3M Company 2009 Outlook Meeting

2009 OutlookMeeting

3M 2009 Outlook Meeting

George W. BuckleyChairman, President and Chief Executive Officer

December 8, 2008© 3M 2008. All Rights Reserved.

2009 OutlookMeeting


Patrick D. CampbellSenior Vice President and Chief Financial Officer


3 3M 2009 Outlook Meeting

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

© 3M 2008. All Rights Reserved.


Update on 2008 finish

2009 scenario planning

Summary

Q&A

Topics Of Discussion


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Summary

Q&A


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Summary – Q3 Earnings Call (October 21, 2008)

The 3M advantage – diversification of geographies, markets, products & technologies106-year company history; proven ability to prosper during economic downturns

Strong balance sheet and consistent cash flowContinuous assessment and rebalancing– More restructuring likely in slower growth markets– Investing prudently in under-penetrated businesses and geographic areas

2008 full-year financial expectations:– $5.40 to $5.48 per share– Operating margins 22.5% to 23%– Tax rate 31.5% to 32%– Cap-ex $1.3B to $1.4B

*Excludes special items. Please refer to 3M’s October 21, 2008 press release for a complete list and explanation of the special items for the first nine months of 2008.


Q4 2008 TrendsRapid Deterioration In Business Activity As Quarter Progresses

October – sales were a little soft, but profits were in-line with guidance– Organic local currency sales down 3%– Currency down 5%

November – rapid volume slowdown, many businesses impacted– Organic local currency sales down 17%– Currency down 6%

December – highly uncertain but expecting another month similar to November


Customers Aggressively Responding To Economic Perfect Storm


2008 EPS Update

2008 Full Year EPS

$5.10 - $5.15

$5.40 - $5.48$5.50

$5.40

$5.30

$5.20

$5.10

Q4 and FY ‘08 Expectations:

Q4 organic volume growthWas: -1% to -2%

Q4 FX EPS impactWas: flat to -$0.02

FY 2008 operating marginWas: 22.5% to 23%

FY 2008 Tax rateWas: 31.5% to 32%

FY 2008 Cap-ex$1.3B to $1.4B

Q3 EarningsCall 10/21/08



2008 EPS Update

2008 Full Year EPS

$5.10 - $5.15

$5.50

$5.40

$5.30

$5.20

$5.10


Q4 organic volume growthWas: -1% to -2%Now: -10% to -12%

Q4 FX EPS impactWas: flat to -$0.02



FY 2008 Cap-ex$1.3B to $1.4B


Organic Volume-$0.22 to-$0.25



2008 EPS Update

2008 Full Year EPS

$5.50

$5.40

$5.30

$5.20

$5.10



Q4 FX EPS impactWas: flat to -$0.02Now: -$0.08



FY 2008 Cap-ex$1.3B to $1.4B


FX -$0.08



2008 EPS Update

2008 Full Year EPS

$5.10 - $5.15

$5.50

$5.40

$5.30

$5.20

$5.10



Q4 FX EPS impactWas: flat to -$0.02Now: -$0.08

FY 2008 operating marginWas: 22.5% to 23%Now: 21.5% to 22.0%

FY 2008 Tax rateWas: 31.5% to 32%Now: 31.0% to 31.5%

FY 2008 Cap-ex$1.3B to $1.4B (no change) Revised

2008 EPS*Excludes special items. Please refer to 3M’s October 21, 2008 press release for a complete list and explanation of the special items for the first nine months of 2008.


Have reduced positions across all businesses and staffs– ≈1,800 internally announced– Another ≈500 before year-end; mostly international– More possible pending business conditions

All geographies impacted somewhat but heavy focus on developed economies– U.S., Western Europe and Japan

Rationalizing 10 manufacturing, technical and office facilities


Q4 2008 Restructuring ActionsContinue To Aggressively Restructure The Business To Address Challenges

Aggregate Costs Of $215M (≈$0.22 Q4 Special Item) With 2009 Savings Of $225M




Summary

Q&A



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14 3M 2009 Outlook Meeting© 3M 2008. All Rights Reserved.

