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3M Company (96OI)

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Monday 18 February, 2008

3M Company

Final Results - Part 1 of 2

3M Company
18 February 2008



        10-K
        
              0000066740
              xxxxxxx
              Large  Accelerated  Filer
      
        12/31/2007
        No
        No
        CHX
        NYSE
        
              EDGAR  Advantage  Service  Team
              (800)  688  -  1933
      
        No
        Yes


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                                 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

                                   FORM 10-K



             x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007



Commission file number 1-3285



                                   3M COMPANY


            State of Incorporation: Delaware                        I.R.S. Employer Identification No. 41-0417775

                           Principal executive offices: 3M Center, St. Paul, Minnesota 55144
                                           Telephone number: (651) 733-1110



          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


                                                                              Name of each exchange
                            Title of each class                               on which registered
                  Common Stock, Par Value $.01 Per Share                      New York Stock Exchange, Inc.
                                                                              Chicago Stock Exchange, Inc.



    Note: The common stock of the Registrant is also traded on the SWX Swiss
                                   Exchange.

        Securities registered pursuant to section 12(g) of the Act: None



Indicate by check mark if the Registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.  Yes  x  .  No  o  .



Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.  Yes  o .  No  x  .



Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes  x  .  No  o  .



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o



Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of 'accelerated
filer and large accelerated filer' in Rule 12b-2 of the Exchange Act.  Large
accelerated filer x      Accelerated filer  o  Non-accelerated filer  o



Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).   Yes  o  .  No  x  .



The aggregate market value of voting stock held by nonaffiliates of the
Registrant, computed by reference to the closing price and shares outstanding,
was approximately $56.4 billion as of January 31, 2008 (approximately $62.1
billion as of June 30, 2007, the last business day of the Registrant's most
recently completed second quarter).



      Shares of common stock outstanding at January 31, 2008: 707,662,632.



DOCUMENTS INCORPORATED BY REFERENCE



Parts of the Company's definitive proxy statement (to be filed pursuant to
Regulation 14A within 120 days after Registrant's fiscal year-end of December
31, 2007) for its annual meeting to be held on May 13, 2008, are incorporated by
reference in this Form 10-K in response to Part III, Items 10, 11, 12, 13 and
14.



             This document (excluding exhibits) contains 92 pages.

The table of contents is set forth on page 2. The exhibit index begins on page
                                      90.


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                                   3M COMPANY

FORM 10-K

For the Year Ended December 31, 2007

                               TABLE OF CONTENTS


                                                                                                              PAGES
PART I
ITEM 1           Business                                                                                        3

ITEM 1A          Risk Factors                                                                                    8

ITEM 1B          Unresolved Staff Comments                                                                       9

ITEM 2           Properties                                                                                      9

ITEM 3           Legal Proceedings                                                                               9

ITEM 4           Submission of Matters to a Vote of Security Holders                                             9

PART II
ITEM 5           Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of      9
                 Equity Securities

ITEM 6           Selected Financial Data                                                                        11

ITEM 7           Management's Discussion and Analysis of Financial Condition and Results of Operations          12

ITEM 7A          Quantitative and Qualitative Disclosures About Market Risk                                     36

ITEM 8           Financial Statements and Supplementary Data                                                    37

                 Index to Financial Statements                                                                  37

ITEM 9           Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure                                                            87

ITEM 9A          Controls and Procedures                                                                        87

ITEM 9B          Other Information                                                                              88

PART III
ITEM 10          Directors, Executive Officers and Corporate Governance                                         88

ITEM 11          Executive Compensation                                                                         89

ITEM 12          Security Ownership of Certain Beneficial Owners and Management and Related Stockholder         89
                 Matters

ITEM 13          Certain Relationships and Related Transactions, and Director Independence                      89

ITEM 14          Principal Accounting Fees and Services                                                         89

PART IV
ITEM 15          Exhibits and Financial Statement Schedules                                                     90

                 Index to Exhibits                                                                              90





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                                   3M COMPANY

ANNUAL REPORT ON FORM 10-K

For the Year Ended December 31, 2007

PART I



Item 1. Business.



3M Company, formerly known as Minnesota Mining and Manufacturing Company, was
incorporated in 1929 under the laws of the State of Delaware to continue
operations begun in 1902. The Company's ticker symbol is MMM. As used herein,
the term '3M' or 'Company' includes 3M Company and its subsidiaries unless the
context indicates otherwise. In addition, for any references to Note 1 through
Note 18, refer to the Notes to Consolidated Financial Statements in Item 8 of
this document.



Available Information



The SEC maintains a website that contains reports, proxy and information
statements, and other information regarding issuers, including the Company, that
file electronically with the SEC. The public can obtain any documents that the
Company files with the SEC at http://www.sec.gov. The Company files annual
reports, quarterly reports, proxy statements and other documents with the
Securities and Exchange Commission (SEC) under the Securities Exchange Act of
1934 (Exchange Act). The public may read and copy any materials that the Company
files with the SEC at the SEC's Public Reference Room at 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.



3M also makes available free of charge through its website (http://
investor.3M.com) the Company's Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those
reports filed or furnished pursuant to the Exchange Act as soon as reasonably
practicable after the Company electronically files such material with, or
furnishes it to, the SEC.



General



3M is a diversified technology company with a global presence in the following
businesses: industrial and transportation; health care; display and graphics;
consumer and office; safety, security and protection services; and electro and
communications. 3M is among the leading manufacturers of products for many of
the markets it serves. Most 3M products involve expertise in product
development, manufacturing and marketing, and are subject to competition from
products manufactured and sold by other technologically oriented companies.



At December 31, 2007, the Company employed 76,239 people, with 34,138 employed
in the United States and 42,101 employed internationally.



Business Segments



As discussed in Note 16 to the Consolidated Financial Statements, effective in
the first quarter of 2007, 3M made certain product moves between its business
segments in its continuing effort to drive growth by aligning businesses around
markets and customers. Segment information presented herein reflects the impact
of these changes for all periods presented.



3M continues to manage its operations in six operating business segments:
Industrial and Transportation; Health Care; Display and Graphics; Consumer and
Office; Safety, Security and Protection Services; and Electro and
Communications. 3M's six business segments bring together common or related 3M
technologies, enhancing the development of innovative products and services and
providing for efficient sharing of business resources. These segments have
worldwide responsibility for virtually all 3M product lines. Certain small
businesses and lab-sponsored products, as well as various corporate assets and
expenses, are not allocated to the business segments. Financial information and
other disclosures relating to 3M's business segments and operations in major
geographic areas are provided in the Notes to Consolidated Financial Statements.



Industrial and Transportation Business: The Industrial and Transportation
Business segment serves a broad range of markets, such as appliance, paper and
packaging, food and beverage, and automotive. Industrial and Transportation
products include tapes, a wide variety of coated and nonwoven abrasives,
adhesives, specialty materials, closures for disposable diapers, and components
and products that are used in the manufacture, repair, and maintenance of
automotive, marine, aircraft and specialty vehicles. The August 2005 acquisition
of CUNO, Incorporated ('CUNO') added a comprehensive line of filtration products
for the separation, clarification and purification of fluids and gases.



Major industrial products include vinyl, polyester, foil and specialty
industrial tapes and adhesives; Scotch(R) Masking Tape, Scotch(R) Filament Tape
and Scotch(R) Packaging Tape; packaging equipment; 3MTM VHBTM Bonding Tapes;
conductive, low surface energy, hot melt, spray and structural adhesives;
reclosable fasteners; label materials for durable



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goods; and coated, nonwoven and microstructured surface finishing and grinding
abrasives for the industrial market. Other products include a comprehensive line
of filtration products for the separation, clarification and purification of
fluids and gases; fluoroelastomers for seals, tubes and gaskets in engines;
engineering fluids; and closures for disposable diapers.



Major transportation products include insulation components, including
components for catalytic converters; functional and decorative graphics;
abrasion-resistant films; masking tapes; fasteners and tapes for attaching
nameplates, trim, moldings, interior panels and carpeting; coated, nonwoven and
microstructured finishing and grinding abrasives; structural adhesives; and
other specialty materials. In addition, 3M provides paint finishing and
detailing products, including a complete system of cleaners, dressings,
polishes, waxes and other products.



Health Care Business: The Health Care segment serves markets that include
medical, clinics and hospitals, pharmaceuticals, dental and orthodontic
practitioners, and health information systems. Products and services provided to
these and other markets include medical and surgical supplies, skin health and
infection prevention products, drug delivery systems, dental and orthodontic
products, health information systems and microbiology products. As discussed in
Note 2, the global branded pharmaceuticals business was sold in December 2006
and January 2007.



In the medical and surgical areas, 3M is a supplier of medical tapes, dressings,
wound closure products, orthopedic casting materials, electrodes and
stethoscopes. In infection prevention, 3M markets a variety of surgical drapes,
masks and preps, as well as sterilization assurance equipment. Other products
include drug delivery systems, such as metered-dose inhalers, transdermal skin
patches and related components. Dental and orthodontic products include
restoratives, adhesives, finishing and polishing products, crowns, impression
materials, preventive sealants, professional tooth whiteners, prophylaxis and
orthodontic appliances. In health information systems, 3M develops and markets
computer software for hospital coding and data classification, as well as
providing related consulting services. 3M provides microbiology products that
make it faster and easier for food processors to test the microbiological
quality of food.



Display and Graphics Business: The Display and Graphics segment serves markets
that include electronic display, touch screen, traffic safety and commercial
graphics. This segment includes optical film and lens solutions for electronic
displays; touch screens and touch monitors; computer screen filters; reflective
sheeting for transportation safety; and commercial graphics systems.



The optical film business provides films that serve numerous market segments of
the electronic display industry. 3M provides distinct products for five market
segments, including products for: 1) LCD computer monitors, 2) LCD televisions,
3) hand-held devices such as cellular phones, 4) notebook PCs and 5) automotive
displays. Other optical products include lens systems for projection
televisions, in addition to desktop and notebook computer screen filters that
address needs for light control, privacy viewing and glare reduction. The touch
systems business includes touch screens and touch monitors. In traffic safety
systems, 3M provides reflective sheetings used on highway signs, vehicle license
plates, construction work-zone devices, trucks and other vehicles, and also
provides pavement marking systems. Major commercial graphics products include
films, inks, digital signage systems and related products used to produce
graphics for vehicles and signs.



Consumer and Office Business: The Consumer and Office segment serves markets
that include consumer retail, office retail, home improvement, building
maintenance and other markets. Products in this segment include office supply
products, stationery products, construction and home improvement products, home
care products, protective material products and consumer health care products.



Major consumer and office products include Scotch(R) brand products, such as
Scotch(R) MagicTM Tape, Scotch(R) Glue Stick and Scotch(R) Cushioned Mailer;
Post-it(R) Products, such as Post-it(R) Flags, Post-it(R) Note Pads, Post-it(R)
Labeling & Cover-up Tape, and Post-it(R) Pop-up Notes and Dispensers;
construction and home improvement products, including surface-preparation and
wood-finishing materials, CommandTM Adhesive Products and FiltreteTM Filters for
furnaces and air conditioners; home care products, including Scotch-Brite(R)
Scour Pads, Scotch-Brite(R) Scrub Sponges, Scotch-BriteTM Microfiber Cloth
products, O-Cel-OTM Sponges and ScotchgardTM Fabric Protectors; protective
material products, certain maintenance-free respirators, and NexcareTM Adhesive
Bandages.



Safety, Security and Protection Services Business: The Safety, Security and
Protection Services segment serves a broad range of markets that increase the
safety, security and productivity of workers, facilities and systems. Major
product offerings include personal protection products, safety and security
products, energy control products, cleaning and protection products for
commercial establishments, roofing granules for asphalt shingles, and supply
chain execution software solutions. In August 2006, 3M completed the acquisition
of Security Printing and Systems Limited, a producer of finished, personalized
passports and secure cards, which expanded the 3M product line related to border
and civil security solutions. 3M's new emerging business opportunity in its
Track and Trace initiative within 3M's Safety, Security and Protection Services
segment resulted in the merging of a number of formerly separate efforts into
one concerted effort for



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future growth. Track and Trace has a growing array of applications - from
tracking packages to managing medical and legal records.



This segment's products include certain maintenance-free and reusable
respirators, personal protective equipment, electronic surveillance products,
films that protect against counterfeiting, and reflective materials that are
widely used on apparel, footwear and accessories, enhancing visibility in
low-light situations. Other products include theft protection systems for
libraries and library patron self-checkout systems; spill-control sorbents;
ThinsulateTM Insulation and ThinsulateTM Lite LoftTM Insulation; 3MTM Scotchtint
TM Window Film for buildings; 3MTM Ultra Safety and Security Window Film for
property and personal protection during destructive weather conditions; nonwoven
abrasive materials for floor maintenance and commercial cleaning; floor matting;
natural and color-coated mineral granules for asphalt shingles; and supply chain
execution software solutions.



Electro and Communications Business: The Electro and Communications segment
serves the electrical, electronics and communications industries, including
electrical utilities; electrical construction, maintenance and repair; original
equipment manufacturer (OEM) electrical and electronics; computers and
peripherals; consumer electronics; telecommunications central office, outside
plant and enterprise; as well as aerospace, military, automotive and medical
markets; with products that enable the efficient transmission of electrical
power and speed the delivery of information and ideas. Products include
electronic and interconnect solutions, microinterconnect systems,
high-performance fluids, high-temperature and display tapes, telecommunications
products, electrical products, and visual systems products.



Major electronic and electrical products include packaging and interconnection
devices; high-performance fluids used in the manufacture of computer chips, and
for cooling electronics and lubricating computer hard disk drives; high-
temperature and display tapes; insulating materials, including
pressure-sensitive tapes and resins; and related items. 3MTM Flexible Circuits
use electronic packaging and interconnection technology, providing more
connections in less space, and are used in ink-jet print cartridges, cell phones
and electronic devices. This segment serves the world's telecommunications
companies with a wide array of products for fiber-optic and copper-based
telecommunications systems for rapid deployment in fixed and wireless networks.
The 3MTM Aluminum Conductor Composite Reinforced (ACCR) electrical power cable,
with an aluminum-based metal matrix at its core, increases transmission capacity
for existing power lines. Visual communication products serve the world's office
and education markets with overhead projectors and transparency films, as well
as equipment and materials for electronic and multimedia presentations.



Distribution



3M products are sold through numerous distribution channels, including directly
to users and through numerous wholesalers, retailers, jobbers, distributors and
dealers in a wide variety of trades in many countries around the world.
Management believes the confidence of wholesalers, retailers, jobbers,
distributors and dealers in 3M and its products - a confidence developed through
long association with skilled marketing and sales representatives - has
contributed significantly to 3M's position in the marketplace and to its growth.
3M has 157 sales offices worldwide, with nine in the United States and 148
internationally.



Research and Patents



Research and product development constitutes an important part of 3M's
activities and has been a major driver of 3M's sales growth. Research,
development and related expenses totaled $1.368 billion in 2007, $1.522 billion
in 2006 and $1.274 billion in 2005. The global branded pharmaceuticals business,
which was divested in December 2006 and January 2007, incurred research,
development and related expenses of approximately $120 million in 2006 and $142
million in 2005. The 2006 amount also included a $95 million in-process research
and development charge (discussed in Note 2) and $75 million in restructuring
actions (Note 4). Research and development, covering basic scientific research
and the application of scientific advances in the development of new and
improved products and their uses, totaled $788 million in 2007, compared to $943
million in 2006, decreasing due to the $95 million for purchased in-process
research and development discussed above and also due to the pharmaceuticals
business divestiture. Research and development expenses totaled $818 million in
2005. Related expenses primarily include technical support provided by 3M to
existing customers who are using 3M products, and the costs of internally
developed patents.



The Company's products are sold around the world under various trademarks that
are important to the Company. The Company also owns, or holds licenses to use,
numerous U.S. and foreign patents. The Company's research and development
activities generate a steady stream of inventions that are covered by new
patents. Patents applicable to specific products extend for varying periods
according to the date of patent application filing or patent grant and the legal
term of patents in the various countries where patent protection is obtained.
The actual protection afforded by a patent, which can vary from country to
country, depends upon the type of patent, the scope of its coverage and the
availability of legal remedies in the country.



