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Q2 2015 3M Earnings Report

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2015 Second Quarter Business Review (unaudited) July 23, 2015 22 July 2015 . All Rights Reserved. © 3M 1


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Forward Looking Statement 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," “aim," "project," "intend," "plan," "believe," "will," “should," “could," "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 and other factors beyond 3M's control, including natural and other disasters affecting the operations of 3M or its customers and suppliers; (2) 3M's credit ratings and its cost of capital; (3) competitive conditions and customer preferences; (4) foreign currency exchange rates and fluctuations in those rates; (5) the timing and market acceptance of new product offerings; (6) 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); (7) 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; (8) generating fewer productivity improvements than estimated; (9) unanticipated problems or delays with the phased implementation of a global enterprise resource planning (ERP) system, or security breaches and other disruptions to 3M's information technology infrastructure; and (10) legal proceedings, including significant developments that could occur in the legal and regulatory proceedings described in 3M's Annual Report on Form 10-K for the year ended December 31, 2014, 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 “Cautionary Note Concerning Factors That May Affect Future Results” and “Risk Factors” in Part I, Items 1 and 1A (Annual Report) and in Part I, Item 2 and Part II, Item 1A (Quarterly Report). The information contained in this presentation is as of the date indicated. 3M assumes no obligation to update any forward-looking statements contained in this presentation as a result of new information or future events or developments. 22 July 2015 . All Rights Reserved. © 3M 2


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Q2 2015 Highlights  GAAP EPS of $2.02, up 5.8% year-on-year  Sales of $7.7 billion, down 5.5% in dollar terms  Organic local currency +1.8%   Positive growth in all major geographic areas FX reduced sales by 7.3%  Operating margins of 23.9%, up 1.1 percentage points year-on-year  All business groups > 21%  Returned $2.3 billion to shareholders via dividends and gross share repurchases  Announced acquisition of Capital Safety, a leading global provider of fall protection equipment, for a total enterprise value of $2.5 billion Refer to 3M’s July 23, 2015 press release for full details. 22 July 2015 . All Rights Reserved. © 3M 3


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Portfolio Management Actions 2015 to Date  Combined dental and orthodontic businesses to form Oral Care Solutions business  Acquisitions  Capital Safety – a global leader in fall protection equipment  Polypore’s Separations Media business - a leading provider of “ultra” filtration membranes  Ivera Medical Corp. – manufacturer of health care products that disinfect and protect devices used for access into a patient’s bloodstream (closed March 2015)  Divestiture  Static Control business (closed January 2015) Note: The announced acquisitions of Capital Safety and Polypore’s Separations Media business are still pending completion. 22 July 2015 . All Rights Reserved. © 3M 4


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Q2 2015 Sales Recap Worldwide Sales Change Due To: Organic volume Price  Organic local currency: 0.8% 1.0% 1.8% Organic local currency Acquisition/divestiture FX  U.S. +4.1%  Asia Pacific +0.5%   0.0% -7.3% Total ($M) -5.5%  US APAC EMEA Organic volume +3.9% +0.5% -1.3% -3.4% Price +0.2% 0.0% +1.7% +4.2% Organic local currency +4.1% +0.5% +0.4% +0.8% Acq/div 0.0% -0.1% 0.0% -0.1% FX ----- -5.4% -16.8% -15.5% Total growth +4.1% -5.0% -16.4% EMEA +0.4%  LAC China/Hong Kong -2% Japan +2% West Europe -1% -14.8% 22 July 2015 . All Rights Reserved. © 3M  Latin America/Canada +0.8%   Ex-Venezuela +5.1% Mexico +17%, Brazil +1%  FX reduced sales by 7.3%  Euro -20%, Yen -17%, Real -28% 5