2009 Planning MindsetAdjusting To Low-Growth Economy In Short-Term While Maintaining Long-Term Growth Focus

Cash optimization in highly uncertain world – planning conservatively and preserving cash– Capital expenditures < $1.2B Disciplined A/R management– Tighter acquisition screens Careful demand planning

– Minimal share repurchase

Facing into headwinds– Organic volume growth Currency– Pension Higher net interest expense

Maximizing opportunities– Going after market share gains Productivity programs– Restructuring Raw materials/pricing– Deferring annual pay increases Modifying working schedules

Driving Sufficient Cost Reduction To Offset Volume Risk


2009 Scenario Planning

Organic volume– -3% to -7%

Foreign currency– -6% to -7%

Earnings-per-share– -3% to -12%

Margins steady vs. 2008Free cash flow will approximate net income, however pension and severance funding will be a wild card



WW IPI Forecasts For 2009


Source: Global Insight

Planning For Softness Throughout 2009

Some Are Expecting A “V” Shaped Recovery – We Are Not

Glo

bal I

nsig

ht

Gol

dman

Sac

hs

UB

S

Our Plan Assumes

-2 % to -3%

-0.4% -0.4%0%


Forecasting 09 Organic Volume GrowthLearning From The Recession Of 2001-02

Notes:1) 3M data excludes divested pharmaceutical business; 2) economic data from Global Insight


During the 4 worst quarters of the

2001-02 economic slowdown:1) Global IPI was down 3% 2) 3M organic volume was down

5% to 6%

Quarterly % YOY Growth, 2000-03


• U.S. •Office retail•Housing•Auto OEM• Japan, Korea

• Telecom• Advertising• Industrial• Western Europe

• Credit market crisis• Economic slowdown

spreads rapidly across industries

We Have Been Experiencing A Slowing Economy For Some Time…

…And We Expect To Come Out Faster On The Recovery

Organic Volume Growth

U.S. RecessionStarted Q4 2007!

(12/1/08)


Q408e

-2%

-4%

0%

Forecasting 09 Organic Volume GrowthWorking The Model Sequentially…A Hypothetical ‘09 Progression

-6%

-8%

-10%

2%Q409eQ109e Q209e Q309e

PossibleTrough

Ave Organic Volume Down 5%

Organic Volume Growth %

FY09e


Q408e

-2%

-4%

0%


-6%

-8%

2%Q409eQ109e Q209e Q309e

PossibleTrough



FY09e

-10%


Q408e

-2%

-4%

0%


Our Planning Headset Is Closer To The Upper End Of the Range

-6%

-8%

2%Q409eQ109e Q209e Q309e



FY09e

Range:-3% to -7%-10%


(Global Insight: Industrial Production, YOY percent change)

Growth Is Slowing Everywhere, But There Is Still Growth To Be Had In Developing Markets


Industrial Production Forecast – Past And FutureExpecting Wide Variations Of Growth Across Regions


Emerging Markets A Bigger Factor Today Vs. 2001-02And While Economic Growth Will Slow There In 2009, It Remains Robust

Note: Emerging Markets = Central/East Europe + Middle East + APAC ex-Japan/ANZ + Latin America; economic data from Global Insight


Even In This Environment There Will Be Good Growth Opportunities

3M Sales To Emerging Market Countries

2001

$2.7B

2008e

$7.5B

% of 3M 17% 30%

Industrial Production Growth %

0%

5%

10%

15%

20%

Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409

ChinaBrazilCentral Eur/BalkansIndiaRussia

Source: Global Insight


Organic Volume Impact

Organic volumes to be in the range of -3% to -7%Recognizing Q4 2008 organic volume @ -10%

Developing economies expected to have positive growth albeit at lower rates

Developed economies expected to be negativeManaging developed economies for operating leverage and investing in developing economies to drive growth

-$0.30 to -$0.70


2009 EPS Impact


Foreign CurrencyStep Change In Foreign Currency Rates Coincident With Credit Crisis


Foreign Currency A Significant Headwind In 2009

Perc

ent C

hang

e

Note: currency mix based on Q3 2008 YTD weighted average sales


Foreign CurrencyStep Change In Foreign Currency Rates Coincident With Credit Crisis


Foreign Currency A Significant Headwind In 2009

Perc

ent C

hang

e

Note: currency mix based on Q3 2008 YTD weighted average sales

CurrenciesAve 2008

RatesNovember End Rates

EUR 1.47 1.29

JPY 103.5 95.2

BRL 1.83 2.34

CAD .93 0.81

RMB 6.92 6.83

GBP 1.85 1.52

KRW 1123 1478


Foreign Currency Headwind

-$0.45 to-$0.50

Used spot rates as of November month-end

Tremendous volatility in rates over last couple of monthsEstimated 2009 sales impact in the range of -6% to -7%Hedge approximately ½ of foreign currency exposures on a rolling 12-month basis

