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Lehman Brothers Conference Presentation

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  • 1. George W. Buckley Chairman of the Board, President, and CEO 3M Company Accelerated Growth Premium Returns Enhanced Shareholder Value February 12, 2008 © 3M 3M 2007. Rights Reserved. © 2007. All All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 2. Forward-Looking Statements This presentation contain forward-looking information (within the meaning of the Private Securities Litigation Reform Act of 1995) 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,” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Among the factors that could cause actual results to differ materially are the following: (1) worldwide economic 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 less 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 Dec. 31, 2006 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. 2 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 3. Today’s Agenda 1. What happened at 3M in 2007 1 2. Recent performance 2 3. Unparalleled portfolio 3 4. Innovation 4 5. International operations 5 6. 2008 outlook 6 3 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 4. What Happened At 3M In 2007 We overcame the loss of $775M of Pharma sales and $255M of Pharma earnings We dealt with the loss of $40M + earnings in a little known end-of- life flex-circuit issue (ink jet mainly) We closed inefficient plants in Japan, Italy, US (multiple), Canada and New Zealand We put massive effort into solving long-standing capacity and supply chain issues We dealt with a significant legacy of underinvestment in technology We bought back record numbers of shares and increased dividends We did this in a softer optical environment for 3M 4 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 5. What Happened At 3M In 2007 Completed 16 acquisitions, including the second largest in our history We opened plants in China (2), Russia, Turkey, India, Mexico, Canada and several line extensions in the US Several other supply chains straightened out We announced (final) closure of the East Side St Paul facility We completed the Pharma sale and a couple of small non-core businesses in Health Care and Traffic Safety We instituted a new planning approach We launched a new AIP for senior executive employees 5 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 6. The World 3M Lives In A portfolio of mostly short-cycle businesses which can create short- term variability on a quarter-by-quarter basis, but which has consistently delivered on a year-by-year basis A wide geographic portfolio increasingly focused on high-growth emerging markets The best technology sharing company in the world and among the most innovative An incredibly diverse product portfolio that partially inoculates us against one or even two market declines 6 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 7. Our Direction Remains… Investing to accelerate sustainable, profitable growth Continue to strengthen the traditional core of 3M and further build on our enduring franchises Accelerating international growth, still enhanced by FX benefits Continue a steady diet of tuck-in acquisitions Continue to optimize our supply chains It’s not just about factory foot print Increasing sourcing in low cost countries Driving operational excellence to maintain superior margins and ROIC Steadily increasing dividends and consistent share buy backs Provide attractive returns while maintaining flexibility to grow 7 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 8. Growth Must Be Balanced with Operational Excellence Growth Operational Excellence Protect and Adjacency Grow the Core Build Out 3. Solve Low 1. Factory Cost 2. Control Price 1. New Technology 2. New Products 3. M&A Turns Inventory Reduction Leakage 4. Emerging Bus. 4. Service & Quality 5. Localized, Simplified 6. Go to 5. Sourcing 6. Lean Six Sigma Opportunities Revolution Supply Chains Market (EBO’s) Operational Excellence Within A Growth Culture Is Essential 8 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 9. …And Our Formula Is Working 2005 2006 ($Billions) 2007 Sales $20.4 $22.1 $24.5 Accelerating growth % Growth +9% +10% O.I. $4.6 $4.9 $5.5 Maintaining best-of-breed 22% 23% % to Sales EPS $3.92 $4.26 $4.98 Double-digit gains % Growth 9% 17% 21.9% 21.6% 21.4% ROIC Premium asset returns Executing the Plan Amounts exclude special items and pharma in all periods. See appendix for GAAP reported numbers. Return on Invested Capital is a non-GAAP measure; see appendix. 