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Q2 2015 P&L ($M) Q2 2014 Sales $8,134 $7,686 -5.5% Gross profit $3,950 $3,828 -3.1% 48.5% 49.8% +1.3 pts $1,646 $1,550 -5.8% % to sales 20.2% 20.2% --- R&D & related $448 $438 -2.2% 5.5% 5.7% +0.2 pts $1,856 $1,840 -0.9% 22.8% 23.9% +1.1 pts % to sales SG&A % to sales Operating income % to sales Net income Earnings per share Q2 2015 Change $1,267 $1,300 +2.6% $1.91 $2.02 +5.8% Operating margin of 23.9%, up 1.1 percentage points Q2 14 22.8% Organic volume +0.1% Price/raw materials +1.5% Productivity/other +0.5% FX 0.0% Acquisitions -0.1% Strategic investments -0.3% Pension/OPEB Q2 15 -0.6% 23.9% Refer to 3M’s July 23, 2015 press release for full details. 22 July 2015 . All Rights Reserved. © 3M 6


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Q2 2015 GAAP EPS +5.8% $2.02 Q2 2014 – GAAP EPS $1.91 Organic growth, margin expansion  Pre-tax earnings decline of ~$110M +$0.04  Q2 2015 28.1% vs. 29.5% Q2 2014 Shares outstanding +$0.07  Average diluted shares down 3% Q2 2015 – GAAP EPS 22 July 2015 . All Rights Reserved. © 3M -$0.12 Tax rate Q2 2014  Includes -$0.05 headwind from pension/ OPEB expense FX $1.91 +$0.12 $2.02 Q2 2015 7


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Q2 2015 Cash Flow ($M) Q2 2014 Q2 2015 Q2 YTD Q2 YTD 2014 2015 Change Change Operating cash flow $1,640 $1,338 ($302) $2,732 $2,418 ($314)  Higher YOY cash taxes Capital expenditures ($341) ($370) ($29) ($634) ($661) ($27)  Expecting FY 2015 of $1.4B to $1.6B Free cash flow $1,299 $968 ($331) $2,098 $1,757 ($341) Free cash flow conversion 103% 74% -29 pts 85% 70% -15 pts Dividends $556 $646 $90 $1,122 $1,298 $176 Gross share repurchase $1,426 $1,695 $269 $3,134 $2,581 ($553) Total cash to shareholders $1,982 $2,341 $359 $4,256 $3,879 ($377)  Expecting FY 2015 of 90% to 100%  Expecting FY 2015 of $4B to $5B Refer to 3M’s July 23, 2015 press release for full details. 22 July 2015 . All Rights Reserved. © 3M 8


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Industrial ($M) Q2 2014 Q2 2015 % Growth Sales $2,815 $2,634  Organic local currency growth: -6.4% Organic local currency +1.4% Acquisition/divestiture ----- FX -7.8% Operating income $617 $609 -1.2% Operating margin 21.9% 23.1% +1.2 pts 22 July 2015 . All Rights Reserved. © 3M  By business: growth led by 3M purification, aerospace and commercial transportation, and automotive OEM  By area: sales grew in the U.S and Latin America/Canada; Asia Pacific flat; EMEA sales declined slightly  3M purification posted double-digit organic growth led by U.S. life sciences and water applications  Automotive OEM business continues to outgrow global car/light truck production 9


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Safety & Graphics ($M) Q2 2014 Q2 2015 % Growth Sales $1,494 $1,432  Organic local currency growth: -4.1% Organic local currency +4.9% Acquisition/divestiture ----- FX -9.0% Operating income $353 $364 +3.1% Operating margin 23.6% 25.4% +1.8 pts 22 July 2015 . All Rights Reserved. © 3M  By business: sales grew in all businesses led by roofing granules, commercial solutions and personal safety  By area: sales increased in Asia Pacific, the U.S. and EMEA; Latin America/Canada sales declined  Announced acquisition of Capital Safety, a leading global provider of fall protection equipment; deepens 3M’s relevance in high-growth personal protective equipment industry  Personal safety business selected by U.K. Ministry of Defense to provide hearing solutions for new Tactical Hearing Protection System 10


