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3M Q3 2015 Earnings Report

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2015 Third Quarter Business Review (unaudited) October 22, 2015 21 October 2015 . All Rights Reserved. © 3M 1


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Upcoming Investor Events  2016 outlook meeting  December 15, 2015  Conference call, 8 a.m. CST/9 a.m. EST  Investor day  March 29, 2016  Location: 3M headquarters, St. Paul, MN  2016 earnings conference calls  January 26  April 26  July 26  October 25 21 October 2015 . All Rights Reserved. © 3M 2


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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. 21 October 2015 . All Rights Reserved. © 3M 3


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Q3 2015 Highlights  GAAP EPS of $2.05, up 3.5% year-on-year  Sales of $7.7 billion, down 5.2% in dollar terms  Organic local currency +1.2%  Positive growth across all geographic areas  Acquisitions, net of divestitures, increased sales by 1.0%  FX reduced sales by 7.4%  Operating margins of 24.3%, up 90 basis points year-on-year  All business groups over 22%  Returned $2.2 billion to shareholders via dividends and gross share repurchases Refer to 3M’s October 22, 2015 press release for full details. 21 October 2015 . All Rights Reserved. © 3M 4


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Positioning 3M for the Future  Investing in R&D and cap-ex to drive organic growth  Portfolio actions  Acquisitions (closed in Q3): Capital Safety; Polypore’s Separations Media business  Divestitures (closing in Q4): Library Systems; License plate converting business in France  Announced intent to pursue strategic alternatives for Health Information Systems business  Restructuring actions  Expected reduction of 1,500 positions globally  Lowers 2016 pre-tax operating costs by approximately $130 million  Fourth-quarter pre-tax charge of approximately $100 million, or $0.13 per share 21 October 2015 . All Rights Reserved. © 3M 5


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Q3 2015 Sales Recap Worldwide Sales Change Due To: Organic volume  Organic local currency: 0.1% Price 1.1% 1.2% Organic local currency Acquisition/divestiture  U.S. +1.5%  Asia Pacific +0.4%   1.0% FX -7.4% Total ($M) -5.2%  US APAC EMEA Organic volume +1.2% +0.4% -0.6% -2.7% Price +0.3% 0.0% +2.1% +5.0% Organic local currency +1.5% +0.4% +1.5% +2.3% Acq/div +1.5% +0.4% +0.8% +1.0% FX ----- -6.9% -14.4% -6.1% -12.1% West Europe flat -21.1% +3.0% EMEA +1.5%  LAC China/Hong Kong -2% Japan +1% -17.8% Total growth 21 October 2015 . All Rights Reserved. © 3M  Latin America/Canada +2.3%  Mexico +13%, Brazil -2%  FX reduced sales by 7.4%  Euro -15%, Yen -14%, Real -37% 6


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Q3 2015 P&L ($M) Q3 2014 Q3 2015 Sales $8,137 $7,712 -5.2% Q3 14 Gross profit $3,932 $3,835 -2.5% Organic volume 48.3% 49.7% +1.4 pts $1,597 $1,530 -4.2% % to sales 19.6% 19.8% +0.2 pts R&D & related $434 $429 -1.0% 5.3% 5.6% +0.3 pts $1,901 $1,876 -1.3% 23.4% 24.3% +0.9 pts % to sales SG&A % to sales Operating income % to sales Net income Earnings per share $1,303 $1,296 -0.5% $1.98 $2.05 +3.5% Refer to 3M’s October 22, 2015 press release for full details. 21 October 2015 . All Rights Reserved. © 3M Change Operating margin of 24.3%, up 0.9 percentage points 23.4% 0.0% Price/raw materials +1.7% Productivity/other +0.2% FX +0.2% Acquisitions* -0.6% Strategic investments Pension/OPEB Q3 15 -0.1% -0.5% 24.3% *Includes impact from Ivera Medical, Capital Safety and Polypore’s Separations Media business. 7


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Q3 2015 GAAP EPS $1.98 Organic growth, margin expansion +$0.11  Includes -$0.04 headwind from pension/OPEB expense -$0.04  Includes impact from Capital Safety and Polypore Separations Media business FX -$0.10  Pre-tax earnings impact of ~$95M Tax rate +$0.02  Q3 2015 29.6% vs. Q3 2014 30.3% Shares outstanding $2.05 Q3 2014 Acquisitions +3.5% +$0.08  Average diluted shares down 4% $1.98 Q3 2014 21 October 2015 . All Rights Reserved. © 3M Q3 2015 Q3 2015 $2.05 8


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Q3 2015 Cash Flow ($M) Q3 2014 Q3 2015 Q3 YTD Q3 YTD 2014 2015 Change Change Operating cash flow $1,711 $1,664 ($47) $4,443 $4,082 ($361) Capital expenditures ($369) ($354) $15 ($1,003) ($1,015) ($12) Free cash flow $1,342 $1,310 ($32) $3,440 $3,067 ($373) Free cash flow conversion 103% 101% -2 pts 91% 81% -10 pts Dividends $550 $635 $85 $1,672 $1,933 $261 Gross share repurchase $1,239 $1,523 $284 $4,373 $4,104 ($269) Total cash to shareholders $1,789 $2,158 $369 $6,045 $6,037 ($8)  Expecting FY 2015 of $1.4B to $1.5B  Expecting FY 2015 of 95% to 100%  Expecting FY 2015 of $5B to $5.5B Refer to 3M’s October 22, 2015 press release for full details. 21 October 2015 . All Rights Reserved. © 3M 9


