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 the following sections:

†          Overview

†          Results of Operations

†          Performance by Business Segment

†          Critical Accounting Estimates - Update

†          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 drove stronger results in the second quarter of 2009 when compared to the first quarter of 2009. Operating discipline was key to the quarter, as discretionary spending was well-controlled and restructuring actions proceeded according to plan. While sales were helped by improved demand for consumer electronics and respiratory products used to prevent the spread of the H1N1 virus, 3M's sound operational strategy and early actions to address the recession were at the core of the strong second-quarter 2009 performance.

3M announced a number of restructuring actions across various businesses and geographies in the second quarter of 2009. The Company permanently reduced approximately 900 positions spanning many businesses and geographies, although several of the reductions were concentrated in the United States, Western Europe and Japan. In the United States, another 700 people accepted a voluntary early retirement option. 3M expects that a small portion of those employees that accepted the voluntary separation will be replaced in some form; thus, on a net basis, 3M estimates that total employment levels will drop by approximately 1,400 to 1,500 due to restructuring actions taken in the second quarter of 2009. There may be additional restructuring actions in the third quarter of 2009, but 3M anticipates something much smaller than those in the first or second quarter of 2009. The second quarter of 2009 included restructuring actions that reduced net income attributable to 3M by $69 million, or $0.09 per diluted share, which were partially offset by a gain on sale of real estate that reduced net income attributable to 3M by $9 million, or $0.01 per diluted share. The second quarter of 2008 included a loss on sale of businesses and exit activities, which combined reduced net income attributable to 3M by $46 million, or $0.06 per diluted share. Refer to "2009 special items" and "2008 special items" at the end of this overview section for more detail.

Second-quarter sales totaled $5.7 billion, a decrease of 15.1 percent from the second quarter of 2008, but up 12.4 percent sequentially from the first quarter of 2009. Including the preceding special items, net income attributable to 3M was $783 million, or $1.12 per diluted share, versus $945 million, or $1.33 per diluted share in the corresponding period last year.

For the first six months of 2009, the stronger second quarter followed a challenging first quarter as the global economic slowdown dramatically affected 3M's 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 in the first six months of 2009. The first six months of 2009 included restructuring actions that reduced net income attributable to 3M by $114 million, or $0.16 per diluted share, which were partially offset by a gain on sale of real estate that reduced net income attributable to 3M by $9 million, or $0.01 per diluted share. The first six months of 2008 included a loss on sale of businesses and exit activities, which combined reduced net income attributable to 3M by $46 million, or $0.07 per diluted share. Refer to "2009 special items" and "2008 special items" at the end of this overview section for more detail.

Sales in the first six months of 2009 totaled $10.8 billion, a decrease of 18.1 percent from the first six months of 2008. Including the preceding special items, net income attributable to 3M was $1.301 billion, or $1.86 per diluted share, versus $1.933 billion, or $2.70 per diluted share in the corresponding period last year. In addition to the second quarter

2009 restructuring actions described above, 3M announced the elimination of approximately 1,200 positions in the first quarter of 2009. These first and second quarter 2009 restructuring actions are expected to save 3M approximately $100 million in the second half of 2009, with estimated additional incremental savings of approximately $120 million in 2010.

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

                                     Three months ended June 30
                                     2009                  2008               % change
                                Net       Oper.       Net       Oper.      Net      Oper.
(Millions)                     Sales     Income      Sales     Income     Sales     Income

Industrial and
Transportation                $ 1,726    $   285    $ 2,178    $   427     (20.7 )%  (33.3 )%
Health Care                     1,065        329      1,120        310      (4.9 )%    6.1 %
Consumer and Office               866        197        939        187      (7.8 )%    5.6 %
Safety, Security and
Protection Services               794        183        979        186     (19.0 )%   (1.1 )%
Display and Graphics              808        183        849        185      (4.8 )%   (0.6 )%
Electro and Communications        551         67        760        153     (27.5 )%  (56.3 )%
Corporate and Unallocated           4        (32 )        9         22       N/A       N/A
Elimination of Dual Credit        (95 )      (21 )      (95 )      (21 )     N/A       N/A
Total Company                 $ 5,719    $ 1,191    $ 6,739    $ 1,449     (15.1 )%  (17.8 )%

