2018 fourth quarter business review

2018 Fourth Quarter Business Review

(Unaudited)

January 29, 2019

2. All Rights Reserved.28 January 2019© 3M

2019 Earnings Calls

Q1: April 25

Q2: July 25

Q3: October 24


Forward looking statementThis presentation contains forward-looking information about 3M's financial results and estimates and business prospects that involve substantial risks anduncertainties. You can identify these statements by the use of words such as "anticipate," "estimate," "expect," "aim," "project," "intend," "plan," "believe," "will,""should," "could," "target," "forecast" and other words and terms of similar meaning in connection with any discussion of future operating or financial performanceor business plans or prospects. Among the factors that could cause actual results to differ materially are the following: (1) worldwide economic, political, and capitalmarkets conditions and other factors beyond the Company's control, including natural and other disasters or climate change affecting the operations of theCompany or its customers and suppliers; (2) the Company's credit ratings and its cost of capital; (3) competitive conditions and customer preferences; (4) foreigncurrency exchange rates and fluctuations in those rates; (5) the timing and market acceptance of new product offerings; (6) the availability and cost of purchasedcomponents, compounds, raw materials and energy (including oil and natural gas and their derivatives) due to shortages, increased demand or supply interruptions(including those caused by natural and other disasters and other events); (7) the impact of acquisitions, strategic alliances, divestitures, and other unusual eventsresulting from portfolio management actions and other evolving business strategies, and possible organizational restructuring; (8) generating fewer productivityimprovements than estimated; (9) unanticipated problems or delays with the phased implementation of a global enterprise resource planning (ERP) system, orsecurity breaches and other disruptions to the Company's information technology infrastructure; (10) financial market risks that may affect the Company’s fundingobligations under defined benefit pension and postretirement plans; and (11) legal proceedings, including significant developments that could occur in the legal andregulatory proceedings described in the Company's Annual Report on Form 10-K for the year ended Dec. 31, 2017, and any subsequent quarterly reports on Form10-Q (the “Reports”). Changes in such assumptions or factors could produce significantly different results. A further description of these factors is located in theReports under "Cautionary Note Concerning Factors That May Affect Future Results" and "Risk Factors" in Part I, Items 1 and 1A (Annual Report) and in Part I, Item 2and Part II, Item 1A (Quarterly Reports). The information contained in this presentation is as of the date indicated. The Company assumes no obligation to updateany forward-looking statements contained in this presentation as a result of new information or future events or developments.

This presentation refers to certain non-GAAP financial measures including free cash flow, free cash flow conversion, return on invested capital (ROIC), and various measures excluding the impact of the legal settlement and the measurement period adjustment relative to the accounting for the 2017 enactment of the Tax Cuts and Jobs Act (TCJA). These non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the appendix to this presentation.

Note on non-GAAP financial measures


Q4 2018 summary

Sales of $7.9B, down -0.6% year-on-year

• Organic growth across all business groups and geographic areas

GAAP EPS:

• Q4 2018: $2.27 includes net charge of -$0.04 per share (tax adjustments related to both the Tax Cut and Jobs Act (TCJA) and Q1 2018 legal settlement); and a net benefit of +$0.02 per share (divestiture gain, net of actions)

• Q4 2017: $0.85 included -$1.25 impact from TCJA

Free cash flow of $1.7B, up 23% year-on-year

Returned $2.1B to shareholders via dividends and gross share repurchases

Organic local-currency growth

Operatingmargin

Adjusted earnings per share

$2.31 +10.0% year-on-year

22.4%flat year-on-year

+3.0%year-on-year


Q4 2018 sales recap

Canada +5%

Mexico +5%

Brazil +5%

Foreign-currency translation:

• Euro -4%, RMB -5%, Yen flat, Real -15%

Organic local-currency growth by key countries/regions:

China/Hong Kong +1%

Japan flat

West Europe flat

Organic local-currency growth by area:

• U.S. +4.4%

• Latin America/Canada +5.0%

• Europe/Middle East/Africa +1.3%

• Asia Pacific +2.0%

Net sales

Organic-local currency growth

Acquisitions/Divestitures

-1.3%year-on-year

+3.0%year-on-yearvolume +1.6%, price +1.4%

Foreign currencytranslation

-2.3%year-on-year

$7.9B-0.6% year-on-year


Operating income margin reconciliation:

Q4 2018 P&L

Q4 2017 22.4%

Organic volume/ productivity/other

+1.0%+1.6% organic volume growth; lower portfolio & footprint actions $58M

Divestitures -1.3%Lower divestiture gains, net of actions/ divested income/stranded costs (Q4 2018 -$10M vs. Q4 2017 +$116M)

Price/raw material +0.2%Selling price benefits net of higher raw materials

FX +0.1% Net of hedge impact

Q4 2018 22.4%

Net sales

Gross margin

Operating income


48.9%+10 bps year-on-year

Adjusted net income

$1.4B+6.3% year-on-year



Q4 2018 EPSQ4 2017 GAAP EPS $0.85

Tax Cuts and Jobs Act (TCJA) $1.25 Net transition tax of $762M

Q4 2017 EPS, ex. TCJA $2.10

Organic growth/productivity/other +$0.18Benefits from organic growth and productivity; lower portfolio & footprint actions (+$0.07)

Divestitures -$0.13Lower divestiture gains, net of actions (Q4 18+$0.02 vs. Q4 17 +$0.12); divested income/ stranded costs (-$0.03)

FX -$0.03 Pre-tax earnings impact -$27M

Other expense +$0.06Q4 17 high coupon debt tender (-$0.11); Higher retirement expense and net interest

Tax rate* +$0.05 Underlying earnings benefit

Shares outstanding +$0.08 Average diluted shares down 3.4%

Q4 2018 EPS, ex. TCJA and Q1 2018 legal settlement

$2.31

Tax adjustments -$0.04TCJA transition tax adjustment +$0.07; Q1 18 legal settlement -$0.11

Q4 2018 GAAP EPS $2.27

Adjusted earnings per share

$2.31+10.0% year-on-year

*The effect of income taxes on items that had specific tax rates are reflected within their respective impacts in the table above.


Q4 2018 cash flow

Free cash flow

Dividends

Gross sharerepurchases

$1.7B Free cash flow of $1.7B, up 23% year-on-year

Free cash flow conversion of 128%

Capital expenditures:

• Q4 2018: $531M, up $72M year-on-year

• FY 2018: $1.6B

Returned $2.1B to shareholders via dividends and gross share repurchases in Q4

• FY 2018 dividends of $3.2B; gross share repurchases of $4.9B

$787M

$1.3B



+2.5%year-on-year

$627M+8.1% year-on-year



Net sales

Operating income

Operating margin

Industrial

Organic local-currency growth by business, year-on-year:

• Sales grew in advanced materials, industrial adhesives and tapes, separations and purification sciences, abrasive systems, and automotive aftermarket

Organic local-currency growth by area, year-on-year:

• Sales grew +4% in the U.S., +2% in Latin America/Canada, +2% EMEA, and +1% in APAC

Foreign currency translation decreased sales by -2.7% and divestitures decreased sales by –0.1%

Q4 2017 operating margin included -120 bps from portfolio and footprint actions



+3.3%year-on-year

$345M-14.8% year-on-year

22.0%-390 bps year-on-year

Safety & Graphics


• Sales grew in personal safety and commercial solutions; transportation safety and roofing granules declined


• Sales grew +7% in Latin America/Canada, +5% the U.S., and +5% EMEA; sales declined -3% in APAC

Foreign currency translation decreased sales by -2.8% andacquisitions, net of divestitures, decreased sales by -0.2%

Strong organic sales growth across all personal safety segments with Scott Safety up double digits

Q4 2017 operating margin included +280 bps from divestiture gains and portfolio and footprint actions


Net sales

Operating income

Operating margin



+4.8%year-on-year



Health Care


• Sales grew in food safety, health information systems, medical solutions, and oral care; drug delivery declined


• Sales grew +11% in Asia Pacific, +6% in Latin America/ Canada; +5% in EMEA and +3% in the U.S.

