patrick d. campbell senior vice president and chief financial officer

3M Investor Meeting 2006 © 3M 2006 All Rights Reserved

Patrick D. CampbellSr. Vice President AndChief Financial Officer

Accelerating Growth ToEnhance Shareholder Value


The Principal Questions We Will Answer Today

Can we accelerate growth?

Are our current margins sustainable?

How will our more aggressive growth plans

impact ROIC?

How will we deploy the balance sheet?

Plans to Drive Higher Earnings & P/E


Historical Performance


Leveraging Volume, Productivity, Mix and Fixed Costs to Maximize Profitability

$16,000

$17,000

$18,000

$19,000

$20,000

2001 2002 2003 2004 2005

CAGR = 4.8%

$16,000

$16,600

$17,200

$17,800

$18,400

$19,000

2001 2002 2003 2004 2005

CAGR = 3.8%

Total LC Growth Organic LC Growth

$2,000

$2,600

$3,200

$3,800

$4,400

$5,000

2001 2002 2003 2004 2005

CAGR = 16%

16%

18%

20%

22%

24%

2001 2002 2003 2004 2005

Operating MarginOperating Income

6.4 pts

Total LC Growth, Organic LC Growth, OI & Margins


$2.00

$2.50

$3.00

$3.50

$4.00

2001 2002 2003 2004 2005

EPS

CAGR = 18%

$500

$1,000

$1,500

$2,000

2001 2002 2003 2004 2005

CAGR = 26%

$1,000

$2,000

$3,000

$4,000

2001 2002 2003 2004 2005

CAGR = 12%FCF

Profitability & Asset Efficiency Improving Economic Profit & ROIC

15%

20%

25%

2001 2002 2003 2004 2005

6.2 pts

EPS, EP, Free Cash Flow & ROIC

Econ Profit ($MM)

ROIC %


18%

21% 21%

14%

21%

4%6%8%

10%12%14%16%18%20%22%24%

2002 2003 2004 2005 Q1 '06

8.1%

4.1%

5.5%4.5%

1.2%0%

2%

4%

6%

8%

10%

12%

2002 2003 2004 2005 Q1 '06

Consistently Achieving Financial Goals While Growth Has Been Inconsistent

Organic LC Growth EPS Growth

LC & EPS Targets

Organic LC & EPS Growth


0%

5%

10%

15%

20%

25%

2001 2002 2003 2004 2005

What Matters is the Conversion of Volume to Profit

3M Peer Average

*Peers include Avery Dennison, Danaher, Dentsply, DuPont, Eaton, Ecolab, Emerson, GE, Honeywell, ITW, J&J, P&G, SPX, Textron, Tyco, UTX. Source: Factset and Company Filings

Operating Margins Incremental Margins

Operating & Incremental Margins

29%

43%37%

44%

21%16%

25%

5%15%

0%10%20%30%40%50%60%70%80%

2002 2003 2004 2005 '01 - '05 Incr.Chg.

>100%


How We Achieved These Results

Volume

Mix

Productivity

– Cost out

– Overhead cost management


Improving Sales Mix

62%

38%

$10B Sales

$6B Sales

2001 2005

High Margin Sales Growth + Productivity Gains =Quality Earnings Growth

Margin > Corp. Avg. Margin < Corp. Avg.

$6B Sales

$15B Sales

~11% CAGR

70%

30%


Productivity - Cost Out & Leverage

Initiatives Contributed > $400MM Per Year Improvement

2001 2002 2003 2004 2005

Six Sigma

eP3

Indirect Costs

Sourcing

GBP

2001 2002 2003 2004 2005Learn and

Build CriticalMass

AccelerateImpact DMAIC in 3 M DNA

3M’s Six Sigma Journey

DMAIC

• Globally, >40,000 salaried employees trained globally in the Six Sigma wayof doing business.

• More than 20,000 projects closed• Over 16,000+ DMAIC projects underway globally• 480+ customer projects in place globally

Add Portfolio Management and Lean

Learn & BuildCritical Mass Accelerate ImpactDFSS

Sales/Employee $311$297

$277

$255

$234

$200

$225

$250

$275

$300

$325

2001 2002 2003 2004 2005

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

2001 20050.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Overhead Cost % to Sales

Overhead Cost Leverage

2.1% of margin

$ Bi

llion

s


We need to accelerate growth!

We have built an enviable competitive and financial position but…..


Relative Value Of Growth For Different Companies

MMM 5.2GE 11.4

IBM 3.5DHR 5.1

PG 7.2XOM 2.1

GM 2.4WMT 1.6

#REF! #REF!#REF! #REF!#REF! #REF!