($0.50)

($0.25)

$0.00

$0.25

$0.50

-$0.45


2009 EPS Impact


Continuously assessing and rebalancing structure to meet business needsActions to date:– Q2 2008: ≈200 positions

– Q3 2008: ≈900 positions

– Q4 2008: ≈2,300 positions

Consolidating facilities

Aggressive actions in slower growth mature economiesMore restructuring likely in 2009


($0.50)

($0.25)

$0.00

$0.25

$0.50

$0.25 to $0.30

2009 EPS Impact

RestructuringProactively Reducing Structure In A Slower Growth World


Raw Materials And Selling Prices

Raw Materials:In midst of rapid declines in many commodities; full benefit not expected until H2 2009Commodities to trend down; more upside is possible

Raw materials represent ½ of COGS or approximately 25% to sales

Selling prices:Focusing on maintaining 2008 price increasesDrive opportunities to optimize price/value

Category-defining brands a major strength


$0.15 to $0.20

Highly Fluid Environment But Net Upside in 2009

2009 EPS Impact


ProductivityContinuing To Aggressively Reduce Costs And Improve Processes

Reducing indirect costs – a $4B+ category

Lean Six Sigma

Continued supply chain improvements

Redesigning employee benefit programs

G&A cost containment

Deferring annual pay increases

Modifying working schedules


$0.20 to $0.25

2009 EPS Impact


Pension ExpenseManaging Through A Very Unique Market Environment

Fully funded through Q3 2008 however Q4 market returns pressuring asset values

Contributed $200M to U.S. plan in Q3 2008

Higher discount rate expected for year-end liability measurement given current credit environment

No mandatory funding obligation

Effective 2009, all new U.S. employees participate exclusively in a new defined contribution plan


($0.50)

($0.25)

$0.00

$0.25

$0.50

-$0.08 to -$0.12

2009 EPS Impact


Net Interest ExpenseExpecting Higher Costs But Improving Liquidity And Certainty

AA/Aaa credit ratingUninterrupted access to CP market; strong demand for 3M paper; CP maturities out to Feb ’09Strong, consistent FCF; unused $1.5B credit facilityOpportunistic bond issuances: Aug ‘08: $850M, 5 yr @ 4.375%; Oct ‘08: $800M, 3 yr @ 4.5%2009 expense higher due to extending duration on debt portfolio (less reliance on commercial paper) & lower interest rates on cash & marketable securities


-$0.05 to -$0.10

2009 EPS Impact

Q3 ‘08 Capital Structure$B

Cash > CP

Long-Term Debt Maturities

Q4’08 includes $0.4B in puttable securities with longer final maturities

$B


-$0.30 to-$0.70

-$0.45

$0.25 to$0.30

$0.15 to$0.20

$0.20 to$0.25

-$0.08 to-$0.12 -$0.05 to

-$0.10

$5.10 to

$5.15

Putting It All Together

*Excludes special items.

Productivity Efforts Cover The Volume Risk, But FX Too Much To Overcome


-$0.30 to-$0.70

-$0.45

$0.25 to$0.30

$0.15 to$0.20

$0.20 to$0.25

-$0.08 to-$0.12 -$0.05 to

-$0.10

2009 EPS-3% to -12%

$0.08

$5.10 to

$5.15

Putting It All Together

*Excludes special items.

EPSRange$4.50

to$4.95

Productivity Efforts Cover The Volume Risk, But FX Too Much To Overcome




Summary

Q&A



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4


2009 Planning MindsetAdjusting To Low-Growth Economy In Short-Term While Maintaining Long-Term Growth Focus

Cash optimization in highly uncertain world – planning conservatively and preserving cash– Capital expenditures < $1.2B Disciplined A/R management– Tighter acquisition screens Careful demand planning

– Minimal share repurchase

Facing into headwinds– Organic volume growth Currency– Pension Higher net interest expense

Maximizing opportunities– Going after market share gains Productivity programs– Restructuring Raw materials/pricing– Deferring annual pay increases Modifying working schedules

Driving Sufficient Cost Reduction To Offset Volume Risk


Questionsand

Answers© 3M 2008. All Rights Reserved.

2009 OutlookMeeting



Economy & Finance

3M Company 2009 Outlook Meeting