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Health Care ($M) Q2 2014 Q2 2015 % Growth Sales $1,416 $1,364  Organic local currency growth: -3.7% Organic local currency +0.7% FX -7.8% By business: sales growth was positive in food safety, health information systems, oral care, critical and chronic care, and infection prevention; drug delivery systems declined year-on-year  By area: sales grew in Asia Pacific, Latin America/ Canada and the U.S.; EMEA sales were flat +3.4% Acquisition/divestiture  Operating income $434 $440 +1.3% Operating margin 30.7% 32.3% +1.6 pts 22 July 2015 . All Rights Reserved. © 3M  Oral care business earned the Edison Award for 3M™ True Definition Scanner  3M Health Care won Practice Greenhealth “Champion for Change” award for sustainability 11


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Electronics & Energy ($M) Q2 2014 Q2 2015 % Growth Sales $1,422 $1,310  Organic local currency growth: -7.9% Organic local currency -0.7% FX -4.2% By business: electronic-related sales declined 2% (growth in electronics materials solutions was more than offset by a decline in display materials and systems); energy-related sales declined 3% (electrical markets, telecom and renewable energy declined)  By area: sales grew in the U.S. and declined in EMEA, Asia Pacific and Latin America/Canada -3.0% Acquisition/divestiture  Operating income $293 $277 -5.2% Operating margin 20.6% 21.2% +0.6 pts 22 July 2015 . All Rights Reserved. © 3M  3M awarded smart grid automation contract with large European utility company  Electronics materials solutions business drove strong penetration of fluids and abrasives in semi-conductor market 12


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Consumer ($M) Q2 2014 Q2 2015 % Growth Sales $1,139 $1,111  Organic local currency growth: -2.5% Organic local currency +3.4% Acquisition/divestiture  By business: sales grew in all businesses led by DIY, stationery and office supplies, and home care  By area: sales grew in the U.S. and Asia Pacific; Latin America/Canada was flat; EMEA sales declined ----- -5.9% FX Operating income Operating margin 22 July 2015 . All Rights Reserved. © 3M $241 21.1% $259 23.3%  Strong U.S. growth across the portfolio with particular strength in the DIY paint segment +7.4%  “Back-to-school” season off to a good start +2.2 pts  Strong growth in Scotch® home and office tapes and Command™ products 13


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Updating 2015 Planning Estimates Q1 Earnings Call 4/23/15 Today 7/23/15 Organic local currency +3% to +6% +2.5% to +4% FX -6% to -7% -6% to -7% $7.80 to $8.10 $7.80 to $8.00 28.5% to 29.5% 28.5% to 29.5% 90% to 100% 90% to 100% Sales growth: GAAP EPS Tax Rate Free cash flow conversion  FY 2015 industrial production index (IPI) of approximately +2% Note: figures exclude pending acquisitions of Polypore’s Separations Media business and Capital Safety. 22 July 2015 . All Rights Reserved. © 3M 14


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Q&A 22 July 2015 . All Rights Reserved. © 3M 15


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s Appendix 22 July 2015 . All Rights Reserved. © 3M 16


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Business Segment Information Net Sales Business Groups Q2 2014 Operating Income Q2 2015 Q2 2014 Q2 2015 Net Sales Operating Income YTD 2014 YTD 2015 YTD 2014 YTD 2015 Industrial $2,815 $2,634 $617 $609 $5,591 $5,292 $1,235 $1,207 Safety & Graphics $1,494 $1,432 $353 $364 $2,917 $2,804 $671 $699 Health Care $1,416 $1,364 $434 $440 $2,790 $2,693 $861 $848 Electronics & Energy $1,422 $1,310 $293 $277 $2,733 $2,632 $520 $560 Consumer $1,139 $1,111 $241 $259 $2,218 $2,159 $469 $499 ($1) ($4) ($49) ($74) $2 ($2) ($121) ($174) ($151) ($161) ($33) ($35) ($286) ($314) ($63) ($69) $8,134 $7,686 $1,856 $1,840 $15,965 $15,264 $3,572 $3,570 Corporate and Unallocated Elimination of Dual Credit Total 22 July 2015 . All Rights Reserved. © 3M 17


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