0.0

2.0

4.0

6.0

8.0

10.0

12.0

MMM GE IBM DHR PG XOM GM WMT

Company Ticker

Rel

ativ

e V

alue

of G

row

th

Source: HBR Apr il 2005

Expanding Our Long Term Growth RateCreates More Value Than Margin Expansion

Growth 5X Margin

1% pt. LT sustainable growth rate = $10B1% pt. more sustainable margin = $2B

Gordon Growth Model = FCF/(WACC – Growth)


Productivity

Past

Growth

Need to accelerate focus on growth and leverage our investment in productivity tools to maintain momentum

Future

Going Forward Equal Emphasis will be placed onAchievement of Both Top and Bottom Lines

Modifying Our Focus – Growth And Productivity


What’s Changed

Change in senior leadership compensation program– ’04 - 60% Economic Profit Growth/40% Working Capital

– ’05 - 60% Economic Profit Growth/20% Working Capital/20% Organic Growth vs. IPI

– ’06 - 60% Economic Profit Growth/40% Organic Growth vs. IPI

New compensation plans for businesses and sales organization

Leadership alignment with technical community


3% - 5% sales growth in market adjacencies, acquisitions and EBOs, 20% incremental margin; using new or primary brands

2% - 4% sales growth in subsidiary markets, at peer margins; using secondary brands

5% - 8% sales growth in traditional 3M core; 40% incremental leverage; using primary brands

International expansion occurs in all three dimensions.

Traction and momentum will occur at different rates.

Summary Target Growth Picture




Growing The Traditional Businesses

Leveraging Growth in the Core



Growing The Traditional Businesses

Leveraging Existing Asset Base to Drive Operating Income

10%+

0%

2%

4%

6%

8%

10%

12%

LC Growth OI Growth

5%-8%LC

Growth



10.0%8%+Safety, Security and Protection Services

7.1%5-8%Electro and Communications5.6%5-8%3M

5.7%5-8%Consumer and Office6.7%8%+Display and Graphics4.0%6-8%Health Care Business (ex. Pharma)

4.2%5-8%Industrial and Transportation Business

Last 4 Qtr. Avg.LC* Target

Near-Term Organic Local Currency Growth Target

*Local Currency Sales Growth = Volume + Price

Strong Contributions Across the Portfolio

Organic


The Opportunity of International Growth

International growth rates 2X – 3X US

61% of 3M sales are outside the United States today, ≈ 70% in 2011

Focus is on BRICP; double investments there

China growing ≈ 35% CAGR, expecting circa $1Bn sales in 2006

India growing at 100%+ CAGR

Double digit growth rates in E. Europe and LA

W. Europe grows faster on localization strategies

Acquire local brands and manufacturing as well as organic expansion


Productivity Continues

Productivity Continues Through Cost Out & Leverage

2001 2002 2003 2004 2005 2006Learn and

Build CriticalMass

AccelerateImpact DMAIC in 3 M DNA

3M’s Six Sigma Journey

DMAIC

• Globally, >40,000 salar ied employees tr ained globally in the Six Sigma wayof doing business.

• Mor e than 20,000 pr ojects c losed• Over 16,000+ DMAIC pr ojects under way globally• 480+ customer pr ojects in place globally

Add Portfolio Management and Lean

Learn & BuildCritical Mass Accelerate ImpactDFSS

2001 2002 2003 2004 2005

Six Sigma + LEAN

GBP

eP3

Indirect Costs

Sourcing

2006 2007 2008

Lean

1% more margin

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

2001 2005 20080.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Overhead Cost % to Sales

Overhead Cost Leverage

2.1% margin

$ Bi

llion

s


Growth And Leverage In Traditional Core

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

$10.0

2006e 2007e 2008e

$ B

illio

ns

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

24.0%

28.0%

Per

cent

Op. Inc. Operating Margin ROIC

Continued Growth and Leverage in the Traditional BusinessesContinued Growth and Leverage in the Traditional BusinessesAssumptions: LC growth of 6.5%; incremental margin of 40%

10%-12% CAGR



5% - 8% sales growth in traditional 3M core; 40% incremental leverage using primary brands



Building Scale To Create Additional Value

Building Scale to Become More Important in Our Markets and More Vital to Our Customers


Using Brands/Technology to Grow Our Market Position

Selective privatelabeling or

manufacturing JVs to support partnership

customers

Use principal brands and

differentiated technology or features

Use Secondary Brands /

Technologies

Industrial Consumer

Diamond Grade™

High Intensity Grade

Engineering Grade


Express Garant

Selective privatelabeling or

manufacturing JVs to support partnership

customers

Use Secondary Brands /

Technologies

3M ESPE

ImpregumPenta Soft

Palgat Plus

Traffic Safety Systems

3M Stamark™Pavement Marking Tape

3M All Weather Paint

Durable Liquid Markings (thermoplastic, epoxy)

Commercial CareScotchBrite™Purple ScouringPad

Private LabelScouring Pads

Niagara™Scouring Pad

Use principal brands and differentiated technology or features

Future Opportunities to Use Dual Brands/Technologyto Grow Our Market Position


Driving Additional Growth AtPeer Margins

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

$10.0

2006e 2007e 2008e

$ Bi

llion

s

0%

4%

8%

12%

16%

20%

24%

28%

Perc

ent

Op. Inc. Traditional Op. Inc. Subsidiary Op. Inc. Margin ROIC

Additional Growth at Peer Margins = Greater Shareholder ValueAdditional Growth at Peer Margins = Greater Shareholder ValueAssumptions: traditional business LC growth of 6.5%; incremental margin of 40%; additional growth of 0% ’06; 1.5% ’07; 2.0% ’08 at 15% op. inc.