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Industrial ($M) Q3 2014 Q3 2015 % Growth Sales $2,772 $2,575  Organic local currency growth: -7.1% Organic local currency +0.7% FX -8.0% By business: growth led by automotive OEM, 3M purification, abrasives and industrial adhesives and tapes; advanced materials declined  By area: sales grew in Latin America/Canada, Asia Pacific and EMEA; sales declined in the U.S. +0.2% Acquisition/divestiture  Operating income $616 $580 -5.8% Operating margin 22.2% 22.5% +0.3 pts Ex-acquisition 22.2% 23.1%*  Closed acquisition of Polypore’s Separations Media business, which adds “ultra” filtration capabilities to 3M’s existing core filtration platform +0.9 pts *Excludes impact of Polypore’s Separations Media business which closed August 26, 2015. 21 October 2015 . All Rights Reserved. © 3M 10


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Safety & Graphics ($M) Q3 2014 Q3 2015 % Growth Sales $1,448 $1,417  Organic local currency growth: -2.2% Organic local currency +4.2% FX -9.3% By business: sales grew in roofing granules, commercial solutions and personal safety; traffic safety and security declined  By area: sales increased in Asia Pacific, EMEA and the U.S.; sales declined in Latin America/Canada +2.9% Acquisition/divestiture  Operating income $340 $324 -4.8% Operating margin 23.5% 22.9%  Closed acquisition of Capital Safety, a leading global provider of fall protection equipment -0.6 pts Ex-acquisition 23.5% 24.8%* +1.3 pts *Excludes impact of Capital Safety acquisition which closed August 3, 2015. 21 October 2015 . All Rights Reserved. © 3M 11


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Health Care ($M) Q3 2014 Q3 2015 % Growth Sales $1,390 $1,346  Organic local currency growth: -3.2% Organic local currency +0.9% FX -7.8% By business: sales grew in health information systems, food safety, critical and chronic care, oral care and infection prevention; drug delivery systems declined year-on-year  By area: sales grew in all areas led by Latin America/Canada, Asia Pacific and the U.S. +3.7% Acquisition/divestiture  Operating income $432 $432 +0.1% Operating margin 31.0% 32.1% +1.1 pts 21 October 2015 . All Rights Reserved. © 3M  Food safety business announced next generation of 3M™ Molecular Detection Assays for detecting foodborne pathogens  Ivera Medical integration on track; business exceeding sales and profit objectives 12


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Electronics & Energy ($M) Q3 2014 Q3 2015 % Growth Sales $1,500 $1,378  Organic local currency growth: -8.1% Organic local currency -4.6%  By area: sales grew in EMEA; sales declined in the U.S., Latin America/Canada and Asia Pacific -0.7% FX By business: electronic-related sales declined 3% (sales grew in electronics materials solutions and declined in display materials and systems); energy-related sales declined 2% (growth in telecom was offset by declines in electrical markets and renewable energy) -2.8% Acquisition/divestiture  Operating income Operating margin 21 October 2015 . All Rights Reserved. © 3M $338 22.5% $342 24.9% +1.4% +2.4 pts  3M ACCR overhead conductor business grew double-digits with project installations in the U.S. and U.K. 13


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Consumer ($M) Q3 2014 Q3 2015 % Growth Sales $1,177 $1,162  Organic local currency growth: -1.2% Organic local currency +5.0% Acquisition/divestiture ----- FX -6.2% Operating income $272 $293 +7.5% Operating margin 23.2% 25.2% +2.0 pts 21 October 2015 . All Rights Reserved. © 3M  By business: sales grew in stationery and office supplies, home improvement and home care  By area: sales increased in U.S., Asia Pacific and EMEA; Latin America/Canada sales declined year-on-year  Global expansion of Nexcare™ Sensitive Skin collection, a new line of first aid products specially formulated for sensitive skin  Strong “back-to-school” season, led by growth in Scotch® home and office tapes, Post-it™ and Command™ products 14


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Updating 2015 Planning Estimates Q2 Earnings Call 7/23/15 Today 10/22/15 +2.5% to +4% +1.5% to +2% -6% to -7% -7% NA +0.5% $7.73 to $7.93* $7.60 to $7.65 NA $7.73 to $7.78 28.5% to 29.5% 28.5% to 29.5% 90% to 100% 95% to 100% Sales growth: Organic local currency FX M&A EPS: GAAP Excluding restructuring Tax Rate Free cash flow conversion *3M adjusted its GAAP earnings expectations on August 26, 2015 to include impact from Capital Safety and Polypore’s Separations Media business acquisitions. 21 October 2015 . All Rights Reserved. © 3M 15


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Q&A 21 October 2015 . All Rights Reserved. © 3M 16


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s Appendix 21 October 2015 . All Rights Reserved. © 3M 17


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Business Segment Information Net Sales Business Groups Q3 2014 Operating Income Q3 2015 Q3 2014 Q3 2015 Net Sales Operating Income YTD 2014 YTD 2015 YTD 2014 YTD 2015 Industrial $2,772 $2,575 $616 $580 $8,363 $7,867 $1,851 $1,787 Safety & Graphics $1,448 $1,417 $340 $324 $4,365 $4,221 $1,011 $1,023 Health Care $1,390 $1,346 $432 $432 $4,180 $4,039 $1,293 $1,280 Electronics & Energy $1,500 $1,378 $338 $342 $4,233 $4,010 $858 $902 $1,177 $1,162 $272 $293 $3,395 $3,321 $741 $792 $3 $2 ($63) ($58) $5 $0 ($184) ($232) Elimination of Dual Credit ($153) ($168) ($34) ($37) ($439) ($482) ($97) ($106) Total $8,137 $7,712 $1,901 $1,876 $24,102 $22,976 $5,473 $5,446 Consumer Corporate and Unallocated 21 October 2015 . All Rights Reserved. © 3M 18


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