The Company believes that its patents provide an important competitive advantage
in many of its businesses. In general, no single patent or group of related
patents is in itself essential to the Company as a whole or to any of the
Company's



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business segments. The importance of patents in the Display and Graphics
segments is described in 'Performance by Business Segment' - 'Display and
Graphics Business' in Part II, Item 7.



Raw Materials



In 2007, the Company experienced cost increases affecting metals, wood pulp and
oil-derived raw materials. Costs for these materials have remained high
throughout the year, and 3M would expect this level to carry over into early
2008, with some moderation occurring later in the year. To date, the Company is
receiving sufficient quantities of all raw materials to meet its reasonably
foreseeable production requirements. It is impossible to predict future
shortages of raw materials or the impact any such shortages would have. 3M has
avoided disruption to its manufacturing operations through careful management of
existing raw material inventories and development and qualification of
additional supply sources. 3M manages commodity price risks through negotiated
supply contracts, price protection agreements and forward physical contracts.



Environmental Law Compliance



3M's manufacturing operations are affected by national, state and local
environmental laws around the world. 3M has made, and plans to continue making,
necessary expenditures for compliance with applicable laws. 3M is also involved
in remediation actions relating to environmental matters from past operations at
certain sites (refer to 'Environmental and Other Liabilities and Insurance
Receivables' in Note 13, Commitments and Contingencies).



Environmental expenditures relating to existing conditions caused by past
operations that do not contribute to current or future revenues are expensed.
Reserves for liabilities for anticipated remediation costs are recorded on an
undiscounted basis when they are probable and reasonably estimable, generally no
later than the completion of feasibility studies or the Company's commitment to
a plan of action. Environmental expenditures for capital projects that
contribute to current or future operations generally are capitalized and
depreciated over their estimated useful lives.



In 2007, 3M expended about $21 million for capital projects related to
protecting the environment. This amount excludes expenditures for remediation
actions relating to existing matters caused by past operations. Capital
expenditures for environmental purposes have included pollution control devices
- such as wastewater treatment plant improvements, scrubbers, containment
structures, solvent recovery units and thermal oxidizers - at new and existing
facilities constructed or upgraded in the normal course of business. Consistent
with the Company's policies stressing environmental responsibility, capital
expenditures (other than for remediation projects) for known projects are
presently expected to be about $47 million over the next two years for new or
expanded programs to build facilities or modify manufacturing processes to
minimize waste and reduce emissions.



While the Company cannot predict with certainty the future costs of such cleanup
activities, capital expenditures or operating costs for environmental
compliance, the Company does not believe they will have a material effect on its
capital expenditures, earnings or competitive position.



Executive Officers



Following is a list of the executive officers of 3M, and their age, present
position, the year elected to their present position and other positions they
have held during the past five years. No family relationships exist among any of
the executive officers named, nor is there any undisclosed arrangement or
understanding pursuant to which any person was selected as an officer. This
information is presented as of the date of the 10-K filing (February 15, 2008).


                                                                            Year               Other Positions
                                                                         Elected to
                                                                          Present
Name                          Age            Present Position             Position          Held During 2003-2007
George W. Buckley              60      Chairman of the Board,               2005         Chairman and Chief
                                       President and                                     Executive Officer,
                                       Chief Executive Officer                           Brunswick Corporation,
                                                                                         2000-2005

Patrick D. Campbell            55      Senior Vice President and            2002
                                       Chief Financial Officer

Joe E. Harlan                  48      Executive Vice President,            2004         President and Chairman of
                                       Electro and Communications                        the Board, Sumitomo 3M
                                       Business                                          Limited, 2003-2004
                                                                                         Executive Vice President,
                                                                                         Sumitomo 3M Limited,
                                                                                         2002-2003



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Executive Officers

(continued)


                                                                            Year               Other Positions
                                                                         Elected to
                                                                          Present
Name                          Age            Present Position             Position          Held During 2003-2007
Michael A. Kelly               51      Executive Vice President,            2006         Division Vice President,
                                       Display and Graphics                              Occupational Health and
                                       Business                                          Environmental Safety
                                                                                         Division, 2003-2006
                                                                                         General Manager,
                                                                                         Performance Materials
                                                                                         Division, 2003
                                                                                         Managing Director, 3M
                                                                                         Korea, 2001-2003

Angela S. Lalor                42      Senior Vice President,               2006         Staff Vice President, Human
                                       Human Resources                                   Resources Operations, 2005
                                                                                         Executive Director, Human
                                                                                         Resources Operations,
                                                                                         2004-2005
                                                                                         Director, Compensation and
                                                                                         Employee Administration,
                                                                                         2002-2004

Jean Lobey                     55      Executive Vice President,            2005         Managing Director, 3M
                                       Safety, Security and                              Brazil, 2003-2004
                                       Protection
                                       Services Business                                 Executive Director, Six
                                                                                         Sigma, Europe and Middle
                                                                                         East, 2001-2003

Robert D. MacDonald            57      Senior Vice President,               2004         Division Vice President,
                                       Marketing and Sales                               Automotive Aftermarket
                                                                                         Division, 2002-2004

Moe S. Nozari                  65      Executive Vice President,            2002
                                       Consumer and Office Business

Frederick J. Palensky          58      Executive Vice President,            2006         Executive Vice President,
                                       Research and Development and                      Enterprise Services,
                                                                                         2005-2006
                                       Chief Technology Officer                          Executive Vice President,
                                                                                         Safety, Security and
                                                                                         Protection Services
                                                                                         Business, 2002-2005

Brad T. Sauer                  48      Executive Vice President,            2004         Executive Vice President,
                                       Health Care Business                              Electro and Communications
                                                                                         Business, 2002-2004

Hak Cheol Shin                 50      Executive Vice President,            2006         Executive Vice President,
                                       Industrial and                                    Industrial Business, 2005
                                       Transportation Business
                                                                                         Division Vice President,
                                                                                         Industrial Adhesives and
                                                                                         Tapes Division, 2003-2005
                                                                                         Division Vice President,
                                                                                         Electronics Markets
                                                                                         Materials Division,
                                                                                         2002-2003

Marschall I. Smith             63      Senior Vice President,               2007         Vice President and General
                                       Legal Affairs and General                         Counsel, Brunswick
                                       Counsel                                           Corporation, 2001-2007

Inge G. Thulin                 54      Executive Vice President,            2004         Vice President, Asia
                                       International Operations                          Pacific; and Executive Vice
                                                                                         President, International
                                                                                         Operations, 2003-2004
                                                                                         Vice President, Europe and
                                                                                         Middle East, 2002-2003

John K. Woodworth              56      Senior Vice President,               2006         Vice President, Asia
                                                                                         Pacific, 2004-2006
                                       Corporate Supply Chain                            Division Vice President,
                                       Operations                                        Electronic Solutions
                                                                                         Division, 2003-2004
                                                                                         Division Vice President,
                                                                                         Electronic and Interconnect
                                                                                         Solutions Division,
                                                                                         2002-2003





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Item 1A. Risk Factors.



The most significant risk factors applicable to the Company are as follows:



* Results are impacted by the effects of, and changes in, worldwide economic
conditions. The Company operates in more than 60 countries and derives
approximately 63% of its revenues from outside the United States. The Company's
business may be affected by factors in the United States and other countries
that are beyond its control, such as downturns in economic activity in a
specific country or region, or in the various industries in which the Company
operates; social, political or labor conditions in a specific country or region;
or adverse changes in interest rates, tax, or regulations in the jurisdictions
in which the company operates.



* The Company's results are affected by competitive conditions and customer
preferences. Demand for the Company's products, which impacts revenue and profit
margins, is affected by (i) the development and timing of the introduction of
competitive products; (ii) the Company's response to downward pricing to stay
competitive; (iii) changes in customer order patterns, such as changes in the
levels of inventory maintained by customers and the timing of customer purchases
which may be affected by announced price changes, changes in the Company's
incentive programs, or the customer's ability to achieve incentive goals; and
(iv) changes in customers' preferences for our products, including the success
of products offered by our competitors, and changes in customer designs for
their products that can affect the demand for some of the Company's products.



* Foreign currency exchange rates and fluctuations in those rates may affect the
Company's ability to realize projected growth rates in its sales and earnings.
Because the Company derives approximately 63% of its revenues from outside the
United States, its ability to realize projected growth rates in sales and
earnings could be adversely affected if the U.S. dollar strengthens
significantly against foreign currencies.



* The Company's growth objectives are largely dependent on the timing and market
acceptance of its new product offerings, including its ability to continually
renew its pipeline of new products and to bring those products to market. This
ability may be adversely affected by difficulties or delays in product
development, such as the inability to identify viable new products, obtain
adequate intellectual property protection, or gain market acceptance of new
products. There are no guarantees that new products will prove to be
commercially successful.



* The Company's future results are subject to fluctuations in the costs and
availability of purchased components, compounds, raw materials and energy,
including oil and natural gas and their derivatives, due to shortages, increased
demand, supply interruptions, currency exchange risks, natural disasters and
other factors. The Company depends on various components, compounds, raw
materials, and energy (including oil and natural gas and their derivatives)
supplied by others for the manufacturing of its products. It is possible that
any of its supplier relationships could be interrupted due to natural and other
disasters and other events, or be terminated in the future. Any sustained
interruption in the Company's receipt of adequate supplies could have a material
adverse effect on the Company. In addition, while the Company has a process to
minimize volatility in component and material pricing, no assurance can be given
that the Company will be able to successfully manage price fluctuations or that
future price fluctuations or shortages will not have a material adverse effect
on the Company.



* Acquisitions, strategic alliances, divestitures, and other unusual events
resulting from portfolio management actions and other evolving business
strategies, and possible organizational restructuring could affect future
results. The Company monitors its business portfolio and organizational
structure and has made and may continue to make acquisitions, strategic
alliances, divestitures and changes to its organizational structure. With
respect to acquisitions, future results will be affected by the Company's
ability to integrate acquired businesses quickly and obtain the anticipated
synergies.



* The Company's future results may be affected if the Company generates fewer
productivity improvements than estimated. The Company utilizes various tools,
such as Lean Six Sigma, to improve operational efficiency and productivity.
There can be no assurance that all of the projected productivity improvements
will be realized.



* The Company's future results may be affected by various legal and regulatory
proceedings, including those involving product liability, antitrust,
environmental or other matters. The outcome of these legal proceedings may
differ from the Company's expectations because the outcomes of litigation,
including regulatory matters, are often difficult to reliably predict. Various
factors or developments can lead the Company to change current estimates of
liabilities and related insurance receivables where applicable, or make such
estimates for matters previously not susceptible of reasonable estimates, such
as a significant judicial ruling or judgment, a significant settlement,
significant regulatory developments or changes in applicable law. A future
adverse ruling, settlement or unfavorable development could result in future
charges that could have a material adverse effect on the Company's results of
operations or cash flows in any particular period. For a more detailed
discussion of the legal proceedings involving the Company and the associated
accounting estimates, see the discussion in Note 13.



                                       8
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Item 1B. Unresolved Staff Comments.



None.



Item 2. Properties.



3M's general offices, corporate research laboratories, and certain division
laboratories are located in St. Paul, Minnesota. In the United States, 3M has
nine sales offices in eight states and operates 74 manufacturing facilities in
27 states. Internationally, 3M has 148 sales offices. The Company operates 93
manufacturing and converting facilities in 32 countries outside the United
States.



3M owns substantially all of its physical properties. 3M's physical facilities
are highly suitable for the purposes for which they were designed. Because 3M is
a global enterprise characterized by substantial intersegment cooperation,
properties are often used by multiple business segments.



Item 3. Legal Proceedings.



Discussion of legal matters is incorporated by reference from Part II, Item 8,
Note 13, 'Commitments and Contingencies,' of this document, and should be
considered an integral part of Part I, Item 3, 'Legal Proceedings.'



Item 4. Submission of Matters to a Vote of Security Holders.



None in the quarter ended December 31, 2007.



PART II



Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.



Equity compensation plans' information is incorporated by reference from Part
III, Item 12, 'Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters,' of this document, and should be considered an
integral part of Item 5. At January 31, 2008, there were approximately 121,302
shareholders of record. 3M's stock is listed on the New York Stock Exchange,
Inc. (NYSE), the Chicago Stock Exchange, Inc., and the SWX Swiss Exchange. Cash
dividends declared and paid totaled $.48 per share for each quarter of 2007, and
$.46 per share for each quarter of 2006. Stock price comparisons follow:



Stock price comparisons (NYSE composite transactions)


(Per share amounts)             First        Second       Third        Fourth
                               Quarter      Quarter      Quarter      Quarter        Year
2007 High                     $    79.88   $    89.03   $    93.98   $    97.00   $    97.00
2007 Low                           72.90        75.91        83.21        78.98        72.90
2006 High                     $    79.83   $    88.35   $    81.60   $    81.95   $    88.35
2006 Low                           70.30        75.76        67.05        73.00        67.05



Issuer Purchases of Equity Securities



Repurchases of common stock are made to support the Company's stock-based
employee compensation plans and for other corporate purposes. On February 13,
2006, the Board of Directors authorized the purchase of $2.0 billion of the
Company's common stock between February 13, 2006 and February 28, 2007. In
August 2006, 3M's Board of Directors authorized the repurchase of an additional
$1.0 billion in share repurchases, raising the total authorization to $3.0
billion for the period from February 13, 2006 to February 28, 2007. In February
2007, 3M's Board of Directors authorized a two-year share repurchase of up to
$7.0 billion for the period from February 12, 2007 to February 28, 2009.



                                       9
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Issuer Purchases of Equity

Securities (registered pursuant to

Section 12 of the Exchange Act)


Period                                            Total         Average Price         Total            Maximum
                                                Number of      Paid per Share       Number of        Approximate
                                                 Shares                              Shares         Dollar Value
                                                Purchased                           Purchased         of Shares
                                                   (1)                             as Part of       that May Yet
                                                                                    Publicly             Be
                                                                                    Announced         Purchased
                                                                                    Plans or          under the
                                                                                    Programs          Plans or
                                                                                                      Programs
                                                                                                     (Millions)
January 1-31, 2007                                 1,311,268   $         76.33         1,277,200   $           651
February 1-28, 2007                                6,542,591   $         75.12         6,522,500   $         6,731
March 1-31, 2007                                   8,187,472   $         75.59         8,151,700   $         6,115
Total January 1 - March 31, 2007                  16,041,331   $         75.46        15,951,400   $         6,115
April 1-30, 2007                                   3,548,221   $         77.55         3,476,700   $         5,846
May 1-31, 2007                                     4,428,219   $         85.84         4,202,800   $         5,485
June 1-30, 2007                                    3,885,033   $         86.58         3,810,800   $         5,155
Total April 1 - June 30, 2007                     11,861,473   $         83.60        11,490,300   $         5,155
July 1-31, 2007                                    1,646,251   $         89.01         1,510,300   $         5,021
August 1-31, 2007                                  2,329,478   $         87.05         2,247,300   $         4,825
September 1-30, 2007                               2,086,564   $         90.24         2,029,600   $         4,642
Total July 1 - September 30, 2007                  6,062,293   $         88.68         5,787,200   $         4,642
October 1-31, 2007                                 2,192,302   $         88.89         2,178,500   $         4,448
November 1-30, 2007                                1,702,375   $         82.35         1,692,000   $         4,309
December 1-31, 2007                                1,896,612   $         85.41         1,873,500   $         4,149
Total October 1 - Dec. 31, 2007                    5,791,289   $         85.83         5,744,000   $         4,149
Total January 1 - December 31, 2007               39,756,386   $         81.42        38,972,900   $         4,149
--------------------

(1) The total number of shares purchased includes: (i) shares purchased under
the Board's authorizations described above, and (ii) shares purchased in
connection with the exercise of stock options (which totaled 34,068 shares in
January 2007, 20,091 shares in February 2007, 35,772 shares in March 2007,
71,521 shares in April 2007, 225,419 shares in May 2007, 74,233 shares in June
2007, 135,951 shares in July 2007, 82,178 shares in August 2007, 56,964 shares
in September 2007, 13,802 shares in October 2007, 10,375 shares in November
2007, and 23,112 shares in December 2007).