9 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 10. Delivered Double-Digit EPS Growth In 2007 Despite Impact Of Pharma Divestiture Earnings Per Share Ex. Pharma $6.00 17% $4.98 $5.00 11% Pharma $4.49 $0.23 Base $4.00 $4.26 $3.00 2006 2007 Actual Actual Accelerated Sales Growth and Operational Excellence Is Driving Results Amounts exclude special items in all periods. See appendix for GAAP reported numbers. 10 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 11. All Businesses Are Contributing, But Changing Total Local Currency Operating Margins +27.8% 34% 21% 31% 17% 28% 13% 25% 9% 22% 5% 19% 16% 1% 2002 2003 2004 2005 2006 2007 2001 13% -3% 2001 2002 2003 2004 2005 2006 2007 D&G LC Growth Other Segments LC Growth Total 3M LC Growth D&G OI Margin Other Segments OI Margin Total 3M OI Margin Portfolio Breadth Strengthens Results Amounts exclude special items in all periods. See appendix for GAAP reported numbers. 11 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 12. An Outstanding Portfolio: Growing, Profitable, Stable Safety, Security & ($ in billions) Health Care Protection Services CAGR: Sales 12%, OI 12% CAGR: Sales 13%, OI 13% $3.2 $0.8 $4.3 $1.3 $3.1 $4.0 $2.7 $2.6 $0.6 $3.4 $1.0 $3.2 $2.3 $3.0 $2.8 $2.2 $2.0 $0.3 $2.5 $0.6 2004 2005 2006 2007 2004 2005 2006 2007 LC Org Sls 2.8% LC Org Sls 4.1% 5.1% 7.4% 13.9% 6.2% 9.6% 3.4% OI Margin 27.8% OI Margin 20.9% 30.0% 28.3% 27.5% 22.1% 21.0% 20.9% Sales Operating Income Amounts exclude special items in all periods. See appendix for GAAP reported numbers. 12 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 13. An Outstanding Portfolio: Growing, Profitable, Stable Electro & ($ in billions) Display & Graphics Communications CAGR: Sales 5%, OI 0% CAGR: Sales 4%, OI 20% $2.9 $0.6 $4.0 $1.3 $3.9 $2.8 $3.8 $2.6 $2.5 $3.5 $2.5 $2.5 $0.4 $1.0 $3.4 2004 2005 2006 2007 $2.0 $0.2 $3.0 $0.6 2004 2005 2006 2007 LC Org Sls 2.1% 1.5% 2.7% 0.8% LC Org Sls 11.4% 4.6% 5.9% 1.7% OI Margin 12.2% 16.8% 17.4% 18.8% OI Margin 33.0% 32.4.% 28.7% 28.9% Sales Operating Income Amounts exclude special items in all periods. See appendix for GAAP reported numbers. 13 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 14. An Outstanding Portfolio: Growing, Profitable, Stable Industrial & ($ in billions) Consumer and Office Transportation CAGR: Sales 8%, OI 7% CAGR: Sales 9%, OI 13% $3.5 $1.0 $7.5 $3.4 $7.3 $1.9 $3.2 $6.6 $3.0 $0.7 $2.9 $6.5 $1.4 $6.0 $2.7 $5.6 $2.5 $0.4 $5.5 $0.9 2004 2005 2006 2007 2004 2005 2006 2007 LC Org Sls 5.2% LC Org Sls 10.9% 3.3% 4.4% 4.0% 6.1% 6.8% 4.0% OI Margin 18.4% OI Margin 20.0% 20.4% 20.8% 20.4% 20.8% 19.9% 20.2% Sales Operating Income Amounts exclude special items in all periods. See appendix for GAAP reported numbers. 14 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 15. More Divisions Are Growing Faster… # of Divisions Total Local Currency Sales Growth 20 Better 17 15 16 Better 12 10 11 Better 7 5 6 0 < 5% 5-10% 10%+ 2005 2007 An Improved Growth Profile with Lower Risk 15 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 16. …And More Divisions Are Accelerating Profit Growth As Well # of Divisions Operating Income Growth 20 Better 17 15 15 12 10 Better 8 Better 5 6 6 4 1 0 < 5% 5-10% 10-15% 15%+ 2005 2007 Gaining Competitiveness Across 3M Amounts exclude special items in all periods 16 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 17. Innovation © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 18. 3M’s Core Strength: Connecting Technology to Markets A B P S b i m m A C E N P S c e m t o u A D F M P T N d d c i p t w P V A D F F I M M O r p m i e s s e o p R W A D F I L M M P p e n o i m m f r d P S W A E F I M e e o s c l n d 3M Technology Capability Technology-enabled NPI solutions Voice of The Market 18 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 19. The Oldest Can Be Forever New - Abrasive Reinvention FROM TO Trizact™ Hook-it™ Super Abrasives Cubitron™ Sandblaster™ Traditional mineral materials and market focus; Synthetic materials and specialized metal finishing and wood-working applications; aerospace, healthcare, composites 2012 OI Margin = 25% 2003 OI Margin = 12% 2012 ROIC = 45% 2003 ROIC = 16% 2007 Growth Rate = 7.8% 2003 Growth Rate ≈ 1% Movement to higher growth, higher profit market zones 19 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 20. 