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

†          Overview

†          Results of Operations

†          Performance by Business Segment

†          Financial Condition and Liquidity

†          Forward-Looking Statements

OVERVIEW

3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products and services. 3M manages its operations in six operating business segments: Industrial and Transportation, Health Care, Consumer and Office, Safety, Security and Protection Services, Display and Graphics and Electro and Communications. As discussed in Note 13 to the Consolidated Financial Statements, effective in the first quarter of 2009, 3M made certain changes to its business segments. The financial information presented herein reflects the impact of these business segment changes for all periods presented.

3M experienced a challenging first quarter as the global economic slowdown dramatically affected its businesses. Substantial end-market declines and continued inventory takedowns in major industries, including automotive, consumer electronics and general industrial manufacturing, resulted in significantly lower sales and income. Accordingly, 3M aggressively reduced its cost structure, lowered manufacturing output and intensified its attention to operational improvement. The combination of these actions drove strong operating income margins. First-quarter sales totaled $5.1 billion, a decrease of 21.3 percent from the first quarter of 2008. Net income attributable to 3M was $518 million, or $0.74 per diluted share, versus $988 million, or $1.38 per diluted share in the corresponding period last year. The first quarter of 2009 included restructuring actions that reduced net income attributable to 3M by $45 million, or $0.07 per diluted share. These first quarter 2009 restructuring actions are expected to save 3M approximately $40 million in 2009, with estimated annualized savings of approximately $70 million. Refer to "2009 special items" at the end of this overview section for more detail.

The following table summarizes sales and operating income results by business segment.

                                        Three months ended March 31
                                          2009                 2008             % change
                                     Net       Oper.       Net      Oper.     Net     Oper.
(Millions)                          Sales      Income     Sales    Income    Sales    Income

Industrial and Transportation     $   1,581   $    174   $ 2,182   $   492   (27.5 )%  (64.6 )%
Health Care                             997        307     1,080       322    (7.7 )%   (4.7 )%
Consumer and Office                     795        165       855       170    (7.1 )%   (2.7 )%
Safety, Security and Protection
Services                                694        125       821       196   (15.4 )%  (36.3 )%
Display and Graphics                    611         60       875       188   (30.2 )%  (68.3 )%
Electro and Communications              480         21       735       149   (34.8 )%  (85.7 )%
Corporate and Unallocated                 4        (33 )       6         4
Elimination of Dual Credit              (73 )      (16 )     (91 )     (20 )
Total Company                     $   5,089   $    803   $ 6,463   $ 1,501   (21.3 )%  (46.5 )%

First-quarter worldwide sales totaled $5.1 billion, a decrease of 21.3 percent versus last year. Local-currency sales (which includes volume, selling price and acquisition impacts, but excludes divestiture and translation impacts) decreased 13.9 percent, and foreign exchange impacts reduced sales by an additional 7.1 points in the quarter. Local-currency sales increased 1.9 percent in Health Care, but declined in the remaining segments with Consumer and Office down 0.1 percent, Safety, Security and Protection Services down 3.6 percent, Industrial and Transportation down 20.7 percent, Display and Graphics down 26.6 percent and Electro and Communications down 29.8 percent. Refer to the Performance by Business Segment section for a more detailed discussion of the results of the respective segments.

Due to the significant sales decline in the first quarter of 2009, operating income decreased 46.5 percent year-on-year, which included a 4.5 percentage point penalty from the impact of restructuring actions discussed in "2009 special items" below. Operating income margins for the three months ended March 31, 2009 were 15.8 percent, including a 1.3 percentage point penalty related to restructuring actions. 3M generated $695 million of operating cash flows for the three months ended March 31, 2009, a decrease of $302 million compared to the three months ended March 31, 2008. Refer to the section entitled "Cash Flows from Operating Activities" later in the MD&A for a discussion of items impacting cash flows.

