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3M Company (96OI)

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Wednesday 08 August, 2007

3M Company

Interim Results - Part 1 of 2

3M Company
08 August 2007


Part 1 of 2


        10-Q
      
              0000066740
              xxxxxxx
      
        06/30/2007
        CHX
        NYSE
      
              EDGAR  Advantage  Service  Team
              (800)  688  -  1933
      




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549



FORM 10-Q



x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended June 30, 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



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 the filing
requirements for the past 90 days.  Yes  x    No  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

       Shares of common stock outstanding at June 30, 2007: 715,811,722.

             This document (excluding exhibits) contains 47 pages.
                 The table of contents is set forth on page 2.
                      The exhibit index begins on page 45.



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3M COMPANY
Form 10-Q for the Quarterly Period Ended June 30, 2007
TABLE OF CONTENTS
                                                                                                            PAGE
PART I           FINANCIAL INFORMATION

ITEM 1.          Financial Statements

                 Index to Financial Statements:
                 Consolidated Statement of Income                                                           3
                 Consolidated Balance Sheet                                                                 4
                 Consolidated Statement of Cash Flows                                                       5
                 Notes to Consolidated Financial Statements
                 Note 1.     Basis of Presentation                                                          6
                 Note 2.     Acquisition and Divestitures                                                   7
                 Note 3.     Goodwill and Intangible Assets                                                 8
                 Note 4.     Restructuring Actions                                                          9
                 Note 5.     Supplemental Stockholders' Equity and Comprehensive Income Information         12
                 Note 6.     Income Taxes                                                                   13
                 Note 7.     Derivatives and Other Financial Instruments                                    13
                 Note 8.     Marketable Securities                                                          14
                 Note 9.     Long-Term Debt and Short-Term Borrowings                                       15
                 Note 10.    Pension and Postretirement Benefit Plans                                       15
                 Note 11.    Commitments and Contingencies                                                  16
                 Note 12.    Management Stock Ownership Program (MSOP) and General Employees' Stock         21
                             Purchase Plan (GESPP)
                 Note 13.    Business Segments                                                              23
                 Note 14.    Review Report of Independent Registered Public Accounting Firm                 25
                 Report of Independent Registered Public Accounting Firm                                    26

ITEM 2.          Management's Discussion and Analysis of Financial Condition and Results of Operations      27
                 Index to Management's Discussion and Analysis:
                 Overview                                                                                   27
                 Results of Operations                                                                      29
                 Performance by Business Segment                                                            32
                 Financial Condition and Liquidity                                                          38
                 Forward-Looking Statements                                                                 42

ITEM 3.          Quantitative and Qualitative Disclosures About Market Risk                                 42

ITEM 4.          Controls and Procedures                                                                    42

PART II          OTHER INFORMATION

ITEM 1.          Legal Proceedings                                                                          43

ITEM 1A.         Risk Factors                                                                               43

ITEM 2.          Unregistered Sales of Equity Securities and Use of Proceeds                                43

ITEM 3.          Defaults Upon Senior Securities                                                            43

ITEM 4.          Submission of Matters to a Vote of Security Holders                                        44

ITEM 5.          Other Information                                                                          45

ITEM 6.          Exhibits                                                                                   45



                                   2

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                                   3M COMPANY
                                   FORM 10-Q
                  For the Quarterly Period Ended June 30, 2007

PART I.  Financial Information

Item 1.  Financial Statements.

Consolidated Statement of Income

(Unaudited)

3M Company and Subsidiaries
                                                                         Three months ended      Six months ended
                                                                         June 30                 June 30
(Millions, except per share amounts)                                     2007        2006        2007        2006

Net sales                                                                $ 6,142     $ 5,688     $ 12,079    $ 11,283
Operating expenses
Cost of sales                                                            3,175       2,840       6,197       5,561
Selling, general and administrative expenses                             1,286       1,322       2,567       2,505
Research, development and related expenses                               352         351         671         673
Gain on sale of businesses                                               (68      )  -           (854     )  -

Total                                                                    4,745       4,513       8,581       8,739

Operating income                                                         1,397       1,175       3,498       2,544

Interest expense and income
Interest expense                                                         48          25          86          47
Interest income                                                          (29      )  (14      )  (57      )  (22      )

Total                                                                    19          11          29          25

Income before income taxes and minority interest                         1,378       1,164       3,469       2,519
Provision for income taxes                                               445         272         1,153       715
Minority interest                                                        16          10          31          23

Net income                                                               $ 917       $ 882       $ 2,285     $ 1,781

Weighted average common shares outstanding-basic                         718.4       755.1       723.9       754.7
Earnings per share-basic                                                 $ 1.28      $ 1.17      $ 3.16      $ 2.36

Weighted average common shares outstanding-diluted                       731.7       770.4       736.5       769.5
Earnings per share-diluted                                               $ 1.25      $ 1.15      $ 3.10      $ 2.31

Cash dividends paid per common share                                     $ 0.48      $ 0.46      $ 0.96      $ 0.92



The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.

                                        3

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Consolidated Balance Sheet
(Unaudited)

3M Company and Subsidiaries
                                                                                               June 30     Dec. 31
(Dollars in millions, except per share amounts)                                                2007        2006
Assets
Current assets
Cash and cash equivalents                                                                      $ 1,348     $ 1,447
Marketable securities-current                                                                  531         471
Accounts receivable-net                                                                        3,620       3,102
Inventories
Finished goods                                                                                 1,296       1,235
Work in process                                                                                884         795
Raw materials and supplies                                                                     599         571

Total inventories                                                                              2,779       2,601
Other current assets                                                                           1,176       1,325

Total current assets                                                                           9,454       8,946

Marketable securities-non-current                                                              567         166
Investments                                                                                    285         314
Property, plant and equipment                                                                  17,466      17,017
Less: Accumulated depreciation                                                                 (11,347  )  (11,110  )

Property, plant and equipment-net                                                              6,119       5,907
Goodwill                                                                                       4,244       4,082
Intangible assets-net                                                                          743         708
Prepaid pension and postretirement benefits                                                    457         395
Other assets                                                                                   947         776

Total assets                                                                                   $ 22,816    $ 21,294

Liabilities and Stockholders' Equity
Current liabilities
Short-term borrowings and current portion of long-term debt                                    $ 2,669     $ 2,506
Accounts payable                                                                               1,472       1,402
Accrued payroll                                                                                555         520
Accrued income taxes                                                                           841         1,134
Other current liabilities                                                                      1,838       1,761

Total current liabilities                                                                      7,375       7,323

Long-term debt                                                                                 1,766       1,047
Other liabilities                                                                              3,403       2,965

Total liabilities                                                                              $ 12,544    $ 11,335

Commitments and contingencies (Note 11)

Stockholders' equity
Common stock par value, $.01 par value, 944,033,056 shares issued                              9           9
Additional paid-in capital                                                                     2,662       2,484
Retained earnings                                                                              19,319      17,933
Treasury stock, at cost; 228,221,334 shares at June 30, 2007; 209,670,254 shares at Dec.       (9,941   )  (8,456   )
31, 2006
Unearned compensation                                                                          (119     )  (138     )
Accumulated other comprehensive income (loss)                                                  (1,658   )  (1,873   )

Stockholders' equity-net                                                                       10,272      9,959

Total liabilities and stockholders' equity                                                     $ 22,816    $ 21,294



The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.

                                   4

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Consolidated Statement of Cash Flows
(Unaudited)

3M Company and Subsidiaries
                                                                                                 Six months ended
                                                                                                      June 30
(Dollars in millions)                                                                            2007        2006
Cash Flows from Operating Activities
Net income                                                                                       $ 2,285     $ 1,781
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization                                                                    533         479
Company pension and postretirement contributions                                                 (114    )   (98     )
Company pension and postretirement expense                                                       128         198
Stock-based compensation expense                                                                 129         118
Gain from sale of businesses                                                                     (854    )   -
Deferred income tax provision                                                                    (232    )   (68     )
Excess tax benefits from stock-based compensation                                                (47     )   (31     )
Changes in assets and liabilities
Accounts receivable                                                                              (470    )   (270    )
Inventories                                                                                      (139    )   (352    )
Accounts payable                                                                                 55          71
Accrued income taxes (current and long-term)                                                     259         (243    )
Product and other insurance receivables and claims                                               112         8
Other-net                                                                                        39          (175    )

Net cash provided by operating activities                                                        1,684       1,418

Cash Flows from Investing Activities
Purchases of property, plant and equipment (PP&E)                                                (652    )   (451    )
Proceeds from sale of PP&E and other assets                                                      27          25
Acquisitions, net of cash acquired                                                               (194    )   (88     )
Purchases of marketable securities and investments                                               (4,391  )   (2,072  )
Proceeds from sale of marketable securities and investments                                      3,720       1,700
Proceeds from maturities of marketable securities                                                242         47
Proceeds from sale of businesses                                                                 897         -

Net cash used in investing activities                                                            (351    )   (839    )

Cash Flows from Financing Activities
Change in short-term debt-net                                                                    (53     )   489
Repayment of debt (maturities greater than 90 days)                                              (871    )   (148    )
Proceeds from debt (maturities greater than 90 days)                                             1,812       -
Purchases of treasury stock                                                                      (2,199  )   (778    )
Reissuances of treasury stock                                                                    483         375
Dividends paid to stockholders                                                                   (696    )   (695    )
Distributions to minority interests                                                              (10     )   (10     )
Excess tax benefits from stock-based compensation                                                47          31
Other-net                                                                                        (2      )   (15     )

Net cash used in financing activities                                                            (1,489  )   (751    )

Effect of exchange rate changes on cash and cash equivalents                                     57          87

Net increase (decrease) in cash and cash equivalents                                             (99     )   (85     )
Cash and cash equivalents at beginning of year                                                   1,447       1,072

Cash and cash equivalents at end of period                                                       $ 1,348     $ 987


The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.

                                   5

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3M Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

NOTE 1.  Basis of Presentation

The interim consolidated financial statements are unaudited but, in the opinion
of management, reflect all adjustments necessary for a fair statement of the
Company's consolidated financial position, results of operations and cash flows
for the periods presented. These adjustments consist of normal, recurring items.
The results of operations for any interim period are not necessarily indicative
of results for the full year. The interim consolidated financial statements and
notes are presented as permitted by the requirements for Quarterly Reports on
Form 10-Q.

As described in 3M's Current Report on Form 8-K dated May 25, 2007 (which
updated 3M's 2006 Annual Report on Form 10-K) and 3M's Quarterly Report on Form
10-Q for the period ended March 31, 2007, during the first quarter of 2007 the
Company reorganized its business segments (refer to Note 13). This Quarterly
Report on Form 10-Q should be read in conjunction with the Company's
consolidated financial statements and notes included in its Current Report on
Form 8-K dated May 25, 2007.

Significant Accounting Policies

Earnings per share:  The difference in the weighted average shares outstanding
for calculating basic and diluted earnings per share is attributable to the
dilution associated with the Company's stock-based compensation plans.  Certain
Management Stock Ownership Program (MSOP) options outstanding were not included
in the computation of diluted earnings per share because they would not have had
a dilutive effect (26.6 million average options for the three months ended June
30, 2007; 31.0 million average options for the six months ended June 30, 2007;
30.2 million average options for the three months ended June 30, 2006; 27.4
million average options for the six months ended June 30, 2006). The conditions
for conversion related to the Company's 'Convertible Notes' were not met (refer
to 3M's Current Report on Form 8-K dated May 25, 2007, Note 10 to the
Consolidated Financial Statements, for more detail); accordingly, there was no
impact on 3M's diluted earnings per share. If the conditions for conversion are
met, 3M may choose to pay in cash and/or common stock; however, if this occurs,
the Company has the intent and ability to settle this debt security in cash. The
computations for basic and diluted earnings per share follow:

Earnings Per Share Computations
                                                                         Three months ended      Six months ended
                                                                         June 30                 June 30
(Amounts in millions, except per share amounts)                          2007        2006        2007        2006

Numerator:
Net income                                                               $ 917       $ 882       $ 2,285     $ 1,781

Denominator:
Denominator for weighted average common shares outstanding-basic         718.4       755.1       723.9       754.7

Dilution associated with the Company's stock-based compensation plans    13.3        15.3        12.6        14.8

Denominator for weighted average common shares outstanding-diluted       731.7       770.4       736.5       769.5

Earnings per share-basic                                                 $ 1.28      $ 1.17      $ 3.16      $ 2.36
Earnings per share-diluted                                               1.25        1.15        3.10        2.31



New Accounting Pronouncements

In February 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 155, 'Hybrid Instruments.'  SFAS No. 155 amends SFAS No. 133 and SFAS
No. 140, 'Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.' SFAS No. 155 also resolves issues addressed in
Statement 133 Implementation Issue No. D1, 'Application of Statement 133 to
Beneficial Interests in Securitized Financial Assets.' SFAS No. 155: a) permits
fair value remeasurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation, b) clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of SFAS No. 133, c) establishes a requirement to evaluate interests
in securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an embedded
derivative requiring bifurcation, d) clarifies that concentrations of credit
risk in the form of subordination are not embedded derivatives, and e) amends
SFAS No. 140 to eliminate the

                                   6

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prohibition on a qualifying special purpose entity from holding a derivative
financial instrument that pertains to a beneficial interest other than another
derivative financial instrument. The Company adopted SFAS No. 155 effective
January 1, 2007; however, there was no material impact.

In June 2006, the FASB issued Interpretation No. 48 (FIN 48), 'Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.' This
interpretation was effective as of January 1, 2007. Refer to Note 6 for
additional information concerning this standard.

In September 2006, the FASB issued SFAS No. 157, 'Fair Value Measurements.' SFAS
No. 157 establishes a single definition of fair value and a framework for
measuring fair value, sets out a fair value hierarchy to be used to classify the
source of information used in fair value measurements, and requires new
disclosures of assets and liabilities measured at fair value based on their
level in the hierarchy. SFAS No. 157 is effective for all fiscal years beginning
after November 15, 2007 (January 1, 2008 for 3M) and is to be applied
prospectively. The Company is currently evaluating the impacts and disclosures
of this standard, but would not expect SFAS No. 157 to have a material impact on
3M's consolidated results of operations or financial condition.

In February 2007, the FASB issued SFAS No. 159, 'The Fair Value Option for
Financial Assets and Financial Liabilities'. SFAS No. 159 permits an entity to
choose, at specified election dates, to measure eligible financial instruments
and certain other items at fair value that are not currently required to be
measured at fair value. An entity shall report unrealized gains and losses on
items for which the fair value option has been elected in earnings at each
subsequent reporting date.  Upfront costs and fees related to items for which
the fair value option is elected shall be recognized in earnings as incurred and
not deferred. SFAS No. 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose
different measurement attributes for similar types of assets and liabilities.
SFAS No. 159 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 (January 1, 2008 for 3M) and interim periods
within those fiscal years. At the effective date, an entity may elect the fair
value option for eligible items that exist at that date. The entity shall report
the effect of the first remeasurement to fair value as a cumulative-effect
adjustment to the opening balance of retained earnings. The Company is currently
evaluating the impacts and disclosures of this standard, but would not expect
SFAS No. 159 to have a material impact on 3M's consolidated results of
operations or financial condition.

In June 2007, the FASB's Emerging Issues Task Force reached a consensus on EITF
Issue No. 07-3, 'Accounting for Nonrefundable Advance Payments for Goods or
Services to Be Used in Future Research and Development Activities' that would
require nonrefundable advance payments made by the Company for future R&D
activities to be capitalized and recognized as an expense as the goods or
services are received by the Company. EITF Issue No. 07-3 is effective for 3M
with respect to new arrangements entered into beginning January 1, 2008. The
Company is currently evaluating the impacts and disclosures of this standard,
but would not expect EITF Issue No. 07-3 to have a material impact on 3M's
consolidated results of operations or financial condition.

NOTE 2.  Acquisitions and Divestitures

Divestitures:

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 $786 million
(recorded in the Health Care segment) in the first quarter of 2007. In December
2006, 3M completed the sale of its global branded pharmaceuticals business in
the United States, Canada, and Latin America region and the Asia Pacific region,
including Australia and South Africa. In connection with all of these
transactions, 3M's Drug Delivery Systems Division (DDSD) entered into agreements
whereby it became a source of supply to the acquiring companies. Because of the
extent of 3M cash flows from these agreements in relation to those of the
disposed-of businesses, the operations of the branded pharmaceuticals business
are not classified as discontinued operations.

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 the second quarter
of 2007.

                                   7

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Acquisitions:

During the six months ended June 30, 2007, 3M completed seven business
combinations for a total purchase price of $194 million, net of cash acquired,
plus approximately 150 thousand shares of 3M common stock, which had a market
value of approximately $13 million. Purchased identifiable intangible assets of
$42 million for these acquisitions will be amortized on a straight-line basis
over lives ranging from two to 10 years (weighted-average life of eight years).

The seven business combinations are summarized as follows:

1) In February 2007, 3M (Industrial and Transportation Business) purchased
certain assets of Accuspray Application Technologies Inc., a manufacturer of
spray paint equipment with a wide array of spray guns for architectural,
automotive refinishing, industrial and woodworking applications.

2) In February 2007, 3M (Industrial and Transportation Business) purchased
Sealed Air Corporation's 50 percent interest in PolyMask Corporation, a joint
venture between 3M and Sealed Air that produces protective films.  The
acquisition of Sealed Air's interest results in 100 percent ownership by 3M.

3) In February 2007, 3M (Health Care Business) purchased 100 percent of the
outstanding shares of Acolyte Biomedica Ltd., a Salisbury, U.K.-based provider
of an automated microbial detection platform that aids in the rapid detection,
diagnosis, and treatment of infectious diseases.

4) In May 2007, 3M (Safety, Security and Protection Services Business) purchased
100 percent of the outstanding shares of E Wood Holdings PLC, a North Yorkshire,
UK-based manufacturer of high performance protective coatings for oil, gas,
water, rail and automotive industries.

5) In May 2007, 3M (Electro and Communications Business) purchased certain
assets of Innovative Paper Technologies LLC, a manufacturer of inorganic-based
technical papers, boards and laminates for a wide variety of high temperature
applications and Powell LLC, a supplier of non-woven polyester mats for the
electrical industry.

6) In May 2007, 3M (Health Care Business) purchased certain assets of Articulos
de Papel DMS Chile, a Santiago, Chile-based manufacturer of disposable surgical
packs, drapes, gowns and kits.

7) In June 2007, 3M (Industrial and Transportation Business) purchased certain
assets of Diamond Productions Inc., a manufacturer of superabrasive diamond and
cubic boron nitride wheels and tools for dimensioning and finishing
hard-to-grind materials in metalworking, woodworking and stone fabrication
markets in exchange for approximately 150 thousand shares of 3M common stock,
which had a market value of $13 million at the acquisition measurement date and
was previously held as 3M treasury stock.

Pro forma information related to the above acquisitions is not included because
the impact on the Company's consolidated results of operations is not considered
to be material. In-process research and development charges associated with
these acquisitions was not material.

NOTE 3.  Goodwill and Intangible Assets

As discussed in Note 13, 3M made certain changes to its business segments
effective in the first quarter of 2007, which are reflected in the goodwill
balances presented below. For those changes that resulted in reporting unit
changes, the Company applied the relative fair value method to determine the
impact to reporting units. SFAS No. 142 requires that goodwill be tested for
impairment at least annually and when reporting units are changed. During the
first quarter of 2007, the Company completed its assessment of any potential
goodwill impairment under this new structure and determined that no impairment
existed.

Purchased goodwill related to acquisitions closed in the first six months of
2007 and purchase accounting adjustments for previously closed acquisitions
totaled $134 million, $18 million of which is deductible for tax purposes. The
goodwill balance by business segment as of December 31, 2006 and June 30, 2007,
follow:

Goodwill
                                                                 Dec. 31,                                    June 30,
                                                                 2006          Acquisition    Translation    2007
(Millions)                                                       balance       activity       and other      balance

Industrial and Transportation                                    $ 1,302       $  40          $  10          $ 1,352
Health Care                                                      713           23             10             746
Display and Graphics                                             886           -              -              886
Consumer and Office                                              89            -              (1          )  88
Safety, Security and Protection Services                         525           56             7              588
Electro and Communications                                       567           15             2              584

Total Company                                                    $ 4,082       $  134         $  28          $ 4,244



                                   8

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Acquired Intangible Assets

The carrying amount and accumulated amortization of acquired intangible assets
as of June 30, 2007, and December 31, 2006, follow:

                                                                                                   June 30    Dec. 31
(Millions)                                                                                         2007       2006

Patents                                                                                            $ 433      $ 419
Other amortizable intangible assets (primarily tradenames and customer related intangibles)        710        641
Non-amortizable intangible assets (tradenames)                                                     69         68
Total gross carrying amount                                                                        $ 1,212    $ 1,128

Accumulated amortization-patents                                                                   (284    )  (266    )
Accumulated amortization-other                                                                     (185    )  (154    )
Total accumulated amortization                                                                     (469    )  (420    )
Total intangible assets-net                                                                        $ 743      $ 708



Amortization expense for acquired intangible assets for the three-month and
six-month periods ended June 30, 2007 and 2006 follows:
                                                                         Three months ended      Six months ended
                                                                         June 30                 June 30
(Millions)                                                               2007        2006        2007        2006

Amortization expense                                                     $ 21        $ 14        $ 42        $ 29



The table below shows expected amortization expense for acquired intangible
assets recorded as of June 30, 2007:
                                                     Last 2
                                                     Quarters                                                 After
(Millions)                                           2007         2008       2009       2010       2011       2012

Amortization expense                                 $  45        $ 82       $ 79       $ 71       $ 65       $ 332



The expected amortization expense is an estimate. Actual amounts of amortization
expense may differ from estimated amounts due to additional intangible asset
acquisitions, changes in foreign currency exchange rates, impairment of
intangible assets, accelerated amortization of intangible assets and other
events.

NOTE 4.  Restructuring Actions

During the fourth quarter of 2006 and the first six months of 2007, management
approved and committed to undertake the following restructuring actions:
     
•    Pharmaceuticals business actions-employee-related, asset impairment and 
     other costs pertaining to the Company's exit of its branded pharmaceuticals 
     operations. These costs included severance and benefits for pharmaceuticals 
     business employees who are not obtaining employment with the buyers as well 
     as impairment charges associated with certain assets not transferred to the 
     buyers.

•    Overhead reduction actions-employee-related costs for severance and 
     benefits, costs associated with actions to reduce the Company's
     cost structure.

•    Business-specific actions-employee-related costs for severance and 
     benefits, fixed and intangible asset impairments, certain contractual 
     obligations, and expenses from the exit of certain product lines.

                                   9

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The Company adjusted the 2006 restructuring actions cost estimates in the first
and second quarter of 2007.  Components of these restructuring actions include:

Restructuring Actions
                                                            Employee-      Contract
                                                            Related        Terminations    Asset
                                                            Items
(Millions)                                                  And            and Other       Impairments    Total
                                                            Benefits
Accrued balances as of December 31, 2006:
Pharmaceuticals business actions                            $ 78           $  6            $ -            $ 84
Overhead reduction actions                                  100            -               -              100
Business-specific actions                                   30             8               -              38

Total accrued balance                                       $ 208          $  14           $ -            $ 222

Expenses (credits) incurred in Q1 2007:
Pharmaceuticals business actions                            $ (8        )  $  (4        )  $ -            $ (12       )
Overhead reduction actions                                  5              -               -              5
Business-specific actions                                   4              4               11             19

Total Q1 2007 expense                                       $ 1            $  -            $ 11           $ 12

Non-cash (charges) credits in Q1 2007:
Pharmaceuticals business actions                            $ (21       )  $  4            $ -            $ (17       )
Overhead reduction actions                                  (5          )  -               -              (5          )
Business-specific actions                                   (5          )  (4           )  (11         )  (20         )

Total Q1 2007 non-cash                                      $ (31       )  $  -            $ (11       )  $ (42       )

Cash payments in Q1 2007:
Pharmaceuticals business actions                            $ (19       )  $  (6        )  $ -            $ (25       )
Overhead reduction actions                                  (40         )  -               -              (40         )
Business-specific actions                                   (9          )  -               -              (9          )

Total Q1 2007 cash payments                                 $ (68       )  $  (6        )  $ -            $ (74       )

Accrued balances as of March 31, 2007:
Pharmaceuticals business actions                            $ 30           $  -            $ -            $ 30
Overhead reduction actions                                  60             -               -              60
Business-specific actions                                   20             8               -              28

Total accrued balance                                       $ 110          $  8            $ -            $ 118

Expenses (credits) incurred in Q2 2007:
Pharmaceuticals business actions                            $ (2        )  $  -            $ -            $ (2        )
Overhead reduction actions                                  -              -               -              -
Business-specific actions                                   11             -               24             35

Total Q2 2007 expense                                       $ 9            $  -            $ 24           $ 33

Non-cash (charges) credits in Q2 2007:
Pharmaceuticals business actions                            $ -            $  -            $ -            $ -
Overhead reduction actions                                  -              -               -              -
Business-specific actions                                   (5          )  -               (24         )  (29         )

Total Q2 2007 non-cash                                      $ (5        )  $  -            $ (24       )  $ (29       )

Cash payments in Q2 2007:
Pharmaceuticals business actions                            $ (5        )  $  -            $ -            $ (5        )
Overhead reduction actions                                  (31         )  -               -              (31         )
Business-specific actions                                   (6          )  -               -              (6          )

Total Q2 2007 cash payments                                 $ (42       )  $  -            $ -            $ (42       )



                                   10

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Accrued balances as of June 30, 2007:
Pharmaceuticals business actions                             $ 23           $ -            $ -            $ 23
Overhead reduction actions                                   29             -              -              29
Business-specific actions                                    20             8              -              28

Total accrued balance                                        $ 72           $ 8            $ -            $ 80



Income statement line in which the above 2007 expenses (credits) are reflected:


                                                                                  Q1 2007      Q2 2007      YTD 2007

Cost of sales                                                                     $ 10         $ 31         $ 41
Selling, general and administrative expenses                                      7            3            10
Research, development and related expenses                                        (5        )  (1        )  (6        )

Total                                                                             $ 12         $ 33         $ 45


The amount of expenses (credits) incurred in 2007 associated with the above are
reflected in the Company's business segments as follows:
                                                                                  Q1 2007      Q2 2007      YTD 2007

Industrial and Transportation                                                     $ -          $ 2          $ 2
Health Care                                                                       (7        )  (2        )  (9        )
Electro and Communications                                                        19           -            19
Display and Graphics                                                              -            4            4
Safety, Security and Protection Services                                          -            29           29

Total                                                                             $ 12         $ 33         $ 45


Actions with respect to the above activities are expected to be substantially
completed in 2007 and additional charges and adjustments are not expected to be
material.

In connection with this targeted restructuring plan, the Company eliminated a
total of approximately 1,900 positions from various functions within the
Company. Approximately 390 positions were pharmaceuticals business employees,
approximately 960 positions related primarily to corporate staff overhead
reductions, and approximately 550 positions were business-specific reduction
actions. Of the 1,900 employment reductions, about 58% are in the United States,
21% in Europe, 12% in Latin America and Canada, and 9% in the Asia Pacific area.
As a result of the second-quarter 2007 phase-out of operations at a New Jersey
roofing granule facility and the sale of the Company's Opticom Priority Control
Systems and Canoga Traffic Detection businesses, the Company eliminated
approximately 100 additional positions.

Employee-related severance charges are largely based upon distributed employment
policies and substantive severance plans and were reflected in the quarter in
which management approved the restructuring actions. Severance amounts for which
affected employees were required to render service in order to receive benefits
at their termination dates were measured at the date such benefits were
communicated to the applicable employees and recognized as expense over the
employees' remaining service periods.

Non-cash employee-related charges in 2007 primarily relate to special
termination pension and medical benefits granted to certain U.S. eligible
employees. These pension and medical benefits were reflected as a component of
the benefit obligation of the Company's pension and medical plans as of June 30,
2007.

Contract termination and other charges primarily reflect costs to terminate a
contract before the end of its term (measured at fair value at the time the
Company provided notice to the counterparty) or costs that will continue to be
incurred under the contract for its remaining term without economic benefit to
the Company.

First-quarter 2007 business-specific asset impairment charges primarily related
to the Company's decision to close an Electro and Communications facility in
Wisconsin. Asset impairment charges in the first quarter of 2007 associated with
the business-specific actions included $10 million related to property, plant
and equipment and $1 million related to intangible assets. Second-quarter 2007
business-specific asset impairment charges of $24 million related to property,
plant and equipment are associated with the Company's decision to phase-out
operations at a New Jersey roofing granule facility (Safety, Security and
Protection Services segment). Impairment charges related to intangible assets
and property, plant and equipment reflect the excess of the assets' carrying
values over their fair values.

                                   11

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NOTE 5.  Supplemental Stockholders' Equity and Comprehensive Income Information

Accumulated Other Comprehensive Income (Loss)
                                                                                                 June 30,    Dec. 31,
(Millions)                                                                                       2007        2006
Cumulative translation-net                                                                       $ 361       $ 210
Defined benefit pension plans adjustment-net                                                     (2,003   )  (2,067   )
Debt and equity securities, unrealized gain-net                                                  6           2
Cash flow hedging instruments, unrealized gain (loss)-net                                        (22      )  (18      )

Total accumulated other comprehensive income (loss)                                              ($1,658  )  ($1,873  )



No income tax provision is required for the translation of foreign currency
financial statements into U.S. dollars. Reclassification adjustments are made to
avoid double counting in comprehensive income items that are also recorded as
part of net income. Reclassification adjustments for cash flow hedging
instruments are discussed in Note 7 and reclassification adjustments for the
defined benefit pension plans adjustment are discussed in Note 10.

TOTAL COMPREHENSIVE INCOME
                                                                                                Three months ended
                                                                                                June 30
(Millions)                                                                                      2007         2006
Net Income                                                                                      $ 917        $ 882
Other comprehensive income (loss)
Cumulative translation-net of $2 million tax provision in 2007 and net of $1 million tax        78           161
provision in 2006
Defined benefit pension plans adjustment-net of $18 million tax effect in 2007                  30           -
Debt and equity securities, unrealized gain (loss)-net of immaterial tax impact                 2            -
Cash flow hedging instruments, unrealized gain (loss)-net of $6 million tax benefit in 2007     (19      )   (18      )
and net of $8 million tax benefit in 2006

Total comprehensive income                                                                      $ 1,008      $ 1,025



TOTAL COMPREHENSIVE INCOME
                                                                                                  Six months ended
                                                                                                  June 30
(Millions)                                                                                        2007        2006
Net Income                                                                                        $ 2,285     $ 1,781
Other comprehensive income (loss)
Cumulative translation-net of $6 million tax benefit in 2007 and net of $7 million tax            151         265
provision in 2006
Defined benefit pension plans adjustment-net of $32 million tax effect in 2007                    64          -
Debt and equity securities, unrealized gain (loss)-net of immaterial tax impact                   4           (1      )
Cash flow hedging instruments, unrealized gain (loss)-net of $3 million tax benefit in 2007       (4      )   (40     )
and net of $22 million tax benefit in 2006

Total comprehensive income                                                                        $ 2,500     $ 2,005



                                   12

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NOTE 6.  Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction, and
various states and foreign jurisdictions.  With few exceptions, the Company is
no longer subject to U.S. federal, state and local, or non-U.S. income tax
examinations by tax authorities for years before 1999. The Internal Revenue
Service (IRS) closed its examination of the Company's U.S. income tax returns
for the years 1999 through 2001 in the second quarter of 2006, and it is
anticipated that its examination for the Company's U.S. income tax returns for
the years 2002 through 2004 will be completed by the end of 2007. As of June 30,
2007, the IRS has not proposed any significant adjustments to the Company's tax
positions. Currently, the Company is not able to reasonably estimate the amount
by which the liability for unrecognized tax benefits will increase or decrease
during the next 12 months as a result of the ongoing IRS audit. However, the
Company does not anticipate any adjustments that would result in a material
change to its financial position. Payments relating to any proposed assessments
arising from the 2002 through 2004 audit may not be made until a final agreement
is reached between the Company and the IRS on such assessments or upon a final
resolution resulting from the administrative appeals process or judicial action.
In addition to the U.S. federal examination, there is also limited audit
activity in several U.S. state and foreign jurisdictions.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, on January 1, 2007. As a result of the
implementation of Interpretation 48, the Company recognized an immaterial
increase in the liability for unrecognized tax benefits, which was accounted for
as a reduction to the January 1, 2007, balance of retained earnings. The total
amount of unrecognized tax benefits as of January 1, 2007 and June 30, 2007,
respectively, are $261 million and $309 million. These amounts at January 1,
2007 and June 30, 2007, respectively, include accrued interest and penalties of
$45 million and $59 million, of which $23 million and $29 million are for
interest and penalties related to tax positions for which the ultimate
deductibility is highly certain but for which there is uncertainty about the
timing of such deductibility. Because of the impact of deferred tax accounting,
other than interest and penalties, the disallowance of the shorter deductibility
period would not affect the annual effective tax rate but would accelerate the
payment of cash to the taxing authority to an earlier period. The Company
recognizes interest accrued related to unrecognized tax benefits in tax expense.

NOTE 7.  Derivatives and Other Financial Instruments

The Company uses interest rate swaps, currency swaps, and forward and option
contracts to manage risks generally associated with foreign exchange rate,
interest rate and commodity price fluctuations. As circumstances warrant, the
Company also uses cross currency swaps and forwards to hedge portions of the
Company's net investments in foreign operations. For a more detailed discussion
of the company's derivative instruments, refer to 3M's Current Report on Form
8-K dated May 25, 2007.

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. These
transactions are designated as cash flow hedges. Based on exchange rates at June
30, 2007, the Company expects to reclassify to earnings over the next 12 months
a majority of the cash flow hedging instruments after-tax loss of $22 million
(with the impact offset by cash flows from underlying hedged items). Amounts
recorded in accumulated other comprehensive income (loss) related to cash flow
hedging instruments follow:

Cash Flow Hedging Instruments
                                                                        Three months ended       Six months ended
Net of Tax                                                              June 30                  June 30
(Millions)                                                              2007         2006        2007         2006

Beginning balance                                                       $ (3     )   $ 16        $ (18    )   $ 38

Changes in fair value of derivatives                                    (21      )   (18      )  (11      )   (29     )
Reclassifications to earnings from equity                               2            -           7            (11     )

Total activity                                                          (19      )   (18      )  (4       )   (40     )

Ending balance                                                          $ (22    )   $ (2     )  $ (22    )   $ (2    )



In June 2006, the Company entered into a $330 million fixed-to-floating interest
rate swap to hedge the 30-year bond due in 2028. The Company terminated the swap
in March 2007 and the resulting gain will be recognized over the remaining life
of the underlying debt. Accordingly, the termination of this swap did not have a
material impact on 3M's consolidated results of operations or financial
condition. Refer to Note 9 for discussion of hedges associated with the seven
year Eurobond issued in July 2007.

                                   13

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NOTE 8.  Marketable Securities

The Company invests in auction rate securities, asset-backed securities, and
other securities. The following is a summary of amounts recorded on the
Consolidated Balance Sheet for marketable securities (current and non-current)
at June 30, 2007.
                                                                              June
                                                                              30,
(Millions)                                                                    2007

Asset-backed securities                                                       $ 272
Auction rate securities                                                       112
Agency securities                                                             105
Other securities                                                              42

Current marketable securities                                                 531

Asset-backed securities                                                       449
Treasury securities                                                           90
Agency securities                                                             23
Corporate medium-term notes securities                                        5

Non-current marketable securities                                             567

Total marketable securities                                                   $ 1,098



Classification of marketable securities as current or non-current is dependent
upon management's intended holding period, the security's maturity date, or
both. If management intends to hold the securities for longer than one year as
of the balance sheet date, they are classified as non-current. Unrealized gains
and losses were not material in the first six months of 2007 and 2006. Gross
realized gains and gross realized losses on sales of marketable securities were
also not material. There were no impairment losses recognized on marketable
securities in the first six months of 2007 and 2006. Cost of securities sold or
reclassified use the first in first out (FIFO) method. Since these marketable
securities are classified as available-for-sale securities, changes in fair
value will flow through other comprehensive income, with amounts reclassified
out of other comprehensive income into earnings upon sale. Other comprehensive
income activity for these securities in the first six months of 2007 and 2006
was not material.

The fair value of securities in an unrealized loss position at June 30, 2007 was
$609 million, all of which have been a loss position for less than 12 months.
Unrealized losses for these securities at June 30, 2007 were not material. 3M
has both the intent and ability to hold the securities for the time necessary to
recover the cost basis.

The balance at June 30, 2007 for marketable securities and short-term
investments by contractual maturity are shown below. Actual maturities may
differ from contractual maturities because the issuers of the securities may
have the right to prepay obligations without prepayment penalties.

                                                                              June 30,
(Millions)                                                                    2007

Due in one year or less                                                       $ 214
Due after one year through three years                                        471
Due after three years through five years                                      244
Due after five years                                                          169

Total marketable securities                                                   $ 1,098



                                   14

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NOTE 9.  Long-Term Debt and Short-Term Borrowings

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. As of June 30, 2007, no debt securities have
been issued off this shelf, but 150,718 shares of the Company's common stock
were registered on June 15, 2007 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 March 2007, the Company issued a 30-year, $750 million, fixed rate note with
a coupon rate of 5.70%. This debt security was issued under the $1.5 billion
shelf registration and medium-term notes program established in late 2003.

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
June 30, 2007, there are $110 million in letters of credit drawn against the
facility. Under the new credit 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 June 30, 2007, this ratio was
approximately 48.5 to 1.

In the second quarter of 2007, 3M repurchased $42 million in floating rate notes
due in 2037 at par as the bondholder exercised put provisions associated with
this debt instrument.

Subsequent Event

In July 2007, 3M issued a seven year 5.0% fixed rate Eurobond for an amount of
750 million Euros (approximately $1.023 billion in U.S. Dollars). In June 2007,
3M executed a pre-issuance cash flow hedge on a notional amount of 350 million
Euros by entering into a floating-to-fixed interest rate swap relating to the
anticipated issuance of the Eurobond. At June 30, 2007, this swap had an
immaterial mark-to-market value. Upon debt issuance in July 2007, 3M completed a
fixed-to-floating interest rate swap on a notional amount of 400 million Euros
as a fair value hedge of a portion of the fixed interest rate Eurobond
obligation and simultaneously terminated the floating-to-fixed swap. The
termination of the swap resulted in an immaterial gain, which will be amortized
over the seven year life of the Eurobond. 3M also designated the 750 million
Eurobond as a hedging instrument of the Company's net investment in its European
subsidiaries.

NOTE 10.  Pension and Postretirement Benefit Plans

Components of net periodic benefit cost and other supplemental information for
the three months and six months ended June 30 follow:

Benefit Plan Information
                                                             Three months ended June 30
                                                             Qualified and Non-qualified             Postretirement
                                                             Pension Benefits                        Benefits
                                                             United States       International
(Millions)                                                   2007      2006      2007      2006      2007      2006

Service cost                                                 $ 48      $ 49      $ 30      $ 29      $ 14      $ 14
Interest cost                                                142       135       55        43        26        26
Expected return on plan assets                               (210  )   (191  )   (70   )   (57   )   (26   )   (26   )
Amortization of transition (asset) obligation                -         -         1         1         -         -
Amortization of prior service cost (benefit)                 4         3         (1    )   (1    )   (18   )   (13   )
Recognized net actuarial (gain) loss                         31        51        13        15        18        21

Net periodic benefit cost                                    $ 15      $ 47      $ 28      $ 30      $ 14      $ 22

Settlements, curtailments and special termination            1         -         -         -         13        -
benefits

Net periodic benefit cost after settlements, curtailments    $ 16      $ 47      $ 28      $ 30      $ 27      $ 22
and special termination benefits


                                   15

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Benefit Plan Information
                                                              Six months ended June 30
                                                              Qualified and Non-qualified             Postretirement
                                                              Pension Benefits                        Benefits
                                                              United States       International
(Millions)                                                    2007      2006      2007      2006      2007      2006

Service cost                                                  $ 96      $ 98      $ 60      $ 58      $ 28      $ 28
Interest cost                                                 284       270       110       86        52        52
Expected return on plan assets                                (420  )   (382  )   (140  )   (114  )   (52   )   (52   )
Amortization of transition (asset) obligation                 -         -         2         2         -         -
Amortization of prior service cost (benefit)                  7         6         (2    )   (2    )   (36   )   (26   )
Recognized net actuarial (gain) loss                          63        102       26        30        36        42

Net periodic benefit cost                                     $ 30      $ 94      $ 56      $ 60      $ 28      $ 44

Settlements, curtailments and special termination benefits    1         -         -         -         13        -

Net periodic benefit cost after settlements, curtailments     $ 31      $ 94      $ 56      $ 60      $ 41      $ 44
and special termination benefits



As a result of the Company's December 31, 2006 adoption of SFAS No. 158, '
Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans
', the Company recognized the transition obligation, prior service costs, and
net actuarial losses on the balance sheet as accumulated other comprehensive
income, which is a component of stockholders' equity. As disclosed in Note 5,
for the three and six-months ended June 30, 2007, $30 million after tax ($18
million tax benefit) and $64 million after tax ($32 million tax benefit),
respectively, was reclassified to earnings from accumulated other comprehensive
income to pension expense in the income statement. These pension expense amounts
are shown in the table above as amortization of transition (asset) obligation,
amortization of prior service cost (benefit) and recognized net actuarial (gain)
loss.

For the six months ended June 30, 2007, contributions totaling $113 million were
made to the Company's U.S. and international pension plans and $1 million to its
post-retirement plans. In 2007, the Company expects to contribute up 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 2007.
Therefore, the amount of the anticipated discretionary pension contribution
could vary significantly depending on the U.S plans' funding status as of the
2007 measurement date and the anticipated tax deductibility of the contribution.

NOTE 11.  Commitments and Contingencies

Legal Proceedings:

The Company and some of its subsidiaries are involved in numerous claims and
lawsuits, principally in the United States, and regulatory proceedings
worldwide. These include various products liability (involving products that the
Company now or formerly manufactured and sold), intellectual property, and
commercial claims and lawsuits, including those brought under the antitrust
laws, and environmental proceedings. The following sections first describe the
significant legal proceedings in which the Company is involved, and then
describe the liabilities and associated insurance receivables the Company has
accrued relating to its significant legal proceedings. Unless otherwise stated,
the Company is vigorously defending all such litigation. Additional information
can be found in Note 13 'Commitments and Contingencies' in the Company's Current
Report on Form 8-K dated May 25, 2007, including information about the Company's
process for establishing and disclosing accruals and insurance receivables.

Antitrust Litigation

As previously reported, LePage's Inc., a transparent tape competitor of 3M,
filed a lawsuit against the Company in June 1997 alleging that certain marketing
practices of the Company constituted unlawful monopolization under the antitrust
laws. Following the entry of a verdict in LePage's favor and appellate rulings
sustaining that verdict, direct and indirect tape purchasers filed a number of
purported class actions and individual actions against the Company in various
state and federal courts. These cases alleged that the Company competed unfairly
and unlawfully monopolized alleged markets for transparent tape, and sought
injunctive relief and damages in the form of price overcharges the Company
allegedly charged for these products.

                              16

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The Company has resolved each of these actions. The settlements of the various
purported class actions received final court approval in 2006, and the
settlement of the single certified class action pending in the federal court in
Pennsylvania received final court approval in May 2007.

Shareholder Derivative Litigation

In July 2007, a shareholder derivative lawsuit was filed in the U.S. District
Court for the District of Delaware against the Company as nominal defendant and
against each then current member of the Board of Directors and the officers
named in the Summary Compensation Table of the 2007 Proxy Statement. The suit
alleges that the Company's 2007 Proxy Statement contained false and misleading
statements concerning the tax deductibility of compensation payable under the
Annual Incentive Plan ('Plan') and the standards for determining the amounts
payable under the Plan. The lawsuit seeks a declaration voiding shareholder
approval of the Plan, termination of the Plan, voiding the elections of
directors, equitable accounting, and awarding costs, including attorneys' fees.

Breast Implant Litigation

The Company and certain other companies were named as defendants in past years
in numerous claims and lawsuits alleging damages for personal injuries of
various types resulting from breast implants formerly manufactured by the
Company or a related company. The vast majority of claims against the Company
have been resolved. The Company does not consider its remaining probable
liability to be material. Information concerning the associated insurance
receivable is in the table in the paragraph entitled Accrued Liabilities and
Insurance Receivables Related to Legal Proceedings.

Respirator Mask/Asbestos Litigation

As of June 30, 2007, the Company is a named defendant, with multiple
co-defendants, in numerous lawsuits in various courts that purport to represent
approximately 13,870 individual claimants, a decrease from the approximately
33,000 individual claimants with actions pending at June 30, 2006.  The vast
majority of the lawsuits and claims resolved by and currently pending against
the Company allege use of some of the Company's mask and respirator products and
seek damages from the Company and other defendants for alleged personal injury
from workplace exposures to asbestos, silica, coal, or other occupational dusts
found in products manufactured by other defendants or generally in the
workplace. The remaining claimants generally allege personal injury from
occupational exposure to asbestos from products previously manufactured by the
Company, which are often unspecified, and by other defendants, or occasionally
at Company premises.

Many of the resolved lawsuits and claims involved unimpaired claimants who were
recruited by plaintiffs' lawyers through mass chest x-ray screenings. The
Company experienced a significant decline in the number of claims filed in 2006
and through the second quarter of 2007 from prior years by apparently unimpaired
claimants. The Company attributes this decline to several factors, including
certain changes enacted in several states in recent years of the law governing
asbestos-related claims, and the highly-publicized decision in mid-2005 of the
United States District Court for the Southern District of Texas that identified
and criticized abuses by certain attorneys, doctors, and x-ray screening
companies on behalf of claimants. The Company expects the filing of claims by
unimpaired claimants in the future to continue at much lower levels than in the
past. The Company believes that due to this change in the type and volume of
incoming claims, it is likely that going forward the number of claims alleging
more serious injuries, including mesothelioma and other malignancies, while
remaining relatively constant, will represent a greater percentage of total
claims than in the past. The Company has demonstrated in past trial proceedings
that its respiratory protection products are effective as claimed when used in
the intended manner and in the intended circumstances. Consequently the Company
believes that claimants are unable to establish that their medical condition,
even if significant, is attributable to the Company's respiratory protection
products. Nonetheless, the Company's litigation experience indicates that such
claims are costlier to resolve than the claims of unimpaired persons, and it
therefore anticipates an increase in the average cost of resolving pending and
future claims on a per-claim basis than it experienced in prior periods when the
vast majority of claims were asserted by the unimpaired.

On July 13, 2007, the Company won a defense verdict from a jury in the federal
court in Eastern District of Missouri.  The jury found the Company had no
liability whatever to a plaintiff who claimed he had silicosis and a related
cancer and sought to recover damages from the Company arising from his alleged
illness, which he claimed to have contracted from occupational exposure to
silica despite his purported use of the Company's respirator mask equipment at
various times.  The jury rejected each of the plaintiff's theories of liability
against the Company.  With this victory, the Company has prevailed in seven of
the eight cases tried to verdict (such trials occurred in 1999, 2000, 2003,
2004, and 2007), and an appellate reversal in 2005 of the one jury verdict
adverse to the Company.

As previously reported, the State of West Virginia, through its Attorney
General, filed a complaint in 2003 against the Company and two other
manufacturers of respiratory protection products in the Circuit Court of Lincoln
County, West Virginia, and amended it in 2005. The amended complaint seeks
substantial, but unspecified, compensatory damages primarily for reimbursement
of the costs allegedly incurred by the State for worker's compensation and
healthcare

                                   17

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benefits provided to all workers with occupational pneumoconiosis, including
current or former miners allegedly suffering from silicosis and/or coal miner's
pneumoconiosis ('Black Lung disease') and unspecified punitive damages.

Employment Litigation

As previously reported, one current and one former employee of the Company filed
a purported class action in the District Court of Ramsey County, Minnesota, in
December 2004, seeking to represent a class of all current and certain former
salaried employees employed by 3M in Minnesota below a certain salary grade who
were age 46 or older at any time during the applicable period to be determined
by the Court. The complaint alleges the plaintiffs suffered various forms of
employment discrimination on the basis of age in violation of the Minnesota
Human Rights Act and seeks injunctive relief, unspecified compensatory damages
(which they seek to treble under the statute), including back and front pay,
punitive damages (limited by statute to $8,500 per claimant) and attorneys'
fees. In January 2006, the plaintiffs filed a motion to join four additional
named plaintiffs. This motion was unopposed by the Company and the four
plaintiffs were joined in the case, although one claim has been dismissed
following an individual settlement.

A similar age discrimination purported class action was filed against the
Company in November 2005 in the Superior Court of Essex County, New Jersey, on
behalf of a class of New Jersey-based employees of the Company. The Company
removed this case to the United States District Court for the District of New
Jersey. On June 29, 2007, the attorneys for the plaintiff amended their
complaint and dropped the class action allegations.

In addition, three former employees filed age discrimination charges against the
Company with the U.S. Equal Employment Opportunity Commission and the pertinent
state agencies in Minnesota and California during 2005; two of these charges
were amended in 2006. Such filings include allegations that the release of
claims signed by certain former employees in the purported class defined in the
charges is invalid for various reasons and assert age discrimination claims on
behalf of certain current and former salaried employees in states other than
Minnesota and New Jersey. In 2006, one current employee filed an age
discrimination charge against the Company with the U.S. Equal Employment
Opportunity Commission and the pertinent state agency in Missouri, asserting
claims on behalf of a class of all current and certain former salaried employees
who worked in Missouri and other states other than Minnesota and New Jersey. The
same law firm represents the plaintiffs and claimants in each of these
proceedings.

Environmental Matters and Litigation

The Company's operations are subject to environmental laws and regulations
including those pertaining to air emissions, wastewater discharges, toxic
substances, and the handling and disposal of solid and hazardous wastes
enforceable by national, state, and local authorities around the world, and
private parties in the United States and abroad. These laws and regulations
provide, under certain circumstances, a basis for the remediation of
contamination and for personal injury and property damage claims. The Company
has incurred, and will continue to incur, costs and capital expenditures in
complying with these laws and regulations, defending personal injury and
property damage claims, and modifying its business operations in light of its
environmental responsibilities. In its effort to satisfy its environmental
responsibilities and comply with environmental laws and regulations, the Company
has established, and periodically updates, policies relating to environmental
standards of performance for its operations worldwide.

Remediation: Under certain environmental laws, including the United States
Comprehensive Environmental Response, Compensation and Liability Act of 1980 and
similar state laws, the Company may be jointly and severally liable, typically
with other companies, for the costs of environmental contamination at current or
former facilities and at off-site locations. The Company has identified numerous
locations, most of which are in the United States, at which it may have some
liability. Please refer to the following section, 'Accrued Liabilities and
Insurance Receivables Related to Legal Proceedings' for more information on this
subject.

Regulatory Activities: As previously reported, the Company has been voluntarily
cooperating with ongoing reviews by local, state, national (primarily the U.S.
Environmental Protection Agency (EPA)), and international agencies of possible
environmental and health effects of perfluorooctanyl compounds (perflurooctanoic
acid or 'PFOA' and perfluorooctane sulfonate or 'PFOS') and related compounds.
As a result of its phase-out decision in May 2000, the Company no longer
manufactures perfluorooctanyl compounds, except that a subsidiary recovers and
recycles PFOA in Gendorf, Germany, for internal use in production processes and
has agreed to a product stewardship initiative with the EPA to end its use of
PFOA by 2010.

The EPA signed a Memorandum of Understanding with the Company and Dyneon LLC, a
subsidiary of the Company, in October 2004, under which the Company is assessing
the potential presence of PFOA at and around the Company's manufacturing
facility in Decatur, Alabama. Activities are in progress pursuant to this
Memorandum of Understanding.

Regulatory activities concerning PFOA and/or PFOS continue in Europe and
elsewhere, and before certain international bodies. These activities include
gathering of exposure and use information, risk assessment, and

                                   18

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consideration of regulatory approaches. In December 2006, the European Union
adopted an amendment to the Marketing and Use Directive to limit use of PFOS.
Member States must enact the Directive into national law by December 27, 2007.

As previously reported, the Company and state agencies tested soil and
groundwater beneath three former waste disposal sites in Washington County,
Minnesota, used many years ago by the Company to dispose lawfully of waste
containing perfluoronated compounds. The test results show that water from
certain municipal wells in Oakdale, Minnesota, near two of the former disposal
sites and some private wells in that vicinity in Lake Elmo, Minnesota, contains
low levels of PFOS and PFOA that, in some cases, are slightly above guidelines
established by the Minnesota Department of Health ('MDH').  In March 2007 the
MDH lowered these advisory health-based values (HBV) (i.e., the amount of a
chemical in drinking water considered by the MDH staff to be safe for people to
drink for a lifetime) for PFOA from 7 parts per billion (ppb) to 0.5 ppb and for
PFOS from 1 ppb to 0.3 ppb. Additional testing by the MDH has shown that water
from the municipal wells in Oakdale, Minnesota, and some private wells in Lake
Elmo, Minnesota, also contain low levels of other perfluoronated compounds. As
previously reported, the Company on its own initiative agreed with the City of
Oakdale to construct, operate, and maintain for at least five years a granular
activated carbon water treatment system to treat one or more of Oakdale's
municipal wells. The Company also donated several acres of land to the City of
Lake Elmo, Minnesota, for a water tower and granted the City approximately $5.6
million that the City used to expand municipal water service to neighborhoods
that included a small number of private wells in which levels of PFOS and PFOA
had been detected.

As previously reported, the MDH has also detected low levels of a perfluoronated
compound called perfluorobutanoic acid (PFBA) in municipal wells (and in private
wells as announced by the MDH in June 2007) in six nearby communities (Woodbury,
Cottage Grove, Newport, St. Paul Park, South St. Paul, and Hastings, all
communities located southeast of St. Paul), some of which slightly exceed the
MDH's interim advisory level for PFBA, currently at 1 ppb. The Company is
working with the MDH and the Minnesota Pollution Control Agency (MPCA) in
assessing the source of PFBA in these wells and is supplying data that could be
used in determining an appropriate guideline level. The MDH has not issued any
HBV for PFBA. The Company has advised the affected communities that it will
assist them in assuring their drinking water falls below the legally permissible
level for PFBA when such value is finally determined.

The Company is also working with the MPCA to determine whether low levels of
PFOA, PFOS and other perfluoronated compounds in the soil at the Company's
former perfluoronated compound production facility at Cottage Grove, Minnesota,
in the groundwater under the former plant and disposal sites, and in river
sediments near the former plant, are continuing sources of such compounds in the
Mississippi River, its fish and wildlife.

On May 22, 2007, the MPCA Citizen's Board approved the Settlement Agreement and
Consent Order to address the presence of perfluoronated compounds in the soil
and groundwater at former disposal sites in Washington County Minnesota and at
the Company's manufacturing facility at Cottage Grove Minnesota. Under this
agreement, the Company agreed to (i) evaluate releases of perfluoronated
compounds from these sites and propose response actions; (ii) provide
alternative drinking water if and when an HBV or Health Risk Limit ('HRL')
(i.e., the amount of a chemical in drinking water determined by the MDH to be
safe for people to drink for a lifetime) is exceeded for any perfluoronated
compounds as a result of contamination from these sites; (iii) remediate any
source of PFBA and provide alternative drinking water if and when levels are
found above an HBV or HRL; (iv) share information with the MPCA about
perfluoronated compounds; (v) reimburse the MPCA future costs of research that
are connected to releases from the Company's operations in Minnesota (the
Company agreed to reimburse the MPCA for past research costs and provided a
grant up to $5 million over the next four years for the purpose of investigating
and assessing the presence and effects of perflouronated compounds in the
environment and biota); and (vi) pay the MPCA up to $8 million for the purpose
of implementing remedial actions at the Washington County Landfill. The Company
cannot predict what regulatory actions arising from the foregoing proceedings
and activities, if any, may be taken regarding such compounds or the
consequences of any such actions.

Litigation: As previously reported, a former employee filed a purported class
action lawsuit in 2002 in the Circuit Court of Morgan County, Alabama, involving
perfluorooctanyl chemistry, alleging that the plaintiffs suffered fear,
increased risk, subclinical injuries, and property damage from exposure to
perfluorooctanyl chemistry at or near the Company's Decatur, Alabama,
manufacturing facility. The Circuit Court in 2005 granted the Company's motion
to dismiss the named plaintiff's personal injury-related claims on the basis
that such claims are barred by the exclusivity provisions of the state's Workers
Compensation Act. The plaintiffs' counsel filed an amended complaint in November
2006, limiting the case to property damage claims on behalf of a purported class
of residents and property owners in the vicinity of the Decatur plant. Also in
2005, the judge in a second purported class action lawsuit (filed by three
residents of Morgan County, Alabama, seeking unstated compensatory and punitive
damages involving alleged damage to their property from emissions of
perfluorooctanyl compounds from the Company's Decatur, Alabama, manufacturing
facility that formerly manufactured those compounds) granted the Company's
motion to abate the case, effectively putting the case on hold pending the
resolution of class certification issues in the action described above filed in
the same court in 2002. Despite the stay, plaintiffs recently filed an amended
complaint

                                   19

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seeking damages for alleged personal injuries and property damage on behalf of
the named plaintiffs and the members of a purported class.  No further action in
the case is expected unless and until the stay is lifted.

As previously reported, two residents of Washington County, Minnesota, filed in
October 2004 a purported class action in the District Court of Washington County
on behalf of Washington county residents who have allegedly suffered personal
injuries and property damage from alleged emissions from the former
perfluorooctanyl production facility at Cottage Grove, Minnesota, and from
historic waste disposal sites in the vicinity of that facility. After the
District Court granted the Company's motion to dismiss the claims for medical
monitoring and public nuisance in April 2005, the plaintiffs filed an amended
complaint adding additional allegations involving other perfluoronated compounds
manufactured by the Company, alleging additional legal theories in support of
their claims, adding four plaintiffs, and seeking relief based on alleged
contamination of the City of Oakdale municipal water supply and certain private
wells in the vicinity of Lake Elmo, Minnesota. In April 2006, the plaintiffs
filed a second amended complaint adding two additional plaintiffs. The two
original plaintiffs thereafter dismissed their claims against the Company.
After a hearing on the plaintiffs' motion to certify the case as a class action
at the end of March 2007, the Court on June 19, 2007 denied the plaintiffs'
motion to certify the litigation as a class action. The deadline for the
plaintiffs to file an appeal has passed.

In the second quarter of 2006, the New Jersey Department of Environmental
Protection served a lawsuit that was filed in New Jersey state court against the
Company and several other companies seeking cleanup and removal costs and
damages to natural resources allegedly caused by the discharge of hazardous
substances from two former waste disposal sites in New Jersey. The defendants
removed the case to federal court, which was recently granted that state's
motion to remand the case to state court.

Accrued Liabilities and Insurance Receivables Related to Legal Proceedings

The following table shows the major categories of on-going litigation,
environmental remediation and other environmental liabilities (as defined below)
for which the Company has been able to estimate its probable liability and for
which the Company has taken reserves and the related insurance receivables:

LIABILITY AND RECEIVABLE BALANCES
                                                                                                   June 30    Dec. 31
(Millions)                                                                                         2007       2006
Breast implant liabilities                                                                         $ 2        $ 4
Breast implant insurance receivables                                                               93         93

Respirator mask/asbestos liabilities                                                               143        181
Respirator mask/asbestos insurance receivables                                                     350        380

Environmental remediation liabilities                                                              38         44
Environmental remediation insurance receivables                                                    15         15

Other environmental liabilities                                                                    $ 149      $ 14



For those significant pending legal proceedings that do not appear in the table
and that are not the subject of pending settlement agreements, the Company has
determined that liability is not probable or the amount of the liability is not
estimable, or both, and the Company is unable to estimate the possible loss or
range of loss at this time. The amounts in the preceding table with respect to
breast implant and environmental remediation represent the Company's best
estimate of the respective liabilities. The Company does not believe that there
is any single best estimate of the respirator/mask/asbestos liability or the
other environmental liabilities shown above, nor that it can reliably estimate
the amount or range of amounts by which those liabilities may exceed the
reserves the Company has established.

As previously reported, the Company increased its accrued liabilities by $121
million in the first quarter of 2007 as a result of regulatory developments in
Minnesota and the completion of a comprehensive review with environmental
consultants regarding its other environmental liabilities which include the
estimated costs of addressing trace amounts of perfluoronated compounds in
drinking water sources in the City of Oakdale and Lake Elmo, Minnesota, as well
as presence in the soil and groundwater at the Company's manufacturing
facilities in Decatur, Alabama, and Cottage Grove, Minnesota, and at two former
disposal sites in Minnesota. The Company expects that most of the spending will
occur over the next three to seven years. While the Company is not able to
estimate the total costs of implementing the Settlement Agreement and Consent
Order with the MPCA (described above under Environmental Matters and Litigation
- Regulatory Matters) at this time, the Company increased its other
environmental liabilities by an additional $13 million in the second quarter of
2007 to reflect its best estimate of the specific payment obligations under that
agreement.

                                   20

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NOTE 12. Management Stock Ownership Program (MSOP) and General Employees' Stock
Purchase Plan (GESPP)

Effective with the May 2005 MSOP annual grant, the Company changed its vesting
period from one to three years with the expiration date remaining at 10 years
from date of grant. Beginning in 2007, the Company reduced the number of
traditional stock options granted under the MSOP plan 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.  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. Capitalized stock-based compensation amounts
were not material at June 30, 2007. The income tax benefits can fluctuate by
period due to the amount of Incentive Stock Options (ISO) exercised since the
Company receives the ISO tax benefit upon exercise. The Company last granted
ISO's in 2002. Amounts recognized in the financial statements with respect to
both the MSOP and GESPP (refer to Notes 15 and 16 in 3M's Current Report on Form
8-K dated May 25, 2007) are as follows:
                                                                         Three months ended      Six months ended
                                                                         June 30                 June 30
(Millions, except per share amounts)                                     2007        2006        2007        2006

Cost of sales                                                            $ 18        $ 21        $ 26        $ 23
Selling, general and administrative expenses                             60          54          79          73
Research, development and related expenses                               18          18          24          22

Operating Income (Loss)                                                  $ (96    )  $ (93    )  $ (129   )  $ (118   )
Income tax benefits                                                      $ 44        $ 37        $ 57        $ 45

Net Income (Loss)                                                        $ (52    )  $ (56    )  $ (72    )  $ (73    )

Earnings per share impact-diluted                                        ($0.07   )  ($0.07   )  ($0.10   )  ($0.09   )
Earnings per share-diluted                                               $ 1.25      $ 1.15      $ 3.10      $ 2.31



The following table summarizes MSOP stock option activity during the six months
ended June 30, 2007:

Stock Options
                                                                                         Remaining      Aggregate
                                                          Number of      Exercise        Contractual    Intrinsic
                                                          Options        Price*          Life*          Value
                                                                                         (months)       (millions)
Under option-
As of January 1, 2007                                     82,867,903     $ 67.41
Granted
Annual                                                    4,434,583      84.81
Progressive (Reload)                                      215,400        84.41
Other                                                     21,424         76.16
Exercised                                                 (8,346,000  )  53.04
Canceled                                                  (505,298    )  75.86

June 30                                                   78,688,012     $ 69.91         71             $ 1,335

Options exercisable
as of June 30, 2007                                       62,624,233     $ 66.30         62             $ 1,286
--------------------

*Weighted average

As of June 30, 2007, there was $202 million of compensation expense that has yet
to be recognized related to non-vested stock option based awards. This expense
is expected to be recognized over the remaining vesting period with a
weighted-average life of 1.8 years. The total intrinsic values of stock options
exercised during the six-month periods ended June 30, 2007 and 2006, was $244
million and $246 million, respectively. Cash received from options exercised was
$443 million and $319 million for the six months ended June 30, 2007 and 2006,
respectively. The Company's actual tax benefits realized for the tax deductions
related to the exercise of employee stock options were $71 million and $69
million for the six months ended June 30, 2007 and 2006, respectively.

                                   21

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For annual stock options, the weighted average fair value at the date of grant
was calculated using the Black-Scholes option-pricing model and the assumptions
that follow.

Stock Option Assumptions
                                                                           Annual
                                                                           2007       2006        2005

Exercise price                                                             $ 84.81    $ 87.23     $ 76.87
Risk-free interest rate                                                    4.6     %  5.0     %   4.0     %
Dividend yield                                                             2.1     %  2.0     %   2.0     %
Volatility                                                                 20.0    %  20.0    %   23.5    %
Expected life (months)                                                     69         69          69

Black-Scholes fair value                                                   $ 18.12    $ 19.81     $ 18.28



In connection with the adoption of SFAS No. 123R, in 2005 the Company reviewed
and updated, among other things, its volatility and expected term assumptions.
Expected volatility is a statistical measure of the amount by which a stock
price is expected to fluctuate during a period. For the 2007, 2006 and 2005
annual grant date, the Company estimated the expected volatility based upon the
average of the most recent one year volatility, the median of the term of the
expected life rolling volatility, the median of the most recent term of the
expected life volatility of 3M stock, and the implied volatility on the grant
date. The expected term assumption is based on the weighted average of
historical grants and assuming that options outstanding are exercised at the
midpoint of the future remaining term.

As previously mentioned, the Company expanded its utilization of restricted
stock units in conjunction with the May 2007 MSOP Annual Grant. The May 2007
restricted stock unit grant does not accrue dividends during the vesting period
and vests over three years. The one-time 'buyout' restricted stock unit grant
vests over five years.

The following table summarizes MSOP restricted stock and restricted stock unit
activity during the six months ended June 30, 2007:

Restricted Stock and Restricted Stock Units
                                                                 Number of    Grant
                                                                              Date
                                                                 Awards       Fair
                                                                              Value*
Nonvested balance-
As of January 1, 2007                                            411,562      $ 78.11
Granted
Annual                                                           1,695,701    77.88
Other                                                            1,309        76.45
Vested                                                           (26,563   )  78.45
Forfeited                                                        (5,499    )  76.89

As of June 30, 2007                                              2,076,510    $ 77.92
--------------------

*Weighted average

As of June 30, 2007, there was $115 million of compensation expense that has yet
to be recognized related to non-vested restricted stock and restricted stock
units. This expense is expected to be recognized over the remaining vesting
period with a weighted-average life of 3.54 years. The total fair value of
restricted stock and restricted stock units that vested during the six-month
periods ended June 30, 2007 and 2006, was $2 million and $1 million,
respectively.

In addition, the Company issues cash settled Restricted Stock Units and Stock
Appreciation Rights in certain countries. These grants do not result in the
issuance of Common Stock and are considered immaterial by the Company.

The remaining total MSOP shares available for grant under the 2005 MSOP Program
are 4,462,070.  Restricted stock and restricted stock units, per the 2005 Plan,
shall be counted against the total shares available as 2.45 shares for every one
share issued in connection with that award.

                                   22

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NOTE 13. Business Segments

As described in 3M's Current Report on Form 8-K dated May 25, 2007, effective in
the first quarter of 2007, 3M made certain changes to its business segments in
its continuing effort to drive growth by aligning businesses around markets and
customers. The most significant of these changes are summarized as follows:
     
•    3M's new emerging business opportunity in its Track and Trace initiative 
     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. The establishment of this new initiative within 3M's Safety, 
     Security and Protection Services segment resulted in the transfer of 
     certain businesses to this segment from other segments, including the 
     transfer of HighJump Software Inc., a 3M U.S.-based subsidiary that 
     provides supply chain execution software and solutions (Industrial and 
     Transportation segment) and the transfer of certain Track and Trace 
     products from the Electro and Communications segment.

•    3M's Visual Systems business (Consumer and Office segment), which offers 
     analog overhead and electronic projectors and film, was transferred to the 
     Electro and Communications segment. This transfer is intended to leverage
     common markets, customers, suppliers and technologies.

•    3M's Industrial and Transportation segment (Energy and Advanced Materials 
     business) transferred the 3M(TM) Aluminum Conductor Composite Reinforced 
     (ACCR) electrical power cable to the Electro and Communications segment 
     (Electrical Markets business). With an aluminum-based metal matrix at its 
     core, the ACCR product increases transmission capacity for existing power
     lines. The Electrical Markets business sells insulating, testing and 
     connecting products to various markets, including the electric utility 
     markets.

•    Certain adhesives and tapes in the Industrial and Transportation segment 
     (Industrial Adhesives and Tapes business) were transferred to the Consumer 
     and Office segment (primarily related to the Construction and Home 
     Improvement business and the Stationery Products business) and to the 
     Electro and Communications segment (Electronics Markets Materials 
     business). Certain maintenance-free respirator products for the consumer 
     market in 3M's Safety, Security and Protection Services segment were 
     transferred to the Consumer and Office segment (Construction and Home 
     Improvement business).

•    3M transferred Film Manufacturing and Supply Chain Operations, a resource 
     for the manufacturing and development of films and materials, to the 
     Display and Graphics Business from Corporate and Unallocated.

3M's businesses are organized, managed and internally grouped into segments
based on differences in products, technologies and services. 3M continues to
manage its operations in six operating business segments: Industrial and
Transportation segment, Health Care segment, Display and Graphics segment,
Consumer and Office segment, Safety, Security and Protection Services segment,
and the Electro and Communications segment. 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. 3M is not dependent on any single product or market. Transactions
among reportable segments are recorded at cost. 3M is an integrated enterprise
characterized by substantial intersegment cooperation, cost allocations and
inventory transfers. Therefore, management does not represent that these
segments, if operated independently, would report the operating income
information shown.

                                   23

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The financial information presented herein reflects the impact of all of the
preceding changes for all periods presented.

Business Segment Information
                                                                         Three months ended      Six months ended
                                                                              June 30                 June 30
(Millions)                                                               2007        2006        2007        2006
NET SALES

Industrial and Transportation                                            $ 1,804     $ 1,662     $ 3,589     $ 3,334
Health Care                                                              988         1,000       1,950       1,966
Display and Graphics                                                     1,006       913         1,927       1,832
Consumer and Office                                                      832         769         1,646       1,510
Safety, Security and Protection Services                                 799         662         1,557       1,301
Electro and Communications                                               693         670         1,361       1,315
Corporate and Unallocated                                                20          12          49          25

Total Company                                                            $ 6,142     $ 5,688     $ 12,079    $ 11,283

OPERATING INCOME

Industrial and Transportation                                            $ 359       $ 320       $ 770       $ 700
Health Care                                                              279         261         1,341       559
Display and Graphics                                                     352         237         647         529
Consumer and Office                                                      164         135         341         285
Safety, Security and Protection Services                                 140         139         321         297
Electro and Communications                                               132         114         243         234
Corporate and Unallocated                                                (29      )  (31      )  (165     )  (60      )

Total Company                                                            $ 1,397     $ 1,175     $ 3,498     $ 2,544



The following items impacted operating income results for the three months ended
June 30, 2007. In the second quarter of 2007, the gain on sale of 3M's Opticom
Priority Control Systems and Canoga Traffic Detection businesses, net of
restructuring expenses and increases in environmental liabilities, increased
operating income by $22 million. This included net benefits from gains related
to the sale ($68 million operating income gain recorded in Display and
Graphics), which were partially offset by restructuring actions ($33 million
expense recorded in various business segments as indicated in Note 4) and
increases in environmental liabilities ($13 million expense recorded in
Corporate and Unallocated). These items are discussed in more detail in Note 2
(Acquisitions and Divestitures), Note 4 (Restructuring Actions) and Note 11
(Commitments and Contingencies), respectively.

In addition to the preceding, the following first quarter 2007 items impacted
operating income results for the six months ended June 30, 2007. Refer to Note 2
for discussion of the sale of 3M's global branded pharmaceuticals business,
which resulted in a pre-tax gain on sale of $786 million. This gain was recorded
in the Pharmaceuticals business within the Health Care segment, consistent with
where the 2006 gain on sale of other portions of the business was recorded.
Refer to Note 4 for discussion of restructuring actions. The Health Care segment
included a net pre-tax gain of $7 million, which primarily related to
adjustments to restructuring costs that were recorded in the fourth quarter of
2006. The Electro and Communications segment includes a pre-tax restructuring
charge of $19 million, primarily related to asset impairment charges. Refer to
Note 11 for discussion of the $121 million increase in environmental liabilities
(reflected in Corporate and Unallocated).

Second quarter and first six months 2006 included settlement costs related to an
antitrust class action ($40 million expense recorded in Corporate and
Unallocated) and costs related to the Company's efforts to seek strategic
alternatives for its branded pharmaceuticals business ($9 million expense
recorded in Health Care).

Corporate and unallocated operating income includes a variety of miscellaneous
items, such as corporate investment gains and losses, certain derivative gains
and losses, insurance-related gains and losses, certain litigation and
environmental expenses, and corporate restructuring program charges. Because
this category includes a variety of miscellaneous items, it is subject to
fluctuation on a quarterly and annual basis.

                                   24

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NOTE 14.  Review Report of Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP, the Company's independent registered public
accounting firm, has performed reviews of the unaudited interim consolidated
financial statements included herein, and their review report thereon
accompanies this filing.  Pursuant to Rule 436(c) of the Securities Act of 1933
('Act') their report on these reviews should not be considered a 'report' within
the meaning of Sections 7 and 11 of the Act and the independent registered
public accounting firm liability under Section 11 does not extend to it.

                                   25

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of 3M Company:

We have reviewed the accompanying consolidated balance sheet of 3M Company and
its subsidiaries as of June 30, 2007 and the related consolidated statements of
income for the three-month and six-month periods ended June 30, 2007 and 2006,
and of cash flows for the six-month periods ended June 30, 2007 and 2006. These
interim financial statements are the responsibility of the Company's management.

We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole.  Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated interim financial statements for them
to be in conformity with accounting principles generally accepted in the United
States of America.

We previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet as of
December 31, 2006, and the related consolidated statements of income, of changes
in stockholders' equity and comprehensive income, and of cash flows for the year
then ended (not presented herein), and in our report dated February 12, 2007,
except with respect to our opinion on the consolidated financial statements
insofar as it relates to the effects of the change in the segments discussed in
Notes 3 and 17, as to which the date is May 25, 2007, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet
information as of December 31, 2006, is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Minneapolis, Minnesota
August 6, 2007

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Part 1 of 2, More to Follow

IR EAAPPELKXEFE                                                                                                                                                                                          

a d v e r t i s e m e n t