacific and Latin America and solid growth in Europe and the U.S.

• Drove outstanding full-year operating margin of 28.7% with profits up 13%

12

+2.9%

+20.9%

(3.5%)

+18.6%





20.9% 21.3%

Fourth Quarter

Full Year

Segment Highlights – Safety, Security & Protection Svcs


Q4 Highlights• Local-currency growth of 13.2% including 15.7% from

acquisitions, primarily Aearo Technologies• Growth led by the personal protection equipment

business • Track and trace business leads profit growth with new

product solutions for libraries• Positive sales growth in the US and Asia Pacific• Operating income of $128 million with margins of 16.7%

Full Year Highlights• Local-currency growth of 18.3%, including 14.1% from

acquisitions, primarily Aearo Technologies • Completed divestiture of HighJump Software• Robust demand continued in personal protection,

building and commercial services and RFID solutions• Double-digit sales growth in every geographic region;

good market penetration in developing countries, especially BRICP countries

• Strong operating income increase of 20.9% with full-year operating margins of 21.3%

13

Q4 Highlights• Local-currency sales down 6.5% including 0.2%

benefit from acquisitions• Weakness across all businesses and in every

geographic region, with home care and do-it-yourself businesses posting the positive local-currency sales growth

• Good performance by Nexcare™ first-aid skincare and bandages, Scotch-Brite™ scouring products and Filtrete™ air filtration solutions

• Operating margins of 15.5%

(11.2%)

(1.5%)

(24.1%)

+1.1%


Q4 ‘07 Q4 ‘08 Q4‘07 Q4 ‘08Sales Operating Income


Operating Income Margins

2007 200820.3% 19.8%

Fourth Quarter

Full Year

Segment Highlights – Consumer & Office

Full Year Highlights• Local-currency sales down 0.3% for 2008, including

0.4% benefit from acquisitions• Full-year sales growth in home care, consumer health

care and do-it-yourself businesses• Double-digit full-year sales and operating income

growth in Asia Pacific and Latin America, with solid single-digit growth in Europe

• Difficult US office markets and residential housing construction markets persist

• Operating margins of nearly 20%


14

(28.4%)

(44.1%)

(71.6%)

(16.6%)




Operating Income Margins

2007 200828.5% 19.1%

Fourth Quarter

Full Year

Segment Highlights – Display & Graphics


Q4 Highlights• Local-currency decline of 25.8%; sales down 7.7%

excluding Optical Systems• Optical Systems sales and profits down 48% and 94%,

respectively due to rapid contraction of LCD market• Local-currency sales in traffic safety systems up nearly

3% including 2.3% from acquisitions• Media and advertising slowdown negatively impacts

commercial graphics• Strong local-currency growth in Latin America• Operating margins of 10.2%

Full Year Highlights• Local-currency sales down 17.9% for 2008• Aggressively addressing cost structure to offset

weak top-line growth, particularly in optical film business

• 2-lamp energy saving story in LCD monitors continues to gain traction

• MPRO, 3M’s first handheld digital projector, featured by Popular Science and covered extensively at CES by national media

• Full-year operating income margins of 19.1%

15

(15.3%)

+1.1%

(30.6%)

+1.0%





19.3% 19.3%

Fourth Quarter

Full Year

Segment Highlights – Electro & Communications


Full Year Highlights• Sales in local currency down 1.7% for 2008, including

0.4% benefit from acquisitions• Sales growth led by international performance

particularly Asia Pacific and Latin America • Electrical markets and electronics markets materials

drove solid growth• Soft telecommunications infrastructure market

worldwide• Continued strong operational discipline with operating

margins of 19.3%

Q4 Highlights• Local-currency sales down 12.3%, including 0.3%

benefit from acquisitions• Electronic solutions and electronic markets materials

saw orders cancelled due to economic conditions• Electrical markets won another contract from a major

utility for its ACCR overhead power cable solution• Operating margins of 14.5%

16

2009 Planning Framework

Organic volume– -5% to -9%

Foreign currency– -6% to -7%

Earnings-per-share– -9% to -17%, or $4.30 to $4.70

Free cash flow will approximate net income, however pension and severance funding will be a wild card

*Excludes special items.

17

Q & A

LeadingThrough Innovation

© 3M 2008. All Rights Reserved.

2008 Fourth Quarter Business Review

Economy & Finance

3M Q4 2008 Company Earnings