In February 2007, 3M's Board of Directors authorized a two-year share repurchase of up to $7.0 billion for the period from February 12, 2007 to February 28, 2009. In February 2009, 3M's Board of Directors extended this share repurchase authorization until the remaining amount is fully utilized. As of March 31, 2009, approximately $2.6 billion remained available for repurchase. With the Company's current emphasis on maintaining ample liquidity and enhancing balance sheet strength, share repurchase activity has been suspended. However, extension of this program will provide flexibility to resume repurchase activity when business conditions permit. In February 2009, 3M's Board of Directors authorized a dividend increase of 2 percent for 2009, marking the 51st consecutive year of dividend increases for 3M. 3M's debt to total capital ratio (total capital defined as debt plus equity) at March 31, 2009 was 37 percent, compared to 39 percent at December 31, 2008. A portion of the increase in debt at year-end 2008 was the result of a strategy to build and maintain a cash buffer in the U.S. in the current market environment. In the first quarter of 2009, Standard & Poor's changed its rating on 3M from an AA credit rating with a stable outlook to an AA- credit rating with a stable outlook. On May 1, 2009, Moody's Investors Service changed its rating on 3M from an Aa1 credit rating with a negative outlook to an Aa2 credit rating with a stable outlook. The Company has sufficient access to capital markets to meet currently anticipated growth and acquisition investment funding needs.

In 2009, 3M changed its annual stock option and restricted stock unit grant date to more closely align the award with the timing of the Company's performance review process. In 2009 and forward, under the annual grant, 3M will grant shares in February instead of May as in previous years. Accounting rules require recognition of expense under a non-substantive vesting period approach, requiring compensation expense recognition when an employee is eligible to retire. 3M employees in the United States are eligible to retire at age 55 and after having completed five years of service. Approximately 25 percent of the stock-based compensation award expense dollars are for this retiree-eligible population. Therefore, in 2006, 2007 and 2008 the second quarter of each year (because of the May grant date) reflected higher stock-based compensation expense than the other quarters. In 2009, the retiree-eligible impact shifted to the first quarter. In addition, the second quarter of 2009 will reflect accelerated stock-based compensation expense related to the earlier February grant date. These and other factors resulted in a first quarter 2009 expense of $0.08 per diluted share for stock-based compensation expense compared to $0.04 in the first quarter of 2008. In the second quarter of 2009 estimated stock-based compensation is estimated at $0.04 per diluted share compared to $0.06 in the second quarter of 2008. Refer to Note 12 for additional discussion of the Company's stock-based compensation programs.

As discussed in Note 8 (Pension and Postretirement Benefit Plans), in April 2009 3M offered a voluntary early retirement incentive program to certain eligible participants of its U.S. pension plans who meet age and years of pension service requirements. In the second quarter of 2009, 3M also expects some further restructuring actions, principally in Asia and Western Europe.

2009 special items:

In the first quarter of 2009, management approved and committed to undertake certain restructuring activities, which resulted in charges ($67 million pre-tax, $45 million after-tax, or $0.07 per diluted share) due to employee-related liabilities and fixed asset impairments. These items are discussed in more detail in Note 4 (Restructuring Actions and Exit Activities).

RESULTS OF OPERATIONS

Percent change information compares the first three months of 2009 with the same period last year, unless otherwise indicated.

Net Sales:



                                                               Three months ended
                                                                 March 31, 2009
                                                                                      Latin
                                                                                     America/
                                    United States      Europe      Asia-Pacific       Canada       Worldwide
Net sales (millions)               $         1,955    $   1,346    $       1,255    $      533    $     5,089
% of worldwide sales                          38.4 %       26.4 %           24.7 %        10.5 %          100 %
Components of net sales change:
Volume - organic                             (19.6 )%     (16.7 )%         (24.1 )%      (14.4 )%       (19.5 )%
Price                                          3.5          1.9             (1.5 )%        8.7            2.2
Organic local-currency sales                 (16.1 )      (14.8 )          (25.6 )        (5.7 )        (17.3 )
Acquisitions                                   4.6          4.5              0.8           2.9            3.4
Local-currency sales                         (11.5 )      (10.3 )          (24.8 )        (2.8 )        (13.9 )
Divestitures                                  (0.7 )       (0.1 )              -          (0.1 )         (0.3 )
Translation                                      -        (15.4 )           (3.6 )       (17.5 )         (7.1 )
Total sales change                           (12.2 )%     (25.8 )%         (28.4 )%      (20.4 )%       (21.3 )%

In the first quarter of 2009, the degree of contraction in sales in some of 3M's key markets drove a 21.3 percent sales decline. In consumer electronics, global manufacturing output contracted by 20 to 50 percent in the first quarter. In North America, light vehicle production declined by 50 percent, negatively impacting 3M's automotive OEM business during the quarter. Combined, electronics and automotive comprise almost 25 percent of 3M's revenues. In addition, a number of other served industries declined significantly as well.

Organic sales volumes declined 19.5 percent, and the stronger U.S. dollar reduced first-quarter sales by about 7 percent. On the positive side, 3M increased global selling prices by over 2 percent, and acquisitions added over 3 percent to sales. Organic volume declines were most severe in Asia Pacific at 24 percent, driven largely by the contraction in electronics, automotive and basic manufacturing. The bright spot for Asia Pacific was Health Care, which posted nearly 5 percent organic volume growth for the first quarter. U.S. organic volumes declined 19.6 percent, with Health Care and Consumer and Office declining in the range of 4 to 6 percent, while 3M's more economically sensitive businesses such as Electro and Communications and Industrial and Transportation posted organic volume declines in excess of 30 percent. Organic volumes declined 16.7 percent in Europe and 14.4 percent in the combined Latin America/Canada region.

Operating Expenses:



                                                 Three months ended
                                                      March 31
(Percent of net sales)                         2009     2008   Change
Cost of sales                                   54.5 %  51.7 %    2.8 %
Selling, general and administrative expenses    23.4    19.7      3.7
Research, development and related expenses       6.3     5.4      0.9
Operating income                                15.8 %  23.2 %   (7.4 )%

Cost of sales as a percent of net sales increased 2.8 percentage points in the first quarter of 2009 compared to the first quarter of 2008, with declining volumes and inventory reductions playing a significant role. While reducing inventories helped 3M's cash flow in the first quarter, the declining volumes and inventory reduction increased cost of sales by an estimated 1.5 percentage points. As discussed in Note 4 (Restructuring Actions and Exit Activities), in the first quarter of 2009, 3M recorded $67 million in restructuring charges, of which $17 million was recorded in cost of sales. This negatively impacted cost of sales by 0.4 percentage points. In addition, 3M decided to swap Venezuelan bolivars into U.S. dollars as economic conditions in Venezuela continued to deteriorate, with escalating inflation pressuring the currency. This negatively impacted cost of sales by approximately 0.3 percentage points. 3M expects to initiate similar swaps over the next three quarters of 2009 in order to manage its cash flow risk.

Selling, general and administrative (SG&A) expenses as a percent of net sales increased 3.7 percentage points in the first quarter of 2009 compared to the first quarter of 2008, but in dollars decreased 6.6 percent. As indicated in Note 4, $47 million in restructuring expenses were recorded in SG&A, increasing SG&A as a percent of net sales by 0.9 percentage points. Excluding these restructuring expenses, SG&A in dollars would have decreased approximately 10 percent, driven by reductions in general and administrative expenses.

Research, development and related expenses (R&D) as a percent of net sales increased 0.9 percentage points in the first quarter of 2009 compared to the first quarter of 2008, but in dollars decreased 8.0 percent. As indicated in Note 4, $3 million in restructuring expenses were recorded in R&D in the first quarter of 2009.

Operating Income:

3M uses operating income as one of its primary business segment performance measurement tools. Operating income margins were 15.8 percent of sales in the first quarter of 2009 compared to 23.2 percent of sales in the first quarter of 2008. Restructuring charges of $67 million in the first quarter of 2009 reduced operating income margins by 1.3 percentage points.

Interest Expense and Income:



                      Three months ended
                           March 31
(Millions)            2009           2008
Interest expense   $       55     $       55
Interest income           (11 )          (30 )
Total              $       44     $       25

Interest expense was flat when compared to the same period last year, with benefits from lower short-term and long-term interest rates and lower average international debt balances offset by higher average U.S. long-term debt balances. Interest income declined due to lower interest rates and lower average cash, cash equivalent and marketable securities balances.

Provision for Income Taxes:

The tax rate for the first quarter of 2009 was 30.1%, compared to 31.8% in the first quarter of 2008, with the difference due to lower international tax rates, research and development credits enacted for full year 2009, and adjustments to income tax reserves. Refer to Note 6 for further discussion of income taxes.

Noncontrolling Interest:

Net income attributable to noncontrolling interest represents the elimination of the income or loss attributable to non-3M ownership interests in 3M consolidated entities. The decrease for the first three months of 2009 compared to the same period last year primarily related to Sumitomo 3M Limited, which is 3M's most significant consolidated entity with non-3M ownership interests (3M owns 75 percent of Sumitomo 3M Limited).

Currency Effects:

3M estimates that year-on-year currency effects, including hedging impacts, decreased net income attributable to 3M by approximately $20 million for the for the three months ended March 31, 2009 and increased net income attributable to 3M by approximately $50 million for the three months ended March 31, 2008. This estimate includes the effect of translating profits from local currencies into U.S. dollars; the impact of currency fluctuations on the transfer of goods between 3M operations in the United States and abroad; and transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risks and the negative impact of swapping Venezuelan bolivars into U.S. dollars. However, this estimate does not reflect the higher commodity prices 3M is currently experiencing related to dollar-denominated commodities, which would mute this impact somewhat. 3M estimates that year-on-year derivative and other transaction gains and losses increased net income attributable to 3M by

approximately $65 million for the three months ended March 31, 2009 and decreased net income attributable to 3M by approximately $15 million for the three months ended March 31, 2008.

New Accounting Pronouncements:

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

PERFORMANCE BY BUSINESS SEGMENT

As discussed in Note 13 to the Consolidated Financial Statements, effective in the first quarter of 2009, 3M made certain changes to its business segments. Segment information for all periods presented has been reclassified to reflect the new segment structure.

Information related to 3M's business segments for the first three months of both 2009 and 2008 is presented in the tables that follow. Organic local-currency sales includes both organic volume impacts plus selling price impacts. Acquisition impacts, a component of local currency sales growth, are measured separately for the first twelve months of the acquisition. The divestiture impact, if any, translation impact and total sales change are also provided for each segment.

Industrial and Transportation Business:



                                Three months ended
                                     March 31
                                 2009         2008
Sales (millions)              $    1,581     $ 2,182
Sales change analysis:
Organic local currency             (23.5 )%      4.9 %
Acquisitions                         2.8         3.8
Local currency                     (20.7 )       8.7
Translation                         (6.8 )       7.3
Total sales change                 (27.5 )%     16.0 %

Operating income (millions)   $      174     $   492
Percent change                     (64.6 )%     13.9 %
Percent of sales                    11.0 %      22.6 %

The Industrial and Transportation segment serves a broad range of markets, such as appliance, paper and packaging, food and beverage, electronics, automotive original equipment manufacturer (OEM) and automotive aftermarket (auto body shops and retail). Industrial and Transportation products include tapes, a wide variety of coated and non-woven abrasives, adhesives, specialty materials, filtration products, closure systems for personal hygiene products, and components and products that are used in the manufacture, repair and maintenance of automotive, marine, aircraft and specialty vehicles.

Industrial and Transportation is managing through significant end-market declines. Three industries in particular - automotive, appliances and electronics - touch about half of Industrial and Transportation's sales base. These industries have seen 50 percent declines in first quarter North American auto builds, a 25 percent contraction in January production of major appliances, and 20 to 50 percent declines in global electronics. Given this background, Industrial and Transportation sales declined 27.5 percent to $1.581 billion, and operating income margins declined more than 10 percentage points.

Sales in local currencies declined 20.7 percent, including a 2.8 percent benefit from acquisitions. 3M has acquired several companies in the past year that complement its business, including Meguiar's Inc. in the auto aftermarket space, along with Polyfoam Products Inc. and EMFI S.A./SAPO S.A.S. in the adhesives and sealants area, to name just a few.

Sales in 3M's automotive OEM-related businesses were down over 40 percent in local currency. The abrasives and industrial adhesives and tapes businesses performed better, with local currency sales declines in the 20 percent range, and on a more positive note, local currency sales declined at only a 6 to 7 percent rate in 3M's new renewable energy division and in the automotive aftermarket.

Looking at the business geographically, local currency sales declined 4.8 percent in Latin America, 19.5 percent in Europe, 22.5 percent in the United States and 26.2 percent in Asia Pacific. Sales in Japan, in particular, were down 36 percent in local currency.

Industrial and Transportation is aggressively managing through this difficult period, using all the tools available as necessary. This segment announced restructuring actions in the first quarter, along with plant shut-downs, furloughs and mandatory vacation across the operation while the global economy remains difficult. In the first quarter of 2009, the Company recorded charges of $23 million related to restructuring actions, with this charge primarily comprised of employee-related liabilities for severance and benefits.

Health Care Business:





                                 Three months ended
                                      March 31
                                2009          2008
Sales (millions)              $    997     $     1,080
Sales change analysis:
Organic local currency            (0.1 )%          5.0 %
Acquisitions                       2.0             0.8
Local currency                     1.9             5.8
Divestitures                         -            (0.1 )
Translation                       (9.6 )           6.2
Total sales change                (7.7 )%         11.9 %

Operating income (millions)   $    307     $       322
Percent change                    (4.7 )%          N/A
Percent of sales                  30.7 %          29.8 %

The Health Care segment serves markets that include medical clinics and hospitals, pharmaceuticals, dental and orthodontic practitioners, and health information systems. Products and services provided to these and other markets include medical and surgical supplies, skin health and infection prevention products, dental and orthodontic products (oral care), health information systems, and inhalation and transdermal drug delivery systems.

In Health Care, local currency sales increased by 1.9 percent. On an organic basis, selling price increases offset volume declines. Acquisitions added 2 percentage points to sales growth, largely due to recent oral care acquisitions. These included IMTEC Corp., a manufacturer of dental implants and cone beam computed tomography, and TOP-Service, a German orthodontic technology and services company offering a digital lingual solution. Currency impacts reduced Health Care sales by 9.6%, thus total sales declined 8 percent to just under $1 billion.

Local currency sales growth was led by 3M's oral care business and the core medical business. Health information systems sales were flat year on year. 3M's drug delivery systems business, which is a leading OEM supplier of components for inhalation and transdermal drug delivery, posted local-currency sales declines. This business segment experienced solid local currency sales growth in all international regions.

Operating margins were a strong 31 percent in Health Care. In the first quarter of 2009, this business segment recorded charges of $4 million related to restructuring actions, with this charge comprised of employee-related liabilities for severance and benefits. The change in timing of stock options grants (discussed in the preceding overview section) also negatively impacted first quarter 2009 results when compared to first quarter 2008. Adjusting for these two items, operating income would have been flat year-on-year.

Consumer and Office Business:



                                 Three months ended
                                      March 31
                                2009           2008
Sales (millions)              $     795      $     855
Sales change analysis:
Organic local currency             (3.0 )%        (2.7 )%
Acquisitions                        2.9            0.2
Local currency                     (0.1 )         (2.5 )
Translation                        (7.0 )          4.9
Total sales change                 (7.1 )%         2.4 %

Operating income (millions)   $     165      $     170
Percent change                     (2.7 )%        (6.9 )%
Percent of sales                   20.7 %         19.8 %

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

Consumer and Office turned in a strong performance in the first quarter, despite much lower spending by both retail consumers and commercial customers. While worldwide sales contracted by 7 percent, this was all currency-related. Sales in local currency were flat year-on-year, which included approximately 3 percentage points from acquisitions. In the fourth quarter of 2008, 3M acquired Futuro, a leading supplier of compression supports and hosiery, which complements 3M's existing consumer retail health care business. In addition, the retail portion of Aearo, a company 3M acquired in April of 2008, was assigned to the Consumer and Office business in January of 2009.

In the United States, sales grew 4.5 percent despite significant declines in . . .