3M: Cultivating Core Competency

CASE ASSIGNMENT

As the end of his first year comes to a close, George Buckley (CEO) is evaluating his strategic approach and its ability to drive desired results for 3M during the upcoming year. He has asked you to prepare a report assessing strategic performance during 2006 and to make recommendations for enhancing strategic competitiveness in 2007. You will have a 10 minute meeting with Buckley to highlight your findings, so you should prepare 3-5 Power Point slides to provide an overview of your written report and to summarize the results of your analysis and supporting exhibits.

Your report and overview should address the following key strategic issues:

1. Establish criteria for judging strategic performance by comparing past successes and strategies. Use a Balanced Scorecard framework to make sure that both financial and strategic controls are used to assess performance.

2. Define the company's core competency.

3. Determine if the company has a sustainable competitive advantage. If you determine that a sustainable advantage exists, support your claim. If you find it lacking, recommend actions that would secure a sustainable competitive advantage.

4. Identify any external environmental forces that have strategic implications in the future.

5. Evaluate the success of 3M's strategy in 2006 based on the criteria identified for judging strategic performance.

6. Evaluate 3M's Acquisition strategy.

7. Recommend an integrated and coordinated set of commitments and actions which will exploit the company's core competencies, strengthen its competitive advantage, and maximize value.

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3M: Cultivating Core Competency

STRATEGIC MANAGEMENT INPUTS

1. Establish criteria for judging strategic performance by comparing past successes and strategies. Use a Balanced Scorecard framework to make sure that both financial and strategic controls are used to assess performance.

Criteria for assessing strategic success can be determined by looking at the company's historical strengths, performance, problems (weaknesses), and strategic goals. The following table is an extensive look at the historical competencies and successes of 3M. [This table is available on the Instructor's CD in an Excel spreadsheet, which includes a worksheet with a blank template that can be provided for the student.]

Strengths Performance Problems Strategic Goals1907McKnight/Bush

1923

1930's1940's

1952Carlton

1980's

Aggressive, customer-oriented salesmanshipNiche in growing auto industryOne of first corporate R&D divisions in US

45% profits into R&DUnderstanding marketsProduct research

Innovations

Major product innovation

Product discovery

First large-scale consumer productTripled in size

$100 million sales

10,000 employees

Low-tech marvel: Post It Notes

Lost cassette tape market

Major competitor threats on multiple fronts

Filling market nichesAbandoning markets where it could not set its own prices

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3M: Cultivating Core Competency

Strengths Performance Problems Strategic Goals1991DeSimone

1992

1994

1997

1998

Product development

New product turnaround time reducedInvention of customer-driven products

International sales over 50% of total salesOver $1 billion of $15 billion in sales to first-year products30% sales from products within past 4 yrs.35% revenues from products within past 4 yrs. - many high tech.Workforce reduction of 5000

Declining revenues/profitsFocus shifted from research

R&D teamed with marketersTransformation of existing technology into commercial products

Percentage of sales from new products

Restructuring6 Business Segments

Continued commitment to innovation

Strengths Performance Problems Strategic Goals2001McNerney

Increased efficiency

New CEO from outside the company

Underperforming

Lacking direction

Fewer hits from vaunted research facilities - no major breakthrough in 2 decadesCulture becoming more short-term

Difficulty acting on 15% Rule

Balance science of management against innovationControl the use of resources for product development without killing "crazy" ideasQuality control and improvement initiative - cost cutting and reducing errors/defectsChanneled product development funds on most promising ideas

Dropping weaker ideas earlier in the processGetting best ideas to market fasterRetain culture of innovation

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3M: Cultivating Core Competency

Strengths Performance Problems Strategic Goals2002

2003

2004

2005

Increasing sales and operating margin

Strong performance - industrial division products driven by acquisition

R&D $1.14 billion - 6.3% sales

R&D $1.19 billion - 5.9% $3.8 billion revenue (10.5% increase) Net Profit $3.2 billion - 7% increaseR&D $1.2 billion - 5.9% sales

Underinvestment in growth platforms and overemphasis on boosting short-term profits

Anemic revenue growth (1-5%) while markets expandingDeclining personal care segment - price pressures in Europe Decreased demand for some older products

Reorganization to improve access to larger, higher-growth marketsAcquisitions to generate growthRealigned R&D to customer-development divisions to enhance responsiveness and growth

Growth driven by acquisition

Strengths Performance Problems Strategic Goals2006BuckleyUpon Arrival

50,000 products with diverse end-user segments based on both high- technology and low-technologyFounder and leader in many technologies - more than 40 technology platformsContinual new markets built through "technical adjacency machine"Strong knowledge and understanding of technologies yielding innovative products globally and consistently

Cycle time to commercialization reduced from 4 yrs. to 2-1/2 yrs. for faster sales

Often entered markets only after intellectual property positions were built

Growth strategy based on enhanced core competency and building long-term competency Technology and innovation as the engine to grow and develop existing markets through disruptive (natural substitute) technologies, logical developments and extensions of existing products, and "out of the garage" technology developmentsGrow core business through the strength of constant reinvention, stronger key customer partnership, customization, solving customer needs, entering niche segments, and capturing new segments

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3M: Cultivating Core Competency

Strengths Performance Problems Strategic GoalsBuckley Arrival Cont.

Brand ownershipParticipation in niche markets

Strong R&D with an annual budget over $1 billion

Innovative culture

Strong capabilities in science, engineering, and manufacturing (world class) with efficient plants

World class materials science and surface chemistry capabilityLess risky capital investments through flexible machining

Intersegment technology sharing across products and marketsCross-business use of central technologies historically yielded participation in high-margin niche markets

"Invent and Experiment" approach - make a little, sell a little - leading to complex supply chains and costly logistics between operations Deeply conservative valuesIncremental capacity and planning Chronic underinvestment in core capacity - lost sales growth opportunities where it was readily available

Emphasize product localization using mix of brands and local acquisitionsSpeed growth through strategic licensing, investment in small tech companies, University alliances, and extensive promotion of inventionMaintain innovative culture - follow 15% ruleAccurately measuring sales growth potential - demand and capacity to benefit from scale in core product categories* and to gain relative share in targeted markets**

Accurate capacity planning

*Core Product Categories: Scotch brand industrial/office tapes Abrasives Automotive Optical films Face masks and respirators Medical tapes and drapes Post-It Notes Traffic signage

**Markets aiming for relative share: Dentistry Orthodontics Office supplies Roofing granules Commercial graphics and adhesives

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3M: Cultivating Core Competency

Strengths Performance Problems Strategic GoalsBuckley Arrival Cont.

3M Lattice - unique model of technologies and manufacturing "adjacency lattice" with shared basic technologies and manufacturing processes across businesses, markets and product lines - connection between all basic businesses making 3M a powerful and enduring industrial competitorInterdepartmental cooperationDiversified (and balanced) operation in multiple industries and geographic regions 6 key businesses

Inward focus brought margin benefits

US 39%, AsiaPac 27%, EurMidEAfr 25%, AmCan 9%Health care (21% revenue) and Industrial accounting (19% revenue)

3M Lattice makes managing for optimal growth difficult

Inward focus hindered growth and good long-range planning

Competitive Advantage - unique shared technology model

Strategically manage portfolio

Maintain premium margins

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3M: Cultivating Core Competency

Strengths Performance Problems Strategic GoalsBuckley After First Year

Successfully reinvigorating engineering culture and technological foundation

Innovation sparked

Morale boosted

Investments focused on core competencies

Sales $21.2 billion

60% sales outside US, more than 20% in emerging markets

April - record 1st qtr sales and profits (over 10% increase) - EPS increase over 20%

June - missed targets, driving stock prices down

Sept - sales increase 7.3% (organic sales were up 6.5% excluding acquisitions)

Acquisitions $350-400 million of $22.8 billion in sales16 acquisitions (equal to that of past 4 years) - smaller purchases - at least 2 in each of 6 business units

Waiting to see growth accelerate at core businesses

Display and Graphics business launch of new optical film factory

Misread demand for LCD TV's

Retailers offering branded goods (private labels) at reduced prices to consumer, lowering 3M's targeted price points through launch of secondary brands - reducing margins from 45% to 20%Oil - price increase and supply restraints on oil-derived raw materials

Revitalize competitive advantages through technological differentiation, application across multiple lines of business, and renewed focus on innovation, new products, international expansion and penetration with greater emphasis on localization (concentrating on BRICP, E&W Europe, Japan, and Australia)

Defend created markets against new entrants, using dual branding in upper middle market - Thoughtful extension of private labeling

Add 'digital' oriented competencies over time

Divestiture or closure where scale or relative share cannot be built over time, differentiation not possible through technology, or base technology at "end life" and cannot be refreshed

"Tuck in" Acquisition strategy that closely reflects and supports strategic plan and adjacencies, offers quick value by quickly adding technology to company, and fills openings in geography and channel capacity

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3M: Cultivating Core Competency

Buckley is charged with revitalizing the company's competitive advantage and core competency. This suggests that drawing from 3M's successful past is a critical component to planning future strategic moves. Based on the detailed strategic analysis above, the following strategic initiatives and internal capabilities have been instrumental in securing past successes for 3M:

Developing technology-oriented solutions to satisfy customer needs.Filling market niches.Abandoning markets where desired prices (and margins) cannot be maintained.Generating a high percentage of sales from new products.Establishing and fostering a culture of Innovation.

In addition to a growth strategy based on enhancing core competency, 3M has more recently employed an acquisition strategy to take quick advantage of technology opportunities and to fill openings in geographic markets and channel capacity. While acquisitions make a logical strategic option for 3M, this new strategy has not been fully tested for success, with 16 new acquisitions generating only 1.6% of corporate sales ($375 million out of $22.8 billion in sales).

The criteria for evaluating Buckley's 2006 strategic actions should emphasize the achievement of sustainable growth and the strengthening of core competencies and competitive advantage.

Although detailed data for many of the following measures is not available in the case material, suggested criteria for evaluating Buckley's strategy include:

Balanced ScorecardPerformance Measure Control Type

Sustainable Sales Growth FinancialSustainable Profit Margins FinancialIncreased Solutions to Customer Needs Strategic - Customer Number of New Patents Internal Business Processes Number of New Products from Customer Collaboration Customer Sales from New Products FinancialNumber of New Market Niches Served and Market Share Strategic - CustomerMarkets Abandoned after Margins Prove to be Unsustainable

Strategic - Internal Business Processes

Innovation Measured by: Strategic - Learning & Growth Achievement of 15% Rule Internal Business Processes R&D Budget as Percentage of Sales Financial (See New Product Measures Above)Sales, Debt, and Related Cost Measures for Acquisitions FinancialInvestments in Core Competency and Competitive Advantage

Strategic - Learning & Growth and Financial

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3M: Cultivating Core Competency

2. Define the company's core competency.

The case provides an extensive definition of 3M's core competency, which is based on its invention and manufacturing capabilities to solve and deliver unique solutions for industrial and commercial customers. The company's technology platforms hold together its diverse business activities.

According to Buckley, 3M's fundamental core competency is in applying coatings to backings, processes which were both developed internally. He identified six competitive platforms giving 3M an edge over its competitors: low cost, scale and relative share, customer value chain, pristine service, and premium brands.

3. Determine if the company has a sustainable competitive advantage. If you determine that a sustainable advantage exists, support your claim. If you find it lacking, recommend actions that would secure a sustainable competitive advantage.

If the company's innovative technology portfolio and superior manufacturing process capabilities are 3M's core competencies, its competitive advantage derives from the company's practice of cooperatively sharing technology across operations, brands, market segments, and regions. Referred to as the 3M Lattice, the unique business model is a competitive advantage that offers a steady stream of groundbreaking product opportunities in adjacent businesses where less obvious applications are discovered.

This competitive advantage is a sustainable advantage in that it meets the qualifications for sustainability - possessing capabilities which are valuable, rare, costly-to-imitate, and nonsubstitutable.

4. Identify any external environmental forces that have strategic implications in the future.

The trend for lower margins in the U.S. market (driven by retailers and private labeling) and price pressures in Europe can be expected to continue, emphasizing the importance of 3M's international focus to achieve premium margins. In addition, emerging markets offer untapped growth and niche opportunities, giving pursuits in these regions a fit with Buckley's strategy of entering niche markets and capturing new segments.

Growth and technology trends in areas such as electronics and software, RFID/Wireless/GPS, minerals extraction, oil and gas, food safety, border crossing and security, and consumer electronics offer acquisition opportunities to support 3M's strategic plan and to take advantage of extensive knowledge in adjacent technologies to stimulate product development.

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3M: Cultivating Core Competency

Business opportunities with high growth potential are emerging in the areas of filtration, track and trace, energy and minerals extraction, and food safety. Combined with 3M's available adjacent technologies and the company's ability to share across segment lines, these areas offer strategic opportunities for internal development.

Price increase and supply limitations for oil and oil-derived products will continue to impact performance of products dependent on these inputs if price increases cannot be passed on to the end customer.

The general environment is experiencing rapid advancements in technology. 3M's core competency and strategy are well-aligned to this external condition, and potential technology developments (such as nanotechnology applications in materials science and digital technology applications) indicate continued tech-based growth opportunities for 3M in the foreseeable future.

It is also worth noting declines experienced in the personal care segment. This observation should be taken into consideration when allocating resources and making strategic decisions. Again, 3M's strength in industrial segments places the company in a good position to minimize the impact of reduced opportunities and performance in the commercial segment.

STRATEGIC ACTIONS: STRATEGY FORMULATION & IMPLEMENTATION

5. Evaluate the success of 3M's strategy in 2006 based on the criteria (Balanced Scorecard) established above for judging strategic performance.

Sales Growth. Based on financial information provided in the case and 2006 financial results, annual sales growth rates for the past 6 years are provided in the table below. The 5-year growth rate for 3M is 7.35%.

In millions Percentage of Change in Net Sales Over Previous Year

2006 Sales = $22.923 8.3%

2005 Sales = $21.167 5.7%

2004 Sales = $20,011 9.7%

2003 Sales = $18,232 11.6%

2002 Sales = $16,332 1.7%

2001 Sales = $16,054 --

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3M: Cultivating Core Competency

Concerns that revenue growth has stagnated to between 1% and 5% are not founded in actual annual growth rates experienced by 3M, and expectations set between 5.5% and 8% were exceeded in 2006. However, Buckley has projected exceeding a 10% annual growth rate by 2011, which will require an acceleration of the progress made to date. A watchful eye should remain on sales results, but indications of strategic success are evident.

Profit Margins.

Operating Income (in millions) Profit Margins

2006 $5.625 24.5%

2005 $4.828 22.8%

2004 $4.555 22.8%

2003 $3.657 20.1%

2002 $3.005 18.4%

Profit margins in the table above are calculated by dividing Income before Taxes into Net Sales. This measure has steadily increased over the past 5 years, which shows attempts to maintain profit margins to be successful. Despite a 49% increase in interest expense (due to debt funding of acquisitions in 2006), Buckley's first year of margin results show an impressive gain. His focus on high margin niches should continue to have a positive impact on this measure of financial success.

Buckley's identification of capacity planning issues, and his attempt to improve 3M's ability to accurately measure sales growth potential should also provide greater benefits of scale (with greater margin results) in core product categories. This strategic action offers the added advantage of increasing relative market share in target markets. However, the company did miss scale opportunities (misreading demand for LCD TV's), which indicates that additional attention to this capability is still required for success.

Solutions to Customer Needs and Serving Market Niches. For the sake of this case study, the measurement of developing new product solutions for customer needs, serving market niches, and innovativeness cannot be performed. Feedback in the case study indicates that Buckley has been successful reinvigorating an engineering culture with a technological foundation, sparking innovation, boosting morale, and stimulating autonomous strategic behavior.

Annexure IV in the case indicates that Pending and Existing Patents are steadily rising, with strong projections through 2011. The Sales from New Products figure is not available in the case, but should be employed by Buckley's team using the previous benchmark of 30-35% of sales from products new to 3M in the past 4 years. This will provide a good measure of the successful use of technology and innovation to drive

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3M: Cultivating Core Competency

sustained revenue growth. As of Buckley's arrival, 3M is still putting out both incremental and radical innovative products.

Divestiture and Closure. Again, without accurate numbers in the case, it is difficult to determine whether Buckley is successfully abandoning markets when margins prove to be unsustainable. However, with an expressed divestiture strategy, and his action to sell the pharmaceutical business in November, 2006, it should be assumed that actions are being taken to follow through on this strategic goal.

Innovation. The Research and Development budget as a percentage of sales has remained flat for several years, and is even down since 2002. See the table below for calculations.

2006 2005 2004 2003 2002

Net Sales 22,923.00 21,167.00 20,011.00 18,232.00 16,332.00

R&D Exp. 1,352.00 1,274.00 1,143.00 1,102.00 1,066.00

R&D as % of Sales 5.9 6.0 5.7 6.0 6.5

Invention has been specified as one of 3M's core competencies, yet the company has not increased investments in Research and Development to stimulate sales growth. This is probably due to acquisition investments now being made to secure radical innovations, enter new markets, and realize gains more quickly. Investing in acquisitions (external innovation) rather than R&D (internal development) has strategic implications for 3M over the long run, which is discussed more fully in the section below.

Acquisitions. Detailed numbers on acquisition debt and costs are not available in the case text, but acquisitions in 2006 matched the previous four years of acquisition activity at 3M, and interest expense grew to $122 million from $82 million in 2005. Thus, it can be assumed that increased investment in the company's acquisition strategy has been incurred in an effort to quickly impact sales growth through this strategic initiative.

It was previously noted that initial sales of acquired businesses and technologies represent less than 2% of total sales. Without investment numbers, it is difficult to assess early return results. As the case does not highlight any acquisition problems, we can assume that early expectations are being met.

Investments in Core Competency and Competitive Advantage. Without statistical evidence, Buckley's strategic goals to

grow and develop existing markets through disruptive (natural substitute) technologies, logical developments and extensions of existing products, and "out of the garage" technology developments, and

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grow core business through the strength of constant reinvention, stronger key customer partnerships, customization, solving customer needs, entering niche segments, and capturing new segments

indicate that he has likely supported these initiatives with investments in 3M capabilities to achieve these goals. Were it not the case, the recommendation to Buckley during this review would be to correct the oversight to increase the likelihood that implementation of his strategy will meet with success.

6. Evaluate 3M's Acquisition strategy.

The single biggest component of Buckley's strategy that requires attention is his Acquisition strategy, primarily because it is a diversion away from the goal of tapping core competencies to achieve growth. 3M's acquisition experience is limited, and the company's competency at successfully acquiring technology is not yet fully developed.

The use of acquisitions to satisfy strategic goals is well-chosen. Acquisitions offer 3M a low-risk, cost-effective way to develop new products, build technology, rapidly access markets (particularly untapped local markets) and meet expectations for sustainable growth. However, the success of acquisitions can be tampered by integration difficulties, excessive debt, and the inability to achieve synergy.

3M's use of strategic licensing and investments in small technology companies that readily "tuck in" to their existing businesses can protect the company from common problems that interfere with successful acquisitions. This cautious approach also fits with the company's conservative values. Targeting acquisitions to fill openings in geography and channel capacity is consistent with the company's other strategic efforts and should provide synergy when acquisitions are complementary to the company's core businesses and capabilities.

Despite this well-defined and well-selected strategy, research indicates that acquisitions do not consistently produce above-average returns, with clearly-successful acquisition rates estimated at only 20%. 3M must include the potential costs of some acquisition failure into its projections and continue with cautious selection of complementary acquisition targets that are not over-priced.

In addition to identifying the correct acquisitions, success will hinge on the company's ability to execute an effective integration process. Not an existing capability, 3M must invest in building this core competency for a long-term acquisition strategy to be viable.

Research indicates that firms with sustained and consistent emphasis on R&D and innovation have achieved long-term competitive advantages through successful acquisitions. Although 3M certainly possess this emphasis, an earlier look at Research and Development investments highlights that they have remained flat over the past 5 years.

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3M: Cultivating Core Competency

Internal innovation is a core competency within 3M. Directing investment funds to acquisitions rather than R&D has significant strategic implications. A key risk of acquisitions is that a firm may substitute an ability to buy innovations for an ability to produce innovations internally. 3M's approach to managing new technology development that is acquired rather than home-grown will be critical moving forward. One way to minimize this risk is to keep focus on strategic control, rather than too much attention on financial control.

Again, effective integration of new technology will determine whether a culture of innovation is enhanced or dissolves over time. Close attention must be given to building the ability to effectively integrate new technologies into 3M's unique lattice of technologies and manufacturing adjacencies. 3M's competitive advantage of sharing basic technologies signifies a cooperative internal environment with skills to successfully integrate acquired technologies. It will also be important to avoid hostile acquisitions that can introduce difficulties and uncooperative behavior.

Given the company's difficulties in accurately measuring sales growth potential (demand) and the company's chronic underinvestment in core capacity needed to maximize the benefits of scale and gain attainable market share, it might be assumed that 3M does not possess the ability to effectively conduct due diligence and to select healthy target firms for acquisition. Again, developing these skills as a core competency will be critical to employing a successful acquisition strategy over time.

With that said, extending 3M's innovative prowess by accessing both internal and external technological innovations opens up additional strategic opportunities consistent with 3M's goals and capabilities and is an excellent growth strategy.

7. Recommend an integrated and coordinated set of commitments and actions which will exploit the company's core competencies, strengthen its competitive advantage, and maximize value.

Buckley's strategy is a well-conceived plan to exploit the company's core competencies, strengthen its competitive advantage, and maximize value. It is integrates 3M's strengths and capabilities with environmental conditions and attempts to correct current areas of weakness. At the end of 2006, sales growth and profit margin results are initial indicators of a successfully implemented strategy.

This analysis provides Buckley and his management team with the assurance that his strategy is on track to achieve desired results. It also establishes a standard for measuring success, both financial and strategically, through the Balanced Scorecard framework.

Based on the analysis, the following points should be highlighted during the overview presentation to Buckley.

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Recommendations

Continued Focus in the Following Areas:

International markets to maximize margins and capture emerging growth opportunities.

Pursuit of technological growth trends and new technological developments. Attentiveness to impact that prices for oil-derived inputs have on margins. Allocation of resources toward industrial segments and cautiously away from

personal care markets where retailers can drive down margins and declines have been experienced.

High margin niches to continue to drive up margins. Customer involvement in innovative process.

Additional Attention Necessary in the Following Areas:

Arriving at an accurate measure of sales growth potential. Improvements to demand and capacity planning capabilities to maximize benefits of scale and fully realize market opportunities.

As the problem of oil prices and supply is unlikely to rectify itself in the near-term, consideration should be given to a long-term strategy of avoiding (or replacing) such input items with more affordable or more readily available input materials.

Evaluate Research and Development budget as a percentage of sales to determine if it is being adequately financed for a growth strategy, particularly in light of increased acquisition efforts.

Retreat or Abandon the Following Efforts:

Reconsider dual branding in upper middle markets and the extension of private labeling. This does not fit with 3M's strategic goals, and the practice of attempting to extend the life of dying products or segments at lower margins should be discontinued.

Additions to Strategic Plan

Reinstitute or more aggressively pursue strategic actions to abandon markets where desired prices (and therefore, margins) cannot be maintained.

Reestablish use of "Percentage of Sales from New Products" as a standard for measuring innovativeness and tracking results.

Acquisition-Related Advice

Note that 3M's acquisition strategy is a change in focus for the company and comes with some risk. It is extremely important to build competency and skill sets for a long-term acquisition strategy to be a viable source of competitive success to 3M. In the meanwhile, these protective measures should be taken:

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3M: Cultivating Core Competency

Use realistic estimates to buffer financial expectations, taking into account possible failure (or loss) rates along with potential upside gains.

In short order, build skills to effectively conduct due diligence and to select healthy target firms to acquire.

Continue to emphasize the importance of correct acquisitions based on compatibility, complimentary, and integration considerations.

Direct focus onto strategic controls rather than being too focused on financial measures.

Pay close attention to integrating new technologies into 3M's unique lattice of technologies and manufacturing adjacencies.

Avoid hostile acquisitions. While integrating acquired businesses, be cautious about restructuring used during the

1990's. Although some structural changes may have helped to create networks that now enhance sharing, want to avoid the risk of upsetting delicate shared networks that provide 3M with its sustainable competitive advantage.

SUPPORTING EXHIBITS AND FINANCIAL ANALYSIS

Current Financial Information

Revenue & Reported Earnings

Revenue ($mil) (2006) 22,923.00

5-Year Annual Revenue Growth Rate (%) 7.35

Income From Continuing Operations ($mil) (2006) 3,851.00

Income From Total Operations ($mil) (2006) 3,851.00

Diluted EPS From Continuing Operations ($)(2006) 5.06

Diluted EPS From Total Operations ($)(2006) 5.06

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3M: Cultivating Core Competency

Dividends

Fiscal Year 2007

Dividend Rate ($) 1.92

Yield 2.15%

Yield - 5 Year Average (%) 1.96

5-Year Annual Dividend Growth Rate (%) 8.92

Profit Margins

Operating Margin (%) 22.51

Net Profit Margin (%) 16.80

Valuation Ratios

P/E 15.24

Price to Cash Flow Ratio 20.21

Price To Sales (TTM) 2.96

Price To Book 5.78

Per Share Ratios

Dividend Per Share 1.84

Book Value Per Share 13.27

Revenue Per Share 30.12

Financial Strength

Quick Ratio 0.72

Current Ratio 1.22

LT Debt to Equity 11.17

Total Debt to Equity 36.33

Return on Equity (ROE) Per Share 38.51

Return on Assets (ROA) 18.97

Return on Invested Capital (ROIC) 29.18

Efficiency

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3M: Cultivating Core CompetencyAsset Turnover 1.09

Inventory Turnover 4.41

Data Provided by Thomson Financial and available at www.3M.com.

Balance Sheet Highlights

in millions of USD

As of 2006 2005 2004 2003 2002

Assets

Cash 1,447.00 1,072.00 2,757.00 1,836.00 618.00

Marketable Securities 471.00 n/a n/a n/a n/a

Receivables 3,357.00 3,121.00 3,311.00 3,162.00 2,840.00

Total Inventories 2,601.00 2,162.00 1,897.00 1,816.00 1,931.00

Raw Materials 571.00 406.00 336.00 299.00 329.00

Work In Progress 795.00 706.00 614.00 596.00 591.00

Finished Goods 1,235.00 1,050.00 947.00 921.00 1,011.00

Notes Receivable n/a n/a n/a n/a n/a

Other Current Assets 1,070.00 760.00 755.00 906.00 670.00

Total Current Assets 8,946.00 7,115.00 8,720.00 7,720.00 6,059.00

Property, Plant & Equipment, Net 5,907.00 5,593.00 5,711.00 5,609.00 5,621.00

Property, Plant & Equipment, Gross 17,017.00 16,127.00 16,290.00 15,841.00 15,058.00

Accumulated Depreciation 11,110.00 10,534.00 10,579.00 10,232.00 9,437.00

Interest and Advance to Subsidiaries 266.00 84.00 29.00 33.00 48.00

Other Non-Current Assets 373.00 437.00 381.00 477.00 446.00

Deferred Charges 253.00 138.00 2,723.00 763.00 677.00

Intangibles 4,790.00 4,016.00 2,932.00 2,693.00 2,167.00

Deposits & Other Assets 759.00 3,158.00 212.00 305.00 311.00

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Total Assets 21,294.00 20,541.00 20,708.00 17,600.00 15,329.00

Liabilities

Notes Payable 1,390.00 580.00 757.00 883.00 884.00

Accounts Payable 1,958.00 1,711.00 1,818.00 1,413.00 1,224.00

Curr. Long-Term Debt 1,114.00 492.00 1,405.00 386.00 353.00

Curr. Port. Cap Lease 2.00 n/a 4.00 4.00 n/a

Accrued Expense 864.00 830.00 880.00 896.00 925.00

Income Taxes 1,141.00 998.00 885.00 892.00 528.00

Other Current Liabilities 854.00 627.00 322.00 608.00 543.00

Total Current Liabilities 7,323.00 5,238.00 6,071.00 5,082.00 4,457.00

Mortgages n/a n/a n/a n/a n/a

Deferred Charges/Inc. 134.00 1,387.00 1,339.00 498.00 458.00

Convertible Debt 542.00 539.00 556.00 553.00 550.00

Long-Term Debt 507.00 770.00 171.00 1,182.00 1,590.00

Non-Curr. Capital Leases 63.00 n/a 71.00 70.00 2.00

Other Long-Term Liab. 2,488.00 1,901.00 1,869.00 2,100.00 1,985.00

Total Liabilities 11,057.00 9,835.00 10,077.00 9,485.00 9,042.00

Shareholder Equity

Minority Interest 278.00 311.00 253.00 230.00 294.00

Preferred Stock n/a n/a n/a n/a n/a

Common Stock 9.00 9.00 9.00 9.00 5.00

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3M: Cultivating Core Competency

3M: Cultivating Core CompetencyCapital Surplus 2,484.00 2,225.00 287.00 287.00 291.00

Retained Earnings 17,933.00 15,715.00 15,649.00 14,010.00 12,748.00

Treasury Stock 8,456.00 6,965.00 5,503.00 4,641.00 4,767.00

Other Liabilities -2,011.00 -589.00 -64.00 -1,780.00 -2,284.00

Total Shareholders Equity 9,959.00 10,395.00 10,378.00 7,885.00 5,993.00

Total Liabilities & Shareholders Equity 21,294.00 20,541.00 20,708.00 17,600.00 15,329.00

Data Provided by Thomson Financial and available at www.3M.com.

Income Statement Highlights

in millions of USD

Period Ended 2006 2005 2004 2003 2002

Net Sales 22,923.00 21,167.00 20,011.00 18,232.00 16,332.00

Cost of Goods Sold 11,713.00 10,408.00 9,958.00 9,285.00 8,496.00

Gross Profit 11,210.00 10,759.00 10,053.00 8,947.00 7,836.00

R & D Expenditure 1,352.00 1,274.00 1,143.00 1,102.00 1,066.00

Selling, General & Admin Expenses 4,162.00 4,631.00 4,332.00 4,132.00 3,724.00

Depreciation & Amort. n/a n/a n/a n/a n/a

Non-Operating Income 51.00 56.00 46.00 28.00 39.00

Interest Expense 122.00 82.00 69.00 84.00 80.00

Income Before Taxes 5,625.00 4,828.00 4,555.00 3,657.00 3,005.00

Prov. For Inc. Taxes 1,723.00 1,627.00 1,503.00 1,202.00 966.00

Minority Interest 51.00 55.00 62.00 52.00 65.00

Realized Investment (Gain/Loss) n/a n/a n/a n/a n/a

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3M: Cultivating Core Competency

3M: Cultivating Core CompetencyOther Income n/a n/a n/a n/a n/a

Net Income Before Extra Items 3,851.00 3,146.00 2,990.00 2,403.00 1,974.00

Extra Items & Disc. Ops. n/a -35.00 n/a n/a n/a

Net Income 3,851.00 3,111.00 2,990.00 2,403.00 1,974.00

Data Provided by Thomson Financial and available at www.3M.com.

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3M: Cultivating Core Competency