                                       10
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Item 6. Selected Financial Data.


(Dollars in millions, except per share amounts)      2007         2006         2005         2004         2003
Years ended December 31:
Net sales                                          $  24,462    $  22,923    $  21,167    $  20,011    $  18,232
Income before cumulative effect of accounting          4,096        3,851        3,146        2,841        2,286
change
Per share of common stock:
Income before cumulative effect of accounting           5.70         5.15         4.11         3.64         2.92
change - basic
Income before cumulative effect of accounting           5.60         5.06         4.03         3.56         2.88
change - diluted
Cash dividends declared and paid                        1.92         1.84         1.68         1.44         1.32
At December 31:
Total assets                                       $  24,694    $  21,294    $  20,541    $  20,723    $  17,612
Long-term debt (excluding portion due within           4,088        1,112        1,368          798        1,805
one year) and long-term capital lease
obligations



The above income and earnings per share information exclude a cumulative effect
of accounting change in 2005 ($35 million, or 5 cents per diluted share). Refer
to Note 1 for more detail.



2007 results included net gains that increased operating income by $681 million
and net income by $448 million. 2007 included gains related to the sale of
businesses ($849 million pre-tax, $550 million after-tax) and a gain on sale of
real estate ($52 million pre-tax, $37 million after-tax), which were partially
offset by increases in environmental liabilities ($134 million pre-tax, $83
million after-tax), restructuring actions ($41 million pre-tax, $27 million
after-tax), and other exit activities ($45 million pre-tax, $29 million
after-tax). 2006 results included net gains that increased operating income by
$523 million and net income by $438 million. 2006 included net benefits from
gains related to the sale of certain portions of 3M's branded pharmaceuticals
business ($1.074 billion pre-tax, $674 million after-tax) and favorable income
tax adjustments ($149 million), which were partially offset by restructuring
actions ($403 million pre-tax, $257 million after-tax), acquired in-process
research and development expenses ($95 million pre-tax and after-tax),
settlement costs of a previously disclosed antitrust class action ($40 million
pre-tax, $25 million after-tax), and environmental obligations related to the
pharmaceuticals business ($13 million pre-tax, $8 million after-tax). 2005
results included charges that reduced net income by $75 million. This related to
a tax liability resulting from 3M's reinvestment of approximately $1.7 billion
of foreign earnings in the United States pursuant to the repatriation provisions
of the American Jobs Creation Act of 2004. 2003 results included charges related
to an adverse ruling in a lawsuit filed against 3M in 1997 by LePage's Inc. that
reduced operating income by $93 million ($58 million after tax).



                                       11
--------------------------------------------------------------------------------




Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.



Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) is designed to provide a reader of 3M's financial statements
with a narrative from the perspective of management. 3M's MD&A is presented in
nine sections:


                                                   Reference (pages)

•   Overview                                                  12
•   Results of Operations                                     15
•   Performance by Business Segment                           18
•   Performance by Geographic Segment                         27
•   Critical Accounting Estimates                             28
•   New Accounting Pronouncements                             30
•   Financial Condition and Liquidity                         30
•   Financial Instruments                                     35
•   Forward-Looking Statements                                35



OVERVIEW



3M is a diversified global manufacturer, technology innovator and marketer of a
wide variety of products. 3M manages its operations in six operating business
segments: Industrial and Transportation; Health Care; Display and Graphics;
Consumer and Office; Safety, Security and Protection Services; and Electro and
Communications.



3M's strategy continues to emphasize a commitment to grow at a faster pace,
using a four-pronged approach, which includes reinvesting in its core
businesses, developing adjacent emerging business opportunities, expanding on
the Company's already world-class capabilities internationally, and acquiring
companies in complementary faster-growing industries. The Company will continue
to invest in research and development and plant start-ups in 2008, including
investments in emerging markets around the world. Research, development and
related expenses totaled $1.368 billion in 2007. Capital expenditures totaled
$1.422 billion in 2007, up $254 million compared with 2006. The Company expects
capital expenditures to total approximately $1.3 billion to $1.4 billion in
2008, providing the capacity to meet expected growth.



In December 2006 and January 2007, 3M completed the sale of its branded
pharmaceuticals business, resulting in gains in the fourth quarter of 2006 and
first quarter of 2007. In addition, 3M recorded a gain related to the sale of
its Opticom Priority Control Systems and Canoga Traffic Detection businesses in
the second quarter of 2007. In both 2007 and 2006, these gains on sale of
businesses and a gain on sale of real estate were partially offset by
restructuring and other items. Refer to Note A at the end of this overview
section for additional details. Including these items, in 2007, 3M reported
record net sales of $24.462 billion and record net income of $4.096 billion, or
$5.60 per diluted share, compared with net sales of $22.923 billion and net
income of $3.851 billion, or $5.06 per diluted share, in 2006. Excluding the
items in Note A in both years, the Company still achieved strong underlying
operating performance, helped by a 6.7% increase in net sales, which included
the divestiture impacts discussed above that reduced sales growth by 3.8%.



The following table contains sales and operating income results by business
segment for the years ended December 31, 2007 and 2006. Refer to the Performance
by Business Segment section for discussion of the gain on sale of businesses,
restructuring and other items that impacted reported operating income results.


                                  2007                           2006                2007 vs. 2006
                                                                                        % change
(Dollars in             Net       % of      Oper.      Net       % of      Oper.     Net      Oper.
millions)              Sales     Total     Income     Sales     Total     Income    Sales     Income
Business Segments
Industrial and        $  7,274     29.7 %  $ 1,501   $  6,640     29.0 %  $ 1,342     9.6 %     11.8 %
Transportation
Health Care              3,968     16.2 %    1,882      4,011     17.5 %    1,845    (1.1 )%     2.0 %
Display and              3,892     15.9 %    1,174      3,770     16.4 %    1,044     3.2 %     12.4 %
Graphics
Consumer and             3,403     13.9 %      688      3,164     13.8 %      629     7.6 %      9.3 %
Office
Safety, Security
and
Protection               3,070     12.6 %      611      2,663     11.6 %      549    15.3 %     11.3 %
Services
Electro and              2,775     11.3 %      481      2,631     11.5 %      411     5.5 %     17.0 %
Communications
Corporate and
Unallocated                 80      0.4 %     (144 )       44      0.2 %     (124 )

Total Company         $ 24,462      100 %  $ 6,193   $ 22,923      100 %  $ 5,696     6.7 %      8.7 %



                                       12
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In 2007, worldwide total sales increased 6.7%. Local-currency sales growth
(which includes volume, selling price and acquisition impacts, but excludes
divestiture and translation impacts) was 7.3%, with organic local-currency
growth of 4.9% (including 0.7% benefit from pharmaceuticals supply agreements)
and acquisitions adding 2.4%. Divestitures, primarily the sale of the global
branded pharmaceuticals business (Health Care segment), decreased worldwide
sales growth by 3.8%. The sale of the pharmaceuticals business is not presented
as a discontinued operation due to the extent of the projected continuing cash
flows from 3M's contractual supply relationship with the buyers in relation to
those of the business that was sold.



The breadth of 3M's product lines was evident during 2007 as the Company
experienced solid sales growth across the portfolio. Health Care led all
segments with local-currency sales growth of 18.3% (excluding divestitures).
This includes a 4.4% benefit from acquisitions and 4.5% benefit due to the
pharmaceuticals supply agreements. The sale of 3M's global branded
pharmaceuticals business reduced Health Care sales growth by 23.7%.
Local-currency sales increased 10.8% in Safety, Security and Protection
Services, including 7.4% from numerous acquisitions. Local-currency sales
increased 5.8% in Industrial and Transportation, 5.0% in Consumer and Office,
2.3% in Electro and Communications, and 1.8% (excluding the impact of the
Opticom/Canoga divestiture) in Display and Graphics. While 3M experienced
broad-based sales growth, there was softness in certain markets in 2007. Within
Display and Graphics, optical film sales increased slightly year-on-year, but 3M
experienced an attachment rate loss in LCD desktop monitors and LCD TV segments,
particularly in the second half of 2007, as competition continued to intensify
in this market. 3M also experienced weakness in its roofing granules business
for residential asphalt shingles and in its electronic solutions business due to
softness in certain segments of the consumer electronics market. Refer to the
section entitled Performance by Business Segment for a more detailed discussion
of the results of the respective segments.



Geographically, the European region (which includes Europe, Middle East and
Africa) led local-currency sales growth in 2007, with an increase of 11.7%, 7.4%
of which was organic (excluding acquisitions, divestiture and translation
impacts). Sales growth in Europe was led by Safety, Security and Protection
Services and Health Care (without Pharmaceuticals). The combined Latin America
and Canada area local-currency sales increased 10.6%, of which 9.6% was organic,
with growth led by Industrial and Transportation, Safety, Security and
Protection Services and Health Care (without Pharmaceuticals). Asia Pacific
local-currency sales increased 4.9%, of which 4.5% was organic, with all six
business segments contributing to this increase. United States local-currency
sales increased 5.7%, of which 2.6% was organic. Organic volume growth in the
U.S. was led by Health Care (without Pharmaceuticals) and Industrial and
Transportation, which was partially offset by softness in the electronic
solutions business and weakness in a few businesses that are impacted by the
slowdown in the U.S. housing, road construction and mass retail markets,
primarily the roofing granules, protective materials, traffic safety and office
supply businesses. Divestitures, primarily the sale of the global branded
pharmaceuticals business, reduced sales in Europe by 6.6%, in the United States
by 4.2%, in the combined Latin America and Canada area by 2.8%, and in Asia
Pacific by 1.3%. Currency effects increased total international sales by 5.2%,
with Europe positively impacted by 8.5%, the combined Latin America and Canada
area by 5.9%, and Asia Pacific by 2.0%, as the U.S. dollar weakened in aggregate
against the multitude of currencies in these geographic areas.



Operating income for 2007 increased 8.7% year-on-year, including a net 2.2
percentage point benefit from the impact of items discussed in Note A below.
Operating income margins were approximately 25% in both 2007 and 2006, with
items in Note A positively impacting these margins in both years by
approximately 2.5 percentage points.



3M generated $4.275 billion of operating cash flows in 2007, an increase of $436
million compared to 2006. In 2007, the Company utilized $4.619 billion of cash
to repurchase 3M common stock and pay dividends, compared to $3.727 billion in
2006. In February 2007, 3M's Board of Directors authorized a two-year share
repurchase of up to $7.0 billion for the period from February 12, 2007 to
February 28, 2009. As of December 31, 2007, approximately $4.1 billion remained
available for repurchase. In February 2008, 3M's Board authorized a dividend
increase of 4.2% for 2008, marking the 50th consecutive year of dividend
increases for 3M. 3M's debt to total capital ratio (total capital defined as
debt plus equity) as of December 31, 2007 was 30%. 3M has an AA credit rating
from Standard & Poor's, with a stable outlook, and an Aa1 credit rating from
Moody's Investors Service, with a negative outlook. The Company has sufficient
access to capital markets to meet currently anticipated growth and acquisition
investment funding needs.



In 2007, the Company experienced cost increases affecting metals, wood pulp and
oil-derived raw materials. Costs for these materials have remained high
throughout the year, and 3M would expect this level to carry over into early
2008, with some moderation occurring later in the year. To date the Company is
receiving sufficient quantities of all raw materials to meet its reasonably
foreseeable production requirements. It is impossible to predict future
shortages of raw materials or the impact any such shortages would have. 3M has
avoided disruption to its manufacturing operations through careful management of
existing raw material inventories and development and qualification of
additional supply sources. 3M manages commodity price risks through negotiated
supply contracts, price protection agreements and forward physical contracts.



                                       13
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In 2007, the Company modified elements of its long-term incentive compensation
programs. With the May 2007 Management Stock Ownership Program (MSOP) Annual
Grant, the Company reduced the number of traditional stock options granted by
reducing the number of employees eligible to receive annual grants and by
shifting a portion of the annual grant away from traditional stock options
primarily to restricted stock units. These changes will reduce the annual
dilution impact from approximately 1.5% of total outstanding common stock to
approximately 1%. However, associated with the reduction in the number of
eligible employees, the Company provided a one-time 'buyout' grant of restricted
stock units to the impacted employees, which resulted in increased stock-based
compensation expense in 2007. Stock-based compensation expense totaled $0.18 per
diluted share in 2007, compared with $0.17 per diluted share in 2006. The
Company's MSOP, including restricted stock units, is discussed further in Note
15.



The preceding forward-looking statements involve risks and uncertainties that
could cause results to differ materially from those projected (refer to the
forward-looking statements section in Item 7 and the risk factors provided in
Item 1A for discussion of these risks and uncertainties).



(Note A). In 2007, gains on sale of businesses and real estate, net of
restructuring and other items, increased operating income by $681 million and
net income by $448 million, or $0.62 per diluted share. 2007 included net
benefits from gains related to the sale of businesses ($849 million pre-tax,
$550 million after-tax) and a gain on sale of real estate ($52 million pre-tax,
$37 million after-tax), which were partially offset by increases in
environmental liabilities ($134 million pre-tax, $83 million after-tax),
restructuring actions ($41 million pre-tax, $27 million after-tax), and other
exit activities ($45 million pre-tax, $29 million after-tax). These items,
except the gain on sale of real estate, are discussed in more detail in Note 2
(Acquisitions and Divestitures), Note 4 (Restructuring Actions and Other Exit
Activities) and Note 13 (Commitments and Contingencies). Gains on sale of
businesses include the second-quarter 2007 sale of 3M's Opticom Priority Control
Systems and Canoga Traffic Detection businesses, and the first-quarter 2007 sale
of the global branded pharmaceuticals business in Europe. Concerning the real
estate sale, 3M sold its current lab facility located in Suwon, Korea and is
currently building a new state-of-the-art customer-oriented R&D facility closer
to Seoul and many of 3M's major customers.



In 2006, gains of sale of businesses, net of restructuring and other items,
increased operating income by $523 million and net income by $438 million, or
$0.57 per diluted share. 2006 included net benefits from gains related to the
sale of certain portions of 3M's branded pharmaceuticals business ($1.074
billion pre-tax, $674 million after-tax) and favorable income tax adjustments
($149 million), which were partially offset by restructuring actions ($403
million pre-tax, $257 million after-tax), acquired in-process research and
development expenses ($95 million pre-tax and after-tax), settlement costs of a
previously disclosed antitrust class action ($40 million pre-tax, $25 million
after-tax), and environmental obligations related to the pharmaceuticals
business ($13 million pre-tax, $8 million after-tax). These items, except the
settlement costs and environmental obligations, are discussed in more detail in
Note 2 (Acquisitions and Divestitures), Note 4 (Restructuring Actions and Other
Exit Activities), Note 8 (Income Taxes) and Note 13 (Commitments and
Contingencies). Concerning settlement costs, the Company recorded $40 million in
2006 with respect to a settlement in principle related to the antitrust class
action brought on behalf of direct purchasers who did not purchase private label
tape. Concerning environmental obligations, the Company increased its reserves
by $13 million during 2006 for estimated environmental remediation costs at a
European pharmaceutical plant.



                                       14
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RESULTS OF OPERATIONS



Net Sales:


                                                        2007                                    2006
                                           U.S.        Intl.      Worldwide       U.S.         Intl.        Worldwide
Net sales (millions)                    $    8,987    $ 15,475    $   24,462    $  8,853     $   14,070     $  22,923
% of worldwide sales                          36.7 %      63.3 %                    38.6 %         61.4 %
Components of net sales change:
Volume - organic                               1.6 %       7.4 %         5.1 %       3.1 %          8.0 %         6.1 %
Volume - acquisitions                          3.1         2.1           2.4         2.6            1.9           2.1
Price                                          1.0        (1.1 )        (0.2 )       1.4           (1.8 )        (0.5 )
Local-currency sales                           5.7         8.4           7.3         7.1            8.1           7.7
(including acquisitions)
Divestitures                                  (4.2 )      (3.6 )        (3.8 )         -              -             -
Translation                                      -         5.2           3.2           -            1.0           0.6
Total sales change                             1.5 %      10.0 %         6.7 %       7.1 %          9.1 %         8.3 %



In 2007, local-currency sales growth of 7.3% (which includes acquisitions, but
excludes divestiture and translation impacts) was led by the Health Care;
Safety, Security and Protection Services; Industrial and Transportation and
Consumer and Office segments. All business segments have contributed positive
local-currency sales growth for four consecutive years. Acquisitions increased
2007 sales by 2.4%, led by the August 2006 acquisition of Security Printing and
Systems Limited and the late 2006 acquisitions of Softmed Systems Inc. and
Biotrace International PLC.



In 2006, local-currency sales growth of 7.7% was broad-based, as all business
segments made positive contributions to local-currency sales growth.
Acquisitions increased 2006 sales by 2.1%, driven by the August 2005 acquisition
of CUNO and the August 2006 acquisition of Security Printing and Systems
Limited.



Refer to both the 'Performance by Business Segment' and 'Performance by
Geographic Area' sections for additional discussion of sales change.



Operating Expenses:


                                                                                            2007         2006
                                                                                           Versus       Versus
(Percent of net sales)                               2007         2006         2005         2006         2005
Cost of sales                                           52.1 %       51.1 %       49.2 %        1.0 %        1.9 %
Selling, general and administrative expenses            20.5         22.1         21.9         (1.6 )        0.2
Research, development and related expenses               5.6          6.6          6.0         (1.0 )        0.6
Gain on sale of businesses                              (3.5 )       (4.6 )          -          1.1         (4.6 )
Operating income                                        25.3 %       24.8 %       22.9 %        0.5 %        1.9 %



As discussed in the preceding overview section, the 2007 gain on sale of
businesses and real estate, net of environmental liability charges,
restructuring and other exit activities, benefited 2007 operating income by $681
million, or 2.8% of net sales. In addition, the 2006 gain on sale, net of
restructuring and other items, benefited 2006 operating income by $523 million,
or 2.2% of net sales. The following tables summarize these items by operating
expense category. Items included in the 'Other' category of the table for 2006
are acquired in-process research and development expenses ($95 million),
settlement costs of a previously disclosed antitrust class action ($40 million),
and environmental obligations related to the pharmaceuticals business ($13
million).



                                       15
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                                                  2007 Gain on Sale, Restructuring and Other Summary
(Millions)                              Gain on        Environ-      Restructuring       Gain            Total
                                        Sale of         mental         and other        on sale
                                      businesses      liabilities        exit           of real
                                                                      activities        estate
Cost of sales                        $           -   $           -   $          64   $           -   $          64
Selling, general and                             -             134              26             (52 )           108
administrative expenses
Research, development and related                -               -              (4 )             -              (4 )
expenses
Gain on sale of businesses                    (849 )             -               -                            (849 )
Total operating income penalty       $        (849 ) $         134   $          86   $         (52 ) $        (681 )
(benefit)


                                                  2006 Gain on Sale, Restructuring and Other Summary
(Millions)                       Gain on        Pharma-       Overhead    Business      Total       Other      Total
                                   sale        ceuticals     reduction    specific    restruc-
                                    of       restructuring    actions      actions     turing
                                 pharma-        actions                                actions
                                ceuticals
                                 business
Cost of sales                   $        -   $          32   $       24   $      74   $     130   $      13   $    143
Selling, general and                     -              66           81          51         198          40        238
administrative expenses
Research, development and                -              68            7           -          75          95        170
related expenses
Gain on sale of businesses          (1,074 )             -            -           -           -           -     (1,074 )
Total operating income          $   (1,074 ) $         166   $      112   $     125   $     403   $     148   $   (523 )
penalty (benefit)



Cost of Sales:



Cost of sales includes manufacturing, engineering and freight costs. Cost of
sales as a percent of net sales increased 1.0 percentage point in 2007 compared
to 2006, with this increase primarily due to the sale of the branded
pharmaceuticals business, which had lower than average cost of sales. Raw
material costs increased approximately 1% in 2007, compared with 2006. In 2007,
restructuring and other exit costs increased cost of sales by $64 million, or
0.3 percentage points. These charges primarily related to the consolidation of
certain flexible circuit manufacturing operations, the phase-out of operations
at the Company's New Jersey roofing granule facility and charges related to the
Company's decision to close an Electro and Communications facility in Wisconsin.
In 2006, restructuring and other items increased cost of sales by $143 million,
or 0.7 percentage points.



Cost of sales increased 1.9 percentage points in 2006. Approximately 1.2
percentage points of this increase related to numerous items, such as higher raw
material costs, slightly lower selling prices, and higher costs associated with
scaling up additional manufacturing capacity. In addition, there were supply
chain inefficiencies caused by capacity-constraints. Finally, 3M accelerated the
pace of acquisitions in 2006, which increased cost of sales slightly for the
year. Broad-based sales volume growth and productivity gains helped offset some
of this impact. Raw material costs increased approximately 3% for 2006, compared
with 2005.



Selling, General and Administrative Expenses:



Selling, general and administrative (SG&A) expenses as a percent of net sales
decreased 1.6 percentage points in 2007 when compared to 2006, as expenses
incurred in 2006 in the Company's now-divested global branded Pharmaceuticals
business did not repeat in 2007. Non-pharmaceutical ongoing SG&A expenses, after
adjusting for the following items, were up approximately 7% in dollars,
reflecting the Company's continued investment in sales and marketing to support
growth markets. In 2007, SG&A includes increases in environmental liabilities,
restructuring charges and other exit activities, net of the gain on sale of real
estate ($108 million combined net expense), which increased SG&A as a percent of
sales by 0.4 percentage points. 2006 included restructuring actions and
settlement costs of a previously disclosed antitrust class action ($238 million
combined expense), which increased 2006 SG&A as a percent of sales by 1.0
percentage points. In dollars, SG&A decreased $51 million when comparing 2007 to
2006, with the change in restructuring and other items year-on-year decreasing
SG&A by $130 million, pharmaceutical SG&A spending decreasing $241 million and
other SG&A spending increasing $320 million, or approximately 7% in dollars. The
Company continues to constrain administrative costs.



SG&A expenses as a percentage of net sales increased 0.2 of a percentage point
in 2006 when compared to 2005. In dollars, SG&A increased $435 million, with
restructuring and other items increasing SG&A by $238 million and other spending
increasing SG&A by $197 million. 3M continues to invest in growth-oriented SG&A
as sales and marketing costs increased faster than sales, while administrative
expenses remained relatively flat in dollars, attributable to ongoing
cost-control efforts.



                                       16
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Research, Development and Related Expenses:



Research, development and related expenses (R&D) as a percent of net sales
decreased 1.0 percentage point in 2007 when compared to 2006, as expenses
incurred in 2006 in the Company's now-divested R&D-intensive Pharmaceuticals
business did not repeat in 2007. Non-pharmaceutical ongoing R&D expenses, after
adjusting for the following items, were up approximately 11% in dollars, as the
Company continued to aggressively invest in future technologies and growth
opportunities. 2006 spending included a $95 million in-process research and
development charge (discussed in Note 2) and $75 million in restructuring
actions (Note 4), which increased 2006 R&D as a percent of sales by 0.7
percentage points. In dollars, R&D spending decreased $154 million when
comparing 2007 to 2006, with the change in restructuring and other items
year-on-year decreasing R&D by $174 million, 2006 pharmaceutical SG&A spending
decreasing $120 million and other R&D spending increasing $140 million, or
approximately 11% in dollars, reflecting 3M's continuing commitment to fund
future growth for the Company.



R&D increased as a percent of sales by 0.6 of a percentage point, or $248
million, when comparing 2006 to 2005. The 2006 spending included a $95 million
in-process research and development charge (discussed in Note 2) and $75 million
in restructuring actions (Note 4). Other spending increased approximately $78
million, representing an increase of approximately 6% compared with 2005.



Gain on Sale of Businesses:



In January 2007, 3M completed the sale of its global branded pharmaceuticals
business in Europe to Meda AB. 3M received proceeds of $817 million for this
transaction and recognized, net of assets sold, a pre-tax gain of $781 million
in 2007 (recorded in the Health Care segment). In June 2007, 3M completed the
sale of its Opticom Priority Control Systems and Canoga Traffic Detection
businesses to TorQuest Partners Inc., a Toronto-based investment firm. 3M
received proceeds of $80 million for this transaction and recognized, net of
assets sold, transaction and other costs, a pre-tax gain of $68 million
(recorded in the Display and Graphics segment) in 2007.



In December 2006, 3M completed the sale of its global branded pharmaceuticals
businesses in the United States, Canada, and Latin America region and the Asia
Pacific region, including Australia and South Africa. 3M received proceeds of
$1.209 billion for these transactions and recognized a pre-tax gain on sale of
$1.074 billion in 2006 (recorded in the Health Care segment). For more detail,
refer to Note 2.



Operating Income:



3M uses operating income as one of its primary business segment performance
measurement tools. Operating income margins over the past several years have
been in excess of 22%, helped by solid sales growth and an ongoing strong
commitment to maintaining operational discipline throughout 3M's global
operations. Operating income margins of 25.3% in 2007 were positively impacted
by 2.8 percentage points ($681 million) from the gain on sale of businesses and
real estate, net of environmental liabilities, restructuring and other exit
activities. Operating income margins of 24.8% for 2006 were positively impacted
by 2.2 percentage points ($523 million) from the gain on sale of portions of the
pharmaceuticals business, net of restructuring and other actions. Adjusting for
the preceding items, operating income margins in 2007 were similar to 2006.



Interest Expense and Income:


 (Millions)                           2007           2006          2005
 Interest expense                  $       210    $      122    $        82
 Interest income                          (132 )         (51 )          (56 )
 Total                             $        78    $       71    $        26



Interest Expense: Interest expense increased year-on-year in both 2007 and 2006,
primarily due to higher average debt balances and higher interest rates.



Interest Income: Interest income increased in 2007 due to higher average cash,
cash equivalent and marketable securities balances and higher interest rates.
Interest income was lower in 2006, with lower average cash, cash equivalent and
marketable securities balances partially offset by higher interest rates.



                                       17
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Provision for Income Taxes:


 (Percent of pre-tax income)          2007           2006           2005
 Effective tax rate                      32.1 %         30.6 %         33.7 %



The effective tax rate for 2007 was 32.1%, compared with 30.6% in 2006. The
Company's 2007 tax rate benefited from reduced international tax rates and an
increased benefit for the domestic manufacturer's deduction, but was penalized
by the elimination of the foreign export sales benefit. The Company's 2006 tax
rate included benefits from adjustments to its reserves for tax contingencies
following the settlement of income tax audits. Refer to Note 8 for additional
information.



The tax rate for 2006 was 30.6%, compared with 33.7% in 2005. As discussed
above, the Company's 2006 tax rate included benefits from adjustments to its
reserves for tax contingencies. In 2005, the Company repatriated approximately
$1.7 billion of foreign earnings under the American Jobs Creation Act of 2004
(Jobs Act). The Jobs Act provided 3M the opportunity to tax-effectively
repatriate foreign earnings for U.S. qualifying investments specified by 3M's
domestic reinvestment plan. As a consequence, in the second quarter of 2005, 3M
recorded a tax expense of $75 million, net of available foreign tax credits,
which negatively impacted the 2005 effective worldwide tax rate by 1.6%. No
similar repatriation occurred in 2006 since this Jobs Act provision only applied
to 2005.



Minority Interest:


       (Millions)                    2007        2006         2005
       Minority interest           $     55    $      51    $      55



Minority interest expense eliminates the income or loss attributable to non-3M
ownership interests in 3M consolidated entities. 3M's most significant
consolidated entity with non-3M ownership interests is Sumitomo 3M Limited in
Japan (3M owns 75% of Sumitomo 3M Limited).



Cumulative Effect of Accounting Change:



As of December 31, 2005, the Company adopted FASB Interpretation No. 47, '
Accounting for Conditional Asset Retirement Obligations' (FIN 47). This
accounting standard applies to the fair value of a liability for an asset
retirement obligation associated with the retirement of tangible long-lived
assets and where the liability can be reasonably estimated. Conditional asset
retirement obligations exist for certain of the Company's long-term assets. The
fair value of these obligations is recorded as liabilities on a discounted
basis. Over time the liabilities are accreted for the change in the present
value and the initial capitalized costs are depreciated over the useful lives of
the related assets. The adoption of FIN 47 resulted in the recognition of an
asset retirement obligation liability of $59 million at December 31, 2005 and an
after-tax charge of $35 million for 2005, which was reflected as a cumulative
change in accounting principle in the Consolidated Statement of Income. At
December 31, 2007, the asset retirement obligation liability was $59 million.



Currency Effects:



3M estimates that year-on-year currency effects, including hedging impacts,
increased net income by approximately $150 million in 2007, $20 million in 2006
and $115 million in 2005. This estimate includes the effect of translating
profits from local currencies into U.S. dollars; the impact of currency
fluctuations on the transfer of goods between 3M operations in the United States
and abroad; and transaction gains and losses, including derivative instruments
designed to reduce foreign currency exchange rate risks. 3M estimates that
year-on-year derivative and other transaction gains and losses increased net
income by approximately $10 million in 2007, had an immaterial impact on net
income in 2006, and increased net income by approximately $50 million in 2005.



PERFORMANCE BY BUSINESS SEGMENT



Disclosures relating to 3M's business segments are provided in Item 1, Business
Segments. Financial information and other disclosures are provided in the Notes
to the Consolidated Financial Statements. As discussed in Note 16 to the
Consolidated Financial Statements, effective in the first quarter of 2007, 3M
made certain product moves between its business segments in its continuing
effort to drive growth by aligning businesses around markets and customers.
Segment information presented herein reflects the impact of these changes for
all periods presented. The reportable segments are the Health Care segment,
Industrial and Transportation segment, Display and Graphics segment, Consumer
and Office segment, Safety, Security and Protection Services segment, and
Electro and Communications segment. Information related to 3M's business
segments is presented in the tables that follow. Local-currency sales (which
include both core and acquisition volume impacts, plus price impacts) are
provided for each segment. The divestiture impact, translation impact and total
sales change are also provided for each segment.



                                       18
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As discussed in Note 1, effective January 1, 2006, 3M adopted Statement of
Financial Accounting Standards No. 123 (revised 2004), 'Share-Based Payment'
(SFAS No. 123R), which required 3M to expense stock-based compensation. The
Company adopted SFAS No. 123R using the modified retrospective method. Effective
January 1, 2006, all prior periods were revised to give effect to the
fair-value-based method of accounting for awards granted in fiscal years
beginning on or after January 1, 1995. For additional discussion, refer to Note
15. Stock-based compensation expense for the years ended December 31, 2007, 2006
and 2005 is summarized by business segment in the table that follows.



Stock-based compensation expense


                                                           Years ended
                                                           December 31
(Millions)                                    2007            2006            2005
Industrial and Transportation              $        58     $        50     $        46
Health Care                                         40              42              35
Display and Graphics                                33              27              19
Consumer and Office                                 24              24              21
Safety, Security and Protection                     23              21              16
Services
Electro and Communications                          21              21              18
Corporate and Unallocated                           29              15               -
Total Company                              $       228     $       200     $       155



As discussed in the preceding overview section, the combination of the 2007 gain
on sale of businesses and real estate, net of environmental liability charges,
restructuring and other exit activities benefited 2007 operating income by $681
million, or 2.8% of net sales. The 2006 gain on sale of businesses, net of
restructuring and other items benefited 2006 operating income by $523 million,
or 2.2% of net sales. The following tables summarize these items by business
segment. In 2006, items included in the 'Other' category of the table are
acquired in-process research and development expenses ($95 million), settlement
costs of a previously disclosed antitrust class action ($40 million), and
environmental obligations related to the pharmaceuticals business ($13 million).




                                            2007 Gain on Sale, Restructuring and Other Summary
(Millions)                            Gain on      Environ-     Restructuring    Gain on      Total
                                      sale of       mental        and other      sale of
                                     businesses   liabilities       exit          real
                                                                 activities      estate
Industrial and Transportation        $        -   $         -   $           9   $       -   $       9
Health Care:
Gain on sale of pharmaceuticals            (781 )           -               -           -        (781 )
business
Restructuring actions and other               -             -             (10 )         -         (10 )
Display and Graphics                        (68 )           -              17           -         (51 )
Consumer and Office                           -             -               -           -           -
Safety, Security and Protection               -             -              29           -          29
Services
Electro and Communications                    -             -              41           -          41
Corporate and Unallocated                     -           134               -         (52 )        82
Total operating income penalty       $     (849 ) $       134   $          86   $     (52 ) $    (681 )
(benefit)



                                       19
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                                                    2006 Gain on Sale, Restructuring and Other Summary
(Millions)                           Gain on        Pharma-         Over-       Busi-      Total      Other     Total
                                       sale        ceuticals        head        ness
                                    of pharma-   restructuring    reduction   specific    restruc-
                                    ceuticals       actions        actions     actions     turing
                                     business                                             actions
Industrial and Transportation       $        -   $            -   $       -   $      15   $     15   $     -   $     15
Health Care:
Gain on sale of pharmaceuticals         (1,074 )              -           -           -          -         -     (1,074 
)
business
Restructuring actions and other              -              166         112          15        293       108        401
Display and Graphics                         -                -           -          39         39         -         39
Consumer and Office                          -                -           -           -          -         -          -
Safety, Security and Protection              -                -           -          10         10         -         10
Services
Electro and Communications                   -                -           -          46         46         -         46
Corporate and Unallocated                    -                -           -           -          -        40         40
Total operating income penalty      $   (1,074 ) $          166   $     112   $     125   $    403   $   148   $   (523 
)
(benefit)



Industrial and Transportation Business (29.7% of consolidated sales):


                                                           2007           2006            2005
Sales (millions)                                       $      7,274    $     6,640    $      6,047
Sales change analysis:
Local currency (volume and price)                               5.8 %          9.0 %           6.4 %
Translation                                                     3.8            0.8             1.2
Total sales change                                              9.6 %          9.8 %           7.6 %

Operating income (millions)                            $      1,501    $     1,342    $      1,210
Percent change                                                 11.8 %         11.0 %          16.7 %
Percent of sales                                               20.6 %         20.2 %          20.0 %



The Industrial and Transportation segment serves a broad range of markets, such
as appliance, paper and packaging, food and beverage, and automotive. Industrial
and Transportation products include tapes, a wide variety of coated and
non-woven abrasives, adhesives, specialty materials, filtration products,
closures for disposable diapers, and components and products that are used in
the manufacture, repair and maintenance of automotive, marine, aircraft and
specialty vehicles. The August 2005 acquisition of CUNO added a comprehensive
line of filtration products for the separation, clarification and purification
of fluids and gases.



In 2007, local-currency sales increased 5.8%, including 1.8% growth from
acquisitions. During the fourth quarter of 2007, this segment added four
complementary gap-filling acquisitions, bringing total completed acquisitions
for the year to seven. In combination with focused investments in research and
development, these acquisitions will help strengthen the core tapes, adhesives
and abrasives platforms for many years to come. Sales growth was broad-based,
led by industrial adhesives and tapes, automotive aftermarket, abrasives and
automotive OEM businesses. All geographic areas contributed positively to
growth. Significant manufacturing investments were made in emerging economies
such as India, China and Poland to simplify the supply chain and get closer to
local customers. Good operational discipline helped deliver operating income
growth of 11.8%, with operating income margins of 20.6%. Operating income
included $9 million in restructuring and other exit activity expenses, primarily
comprised of severance and related benefits.



In 2006, local-currency sales grew 9.0%, including 4.6% growth from
acquisitions, primarily related to the August 2005 acquisition of CUNO. Since
CUNO was acquired in early August 2005 and is thus considered part of organic
growth effective in August 2006, the acquisition benefit reflected in 2006 only
reflects the months from January 2006 through July 2006. The industrial
adhesives and tapes business, along with the automotive aftermarket business,
which sells products to body shops for vehicle repairs, led organic sales growth
in 2006. 3M also posted good sales growth in its abrasives business and its
energy and advanced materials business. Growth in the automotive OEM business
was impacted by softness in the U.S. domestic automotive industry.
Geographically, local-currency sales growth in dollars was strongest in the Asia
Pacific and Europe areas. Operating income increased 11.0% to $1.342 billion in
2006.





                                       20
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Operating income included $15 million in restructuring expenses, primarily
comprised of asset impairments and severance and related benefits, which
negatively impacted operating income growth by 1.2%.



In March 2005, 3M's automotive business completed the purchase of 19% of TI&M
Beteiligungsgesellschaft mbH (TI&M) for approximately $55 million. TI&M is the
parent company of I&T Innovation Technology Entwicklungs- und Holding
Aktiengesellschaft (I&T), an Austrian maker of flat flexible cable and
circuitry. Pursuant to a Shareholders Agreement, 3M marketed the firm's flat
flexible wiring systems for automotive interior applications to the global
automotive market. I&T filed a petition for bankruptcy protection in August
2006. As part of its agreement to purchase the shares of TI&M, the Company was
granted a put option, which gave the Company the right to sell back its entire
ownership interest in TI&M to the other investors from whom 3M acquired its 19%
interest. The put option became exercisable January 1, 2007. The Company
exercised the put option and recovered approximately $25 million of its
investment from one of the investors based in Belgium in February 2007. The
other two TI&M investors have filed a bankruptcy petition in Austria. The
Company is pursuing recovery of the balance of its investment both through the
Austrian bankruptcy proceedings and pursuant to the terms of the Share Purchase
Agreement. The Company believes collection of its remaining investment is
probable and, as a result, no impairment reserve has been recorded.



Health Care Business (16.2% of consolidated sales):


                                       2007           2006          2005
 Sales (millions)                   $    3,968     $    4,011    $    3,760
 Sales change analysis:
 Local currency (volume and               18.3 %          6.0 %         4.2 %
 price)
 Divestitures                            (23.7 )            -             -
 Translation                               4.3            0.7           0.4
 Total sales change                       (1.1 )%         6.7 %         4.6 %

 Operating income (millions)        $    1,882     $    1,845    $    1,114
 Percent change                            2.0 %         65.6 %        14.6 %
 Percent of sales                         47.4 %         46.0 %        29.6 %



The Health Care segment serves markets that include medical, clinics and
hospitals, pharmaceuticals, dental and orthodontic practitioners, and health
information systems. Products and services provided to these and other markets
include medical and surgical supplies, skin health and infection prevention
products, drug delivery systems, dental and orthodontic products, health
information systems and microbiology solutions. As discussed in Note 2, the
global branded pharmaceuticals business was sold in December 2006 and January
2007.



In 2007, Health Care sales were $3.968 billion. Local-currency growth was 18.3%
(excluding divestitures), including 4.4 percentage points of growth from
acquisitions and 4.5 percentage points of growth from supply agreements related
to the sale of the global branded pharmaceuticals business. The sale of the
pharmaceuticals business reduced Health Care sales growth by 23.7%. 3M provides
disaggregated information on sales growth for Health Care's remaining businesses
(without pharmaceuticals) further below.



The combination of the following items positively impacted total year 2007
Health Care operating income by $791 million. As discussed in Note 2, in January
 2007 the Company sold its branded pharmaceuticals business in the Europe
region. The operating income gain related to this sale, which is included in
Health Care, totaled $781 million. In addition, as discussed in Note 4, a net
operating income gain of $10 million was recorded in 2007, which primarily
related to adjustments to restructuring costs incurred in the fourth quarter of
2006.



In 2006, Health Care sales were $4.011 billion. Organic local-currency growth
was 5.3%, with acquisitions adding an additional 0.7% of growth. Local-currency
growth was led by the medical supplies and dental businesses. 3M's
pharmaceutical business was approximately 19% of Health Care sales in 2006.
Pharmaceutical local-currency sales declined 3.5% in 2006, while the remaining
businesses' 2006 local-currency sales growth increased 8.5%. Geographically,
Health Care's local-currency sales growth was strongest in the United States,
Europe and Asia Pacific areas. Operating income for 2006 was up 65.6%, impacted
by the gain on sale of 3M's branded pharmaceuticals business, restructuring
impacts and other items as discussed in the following paragraph, which
positively impacted operating income growth by 60.4%.



The combination of the following items positively impacted total year 2006
Health Care operating income by $673 million, primarily in the fourth quarter of
2006. As discussed in Note 2, in early December 2006, the Company sold its
branded pharmaceuticals business in the Asia Pacific region, including Australia
and South Africa. The Company also sold its branded pharmaceuticals business in
the United States, Canada and Latin America in late December 2006. The



                                       21
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operating income gain related to this sale, which is included in Health Care,
totaled $1.074 billion. In addition, as discussed in Note 4, the Health Care
segment for the year 2006 included $293 million in restructuring costs,
primarily employee-related severance and benefit costs. Of the $293 million,
$166 million was related to the pharmaceuticals business and $15 million related
to Health Care severance and other costs. In addition, $112 million of severance
and benefit costs were recorded in the fourth quarter of 2006 related to
worldwide staff overhead reduction actions taken to streamline the Company's
cost structure in response to the sale of 3M's branded pharmaceuticals business.
Health Care also included $95 million of expensed in-process research and
development costs related to the Brontes acquisition and $13 million in
environmental reserves related to the pharmaceuticals business.



3M believes the following disaggregated information for 3M Health Care's
remaining businesses (without pharmaceuticals) and for pharmaceuticals on a
stand-alone basis provides useful information.



 Health Care Business without Pharmaceuticals:


                                          2007         2006         2005
  Sales (millions)                      $   3,968    $   3,237    $   2,963
  Sales change analysis:
  Local currency (volume and price)          18.3 %        8.5 %        5.3 %
  Translation                                 4.3          0.7          0.4
  Total sales change                         22.6 %        9.2 %        5.7 %

  Operating income (millions)           $   1,086    $     806    $     888
  Percent change                             34.6 %       (9.1 )%      14.0 %
  Percent of sales                           27.4 %       24.9 %       30.0 %



The following discussion provides information on 3M Health Care's remaining
businesses (without pharmaceuticals).



In 2007, sales growth was broad-based across all platforms, led by infection
prevention solutions and skin and wound care therapy products in medical,
HFA-based components (non-CFC) for drug inhalers in drug delivery, and
healthcare funding and performance management solutions for the hospital market
in health information systems. Geographically, Health Care (without
pharmaceuticals) achieved strong growth rates in all major regions, led by
Europe, the United States, and the combined Latin America and Canada area.
Local-currency sales increased 18.3%, with acquisitions contributing 4.4
percentage points of this growth. Much of the acquisition growth came from two
deals that closed in late 2006 - Biotrace International, PLC, a U.K.-based
provider of microbiology products, and SoftMed, a Maryland-based provider of
health information software solutions. Health Care also closed five
complementary acquisitions in 2007 to strengthen the portfolio and accelerate
growth into the future in the medical, oral care and health information systems
businesses. Sales growth also included 4.5 percentage points of growth due to
supply agreements related to the sale of the global branded pharmaceuticals
business. Operating income increased 34.6%, with an operating income margin of
27.4%. Operating income for 2007 included $5 million in restructuring expenses,
primarily severance and related benefits.



In 2006, sales were $3.237 billion. Organic local-currency growth was 7.4%, with
acquisitions adding an additional 1.1% of growth. Local-currency growth was led
by the medical supplies and dental businesses. Geographically, local-currency
sales growth was strongest in the United States, Europe and Asia Pacific areas.
Operating income for 2006 included $95 million of expensed in-process research
and development costs related to the Brontes acquisition and also included
business-specific restructuring actions that totaled $15 million, primarily
comprised of severance and related benefits plus asset impairments. Including
this combined operating income penalty of $110 million, or 12.4 percentage point
negative impact on operating income growth, 2006 operating income decreased
9.1%.



                                       22
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Pharmaceuticals Business:


                                          2007         2006         2005
 Sales (millions)                       $       -    $     774    $     797
 Sales change analysis:
 Local currency (volume and price)            N/A         (3.5 )%       0.3 %
 Translation                                  N/A          0.6          0.3
 Total sales change                           N/A         (2.9 )%       0.6 %

 Operating income (millions)            $     796    $   1,039    $     226
 Percent change                               N/A          N/A         16.6 %
 Percent of sales                             N/A          N/A         28.4 %



The combination of the following items positively impacted total year 2007
pharmaceuticals operating income by $796 million. As discussed in Note 2, in
January 2007 the Company sold its branded pharmaceuticals business in the Europe
region. The operating income gain related to this sale totaled $781 million. In
addition, as discussed in Note 4, a net operating income gain of $15 million was
recorded in 2007, which primarily related to adjustments to restructuring costs
incurred in the fourth quarter of 2006. Drug Delivery Systems Division (part of
Health Care without Pharmaceuticals) is a source of supply to the acquiring
companies and records sales and operating income related to the pharmaceuticals
supply agreements.



In total, the combination of the following items positively impacted total year
2006 pharmaceuticals operating income by $783 million, primarily in the fourth
quarter of 2006. As discussed in Note 2, in early December 2006, the Company
sold its branded pharmaceuticals business in the Asia Pacific region, including
Australia and South Africa. The Company also sold its branded pharmaceuticals
business in the United States, Canada and Latin America in late December 2006.
The operating income gain related to these transactions totaled $1.074 billion.
As discussed in Note 4, $112 million of severance and benefit costs were
recorded in the fourth quarter of 2006 related to worldwide staff overhead
reduction actions taken to streamline the Company's cost structure in response
to the sale of 3M's branded pharmaceuticals business. As also discussed in Note
4, the pharmaceuticals business for total year 2006 included $97 million in
employee-related severance and benefits and $69 million of asset impairments and
other expenses. In addition, an environmental reserve of $13 million was
recognized related to the pharmaceuticals business.



Display and Graphics Business (15.9% of consolidated sales):


                                        2007          2006          2005
 Sales (millions)                    $    3,892    $    3,770    $    3,547
 Sales change analysis:
 Local currency (volume and                 1.8 %         6.0 %         4.6 %
 price)
 Divestitures                              (0.4 )           -             -
 Translation                                1.8           0.3           0.2
 Total sales change                         3.2 %         6.3 %         4.8 %

 Operating income (millions)         $    1,174    $    1,044    $    1,148
 Percent change                            12.4 %        (9.0 )%        2.9 %
 Percent of sales                          30.2 %        27.7 %        32.4 %



The Display and Graphics segment serves markets that include electronic display,
touch screen, traffic safety and commercial graphics. This segment includes
optical film and lens solutions for electronic displays; touch screens and touch
monitors; computer screen filters; reflective sheeting for transportation
safety; and commercial graphics systems. The optical film business provides
films that serve numerous market segments of the electronic display industry. 3M
provides distinct products for five market segments, including products for: 1)
LCD computer monitors 2) LCD televisions 3) handheld devices such as cellular
phones 4) notebook PCs and 5) automotive displays. The optical business includes
a number of different products that are protected by various patents and groups
of patents. The remaining lifetimes of such patents, as well as patents
protecting future products, range from less than a few years to more than 10
years. These patents provide varying measures of exclusivity to 3M for a number
of such products. 3M's proprietary manufacturing technology and know-how also
provide a competitive advantage to 3M with respect to some of these products.



                                       23
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In 2007, Display and Graphics local-currency sales increased 1.8%, excluding the
impact of the Opticom/Canoga business sale. The Company recorded positive sales
growth in all major businesses - commercial graphics, traffic safety systems and
optical systems. Throughout the year, commercial graphics saw strong performance
in the vehicle wrapping market where 3M provides films, inks and other products
for this 'rolling billboard' industry. The traffic safety systems business also
experienced growth for the year, with faster growth internationally as the 3M
reflective solutions for highway construction projects are a perfect match in
developing economies that are adding infrastructure. In June 2007, 3M completed
the sale of its Opticom Priority Control Systems and Canoga Traffic Detection
businesses. 3M received proceeds of $80 million from this transaction and
recognized an operating income gain of $68 million in the Display and Graphics
segment in the second quarter of 2007. In addition, Display and Graphics
recorded restructuring and other exit activity expenses of $17 million in 2007.
Operating income in 2007 was $1.174 billion, including this aggregate net
operating income benefit of $51 million, which contributed 1.3 percentage points
of the 30.2% operating income margin. Operating income in 2006 (as discussed
below) included $39 million in restructuring expenses. These year-on-year
impacts contributed 8.7 percentage points of the reported 12.4% operating income
growth.



Optical systems continues to focus on market segmentation, with strong
penetration in handhelds, computer displays and LCD televisions. 3M continues to
experience attachment rate pressure in LCD desktop monitors and LCD TV segments,
although in the fourth quarter of 2007 3M saw a mix-shift back to 1080p LCD TV's
from 720p, which impacts 3M business as 3M films are used more heavily in the
1080p sets. 3M believes over the long term that 1080p LCD TV's will gain an
increasing share of the overall LCD TV market. While 3M remains optimistic about
the longer-term prospects for the optical film business, continuing price and
attachment rate pressure is expected in 2008. Due to this pressure, 3M expects
Display and Graphics operating income margins in 2008 to decline a few
percentage points when compared to 2007 (excluding the net operating income
benefit of 1.3 percentage points in 2007 discussed in the preceding paragraph).
3M's continued investment in this business has led to a solid stream of new
products. 3M's brightness enhancement films provide an environmental solution
through reduced energy consumption - an increasingly important requirement from
both retail customers and government units. 3M has made significant sustainable
factory improvements by relentlessly reducing costs and by adding needed
capacity to secure future growth.



In 2006, the Display and Graphics business posted local-currency sales growth of
6.0%. Optical film sales volumes increased at double-digit rates in 2006. 3M saw
an acceleration in the LCD industry due to strong consumer demand for LCD TV's,
which drove record sales of 3M's proprietary optical films, despite ongoing
downward pricing pressure in these consumer electronic applications. Commercial
Graphics, a supplier of large-format graphics solutions that cut across a range
of industries, delivered strong double-digit local-currency growth in 2006.
Traffic Safety Systems also posted solid local-currency growth. Operating income
declined by 9.0%. Operating income included $39 million in restructuring
expenses, primarily comprised of asset impairments and severance and related
benefits, which negatively impacted operating income growth by 3.4%. These asset
impairments relate to decisions the Company made in the fourth quarter of 2006
to exit certain marginal product lines in the Touch Systems and Optical Systems
businesses. In optical film, selling price declines, the sales mix shift towards
larger LCD displays, and operational challenges related to the Company's new
optical film manufacturing production line penalized operating income in 2006.



Consumer and Office Business (13.9% of consolidated sales):


                                            2007        2006        2005
   Sales (millions)                       $   3,403   $   3,164   $   2,926
   Sales change analysis:
   Local currency (volume and price)            5.0 %       7.4 %       6.1 %
   Translation                                  2.6         0.7         1.0
   Total sales change                           7.6 %       8.1 %       7.1 %

   Operating income (millions)            $     688   $     629   $     609
   Percent change                               9.3 %       3.4 %       9.4 %
   Percent of sales                            20.2 %      19.9 %      20.8 %



The Consumer and Office segment serves markets that include consumer retail,
office retail, home improvement, building maintenance and other markets.
Products in this segment include office supply products, stationery products,
construction and home improvement products, home care products, protective
material products and consumer health care products.



In 2007, Consumer and Office experienced broad-based local-currency sales growth
of 5.0%, led by the construction and home improvement and home cleaning
businesses. In construction and home improvement, products such as ScotchTM Blue
Painter's Tape, FiltreteTM home furnace filters and CommandTM mounting and
fastening products, helped drive results. Geographically, international growth
is gaining traction, while a slowdown in the United States was driven by soft



                                       24
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overall U.S. retail sales and a soft residential housing environment.
Approximately 60% of global sales for this segment are in the United States.
Operating income increased 9.3% and now exceeds 20% of sales.



In 2006, Consumer and Office local-currency sales growth of 7.4% was broad-based
across the portfolio, led by the construction and home improvement division,
which serves the do-it-yourself retail channel. 3M also posted very good sales
growth in the mass retail channel and continued to penetrate large key accounts,
primarily in the United States, with an array of unique, highly functional
products featuring customer-inspired designs. Operating income was $629 million,
up 3.4% year on year. 3M experienced slower sales growth in the construction and
home improvement market in the fourth quarter of 2006, impacted by a housing
slowdown in the United States.



Safety, Security and Protection Services Business (12.6% of consolidated sales):


                                           2007        2006        2005
   Sales (millions)                      $   3,070   $   2,663   $   2,320
   Sales change analysis:
   Local currency (volume and price)          10.8 %      13.7 %       6.8 %
   Translation                                 4.5         1.1         1.0
   Total sales change                         15.3 %      14.8 %       7.8 %

   Operating income (millions)           $     611   $     549   $     513
   Percent change                             11.3 %       7.1 %      14.3 %
   Percent of sales                           19.9 %      20.6 %      22.1 %



The Safety, Security and Protection Services segment serves a broad range of
markets that increase the safety, security and productivity of workers,
facilities and systems. Major product offerings include personal protection
products, safety and security products, energy control products, cleaning and
protection products for commercial establishments, roofing granules for asphalt
shingles, and supply chain execution software solutions. In August 2006, 3M
completed the acquisition of Security Printing and Systems Limited, a producer
of finished, personalized passports and secure cards, which expands the 3M
product line related to border and civil security solutions. 3M's new emerging
business opportunity in its Track and Trace initiative within 3M's Safety,
Security and Protection Services segment resulted in the merging of a number of
formerly separate efforts into one concerted effort for future growth. Track and
Trace has a growing array of applications - from tracking packages to managing
medical and legal records.



In 2007, local-currency sales in the Safety, Security and Protection Services
segment were up 10.8%. Acquisitions contributed 7.4 percentage points of this
growth, including a carry-over benefit from the August 2006 acquisition of
Security Printing and Systems Limited. In addition, during 2007 3M closed two
small, but strategic, gap-filling acquisitions. These included E. Wood, a
U.K.-based provider of corrosion protection products and Rochford Thompson, a
manufacturer of optical character recognition passport readers used by airlines
and immigration authorities. Sales growth was led by the respiratory protection
business, followed by the security systems, corrosion protection and building
and commercial services businesses. 2007 sales growth was held back by market
softness in the U.S. residential construction market, which negatively impacted
the roofing granules business. The decline in the roofing granules business
reduced Safety, Security and Protection Services 2007 sales growth by
approximately 1.5%. Geographically, sales growth was led by Europe and the
combined Latin America and Canada area. This segment recorded a restructuring
charge of $29 million in the second quarter of 2007 related to the phase-out of
operations at its New Jersey roofing granule facility. This included fixed asset
impairments and employee-related restructuring liabilities. Including this
charge, operating income margins were approximately 20% for total year 2007.



In 2006, local-currency sales in the Safety, Security and Protection Services
business were up 13.7%. Growth in the business was driven by strong global
demand for personal safety products, especially respiratory protection.
Acquisitions contributed 4.1% of growth, primarily due to the Security Printing
and Systems Limited acquisition in August 2006. 3M continued to invest in
additional respirator capacity, such as a new respirator manufacturing facility
in Korea, which will serve the Asia Pacific region. 3M also posted outstanding
growth in corrosion protection, a smaller but growing business, which supplies
coatings for all types of commercial and industrial applications in a variety of
industries. 3M's roofing granules business experienced a challenging fourth
quarter, with a sales decline of nearly 50%, resulting in sales in this business
declining nearly 10% when comparing total year 2006 with 2005. Geographically,
local-currency growth was positive across all regions of the world, led by
Europe and the United States. Operating income increased 7.1% to $549 million in
2006. Operating income includes $10 million in restructuring expenses, primarily
severance and related benefits, which negatively impacted operating income
growth by 1.9%.



                                       25
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Electro and Communications Business (11.3% of consolidated sales):


                                           2007        2006         2005
  Sales (millions)                       $   2,775   $   2,631    $   2,509
  Sales change analysis:
  Local currency (volume and price)            2.3 %       4.0 %        1.5 %
  Translation                                  3.2         0.8          0.7
  Total sales change                           5.5 %       4.8 %        2.2 %

  Operating income (millions)            $     481   $     411    $     422
  Percent change                              17.0 %      (2.6 )%      40.7 %
  Percent of sales                            17.3 %      15.6 %       16.8 %



The Electro and Communications segment serves the electrical, electronics and
communications industries, including electrical utilities; electrical
construction, maintenance and repair; OEM electrical and electronics; computers
and peripherals; consumer electronics; telecommunications central office,
outside plant and enterprise; as well as aerospace, military, automotive and
medical markets; with products that enable the efficient transmission of
electrical power and speed the delivery of information and ideas. Products
include electronic and interconnect solutions, micro interconnect systems,
high-performance fluids, high-temperature and display tapes, telecommunications
products, electrical products, and visual systems products.



In 2007, the Electro and Communications segment local-currency sales increased
2.3%, including 1.5 percentage points from acquisitions. Strong sales growth in
the communications and electrical markets businesses was partially offset by the
flexible circuits business, which supplies components primarily to the ink jet
printer market. This business continues to penalize segment results as the ink
jet market has become commoditized and as a number of applications go
end-of-life. Softness in this business held back overall Electro and
Communications sales and operating income growth by 2.5 percent and 9.3 percent,
respectively. Operating income increased 17% as this segment has driven
productivity improvements and taken actions to improve its competitiveness.
Operating income in 2007 was penalized by a $23 million charge related to
consolidating its global flexible circuits manufacturing operations and $18
million in restructuring expenses, primarily for asset impairment charges
related to the Company's decision to close a facility in Wisconsin. Combined,
these two items negatively impacted 2007 operating income by $41 million and
operating income margins by 1.5 percentage points.



In 2006, the Electro and Communications business organic local-currency growth
of 2.7% was attributable to the electrical and electronics markets. Acquisitions
contributed 1.3 percentage points to sales growth. 3M generated good top-line
growth in its electrical markets division, which sells a number of insulating,
testing and connecting products and solutions to both power utilities and
manufacturing OEMs. 3M saw good growth from its electronics markets business,
driven by double-digit growth in its semi-conductor and assemblies business.
Partially offsetting this was some sales softness in 3M's U.S. communications
markets business due to higher copper costs and a decline in 3M's visual systems
business, which traditionally offered analog overhead and electronic projectors
and film. Operating income declined by 2.6% to $411 million. Operating income
included $46 million in restructuring expenses, primarily comprised of asset
impairments and severance and related benefits, which negatively impacted
operating income growth by 10.9%. Operating margins were impacted by rising raw
material costs, specifically copper costs, in 3M's electrical and
telecommunications markets businesses.



                                       26
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PERFORMANCE BY GEOGRAPHIC AREA

Financial information related to 3M operations in various geographic areas is
provided in Note 17. Operating income results by geographic area were
significantly impacted by the gain on sale businesses and other items as
discussed in Note A at the end of the preceding overview section. A summary of
key information and discussion related to 3M's geographic areas follow:


Geographic Area                         2007                                2007 vs. 2006 % Change
Net Sales and                                                                                   Total
Operating Income                        % of      Oper.       Local     Divesti-     Trans-     Sales      Oper.
(Dollars in millions)       Sales      Total      Income     Currency    tures       lation     Change     Income
United States              $  8,987       36.7 % $  1,692         5.7 %     (4.2 )%        -        1.5 %    (11.3 )%
Asia Pacific                  6,601       27.0 %    2,136         4.9 %     (1.3 )%      2.0 %      5.6 %      1.8 %
Europe, Middle East and       6,503       26.6 %    1,705        11.7 %     (6.6 )%      8.5 %     13.6 %     56.1 %
Africa
Latin America and             2,365        9.7 %      665        10.6 %     (2.8 )%      5.9 %     13.7 %      5.8 %
Canada
Other Unallocated                 6          -         (5 )
Total Company              $ 24,462        100 % $  6,193         7.3 %     (3.8 )%      3.2 %      6.7 %      8.7 %



While 3M manages its businesses globally and believes its business segment
results are the most relevant measure of performance, the Company also utilizes
geographic area data as a secondary performance measure. Export sales are
reported within the geographic area where the final sales to 3M customers are
made. A portion of the products or components sold by 3M's operations to its
customers are exported by these customers to different geographic areas. As
customers move their operations from one geographic area to another, 3M's
results will follow. Thus, net sales in a particular geographic area are not
indicative of end-user consumption in that geographic area.



U.S. local-currency sales increased 5.7%, with acquisitions contributing 3.1
percentage points. U.S. local-currency sales growth was led by Health Care
(without Pharmaceuticals) and Industrial and Transportation, which was partially
offset by softness in the electronic solutions business and weakness in a few
businesses that are impacted by the slowdown in the U.S. housing, road
construction and mass retail markets, primarily roofing granules, protective
materials, traffic safety and office supply businesses. Asia Pacific
local-currency sales increased 4.9%, with all six business segments contributing
to this increase. Sales in Japan totaled approximately $2 billion, with
local-currency sales up 2% from 2006. European local-currency sales increased
11.7%, with good growth across all segments, especially Safety, Security and
Protection Services and Health Care (without Pharmaceuticals). In the combined
Latin America and Canada area, local-currency sales increases of 10.6% were led
by Industrial and Transportation; Safety, Security and Protection Services; and
Health Care (without Pharmaceuticals). Foreign currency translation positively
impacted European area sales by 8.5%, the combined Latin America and Canada area
sales by 5.9%, and the Asia Pacific area by 2%, as the U.S. dollar weakened
against these currencies. For 2007, international operations represented
approximately 63% of 3M's sales.



Since 3M sold its global branded pharmaceuticals business in December 2006 and
January 2007, both sales growth and operating income were negatively impacted
when comparing 2007 to 2006. Sales in 2006 for pharmaceuticals totaled $332
million in the United States, $315 million in the Europe, Middle East and Africa
area, $77 million in the Asia Pacific area, and $50 million in the Latin America
and Canada area. In 2007, the gain on sale of businesses and a gain on sale of
real estate, net of restructuring and other items, increased worldwide operating
income by $681 million, with the largest impact in the Europe, Middle East and
Africa area. In 2006, the gain on sale, restructuring and other items increased
worldwide operating income by $523 million, with the largest impact in the
United States. These items are discussed in more detail in the preceding
overview section.



                                       27
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Geographic Area Supplemental Information


(Millions, except            Employees as of                    Capital                    Property, Plant and
Employees)                    December 31,                     Spending                      Equipment - net
                         2007     2006     2005       2007       2006       2005       2007       2006       2005

United States           34,138   34,553    33,033    $   841    $   692    $   532    $ 3,668    $ 3,382    $ 3,291
Asia Pacific            12,970   12,487    11,574        299        252        228      1,116        959        865
Europe, Middle East     17,675   17,416    16,722        203        134        120      1,308      1,162      1,076
and Africa
Latin America and       11,456   10,877     9,898         79         90         63        490        404        361
Canada
Total Company           76,239   75,333    71,227    $ 1,422    $ 1,168    $   943    $ 6,582    $ 5,907    $ 5,593



Employment:

Employment increased by approximately 900 people since year-end 2006, with
acquisitions adding approximately 2,500 employees, while restructuring and the
pharmaceuticals divestiture reduced employment. Employment increased by
approximately 4,100 people in 2006 compared with 2005, partially due to
acquisitions, with more than 750 people added by 3M's three largest 2006
acquisitions alone. In addition, 3M has increased employees in faster-growing
areas of the world, such as Brazil, India, Russia, China and Poland, where on a
local-currency basis sales increased more than 15% in both 2007 and 2006.



Capital Spending/Net Property, Plant and Equipment:

The bulk of 3M capital spending historically has been in the United States,
resulting in higher net property, plant and equipment balances in the United
States. The Company is striving to more closely align its manufacturing and
sourcing with geographic market sales, and because approximately 63% of sales
are outside the United States, this would increase production outside the United
States, helping to improve customer service and reduce working capital
requirements. Capital expenditures were $1.422 billion in 2007 and are expected
to total $1.3 billion to $1.4 billion in 2008.



CRITICAL ACCOUNTING ESTIMATES

Information regarding significant accounting policies is included in Note 1. As
stated in Note 1, the preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of contingent assets
and liabilities. Management bases its estimates on historical experience and on
various assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.



The Company believes its most critical accounting estimates relate to legal
proceedings, the Company's pension and postretirement obligations, asset
impairments and income taxes. Senior management has discussed the development,
selection and disclosure of its critical accounting estimates with the Audit
Committee of 3M's Board of Directors.



Legal Proceedings:

The categories of claims for which the Company has estimated its probable
liability, the amount of its liability accruals, and the estimates of its
related insurance receivables are critical accounting estimates related to legal
proceedings. Please refer to the section entitled 'Accrued Liabilities and
Insurance Receivables Related to Legal Proceedings' (contained in 'Legal
Proceedings' in Note 13) for additional information about such estimates.



Pension and Postretirement Obligations:

3M has various company-sponsored retirement plans covering substantially all
U.S. employees and many employees outside the United States. The Company
accounts for its defined benefit pension and postretirement health care and life
insurance benefit plans in accordance with Statement of Financial Accounting
Standards (SFAS) No. 87, 'Employers' Accounting for Pensions,' SFAS No. 106, '
Employer's Accounting for Postretirement Benefits Other than Pensions,' in
measuring plan assets and benefit obligations and in determining the amount of
net periodic benefit cost, and SFAS No. 158, 'Employer's Accounting for Defined
Benefit Pension and Other Postretirement Benefit Plans an amendment of FASB
Statements No. 87, 88, 106 and 132(R),' which was issued in September 2006 and
effective as of December 31, 2006. SFAS No. 158 requires employers to recognize
the underfunded or overfunded status of a defined benefit postretirement plan as
an asset or liability in its statement of financial position and recognize
changes in the funded status in the year in which the changes occur through
accumulated other comprehensive income, which is a component of stockholders'
equity.



                                       28
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Pension benefits associated with these plans are generally based primarily on
each participant's years of service, compensation, and age at retirement or
termination. Two critical assumptions, the discount rate and the expected return
on plan assets, are important elements of expense and liability measurement. The
assumed health care trend rate is the most significant postretirement health
care assumption. See Note 11 for additional discussion of actuarial assumptions
used in determining pension and postretirement health care liabilities and
expenses.



The Company determines the discount rate used to measure plan liabilities as of
the December 31 measurement date for the U.S. pension and postretirement benefit
plans. The discount rate reflects the current rate at which the associated
liabilities could be effectively settled at the end of the year. In estimating
this rate, the Company looks at rates of return on fixed-income investments of
similar duration to the liabilities in the plan that receive high, investment
grade ratings by recognized ratings agencies. Using this methodology, the
Company determined a discount rate of 6.00% to be appropriate as of December 31,
2007, which is an increase of 0.25 of a percentage point from the rate used as
of December 31, 2006.



A significant element in determining the Company's pension expense in accordance
with SFAS No. 87 is the expected return on plan assets, which is based on
historical results for similar allocations among asset classes. For the U.S.
pension plan, the Company's assumption for the expected return on plan assets
was 8.75% for 2007 and will be reduced to 8.50% for 2008. Refer to Note 11 for
information on how this rate is determined.



For the year ended December 31, 2007, the Company recognized total consolidated
pre-tax pension expense (after settlements, curtailments and special termination
benefits) of $190 million, down from $347 million in 2006. Pension expense
(before settlements, curtailments and special termination benefits) is
anticipated to decrease to approximately $90 million in 2008. For the pension
plans, holding all other factors constant, an increase/decrease in the expected
long-term rate of return on plan assets of 0.25 of a percentage point would
decrease/increase 2008 pension expense by approximately $26 million for U.S.
pension plans and approximately $11 million for international pension plans.
Also, holding all other factors constant, an increase/decrease in the discount
rate used to measure plan liabilities of 0.25 of a percentage point would
decrease/increase 2008 pension expense by approximately $32 million for U.S.
pension plans and approximately $21 million for international pension plans. See
Note 11 for details of the impact of a one percentage point change in assumed
health care trend rates on the postretirement health care benefit expense and
obligation.



Asset Impairments:

3M net property, plant and equipment totaled $6.6 billion as of December 31,
2007. Management makes estimates and assumptions in preparing the consolidated
financial statements for which actual results will emerge over long periods of
time. This includes the recoverability of long-lived assets employed in the
business, including assets of acquired businesses. These estimates and
assumptions are closely monitored by management and periodically adjusted as
circumstances warrant. For instance, expected asset lives may be shortened or an
impairment recorded based on a change in the expected use of the asset or
performance of the related business reporting unit. Impairments recorded in 2007
and 2006 related to restructuring actions and other exit activities are
discussed in Note 4.



3M goodwill totaled approximately $4.6 billion as of December 31, 2007, which,
based on impairment testing, is not impaired. Impairment testing for goodwill is
done at a reporting unit level. Reporting units are one level below the business
segment level, but can be combined when reporting units within the same segment
have similar economic characteristics. The majority of goodwill relates to and
is assigned directly to a specific reporting unit. An impairment loss generally
would be recognized when the carrying amount of the reporting unit's net assets
exceeds the estimated fair value of the reporting unit. The estimated fair value
of a reporting unit is determined using earnings for the reporting unit
multiplied by a price/earnings ratio for comparable industry groups, or by using
a discounted cash flow analysis.



Income Taxes:

The extent of 3M's operations involves dealing with uncertainties and judgments
in the application of complex tax regulations in a multitude of jurisdictions.
The final taxes paid are dependent upon many factors, including negotiations
with taxing authorities in various jurisdictions and resolution of disputes
arising from federal, state, and international tax audits. The Company
recognizes potential liabilities and records tax liabilities for anticipated tax
audit issues in the U.S. and other tax jurisdictions based on its estimate of
whether, and the extent to which, additional taxes will be due. As of January 1,
2007, the Company follows FIN 48 guidance to record these liabilities (refer to
Note 8 for additional information). The Company adjusts these reserves in light
of changing facts and circumstances; however, due to the complexity of some of
these uncertainties, the ultimate resolution may result in a payment that is
materially different from the Company's current estimate of the tax liabilities.
If the Company's estimate of tax liabilities proves to be less than the ultimate
assessment, an additional charge to expense would result. If payment of these
amounts ultimately proves to be less than the recorded amounts, the reversal of
the liabilities would result in tax benefits being recognized in the period when
the Company determines the liabilities are no longer necessary.



                                       29
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NEW ACCOUNTING PRONOUNCEMENTS

Information regarding new accounting pronouncements is included in Note 1 to the
Consolidated Financial Statements.



FINANCIAL CONDITION AND LIQUIDITY

The Company generates significant ongoing cash flow. Increases in long-term debt
have been used, in part, to fund share repurchase activities and acquisitions.
On November 15, 2007, 3M (Safety, Security and Protection Services Business)
announced that it had entered into a definitive agreement for 3M's acquisition
of 100 percent of the outstanding shares of Aearo Holding Corp. - a
global leader in the personal protection industry that manufactures and markets
personal protection and energy absorbing products - for approximately
$1.2 billion. The sale is expected to close towards the end of the first quarter
of 2008.


At December 31
(Millions)                                        2007       2006       2005

Total Debt                                      $  4,920   $  3,553   $  2,381
Less: Cash, cash equivalents and marketable        2,955      2,084      1,072
securities
Net Debt                                        $  1,965   $  1,469   $  1,309



Cash, cash equivalents and marketable securities at December 31, 2007 totaled
approximately $3 billion, helped by strong cash flow generation and by the
timing of debt issuances. At December 31, 2006, cash balances were higher due to
the significant pharmaceuticals sales proceeds received in December 2006. 3M
believes its ongoing cash flows provide ample cash to fund expected investments
and capital expenditures. The Company has sufficient access to capital markets
to meet currently anticipated growth and acquisition investment funding needs.
The Company does not utilize derivative instruments linked to the Company's
stock. However, the Company does have contingently convertible debt that, if
conditions for conversion are met, is convertible into shares of 3M common stock
(refer to Note 10 in this document).



The Company's financial condition and liquidity are strong. Various assets and
liabilities, including cash and short-term debt, can fluctuate significantly
from month to month depending on short-term liquidity needs. Working capital
(defined as current assets minus current liabilities) totaled $4.476 billion at
December 31, 2007, compared with $1.623 billion at December 31, 2006. Working
capital was higher primarily due to increases in cash and cash equivalents,
short-term marketable securities, receivables and inventories and decreases in
short-term debt and accrued income taxes.



The Company's liquidity remains strong, with cash, cash equivalents and
marketable securities at December 31, 2007 totaling approximately $3 billion.
Primary short-term liquidity needs are provided through U.S. commercial paper
and euro commercial paper issuances. As of December 31, 2007, outstanding total
commercial paper issued totaled $349 million and averaged $1.249 billion during
2007. The Company believes it unlikely that its access to the commercial paper
market will be restricted. In June 2007, the Company established a medium-term
notes program through which up to $3 billion of medium-term notes may be
offered, with remaining shelf borrowing capacity of $2.5 billion as of December
31, 2007. On April 30, 2007, the Company replaced its $565-million credit
facility with a new $1.5-billion five-year credit facility, which has provisions
for the Company to request an increase of the facility up to $2 billion (at the
lenders' discretion), and providing for up to $150 million in letters of credit.
As of December 31, 2007, there are $110 million in letters of credit drawn
against the facility. At December 31, 2007, available short-term committed lines
of credit internationally totaled approximately $67 million, of which $13
million was utilized. Debt covenants do not restrict the payment of dividends.
The Company has a 'well-known seasoned issuer' shelf registration statement,
effective February 24, 2006, to register an indeterminate amount of debt or
equity securities for future sales. The Company intends to use the proceeds from
future securities sales off this shelf for general corporate purposes.



At December 31, 2007, certain debt agreements ($350 million of dealer
remarketable securities and $87 million of ESOP debt) had ratings triggers (BBB-
/Baa3 or lower) that would require repayment of debt. The Company has an AA
credit rating, with a stable outlook, from Standard & Poor's and an Aa1 credit
rating, with a negative outlook, from Moody's Investors Service. In addition,
under the $1.5-billion five-year credit facility agreement, 3M is required to
maintain its EBITDA to Interest Ratio as of the end of each fiscal quarter at
not less than 3.0 to 1. This is calculated (as defined in the agreement) as the
ratio of consolidated total EBITDA for the four consecutive quarters then ended
to total interest expense on all funded debt for the same period. At December
31, 2007, this ratio was approximately 35 to 1.



3M's cash and cash equivalents balance at December 31, 2007 totaled $1.896
billion, with an additional $1.059 billion in current and long-term marketable
securities. 3M's strong balance sheet and liquidity provide the Company with
significant flexibility to take advantage of numerous opportunities going
forward. The Company will continue to invest in its operations to drive growth,
including continual review of acquisition opportunities. As previously
discussed, 3M expects to complete



                                       30
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the acquisition of Aearo Holding Corp. for approximately $1.2 billion in 2008.
3M paid dividends of $1.380 billion in 2007, and has a long history of dividend
increases. In February 2008, the Board of Directors increased the quarterly
dividend on 3M common stock by 4.2% to 50 cents per share, equivalent to an
annual dividend of $2.00 per share. In February 2007, 3M's Board of Directors
authorized a two-year share repurchase of up to $7.0 billion for the period from
February 12, 2007 to February 28, 2009. At December 31, 2007, the Company has
$4.1 billion remaining under this authorization, which the Company does not
currently expect to fully utilize by February 28, 2009.



In 2008, the Company expects to contribute an amount in the range of $100
million to $400 million to its U.S. and international pension plans. The Company
does not have a required minimum pension contribution obligation for its U.S.
plans in 2008. Therefore, the amount of the anticipated discretionary
contribution could vary significantly depending on the U.S.-plans funding status
as of the 2008 measurement date and the anticipated tax deductibility of the
contribution. Future contributions will also depend on market conditions,
interest rates and other factors. 3M believes its strong cash flow and balance
sheet will allow it to fund future pension needs without compromising growth
opportunities.



The Company uses various working capital measures that place emphasis and focus
on certain working capital assets and liabilities. These measures are not
defined under U.S. generally accepted accounting principles and may not be
computed the same as similarly titled measures used by other companies. One of
the primary working capital measures 3M uses is a combined index, which includes
accounts receivable, inventory and accounts payable. This combined index
(defined as quarterly net sales - fourth quarter at year-end - multiplied by
four, divided by ending net accounts receivable plus inventory less accounts
payable) was 5.3 at December 31, 2007, down from 5.4 at December 31, 2006.
Receivables increased $260 million, or 8.4%, compared with December 31, 2006.
Currency translation increased accounts receivable by $159 million year-on-year,
as the U.S. dollar weakened in aggregate against a multitude of currencies.
Inventories increased $251 million, or 9.7%, compared with December 31, 2006.
Currency translation increased inventories by $132 million year-on-year.
Accounts payable increased $103 million compared with December 31, 2006, with
$65 million of this year-on-year increase related to currency translation.



Cash flows from operating, investing and financing activities are provided in
the tables that follow. Individual amounts in the Consolidated Statement of Cash
Flows exclude the effects of acquisitions, divestitures and exchange rate
impacts, which are presented separately in the cash flows. Thus, the amounts
presented in the following operating, investing and financing activities tables
reflect changes in balances from period to period adjusted for these effects.



Cash Flows from Operating Activities:


Years ended December 31
(Millions)                                                   2007        2006        2005

Net income                                                 $  4,096    $  3,851    $  3,111
Depreciation and amortization                                 1,072       1,079         986
Company pension contributions                                  (376 )      (348 )      (654 )
Company postretirement contributions                             (3 )       (37 )      (134 )
Company pension expense                                         190         347         331
Company postretirement expense                                   65          93         106
Stock-based compensation expense                                228         200         155
Gain from sale of businesses                                   (849 )    (1,074 )         -
Income taxes (deferred and accrued income taxes)                (34 )      (178 )       402
Excess tax benefits from stock-based compensation               (74 )       (60 )       (54 )
Accounts receivable                                             (35 )      (103 )      (184 )
Inventories                                                     (54 )      (309 )      (294 )
Accounts payable                                                 (4 )        68         113
Product and other insurance receivables and claims              158          58         122
Other - net                                                    (105 )       252         198
Net cash provided by operating activities                  $  4,275    $  3,839    $  4,204



Cash flows from operating activities can fluctuate significantly from period to
period, as pension funding decisions, tax timing differences and other items can
significantly impact cash flows. In both 2007 and 2006, the Company made
discretionary contributions of $200 million to its U.S. qualified pension plan,
and in 2005 made discretionary contributions totaling $500 million.



                                       31
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In 2007, cash flows provided by operating activities increased $436 million,
including an increase in net income of $245 million. Since the gain from sale of
businesses is included in and increases net income, the pre-tax gain from the
sale of the businesses must be subtracted, as shown above, to properly reflect
operating cash flows. The cash proceeds from the sale of the pharmaceuticals
business are shown as part of cash from investing activities; however, when the
related taxes are paid they are required to be shown as part of cash provided by
operating activities. Thus, operating cash flows for 2007 were penalized due to
cash income tax payments of approximately $630 million in 2007 that related to
the sale of the global branded pharmaceuticals business. Non-pharmaceutical
related cash income tax payments were approximately $475 million lower than 2006
due to normal timing differences in tax payments, which benefited cash flows.
Accounts receivable and inventory increases reduced cash flows in 2007, but
decreased cash flow less than in 2006, resulting in a year-on-year benefit to
cash flows of $323 million. The category 'Other-net' in the preceding table
reflects changes in other asset and liability accounts, including the impact of
cash payments made in connection with 3M's restructuring actions (Note 4).



In 2006, cash flows provided by operating activities decreased $365 million.
This decrease was due in large part to an increase of approximately $600 million
in tax payments in 2006 compared with 2005. The higher tax payments in 2006
primarily related to the Company's repatriation of $1.7 billion of foreign
earnings in the United States pursuant to the provisions of the American Jobs
Creation Act of 2004. The category 'Other-net' in the preceding table reflects
changes in other asset and liability accounts, including outstanding liabilities
at December 31, 2006, related to 3M's restructuring actions (Note 4).



Cash Flows from Investing Activities:


Years ended December 31
(Millions)                                          2007       2006       2005
Purchases of property, plant and equipment (PP&   $ (1,422 ) $ (1,168 ) $   (943 )
E)
Proceeds from sale of PP&E and other assets            103         49         41
Acquisitions, net of cash acquired                    (539 )     (888 )   (1,293 )
Proceeds from sale of businesses                       897      1,209          -
Purchases and proceeds from sale or maturities        (406 )     (662 )      (46 )
of marketable securities and investments - net
Net cash used in investing activities             $ (1,367 ) $ (1,460 ) $ (2,241 )



Investments in property, plant and equipment enable growth in diverse markets,
helping to meet product demand and increasing manufacturing efficiency. In 2007,
numerous plants were opened or expanded internationally. This included two
facilities in Korea (respirator manufacturing facility and optical plant), an
optical plant in Poland, industrial adhesives/tapes facilities in both Brazil
and the Philippines, a plant in Russia (corrosion protection, industrial
adhesive and tapes, and respirators), a plant in China (optical systems,
industrial adhesives and tapes, and personal care), an expansion in Canada
(construction and home improvement business), in addition to investments in
India, Mexico and other countries. In addition, 3M expanded manufacturing
capabilities in the U.S., including investments in industrial adhesives/tapes
and optical. 3M also exited several high-cost underutilized manufacturing
facilities and streamlined several supply chains by relocating equipment from
one facility to another. The streamlining work has primarily occurred inside the
U.S. and is in addition to the streamlining achieved through plant construction.
As a result of this increased activity, capital expenditures were $1.422 billion
in 2007, an increase of $254 million when compared to 2006. The Company expects
capital expenditures to total approximately $1.3 billion to $1.4 billion in
2008. Refer to the preceding 'Capital Spending/Net Property, Plant and Equipment
' section for more detail.



Refer to Note 2 for information on 2007, 2006 and 2005 acquisitions. Note 2 also
provides information on the proceeds from the sale of businesses. The Company is
actively considering additional acquisitions, investments and strategic
alliances, and from time to time may also divest certain businesses.



Purchases of marketable securities and investments and proceeds from sale (or
maturities) of marketable securities and investments are primarily attributable
to asset-backed securities, agency securities, corporate medium-term note
securities, auction rate securities and other securities, which are classified
as available-for-sale. Refer to Note 9 for more details about 3M's diversified
marketable securities portfolio, which totaled $1.059 billion as of December 31,
2007. Purchases of marketable securities, net of sales and maturities, totaled
$429 million for 2007 and $637 million for 2006. Purchases of investments in
2005 include the purchase of 19% of TI&M Beteiligungsgesellschaft mbH for
approximately $55 million, which is reported as 'Investments' in the
Consolidated Balance Sheet and as 'Purchases of marketable securities and
investments' in the Consolidated Statement of Cash Flows. The recovery of
approximately $25 million of this investment in 2007 reduced 'Investments' and
is shown in cash flows within 'Proceeds from sale of marketable securities and
investments.' This investment is discussed in more detail under the preceding
section



                                       32
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entitled Industrial and Transportation Business. Additional purchases of
investments include additional survivor benefit insurance and equity
investments.



Cash Flows from Financing Activities:


Years ended December 31
(Millions)                                            2007        2006        2005

Change in short-term debt - net                     $ (1,222 )  $    882    $   (258 )
Repayment of debt (maturities greater than 90         (1,580 )      (440 )      (656 )
days)
Proceeds from debt (maturities greater than 90         4,024         693         429
days)
Total cash change in debt                           $  1,222    $  1,135    $   (485 )
Purchases of treasury stock                           (3,239 )    (2,351 )    (2,377 )
Reissuances of treasury stock                            796         523         545
Dividends paid to stockholders                        (1,380 )    (1,376 )    (1,286 )
Excess tax benefits from stock-based                      74          60          54
compensation
Distributions to minority interests and other -          (20 )       (52 )       (76 )
net
Net cash used in financing activities               $ (2,547 )  $ (2,061 )  $ (3,625 )



Total debt at December 31, 2007, was $4.920 billion, up from $3.553 billion at
year-end 2006. The net change in short-term debt is primarily due to commercial
paper activity. In 2007, the repayment of debt for maturities greater than 90
days is primarily comprised of commercial paper repayments of approximately
$1.15 billion and the November 2007 redemption of approximately $322 million in
Convertible Notes. In 2007, proceeds from debt included long-term debt and
commercial paper issuances totaling approximately $4 billion. This was comprised
of Eurobond issuances in December 2007 and July 2007 totaling approximately $1.5
billion in U.S. dollars, a March 2007 long-term debt issuance of $750 million
and a December 2007 fixed rate note issuance of $500 million, plus commercial
paper issuances (maturities greater than 90 days) of approximately $1.25
billion. Increases in long-term debt have been used, in part, to fund share
repurchase activities. The Company accelerated purchases of treasury stock when
compared to prior years, buying back $3.2 billion in shares in 2007. Total debt
was 30% of total capital (total capital is defined as debt plus equity),
compared with 26% at year-end 2006.



Debt securities, including 2007 debt issuances, the Company's shelf
registration, dealer remarketable securities and Convertible Notes, are all
discussed in more detail in Note 10. The Company has a 'well-known seasoned
issuer' shelf registration statement, effective February 24, 2006, to register
an indeterminate amount of debt or equity securities for future sales. On June
15, 2007, the Company registered 150,718 shares of the Company's common stock
under this shelf on behalf of and for the sole benefit of the selling
stockholders in connection with the Company's acquisition of assets of Diamond
Productions, Inc. The Company intends to use the proceeds from future securities
sales off this shelf for general corporate purposes. In connection with this
shelf registration, in June 2007 the Company established a medium-term notes
program through which up to $3 billion of medium-term notes may be offered. In
December 2007, 3M issued a five-year, $500 million, fixed rate note with a
coupon rate of 4.65% under this medium-term notes program. This program has a
remaining capacity of $2.5 billion as of December 31, 2007.



The Company's $350 million of dealer remarketable securities (classified as
current portion of long-term debt) were remarketed for one year in December
2007. At December 31, 2007, $350 million of dealer remarketable securities
(final maturity 2010) and $62 million of floating rate notes (final maturity
2044) are classified as current portion of long-term debt as the result of put
provisions associated with these debt instruments. The Company has Convertible
Notes with a book value of $222 million at December 31, 2007. The next put
option date for these Convertible Notes is November 2012. In November 2007,
364,598 outstanding bonds were redeemed resulting in a payout from 3M of
approximately $322 million.



Repurchases of common stock are made to support the Company's stock-based
employee compensation plans and for other corporate purposes. In February 2007,
3M's Board of Directors authorized a two-year share repurchase of up to $7.0
billion for the period from February 12, 2007 to February 28, 2009. As of
December 31, 2007, approximately $4.1 billion remained available for repurchase.
Refer to the table titled 'Issuer Purchases of Equity Securities' in Part II,
Item 5, for more information.



Cash dividends paid to stockholders totaled $1.380 billion ($1.92 per share) in
2007, $1.376 billion ($1.84 per share) in 2006 and $1.286 billion ($1.68 per
share) in 2005. 3M has paid dividends since 1916. In February 2008, the Board of
Directors increased the quarterly dividend on 3M common stock by 4.2% to 50
cents per share, equivalent to an annual dividend of $2.00 per share. This
marked the 50th consecutive year of dividend increases. Other cash flows from



                                       33
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financing activities primarily include distributions to minority interests,
excess tax benefits from stock-based compensation, changes in cash overdraft
balances, and principal payments for capital leases.



Off-Balance Sheet Arrangements and Contractual Obligations:

As of December 31, 2007, the Company has not utilized special purpose entities
to facilitate off-balance sheet financing arrangements. 3M's accrued product
warranty liabilities, recorded on the Consolidated Balance Sheet as part of
current and long-term liabilities, are estimated at approximately $21 million.
3M does not consider this amount to be material. The fair value of 3M guarantees
of loans with third parties and other guarantee arrangements are not material.



In addition to guarantees, 3M, in the normal course of business, periodically
enters into agreements that require the Company to indemnify either major
customers or suppliers for specific risks, such as claims for injury or property
damage arising out of the use of 3M products or the negligence of 3M personnel,
or claims alleging that 3M products infringe third-party patents or other
intellectual property. While 3M's maximum exposure under these indemnification
provisions cannot be estimated, these indemnifications are not expected to have
a material impact on the Company's consolidated results of operations or
financial condition.



A summary of the Company's significant contractual obligations as of December
31, 2007, follows:



Contractual Obligations
                                                                       Payments due by year
                                                                                                               After
(Millions)                                     Total     2008       2009       2010       2011       2012      2012
Long-term debt, including current portion     $ 4,559   $   540    $   477    $    24    $     -    $   500   $ 3,018
(Note 10)
Interest on long-term debt                      2,671       211        185        170        169        169     1,767
Operating leases (Note 13)                        441        98         79         58         35         30       141
Capital leases (Note 13)                           84         7          6          6          6          5        54
Unconditional purchase obligations and            787       626        120         33          5          2         1
other
Total contractual cash obligations            $ 8,542   $ 1,482    $   867    $   291    $   215    $   706   $ 4,981



Long-term debt payments due in 2008 include $350 million of dealer remarketable
securities (final maturity 2010) and $62 million of floating rate notes (final
maturity 2044). These securities are classified as the current portion of
long-term debt as the result of put provisions associated with these debt
instruments.



Unconditional purchase obligations are defined as an agreement to purchase goods
or services that is enforceable and legally binding on the Company. Included in
the unconditional purchase obligations category above are certain obligations
related to take or pay contracts, capital commitments, service agreements and
utilities. These estimates include both unconditional purchase obligations with
terms in excess of one year and normal ongoing purchase obligations with terms
of less than one year. Many of these commitments relate to take or pay
contracts, in which 3M guarantees payment to ensure availability of products or
services that are sold to customers. The Company expects to receive
consideration (products or services) for these unconditional purchase
obligations. Contractual capital commitments are included in the preceding
table, but these commitments represent a small part of the Company's expected
capital spending in 2008 and beyond. The purchase obligation amounts do not
represent the entire anticipated purchases in the future, but represent only
those items for which the Company is contractually obligated. The majority of
3M's products and services are purchased as needed, with no unconditional
commitment. For this reason, these amounts will not provide a reliable indicator
of the Company's expected future cash outflows on a stand-alone basis.



Other obligations, included in the preceding table within the caption entitled '
Unconditional purchase obligations and other,' include the current portion of
the liability for uncertain tax positions under FIN 48. The Company is not able
to reasonably estimate the timing of the long-term payments or the amount by
which the liability will increase or decrease over time; therefore, the
long-term portion of the liability of $304 million is excluded from the
preceding table. Refer to Note 8 for further details.



As discussed in Note 11, the Company does not have a required minimum pension
contribution obligation for its U.S. plans in 2008 and Company contributions to
its U.S. and international pension plans are expected to be largely
discretionary in 2008 and future years; therefore, amounts related to these
plans are not included in the preceding table.



                                       34
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FINANCIAL INSTRUMENTS

The Company enters into contractual derivative arrangements in the ordinary
course of business to manage foreign currency exposure, interest rate risks and
commodity price risks. A financial risk management committee, composed of senior
management, provides oversight for risk management and derivative activities.
This committee determines the Company's financial risk policies and objectives,
and provides guidelines for derivative instrument utilization. This committee
also establishes procedures for control and valuation, risk analysis,
counterparty credit approval, and ongoing monitoring and reporting.



The Company enters into foreign exchange forward contracts, options and swaps to
hedge against the effect of exchange rate fluctuations on cash flows denominated
in foreign currencies and certain intercompany financing transactions. The
Company manages interest rate risks using a mix of fixed and floating rate debt.
To help manage borrowing costs, the Company may enter into interest rate swaps.
Under these arrangements, the Company agrees to exchange, at specified
intervals, the difference between fixed and floating interest amounts calculated
by reference to an agreed-upon notional principal amount. The Company manages
commodity price risks through negotiated supply contracts, price protection
agreements and forward physical contracts.



A Monte Carlo simulation technique was used to test the Company's exposure to
changes in currency and interest rates and assess the risk of loss or benefit in
after-tax earnings of financial instruments, derivatives and underlying
exposures outstanding at December 31, 2007. The model (third-party bank dataset)
used a 95% confidence level over a 12-month time horizon. The model used
analyzed 17 currencies, interest rates related to three currencies, and five
commodities, but does not purport to represent what actually will be experienced
by the Company. This model does not include certain hedge transactions, because
the Company believes their inclusion would not materially impact the results.
The following table summarizes the possible adverse and positive impacts to
after-tax earnings related to these exposures.




                             Adverse impact on       Positive impact on
    (Millions)               after-tax earnings      after-tax earnings
                              2007        2006        2007        2006
    Foreign exchange        $    (54 )  $    (56 )  $     57    $     61
    rates
    Interest rates               (13 )       (15 )        15          17
    Commodity rates               (3 )        (6 )         2           5



The global exposures related to purchased components and materials are such that
a 1% price change would result in a pre-tax cost or savings of approximately $60
million per year. The global energy exposure is such that a 10% price change
would result in a pre-tax cost or savings of approximately $38 million per year.
Derivative instruments are used to hedge approximately 1% of the purchased
components and materials exposure and are used to hedge approximately 10% of
this energy exposure.



FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, including 'Management's Discussion and Analysis
of Financial Condition and Results of Operations' in Item 7, contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company may also make forward-looking
statements in other reports filed with the Securities and Exchange Commission,
in materials delivered to stockholders and in press releases. In addition, the
Company's representatives may from time to time make oral forward-looking
statements.



Forward-looking statements relate to future events and typically address the
Company's expected future business and financial performance. Words such as  '
plan,' 'expect,' 'aim,' 'believe,' 'project,' 'target,' 'anticipate,' 'intend,'
'estimate,' 'will,' 'should,' 'could' and other words and terms of similar
meaning, typically identify such forward-looking statements. In particular,
these include statements about the Company's strategy for growth, product
development, market position, future performance or results of current or
anticipated products, interest rates, foreign exchange rates, financial results,
and the outcome of contingencies, such as legal proceedings. The Company assumes
no obligation to update or revise any forward-looking statements.



Forward-looking statements are based on certain assumptions and expectations of
future events and trends that are subject to risks and uncertainties. Actual
future results and trends may differ materially from historical results or those
reflected in any such forward-looking statements depending on a variety of
factors. Discussion of these factors is incorporated by reference from Part I,
Item 1A, 'Risk Factors,' of this document, and should be considered an integral
part of Part II, Item 7, 'Management's Discussion and Analysis of Financial
Condition and Results of Operations.'



                                       35
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

In the context of Item 7A, market risk refers to the risk of loss arising from
adverse changes in financial and derivative instrument market rates and prices,
such as fluctuations in interest rates and foreign currency exchange rates. The
Company discusses risk management in various places throughout this document,
including discussions in Item 7 concerning Financial Condition and Liquidity,
and Financial Instruments, and in the Notes to Consolidated Financial Statements
(Long-Term Debt and Short-Term Borrowings, Derivatives and Other Financial
Instruments, and the Derivatives and Hedging Activities accounting policy). All
derivative activity is governed by written policies, and a value-at-risk
analysis is provided for these derivatives. The Company does not have leveraged
derivative positions. However, the Company does have contingently convertible
debt that, if conditions for conversion are met, is convertible into shares of
3M common stock (refer to Note 10 in this document).



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