3M’s Platforms Broadly Supported by Nanotechnology Ad Am Ce Fi Nw Mr Ceramics Adhesives Films Advanced Nonwoven Micro- Materials Materials replication Nanotechnology Nanomaterial Zirconia cubes hardcoats 10nm Silica spheres 75 nm Nanoprocessing Nanocomposites Nanocatalysis Nanofabrication Window Film Dental restoratives Filtration Drug Delivery Reinventing material science through nanotechnology 20 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 21. New Product Success Ensures Long-Term Market Sustainability Just Some of 3M’s New Platforms © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 22. Lava™ Chairside Oral Scanner “Digital Impressions” Technology Obtained via Brontes Acquisition Technology Obtained via Brontes Acquisition 22 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 23. Digital Workflow for Oral Care Prosthodontics Model Production CAD/CAM Crown / Bridge Orthodontics Custom Appliances Design Virtual Model Custom Virtual Model Custom Design Digital Appliances 23 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 24. 3M Mobile Projection Products Coming Soon to a……… Mobile Phone Media Player Digital Camera Smartphone UMPC Pocket Big Screen TV Camcorder Laptop …….Near You © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 25. A Great New Emerging Platform: Optically Clear Adhesives (OCA) Light Extraction PSA for OLED Protective film Functional Injected PSA Hole Visible Light Photons OLED Glass ITO (n=1.51) Anode Al/Cathode Organic Layer Injected Electron 25 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 26. High Performance Window Film Prestige and Crystalline Window Films Film + Nanomaterials Nanomaterial hardcoat HPWF 875 PSA Liner • Film offers IR reflectivity and the nanomaterial hardcoat absorbs IR resulting in rejection of up to 97% of the sun’s IR energy • Tiered global launch with a new business model to meet service expectations – met 100% of sales forecast in 1st year • Established a technology platform to launch subsequent products (Prestige Safety – 2007). Superior heat rejection with low reflectivity and high visible light transmission 26 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 27. New Consumer Products Inspired by Non-Woven Technology Non-woven • New performance attributes • Natural materials • Sustainable and renewable 27 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 28. Microreplication Drives Abrasives - 3M™ Trizact™ Belts 3M™ Trizact™ Cloth Belts 3M™ Trizact™ Diamond Cloth Belts Benefits - Increases throughput - Reduces down-time - Improves quality - Long lasting - Lower overall cost 28 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 29. Advanced Materials Provides Basis for 3M Aluminum Composite Conductor Composite (ACCR) Key Features: Capable of carrying 2-3x the Capable of carrying 2-3x the current of conventional, steel current of conventional, steel core conductors core conductors Strong like steel Compatible with existing Compatible with existing Light weight like aluminum structures structures Highly conductive Less sag Less sag Low thermal expansion Almost no corrosion due to: Almost no corrosion due to: Metal matrix Metal matrix Chemically compatible Chemically compatible (inorganic) (inorganic) materials materials Environmental stability Environmental stability Aluminum-oxide fibers Aluminum-oxide fibers 29 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 30. Advances in Ceramics Produce High Strength Glass Bubbles • Stronger, Lighter, More Versatile • Processing Advances and Capacity • Building Blocks for Composites, Cements, Insulation, Oil and Gas Fluids Enhanced Oil & Gas Production 30 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 31. Solar: Strong Capabilities & Technology Base Optically Clear UV Micro-replicated Wavelength Selective Barrier Films IR Reflective Films Stable Fluoropolymer Films Lens Film Mirror Films Metallized Anti-soil & Electrical Foil & Structural Tapes, 60 Years of Experience Mirror Films Hard Coatings Connectors Sealants & Adhesives (Weathering Resource Center) 31 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 32. International Operations Our Largest Growth Platform 32 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 33. 3M’s Subsidiary Network Poland Switzerland Norway Hungary Canada Czech Trinidad Austria East Romania Republic Sweden & Tobago Finland Ukraine Puerto Rico Russia Germany Dominican Republic Kazakhstan Denmark Korea Jamaica Netherlands Belgium Japan United Mexico Kingdom China Guatemala Portugal Hong Kong El Salvador Spain Taiwan Costa Rica Vietnam Panama France Pakistan Colombia Philippines UAE Morocco Indonesia Venezuela Thailand Israel Ecuador Italy Malaysia Singapore Egypt Peru Greece Sri New Zealand Australia Lanka Brazil Kenya India Chile Turkey Uruguay Key Argentina Sales & Marketing South Africa Manufacturing/Converting Technical Capabilities 33 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 34. 3M’s Dependency on US Economy Lessens Over Time 70% 64-65% 65% Percentage Non-US 60% 55% 51% 50% 45% 40% E 98 99 00 01 02 03 04 05 06 07 08 19 19 20 20 20 20 20 20 20 20 20 34 Amounts exclude pharma in all periods. © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 35. Accelerating International Sales Growth International Sales Growth ($ in Billions) $16 $15.5 $13.6 14 $12.4 GR $11.7 CA 12 % 12 $10.2 10 $8.5 $8.5 $8.2 $7.9 $7.5 8 3% CAGR 6 4 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Our Single Largest Growth Platform… © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 36. …With a Growing Percentage of Emerging Market Sales International Sales Growth $8 ($ in Billions) $7.0 7 Emerging Markets $6.1 6 Adding Almost $1B/Year $5.2 Or 4% To Growth 5 $4.5 GR A +C 4 $3.7 % 19 $2.9 $2.8 3 $2.7 $2.5 $2.4 5% CAGR 2 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Emerging Markets = Central/Eastern Europe + Middle East Africa + Asia Pacific ex. Japan/ANZ+ Latin America Amounts exclude pharma in all periods © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 37. General Outlook For 2008 Moderately softer but stable Investments worldwide economic growth R&D investments and plant start-ups Investing in emerging markets Slower but sustainable growth in developing economies – BRICP LCD films Continued slow US ; H2 stronger than Productivity H1; no relief on residential housing Lean Six Sigma, benefit cost Low single-digit IPI growth in Western containment, G&A leverage Europe and Japan Tailwinds Higher commodity prices/RMs; raising Favorable currency trends prices to help offset Fewer shares outstanding Some commodities likely to ease Actively Managing Whatever Comes Our Way 37 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 38. Driving Toward Our Long-Term Objectives Deliver sales growth at >2x IPI Customer-inspired innovation Move into faster-growing market spaces Aggressively drive EBOs Commitment to double-digit earnings growth Maintain >20% ROIC Continuous supply chain improvement Quadruple win: better service, improve inventory, lower logistics cost, lower tax rate Driving to 30.5% tax rate by 2012 Unlimited Potential for Shareholder Value Creation 38 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 39. 3M Is A Premium Company That Will Only Get Better Superior materials science and innovation Superb international distribution with already-strong capabilities in high-growth developing countries Leading market positions with many enduring franchises World-class margins and returns Deliver on our commitments, year-in and year-out Committed to shareholders Over the period 2002-07: $11B share repurchases, $7B dividends; returned >100% of reported net income via dividends and share repurchases We Will Again Deliver On Our Commitments In 2008; We Will Invest To Ensure A Strong Future For 3M; Our Team Will Get The Job Done Once Again 39 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 40. Question and Answer February 12, 2008 © 3M 3M 2007. Rights Reserved. © 2007. All All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 41. Appendix February 12, 2008 © 3M 3M 2007. Rights Reserved. © 2007. All All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference
  • 42. Non-GAAP Financial Measures 3M Company and Subsidiaries SUPPLEMENTAL CONSOLIDATED INFORMATION NON-GAAP FINANCIAL MEASURES (Millions, except per-share amounts) (Unaudited) The Company uses non-GAAP measures to focus on shareholder value creation. 3M uses Return on In addition to reporting financial results in accordance with U.S. generally accepted accounting principles Invested Capital, defined as after-tax operating income divided by average operating capital. This measure (GAAP), the Company also discusses non-GAAP measures that exclude special items. Sales, operating excludes special items and the historical impacts of the Pharmaceuticals business (see Notes 1 and 2). income and diluted earnings per share measures that exclude special items and that exclude the impact of These measures are not recognized under U.S. generally accepted accounting principles and may not be Pharmaceuticals are not in accordance with, nor are they a substitute for, GAAP measures. Special items comparable to similarly titled measures used by other companies. represent significant charges or credits that are important to an understanding of the Company’s ongoing operations. The company uses these non-GAAP measures to evaluate and manage the Company’s Year Year Year operations. The company believes that discussion of results excluding special items provides a useful 2005 