Second-quarter worldwide sales totaled $5.7 billion, a decrease of 15.1 percent versus last year. Local-currency sales (which includes volume, selling price and acquisition impacts, but excludes divestiture and translation impacts) decreased 9.4 percent, and foreign exchange impacts reduced sales by an additional 5.5 percentage points in the quarter. Local-currency sales increased 2.2 percent in Health Care, but declined in the remaining segments with Display and Graphics down 1.4 percent, Consumer and Office down 2.9 percent, Safety, Security and Protection Services down 10.6 percent, Industrial and Transportation down 15.3 percent and Electro and Communications down 23.8 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 second quarter of 2009, operating income decreased 17.8 percent year-on-year, which included a 4.4 percentage point penalty from the impact of special items discussed at the end of the overview section. Operating income margins for the three months ended June 30, 2009 were 20.8 percent, including a 1.8 percentage point penalty related to special items. 3M generated $2.161 billion of operating cash flows for the six months ended June 30, 2009, a decrease of $79 million compared to the six months ended June 30, 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 June 30, 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 June 30, 2009 was 35 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. 3M has an AA- credit rating with a stable outlook from Standard & Poor's and an Aa2 credit rating with a stable outlook from Moody's Investors Service. In addition to cash on hand, 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 reflected 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 stock-based compensation was $0.05 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.

2009 special items:

During the first and second quarters of 2009, management approved and committed to undertake certain restructuring actions, which resulted in a pre-tax charge of $116 million ($69 million reduction in net income attributable to 3M, or $0.09 per diluted share) for the three-months ended June 30, 2009, and $183 million pre-tax ($114 million reduction in net income attributable to 3M, or $0.16 per diluted share) for the six-months ended June 30, 2009. This charge related to employee-related liabilities for severance/benefits and other of approximately $103 million pre-tax and fixed asset impairments of approximately $13 million pre-tax for the three-months ended June 30, 2009. Employee-related liabilities for severance/benefits and other of approximately $164 million pre-tax and fixed asset impairments of approximately $19 million pre-tax were recorded for the six-months ended June 30, 2009. All business segments were impacted by these actions. These charges were recorded in cost of sales; selling, general and administrative expenses; and research, development and related expenses, with these expenses totaling $68 million pre-tax, $44 million pre-tax and $4 million pre-tax, respectively, for the three-months ended June 30, 2009, and totaling $85 million pre-tax, $91 million pre-tax and $7 million pre-tax, respectively, for the six-months ended June 30, 2009. These items are discussed in more detail in Note 4 (Restructuring Actions and Exit Activities).

In June 2009, 3M completed the sale of a New Jersey roofing granule facility and recorded a pre-tax gain of $15 million ($9 million benefit to net income attributable to 3M, or $0.01 per diluted share). This gain was recorded in cost of sales within the Safety, Security and Protection Services business segment.

2008 special items:

In the second quarter of 2008, 3M completed the sale of HighJump Software, a 3M company, to Battery Ventures, a technology venture capital and private equity firm. 3M received proceeds of $85 million for this transaction and recognized, net of assets sold, transaction and other costs, a pre-tax loss of $23 million ($32 million reduction in net income attributable to 3M, or $0.04 per diluted share for the second quarter of 2008 and $0.05 per diluted share for the first six months of 2008). This pre-tax loss was on a separate line of the Consolidated Statement of Income within the Safety, Security and Protection Services segment. 3M's tax basis in HighJump Software was significantly lower than its book value, primarily related to the treatment of acquired goodwill. This resulted in a gain for tax purposes, which increased the provision for income taxes by $9 million.

In the second quarter of 2008, the Company also recorded pre-tax charges of $19 million ($14 million reduction in net income attributable to 3M, or $0.02 per diluted share) related to exit activities. These charges related to employee reductions at an Industrial and Transportation manufacturing facility located in the United Kingdom. These charges were recorded in cost of sales.

RESULTS OF OPERATIONS

Percent change information compares the second quarter or first six months of 2009 with the same period last year, unless otherwise indicated.

Net Sales:



                                                       Three months ended
                                                         June 30, 2009
                                                                               Latin
                                                                             America/
                           United States       Europe      Asia-Pacific       Canada        Worldwide
Net sales (millions)      $         2,169    $    1,471    $       1,472    $       607    $     5,719
% of worldwide sales                 38.0 %        25.7 %           25.7 %         10.6 %        100.0 %
Components of net
sales change:
Volume - organic                    (14.8 )%      (18.1 )%          (5.8 )%       (14.2 )%       (13.5 )%
Price                                 2.7           1.9             (2.5 )%         9.4            1.9
Organic local-currency
sales                               (12.1 )       (16.2 )           (8.3 )         (4.8 )        (11.6 )
Acquisitions                          2.0           4.1              0.5            1.1            2.2
Local-currency sales                (10.1 )       (12.1 )           (7.8 )         (3.7 )         (9.4 )
Divestitures                         (0.4 )        (0.1 )              -              -           (0.2 )
Translation                             -         (12.1 )           (2.1 )        (13.9 )         (5.5 )
Total sales change                  (10.5 )%      (24.3 )%          (9.9 )%       (17.6 )%       (15.1 )%