Foreign currency translation decreased sales by -2.4%

Developing market organic growth of +10% led by double-digit increases in China/Hong Kong, Taiwan and SEA

Announced acquisition of M*Modal’s technology business, a leading healthcare technology provider of cloud-based, conversational Artificial Intelligence (AI)-powered systems

Increased investment in 3M™ Clarity™ aligners, population health, and advanced wound care Priority Growth Platforms


Net sales

Operating income

Operating margin



+4.1%year-on-year

$396M+8.2% year-on-year


Electronics & Energy


• Energy-related sales grew +5%; electronics-related sales grew +3% with growth in both electronics materials solutions and display materials & systems


• Sales grew +7% in Latin America/Canada, +6% in the U.S. and +5% in APAC; sales declined -7% in EMEA

Foreign currency translation decreased sales by -1.5% and divestitures reduced sales by -7.1%

Operating margins include +190 bps net benefit from divestiture of remaining communication markets business


Net sales

Operating income

Operating margin



+1.9%year-on-year



Consumer


• Sales grew in home improvement and stationery and office supplies; home care and consumer health care declined


• Sales grew +6% in Latin America/Canada and +5% in the U.S.; sales declined -5% in APAC and -7% in EMEA

Foreign currency translation decreased sales by -1.8%

Continued strong 3M point-of-sale growth amongst major retail customers

Q4 2017 operating margins included -50 bps from portfolio and footprint actions


Net sales

Operating income

Operating margin


2018 full-year performance


Return on invested capital

$8.89+12.1% year-on-year

22.2%

Free cash flowconversion91%

+3.2%year-on-year

GAAP EPS of $8.89, up +12.1% year-on-year; includes:

• TCJA adjustment of -$0.29

• Q1 2018 legal settlement of -$1.28

• CMD divestiture gain, net of related actions +$0.50

Sales components:

• Organic local-currency growth +3.2%

• Acquisitions, net of divestitures +0.1%

• Foreign currency translation +0.2%

Return on invested capital of 22.2%, including -2 ppts net impact from TCJA; Q1 2018 legal settlement; and CMD divestiture gain, net of related actions

Free cash flow conversion of 91%, including -2 ppts net impact from TCJA; Q1 2018 legal settlement; and CMD divestiture gain, net of related actions

Returned $8.1 billion to shareholders via dividends and gross share repurchases; 60th consecutive year of annual dividend increases

See appendix for reconciliation of FY 2018 free cash flow conversion, and ROIC

GAAP earnings per share


Delivering on our four priorities in 2018Positioning 3M for long-term growth and value creation

People & CultureInnovation

Supports organic growth, and premium operating margins and ROIC

Accelerating investments in Priority Growth Platforms

Transformation

Successful U.S. ERP deployment; accelerating value for customers

70% of global revenues deployed

Portfolio

Completed divestiture of communication markets business

Announced acquisition of technology business of M*Modal

Deepening commitment to sustainability, diversity and inclusion

Ethisphere – World’s Most Ethical Companies®; 5th

consecutive year


2019 planning estimatesBalanced plan reflecting external environment

Earnings per shareOrganic local currency growth

Return on invested capital

Free cash flow conversion

Refer to appendix for the definition and calculation of ROIC and free cash flow conversion

1% to 4% $10.45 to $10.90

22% to 25%

95% to 105%

2019 GAAP EPS of $10.45 to $10.90, up 18% to 23% year-on-year

2018 GAAP EPS of $8.89, which includes:

• TCJA adjustment of -$0.29

• Q1 2018 legal settlement of -$1.28

• CMD divestiture gain, net of related actions +$0.50

Sales components:

• Organic local-currency growth +1% to +4%

• Acquisitions, net of divestitures neutral

• Foreign currency translation -1%

Capital allocation:

• Capex of $1.7B to $1.9B

• Share repurchase: $2B to $4B


2019 organic local-currency growth expectations

Industrial

1% to 4%

Health Care

3% to 5%

Consumer

1% to 3%

Safety & Graphics

2% to 5%

Electronics & Energy

0% to 4%

EMEA = Europe, Middle East, Africa

Asia Pacific

1% to 5%

Latin America/Canada

3% to 5%

EMEA

1% to 3%

United States

2% to 4%

By Geography:

By Business:


2019 key assumptionsIn-line with November; updating for organic growth, pension and M*Modal acquisition

Sales growthRaw Materials/ Transformation

Other financial

Organic growth +1% to +4%

Positive price, more than offsetting raw material headwinds

FX -1% to sales

Spot rates of Euro 1.14, RMB 6.88, JPY 110, BRL 3.88

Acquisition/divestiture neutral to sales

Raw materials

Increased costs (including tariffs), partially offset by sourcing cost reduction projects

Transformation

Increased value realization; portfolio/footprint optimization; and manufacturing/SG&A productivity

Pension

Global funded status 89%;

U.S. 96%Cash contributions $100-200M

Tax rate 20% to 22%

Share repurchases $2B to $4B


2019 capital allocation plan

Total Funds Available

$14.5B to $16.5B

Sources Uses

R&D ~$1.9B

Capex $1.7B to $1.9B

DividendExpected to grow in line with earnings over time

Net M&AStrengthens portfolio, augments organic growth

Growth investments

Pension/OPEB

Cash to shareholders

Cash & marketable securities at year-end 2019 $3.3B

Added leverage $1.0B to $3.5B

Cash flow from operations(excludes R&D and pension)$9.5B to $10.5B

Share repurchase $2.0B to $4.0B gross Influenced by relative value and other demands on capital

$0.1B to $0.2B


$1.28

$0.29 ($0.15) ($0.20) to ($0.10)

$0.20 to $0.30 $0.10

($0.15) to ($0.10)

($0.20) to $0.00

2019 GAAP $10.45

to $10.90

$0.00

Growth and Portfolio Management

Raw Materials & Productivity

Other Financial

2018 Subtotal

$9.96

2018 GAAP $8.89

2019 EPS roadmap$0.25 to

$0.35$10.46

$0.40 to $0.75

$0.50 Communication Markets divestiture, net of actions


Q&A Participants

Nick GangestadSenior Vice President and

Chief Financial Officer

Bruce JermelandDirector, Investor Relations

Mike RomanChief Executive Officer


Q4 2018 sales recapU.S. APAC EMEA LAC

Organic volume +3.1% +1.4% -0.6% +2.2%

Price +1.3% +0.6% +1.9% +2.8%

Organic local-currency +4.4% +2.0% +1.3% +5.0%

Acquisitions/Divestitures -1.1% -0.4% -2.9% -1.4%

FX ---- -2.4% -4.8% -6.4%

Total growth +3.3% -0.8% -6.4% -2.8%


Q4 2018 P&L

($M)Q4

2017Q4

2018 Change

Sales $7,990 $7,945 -0.6%

Gross profit $3,896 $3,885 -0.3%

% to sales 48.8% 48.9% +0.1 pts

SG&A $1,755 $1,682 -4.2%

% to sales 22.0% 21.2% -0.8 pts

R&D & related $448 $437 -2.6%

% to sales 5.6% 5.5% -0.1 pts

Gain on sale -$96 -$17 -82.2%

% to sales -1.2% -0.2% +1.0 pts

Operating income $1,789 $1,783 -0.3%

% to sales 22.4% 22.4% ----

Net income $523 $1,347 +157.2%

GAAP earnings per share $0.85 $2.27 +167.1%


Business segment information($M) Net Sales Operating Income

Business groups Q4

2017Q4

2018Q4

2017Q4

2018

Industrial $2,961 $2,952 $580 $627

Safety & Graphics $1,565 $1,569 $405 $345

Health Care $1,484 $1,520 $460 $458

Electronics & Energy $1,405 $1,342 $366 $396

Consumer $1,210 $1,211 $272 $257

Corporate and Unallocated $3 $3 ($139) ($136)

Elimination of Dual Credit ($632) ($652) ($155) ($164)

Total $7,990 $7,945 $1,789 $1,783

Effective first quarter of 2018, 3M adopted Accounting Standards Update (ASU) No. 2017-07 and made certain business segment reporting changes. Those changes are reflected in the segment reporting data above. Refer to 3M’s January 29, 2019 press release for full details.


Q4 & FY TCJA measurement adjustment & legal settlementAdjusted income, operating income margin, earnings per share, & effective tax rate (non-GAAP measures) (Dollars in millions, except per share amounts)

Net Sales

Operating Income

Operating Income Margin

Income Before Taxes

Provision for Income

Taxes

Effective Tax Rate

Net Income Attributable

to 3M

Earnings Per Diluted Share

Earnings Per Diluted Share Percentage

Change

Q4 2017 GAAP $7,990 $1,789 22.4% $1,672 $1,147 68.6% $523 $0.85 ---

Adjustment for TCJA --- --- --- --- ($762) --- $762 $1.25 ---

Q4 2017 Adjusted Non-GAAP Measure $7,990 $1,789 22.4% $1,672 $385 23.0% $1285 $2.10 ---

Q4 2018 GAAP $7,945 $1,783 22.4% $1,720 $371 21.6% $1347 $2.27 167.1%

Adjustment for Measurement Period Accounting of TCJA --- --- --- --- $41 --- ($41) ($0.07) ---

Adjustment for MN NRD Resolution --- --- --- --- ($60) --- $60 $0.11 ---

Q4 2018 Adjusted Non-GAAP Measure $7,945 $1,783 22.4% $1,720 $352 20.5% $1,366 $2.31 10.0%

Full Year 2017 GAAP $31,657 $7,692 24.3% $7,548 $2,679 35.5% $4,858 $7.93 ---

Adjustment for TCJA --- --- --- --- ($762) --- $762 $1.24 ---

Full Year 2017 Adjusted Non-GAAP Measure $31,657 $7,692 24.3% $7,548 $1,917 25.4% $5,620 $9.17 ---

Full Year 2018 GAAP $32,765 $7,207 22.0% $7,000 $1,637 23.4% $5,349 $8.89 12.1%

Adjustment for Measurement Period Accounting of TCJA --- --- --- --- ($176) --- $176 $0.29 ---

Adjustment for MN NRD Resolution --- $897 --- $897 $127 --- $770 $1.28 ---

Full Year 2018 Adjusted Non-GAAP Measure $32,765 $8,104 24.7% $7,897 $1,588 20.1% $6,295 $10.46 14.1%


In February 2018, 3M reached an agreement with the State of Minnesota that resolved the previously disclosed Natural Resource Damages (NRD) lawsuit filed by the State against the

Company related to certain PFCs present in the environment. Under the terms of the settlement, 3M agreed to provide an $850 million grant to the State for a special “3M Water

Quality and Sustainability Fund.” This Fund will enable projects that support water sustainability in the Twin Cities East Metro region, such as continued delivery of water to residents

and enhancing groundwater recharge to support sustainable growth. The projects will also result in habitat and recreation improvements, such as fishing piers, trails, and open space

preservation. 3M recorded a charge of $897 million ($710 million after-tax), inclusive of legal fees and other related obligations, in the first quarter of 2018 associated with the

resolution of this matter. In the fourth quarter of 2018, 3M recorded a related $60 million tax expense resulting from the Company’s ongoing IRS examination under the Compliance

Assurance Process (CAP) and new guidance released under the Tax Cuts and Jobs Act. Also during the first quarter of 2018, 3M recorded a tax expense of $217 million related to a

measurement period adjustment to the provisional amounts recorded in December 2017 from the enactment of the Tax Cuts and Jobs Act (TCJA). In the fourth quarter 2018, 3M

finalized the tax impact related to TCJA with a reversal of previously recorded tax expense in the amount of $41 million.

During the fourth quarter of 2017, 3M recorded a net tax expense of $762 million related to the enactment of the Tax Cuts and Jobs Act (TCJA). The expense was primarily related to

the TCJA’s transition tax on previously unremitted earnings of non-U.S. subsidiaries and was net of remeasurement of 3M’s deferred tax assets and liabilities considering the TCJA’s

newly enacted tax rates and certain other impacts. This provisional amount was subject to adjustment during the measurement period of up to one year following the December 2017

enactment of the TCJA, as provided by SEC guidance.

In addition to providing financial results in accordance with U.S. GAAP, the Company also provides non-GAAP measures that adjust for the impacts of the NRD resolution and

enactment/measurement period adjustments to the impact of the enactment of the TCJA. These items represent significant charges/benefits that impacted the Company’s financial

results. Operating income, operating income margin, effective tax rate, net income, and earnings per share are all measures for which 3M provides the GAAP measure and an adjusted

measure. The adjusted measures are not in accordance with, nor are they a substitute for, GAAP measures. The Company considers these non-GAAP measures in evaluating and

managing the Company’s operations. The Company believes that discussion of results adjusted for these items is meaningful to investors as it provides a useful analysis of ongoing

underlying operating trends. The determination of these items may not be comparable to similarly titled measures used by other companies.

Q4 & FY TCJA measurement adjustment & legal settlement


Reconciliation of GAAP amounts to free cash flow conversion

Fourth-quarter 2018 results:

($M)Q4

2017Q4

2018 Change

Major GAAP cash flow categories:

Operating cash flow $1,860 $2,258 $398

Investing cash flow ($2,732) ($416) $2,316

Financing cash flow $1,044 ($2,152) ($3,196)

Free cash flow (non-GAAP measure):

Operating cash flow $1,860 $2,258 $398

Purchases of property, plant and equipment ($459) ($531) ($72)

Free cash flow $1,401 $1,727 $326

Net income attributable to 3M $523 $1,347 $824

Free cash flow conversion 268% 128% -140 pts

Free cash flow and free cash flow conversion are not defined under U.S. generally accepted accounting principles (GAAP). Therefore, they should not be considered asubstitute for income or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. TheCompany defines free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. It should not be inferred that the entire freecash flow is available for discretionary expenditures. The Company defines free cash flow conversion as free cash flow divided by net income attributable to 3M. TheCompany believes free cash flow and free cash flow conversion are meaningful to investors as they function as useful measures of performance and the Company uses thesemeasures as an indication of the strength of the Company and its ability to generate cash.

Full-year 2018 results and full-year 2019 estimate:

($B)Full-year

20182019

Estimate

Free cash flow (non-GAAP measure):

Operating cash flow $6.4 $7.7 to $8.4

Purchases of property, plant andequipment

($1.6) ($1.7 to $1.9)

Free cash flow $4.9 $5.8 to $6.7

Net income attributable to 3M $5.3 $6.1 to $6.4

Free cash flow conversion 91% 95% to 105%


Reconciliation of GAAP amounts to return on invested capital

Return on Invested Capital (ROIC) is not defined under U.S. generally accepted accounting principles. Therefore, ROIC should not be considered a substitute for other measures prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The Company defines ROIC as adjusted net income (net income including non-controlling interest plus after-tax interest expense) divided by average invested capital (equity plus debt). The Company believes ROIC is meaningful to investors as it focuses on shareholder value creation.

Full-year 2018 results:

($B) 2018 Results

Return on invested capital (non-GAAP measure):

Net income including non-controlling interest $5.4

Interest expense (after-tax)* $0.2

Adjusted net income (return) $5.6

Ave. shareholder’s equity (including non-controlling interest) $10.4

Ave. short-term and long-term debt $14.9

Ave. invested capital $25.3

Return on invested capital 22%

*Effective income tax rate used for interest expense 23.4%

Full-year 2019 estimate:

($B) 2019 Estimate

Return on invested capital (non-GAAP measure):

Net income including non-controlling interest $6.1 to $6.4

Interest expense (after-tax)** ~$0.4

Adjusted net income (return) $6.5 to $6.8

Ave. shareholder’s equity (including non-controlling interest) $10.0 to $11.0

Ave. short-term and long-term debt $17.0 to $18.0

Ave. invested capital $27.0 to $29.0

Return on invested capital 22% to 25%

**Effective income tax rate used for interest expense 20% to 22%

2018 fourth quarter business review

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