2006 2007 analysis of ongoing operating trends. The determination of special items may not be comparable to Return on Invested Capital 22.1% 25.3% 24.0% similarly titled measures used by other companies. Special items for the twelve months ended December Return on Invested Capital - excluding 31, 2007 and 2006 and prior periods presented have been previously provided (See Note 1). In addition, the Pharmaceuticals and Special Items 21.9% 21.6% 21.4% Company believes that providing financial results excluding the impact of Pharmaceuticals provides useful information (See Note 2). The reconciliations provided below reconcile the non-GAAP financial measures As previously indicated, the Company provides non-GAAP measures, including the business segment with the most directly comparable GAAP financial measures for the periods indicated. operating income amounts shown within this presentation that exclude special items. Special items for the years 2007 and 2006 have been previously provided in an 8-K that was furnished to the U.S. Securities and Year Year Year Year Year Year Year Exchange Commission on January 29, 2008. There were no special items that impacted business segment (Millions, except per-share amounts) 2001 2002 2003 2004 2005 2006 2007 Sales Dollars: operating income results for the years 2005 and 2004. Reported GAAP $ 16,054 $ 16,332 $ 18,232 $ 20,011 $ 21,167 $ 22,923 $ 24,462 Pharmaceutical $ (699) $ (767) $ (813) $ (793) $ (797) $ (774) $ - Adjusted Non-GAAP $ 15,355 $ 15,565 $ 17,419 $ 19,218 $ 20,370 $ 22,149 $ 24,462 (1) Special items for the periods presented have been discussed in Form 8-K’s that were furnished to the U.S. Securities and Exchange Commission on January 29, 2008 and January 30, 2007 and in 3M’s Operating Income Dollars: 2003 Form 10-K filed March 2, 2004. Also reference 3M’s Form 8-K dated May 25, 2007, which Reported GAAP $ 2,075 $ 2,816 $ 3,504 $ 4,326 $ 4,854 $ 5,696 $ 6,193 Special Items $ 504 $ 202 $ 93 $ (523) $ (681) provided results that reflect for all periods presented the impacts of certain business segment product Pharmaceutical $ (157) $ (200) $ (217) $ (194) $ (226) $ (256) $ - moves effective in the first quarter of 2007. Adjusted Non-GAAP $ 2,422 $ 2,818 $ 3,380 $ 4,132 $ 4,628 $ 4,917 $ 5,512 Diluted Earnings per Share: (2) In December 2006 and January 2007, 3M completed the sale of its global branded Pharmaceuticals Reported GAAP $ 1.60 $ 2.32 $ 2.88 $ 3.56 $ 3.98 $ 5.06 $ 5.60 business. In connection with these transactions, 3M’s Drug Delivery Systems Division became a Special Items $ 0.39 $ 0.14 $ 0.07 $ - $ 0.14 $ (0.57) $ (0.62) Pharmaceutical $ (0.12) $ (0.17) $ (0.18) $ (0.16) $ (0.20) $ (0.23) $ - source of supply to the acquiring companies. Because of the extent of 3M cash flows from these Adjusted Non-GAAP $ 1.87 $ 2.29 $ 2.77 $ 3.40 $ 3.92 $ 4.26 $ 4.98 agreements in relation to the disposed businesses, the operations of the branded Pharmaceuticals business were not classified as discontinued operations. The sale of the branded Pharmaceuticals business impacted both sales and operating income growth in 2007, as significant Pharmaceuticals The Company uses local-currency sales growth, which excludes the impact of translation or currency sales and income are in the reported base 2006 period and also in prior periods. Where indicated, to exchange rates, as an indication of its economic sales growth. The Company has provided the components provide more meaningful trend information, portions of this presentation exclude the impact of 2006 of local-currency sales growth below, including the impact of translation. The Company has provided and prior Pharmaceutical financial results, as this business was sold in December 2006 and January local-currency sales growth that excludes the historical impacts of divestitures, primarily the 2007. Pharmaceuticals business, to portray what it believes are more meaningful sales growth trends. 3M believes this non-GAAP sales growth information excluding divestitures provides useful information (See Note 2). These measures are not in accordance with, nor are they a substitute for, GAAP measures. Year Year Year Year Year Year Year 2001 2002 2003 2004 2005 2006 2007 Sales Change Percents: Total Reported Sales Change -3.9% 1.7% 11.6% 9.8% 5.8% 8.3% 6.7% Less: Translation Impact -3.3% 0.1% 5.2% 3.8% 0.7% 0.6% 3.2% Local-Currency Sales Change (including divestitures) -0.6% 1.6% 6.4% 6.0% 5.1% 7.7% 3.5% Local Currency Sales Change (excluding divestitures) -1.1% 1.4% 6.8% 6.5% 5.3% 8.1% 7.3% 42 © 3M 2007. All Rights Reserved. Lehman Brothers 2008 Industrial Select Conference