While many end-markets remained challenging in the second quarter of 2009, 3M did see a few emerging bright spots. As expected, higher-turn industries such as consumer electronics started to pick up during the second quarter of 2009. This improvement, combined with a surge in respirator sales due to the emergence of the H1N1 virus, helped to drive sequential sales growth versus the first quarter of 2009.

On a worldwide basis, sales declined 15.1 percent. Organic sales volumes declined 13.5 percent year on year, a sizeable improvement versus the 19.5 percent decline in the first quarter of 2009. Second-quarter volumes were in line with recent estimates of worldwide industrial production. 3M believes that many industries are either at or near bottom, that inventory reductions in many end-markets should continue to wane in the second half of the year, and that 3M's growth should be equal or better than industrial production. Global selling prices rose 1.9 percent in the second quarter and acquisitions added an additional 2.2 percentage points to growth. Currency impacts reduced second-quarter sales by 5.5 percent.

Geographically, organic volumes declined 5.8 percent in Asia Pacific, which was much improved from the first quarter year-on-year volume decline of 24.1 percent. Volumes in Asia Pacific were positive in Display and Graphics, driven heavily by consumer electronics, and more specifically, optical films, and in Health Care, where the underlying market dynamics are more favorable. European organic volumes declined 18.1 percent, and the United States was down 14.8 percent. Health Care was the strongest performer in both regions, with organic volumes down slightly. Similar to first quarter, volume declines were most severe in Industrial and Transportation and Electro and Communications, impacted by severe declines in big markets like automotive, telecom, appliances and commercial construction, among others. Organic volumes in the combined Latin America/Canada region declined approximately 14 percent, comparable to the first quarter decline.

Selling prices rose 2.7 percent in the United States, 1.9 percent in Europe and 9.4 percent in the combined Latin America and Canada region. Much of the increase in Latin America was due to currency, as 3M routinely raises selling prices there in order to offset to the impact of weaker local currencies. Selling prices declined by 2.5 percent in Asia Pacific, which was all electronics-related.

                                                        Six months ended
                                                         June 30, 2009
                                                                               Latin
                                                                             America/
                           United States       Europe      Asia-Pacific       Canada        Worldwide
Net sales (millions)      $         4,124    $    2,817    $       2,727    $     1,140    $    10,808
% of worldwide sales                 38.2 %        26.1 %           25.2 %         10.5 %        100.0 %
Components of net
sales change:
Volume - organic                    (17.0 )%      (17.4 )%         (15.3 )%       (14.3 )%       (16.4 )%
Price                                 3.0           1.9             (2.0 )%         9.1            2.1
Organic local-currency
sales                               (14.0 )       (15.5 )          (17.3 )         (5.2 )        (14.3 )
Acquisitions                          3.2           4.3              0.7            2.0            2.7
Local-currency sales                (10.8 )       (11.2 )          (16.6 )         (3.2 )        (11.6 )
Divestitures                         (0.5 )        (0.1 )              -           (0.1 )         (0.2 )
Translation                             -         (13.7 )           (2.9 )        (15.6 )         (6.3 )
Total sales change                  (11.3 )%      (25.0 )%         (19.5 )%       (18.9 )%       (18.1 )%

For the first six months of 2009, worldwide sales declined 18.1 percent. While organic volumes declined 13.5 percent in the second quarter, it was an improvement from the first quarter decline of 19.5 percent, resulting in year-to-date organic volume sales declines of 16.4 percent. Year-to-date worldwide local-currency sales was led by positive growth in Health Care, while Consumer and Office local-currency sales were only down 1.5 percent, a strong performance in this challenging time. In the United States, local-currency sales declined 10.8 percent. U.S. organic sales volumes declined 17.0 percent due to slow economic conditions, while acquisitions added 3.2 percent and selling price increases added 3.0 percent. International local-currency sales declined 3.2 percent in Latin America and Canada, 11.2 percent in Europe, and 16.6 percent in Asia Pacific.