11%-13% CAGR


$ millions

Capital Expenditures Aimed at Driving Higher Organic Growth

Capital ExpendituresSub Mkts

TraditionalCore

8%+

$1.5B

$1.7B5%-8%

$1,100$943$938

$677

$0

$300

$600

$900

$1,200

$1,500

$1,800

2003 2004 2005 2006E 2007E 2008E


2006 Growth Investments

Dual Brightness Enhancing Films Tegaderm™


Portfolio Management Strategy


3% - 5% sales growth in market adjacencies, acquisitions and EBOs, 20% incremental margin; using new or primary brands


5% - 8% sales growth in traditional 3M core; 40% incremental leverage using primary brands



Supplementing Growth Through Acquisitions


Growth Acquisitions - Screening Criteria

InorganicGrowthOpportunities

High Growth Market Screen

Display & GraphicsSafety & ProtectionTrack & TraceSelect Healthcare segmentsConsumerEnergy

Operating Metrics & Fit

Screen

Double digit growth Potential for margin improvementAbility to leverage across current customers Integration with current 3M innovation processes

ValuationandSize

ValuationandSize

Mostly Mid-size rather than transformationalEarly EPS accretion

Mostly Mid-size rather than transformationalEarly EPS accretion

PotentialTargets


M&A Strategy

Will fit tightly defined strategic needs in the core or in near adjacenciesMajority will be bolt-on acquisitions placed in markets we understandChannels of distribution will be familiarThe acquisition may bring technology, market access or scaleAcquisitions will have an ethical fit Some acquisitions will be international, aimed at gaining market access While top brands are preferred, some will be appropriately chosen secondary brands

Margin dilutive acquisitions will always contribute to net positive shareholder value through higher growthPrice will always be a factorTail liabilities will be scrutinizedWill be EPS accretive or neutral end of year 1 excluding purchase accountingMajority of acquisitions will be Economic Profit accretive by the end of year 3

Strategic Intent Economic Needs


Acquisition Multiples

End Market Growth Rates Will Determine Deal Multiples

Sal

es G

row

th

0%

2%

4%

6%

8%

10%

12%

Multiples

MedicalDental/OrthodonticsCUNO/FiltrationTrack and TraceConsumer ElectronicsSecurity

ConsumerAuto AftermarketSafety/ProtectionEnergyInfrastructureInternational

Adhesives/TapeAbrasivesChemicalAuto OEM

Pre-RevenueEmergingTech/Bus.


Acquisition Profile

Business Model Provides Significant Financial FlexibilityBusiness Model Provides Significant Financial Flexibility

$0.0

$2.0

$4.0

$6.0

'08e Acquired Sales '08e Acquired EBITDA '06e - '08eCumulativePurchase

Price

2.5xSales

12xEBITDA

Assumptions: additional 4% growth through M&A starting in ’07; year 1 op. inc. 0%; 20% EBITDA thereafter.


Putting It All Together

13%15.7%17.6%% Increase

24%22.6%18.9%ROIC

12%5.8%1.7%% Growth

$6.8$4.9$3.0Operating Income24%22.9%18.7%% to Sales

$5.85$4.12$2.34EPS

$28$21.2$16.3Total Revenue2------M&A1------Subsidiary Mkts

$25$21.2$16.3Traditional Core

2008e20052002($ Billions)

Raising the Bar on Growth While MaintainingStrong Margins and ROIC

Raising the Bar on Growth While MaintainingStrong Margins and ROIC


Capital Allocation Model – ’06-’08

Retirement Benefits

~$0.5B to $1.0BFully

funded status

Dividends~$4.5

Continuehistorical track

record

M&A~$4.0B to $5.0B

Aligned withstrategic intent

Net Share Repurchase~$1.5B to $2.0B (avoid dilution)

Opportunistically pursue additional shares

Cap Ex~$4.0B to

$4.5BAligned to

higher growth

Available Cash ~$18B to $21B

DebtCapacity

~$4B to $6B+

Cash FlowFrom Ops

~$14B to $15B

Maintaining Flexibility for GrowthMaintaining Flexibility for Growth


Balanced Model Approach To IncreaseShareholder Value

Investing in traditional markets– Local-currency growth of 5% to 8%– Operating income growth 10%+

Aggressively pursuing additional growth elsewhere in the pyramid– Additional local-currency growth of 2% to 4%– At peer margins – minimum

M&A strategy to improve core growth and fill gaps– Aligned with strategic intent

Higher Growth - Higher Earnings - Higher P/EHigher Growth - Higher Earnings - Higher P/E

patrick d. campbell senior vice president and chief financial officer

Economy & Finance