Operating Expenses:



                              Three months ended             Six months ended
                                   June 30                       June 30
(Percent of net sales)     2009      2008     Change     2009      2008     Change
Cost of sales               52.1 %    52.1 %       - %    53.2 %    51.9 %     1.3 %
Selling, general and
administrative
expenses                    21.7      20.7       1.0      22.5      20.2       2.3
Research, development
and related expenses         5.4       5.4         -       5.9       5.4       0.5
(Gain)/loss on sale of
business                       -       0.3      (0.3 )       -       0.2      (0.2 )
Operating income            20.8 %    21.5 %    (0.7 )%   18.4 %    22.3 %    (3.9 )%

Cost of sales as a percent of net sales was 52.1 percent for both the second quarter of 2009 and 2008. The Company was able to mitigate significant organic volume declines through reductions in 3M's manufacturing cost structure. Selling prices rose 1.9 percent, which added approximately one percentage point to gross margin year-on-year. In addition, raw material costs turned modestly positive, declining by approximately 2 to 3 percent year-on-year.

For the first six months of 2009, cost of sales as a percent of net sales increased 1.3 percentage points, with 0.5 percentage points related to higher year-on-year special items. As discussed in Note 4 (Restructuring Actions and Exit Activities), in the first six months of 2009, 3M recorded $183 million in restructuring charges, of which $85 million was recorded in cost of sales. This was partially offset by a $15 million gain on sale of a New Jersey roofing granule facility, which was also recorded in cost of sales. In the first six months of 2008, $19 million in restructuring charges were recorded in cost of sales. In addition, 3M decided to swap Venezuelan bolivars into U.S. dollars in 2009 as economic conditions in Venezuela continued to deteriorate, with escalating inflation pressuring the currency, which also negatively impacted cost of sales. 3M expects to initiate similar swaps over the next two 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 1.0 percentage point in the second quarter and increased 2.3 percentage points in the first six months compared to the same periods in 2008. SG&A in dollars decreased 10.9 percent in the second quarter and decreased 8.9 percent in the first six months. In the sales and marketing area, advertising and merchandising costs were down year-on-year, but 3M expects these costs to increase in the second half of the year in support of customers' programs for back to school and the holiday seasons. As indicated in Note 4, $44 million in restructuring expenses were recorded in SG&A in the second quarter of 2009, representing 0.7 percentage points of the 1.0 percentage point increase in SG&A in the second quarter. Excluding these restructuring expenses, SG&A in dollars would have decreased 14 percent when comparing the second quarter of 2009 to the same period in 2008, driven by reductions in general and administrative expenses. In the first six months of 2009, $91 million in restructuring expenses was recorded in SG&A.

Research, development and related expenses (R&D) as a percent of net sales was 5.4 percent for both the second quarter of 2009 and 2008. R&D increased 0.5 percentage points for the first six months compared to the same periods in 2008, but in dollars decreased 11.4 percent. 3M will continue to support its key larger programs, but overall spending will be impacted by company-wide cost initiatives such as indirect spending. As indicated in Note 4, $4 million in restructuring expenses was recorded in R&D in the second quarter of 2009 and $7 million was recorded in the first six months of 2009.

Operating Income:

3M uses operating income as one of its primary business segment performance measurement tools. Operating income margins were 18.4 percent of sales in the first six months of 2009 compared to 22.3 percent of sales in the first six months of 2008. Restructuring charges, partially offset by the gain on sale of real estate, negatively impacted operating income by $168 million in the first six months of 2009, compared to a penalty of $42 million in the first six months of 2008 related to a loss on sale of businesses and exit activities. These special items reduced first six months 2009 operating income margins by 1.6 percentage points and first six months 2008 operating income margins by 0.4 percentage points.

Interest Expense and Income:



                      Three months ended          Six months ended
                            June 30                   June 30
(Millions)            2009           2008        2009         2008
Interest expense   $       55     $       51   $     110    $     106
Interest income            (7 )          (18 )       (18 )        (48 )
Total              $       48     $       33   $      92    $      58

Interest expense was relatively flat for both the second quarter and first six months of 2009 when compared to the same periods last year, with benefits from lower short-term and long-term interest rates offset by higher average U.S. long-term debt balances. Interest income declined, driven primarily by lower yields on investments.

Provision for Income Taxes:

The tax rate for the second quarter and first six months of 2009 decreased when compared to the same periods in 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. In addition, the combination of the divestiture of HighJump Software and charges for exit activities negatively impacted the second quarter 2008 tax rate. 3M's tax basis in HighJump Software was significantly lower than its book value, primarily related to the treatment of acquired goodwill. Refer to Note 6 for further discussion of income taxes.

Noncontrolling Interest: