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 results improved in the third quarter of 2009 when compared to both the second quarter and first quarter of 2009, 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 early actions to address the recession were at the core of the improving performance throughout 2009.

3M has been aggressively restructuring the company since early 2008 and continued this effort in the third quarter of 2009. 3M announced the reduction of approximately 200 positions in the third quarter, with the majority of those occurring in Western Europe and, to a lesser extent, the United States. The related net restructuring charges reduced net income attributable to 3M in the third quarter of 2009 by $14 million, or $0.02 per diluted share. The third quarter of 2008 includes charges related to exit activities, partially offset by a gain on sale of real estate, which combined reduced net income attributable to 3M by $8 million, or $0.01 per diluted share. Refer to the special items discussion at the end of this overview section for more detail.

Third-quarter sales totaled $6.2 billion, a decrease of 5.6 percent from the third quarter of 2008, but up 8.3 percent when compared to the second quarter of 2009. Including the preceding special items, net income attributable to 3M was $957 million, or $1.35 per diluted share, versus $991 million, or $1.41 per diluted share in the corresponding period last year.

For the first nine months of 2009, the global economic slowdown dramatically affected 3M's businesses. Substantial end-market declines and inventory takedowns in major industries, including automotive, consumer electronics and general industrial manufacturing, resulted in significantly lower sales and income. Accordingly, 3M reduced its cost structure, lowered manufacturing output and intensified its attention to operational improvement. The combination of these actions drove operating income margins of 20.4 percent in the first nine months of 2009. The first nine months of 2009 included restructuring actions, partially offset by a gain on sale of real estate, which combined reduced net income attributable to 3M by $119 million, or $0.17 per diluted share. The first nine months of 2008 includes charges related to exit activities and the sale of a business, partially offset by a gain on sale of real estate, which combined reduced net income attributable to 3M by $54 million, or $0.08 per diluted share. Refer to the special items discussion at the end of this overview section for more detail.

Sales in the first nine months of 2009 totaled $17.0 billion, a decrease of 14 percent from the first nine months of 2008. Including the preceding special items, net income attributable to 3M was $2.258 billion or $3.21 per diluted share, versus $2.924 billion, or $4.11 per diluted share in the corresponding period last year. In addition to the third quarter 2009 restructuring actions described above, in the second quarter of 2009, 3M permanently reduced approximately 900 positions spanning many businesses and geographies, and in the United States another 700 people accepted a voluntary retirement option. 3M expects that a small portion of those who accepted the voluntary separation will be replaced; thus, on a net basis, 3M estimates an employment level decline of approximately 1,400 to 1,500 due to these second quarter restructuring actions. In the first quarter of 2009, 3M announced the elimination of approximately 1,200 positions. In addition, 3M announced reductions of 2,400 positions in the fourth quarter of 2008. These 2009 restructuring actions, plus incremental carryover benefits from the fourth quarter 2008 restructuring, are expected to save 3M approximately $100 million in the fourth quarter of 2009, with estimated additional incremental savings of approximately $150 million to $175 million in 2010.

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

                                Three months ended September 30,
                                 2009                      2008                  % change
                           Net       Operating      Net       Operating      Net       Operating
(Millions)                Sales        Income      Sales       Income       Sales       Income

Industrial and
Transportation          $   1,901    $      382   $  2,078   $       415       (8.6 )%      (8.0 )%
Health Care                 1,083           339      1,066           294        1.6 %       15.3 %
Consumer and Office           923           227        988           223       (6.6 )%       1.3 %
Safety, Security and
Protection Services           864           236        921           212       (6.1 )%      11.3 %
Display and Graphics          896           206        857           162        4.5 %       27.1 %
Electro and
Communications                617           116        740           158      (16.5 )%     (26.7 )%
Corporate and
Unallocated                     4            (7 )        6            70        N/A          N/A
Elimination of Dual
Credit                        (95 )         (21 )      (98 )         (21 )      N/A          N/A
Total Company           $   6,193    $    1,478   $  6,558   $     1,513       (5.6 )%      (2.3 )%

Third-quarter worldwide sales totaled $6.2 billion, a decrease of 5.6 percent versus last year. Local-currency sales (which includes volume, selling price and acquisition impacts, but excludes divestiture and translation impacts) decreased 3.3 percent, and foreign exchange impacts reduced sales by an additional 2.3 percentage points in the quarter. Local-currency sales increased 5.5 percent in Display and Graphics and 4.7 percent in Health Care, but declined in the remaining segments, with Safety, Security and Protection Services down 2.0 percent, Consumer and Office down 4.8 percent, Industrial and Transportation down 6.4 percent, and Electro and Communications down 15.3 percent. Refer to the Performance by Business Segment section for a more detailed discussion of the results of the respective segments.

Despite challenging economic conditions and a year-on-year sales decline of 5.6 percent in the third quarter of 2009, operating income only decreased 2.3 percent year-on-year. Operating income margins for the three months ended September 30, 2009 were 23.9 percent. 3M generated $3.9 billion of operating cash flows for the nine months ended September 30, 2009, compared to $3.4 billion for the nine months ended September 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 September 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 September 30, 2009 was 32 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.

Special Items:

Special items represent significant charges or credits that are important to understanding changes in the Company's underlying operations.

Third quarter 2009 includes net pre-tax restructuring charges of $26 million ($14 million reduction in net income attributable to 3M, or $0.02 per diluted share), with these charges related to employee-related liabilities for severance/benefits and other. These charges were recorded in cost of sales and research, development and related expenses, with these expenses totaling $25 million pre-tax and $1 million pre-tax, respectively, for the three-months ended September 30, 2009.

First nine months 2009 includes net pre-tax restructuring charges of $209 million ($128 million reduction in net income attributable to 3M, or $0.18 per diluted share). These charges related to employee-related liabilities for severance/benefits and other of approximately $190 million pre-tax and fixed asset impairments of approximately $19 million pre-tax. 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 $110 million pre-tax, $91 million pre-tax and $8 million pre-tax, respectively. These items are discussed in more detail in Note 4 (Restructuring Actions and Exit Activities). First nine months 2009 also includes the sale of a New Jersey roofing granule facility in June 2009, which resulted in 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. Combined, these items reduced first nine months 2009 operating income by $194 million and net income attributable to 3M by $119 million, or $0.17 per diluted share.

Third quarter 2008 includes a gain on sale of real estate ($41 million pre-tax, $28 million after-tax) related to a sale-leaseback relative to an administrative location in Italy. In addition, during the third quarter of 2008, management approved and committed to undertake certain exit activities, which resulted in charges ($49 million pre-tax, $36 million after-tax) related to employee-related liabilities and fixed asset impairments. Combined, these items reduced both operating income and net income attributable to 3M by $8 million, or $0.01 per diluted share, in the third quarter of 2008.

First nine months 2008 also includes the sale of HighJump Software, where 3M recognized a loss ($23 million pre-tax, $32 million after-tax) in the second quarter of 2008. In the second quarter of 2008, the Company also recorded charges ($19 million pre-tax, $14 million after-tax) related to employee reductions at an Industrial and Transportation manufacturing facility located in the United Kingdom. Combined, these second-quarter and preceding third-quarter 2008 items reduced first nine months 2008 operating income by $50 million and net income attributable to 3M by $54 million, or $0.08 per diluted share.

RESULTS OF OPERATIONS

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

Net Sales:



                                                            Three months ended
                                                            September 30, 2009
                                                                                    Latin
                                                                                   America/
                               United States       Europe       Asia-Pacific        Canada        Worldwide
Net sales (millions)          $         2,263     $   1,543     $       1,707     $      680     $     6,193
% of worldwide sales                     36.5 %        24.9 %            27.6 %         11.0 %         100.0 %
Components of net sales
change:
Volume - organic                        (12.4 )%       (7.9 )%            2.6 %         (9.0 )%         (7.1 )%
Price                                     2.1           2.0              (1.7 )         10.0             2.0
Organic local-currency
sales                                   (10.3 )        (5.9 )             0.9            1.0            (5.1 )
Acquisitions                              2.0           3.5               0.3            0.8             1.8
Local-currency sales                     (8.3 )        (2.4 )             1.2            1.8            (3.3 )
Divestitures                                -          (0.1 )               -              -               -
Translation                                 -          (6.8 )             1.8           (8.7 )          (2.3 )
Total sales change                       (8.3 )%       (9.3 )%            3.0 %         (6.9 )%         (5.6 )%

While many end-markets remained challenging in the third quarter of 2009, 3M did see improvements in several areas. As expected, higher-turn industries such as consumer electronics started to pick up during the second and third quarters of 2009, with particularly good results in 3M's optical films business. In addition, demand remained strong for respiratory protection products due to the emergence of the H1N1 virus, helping drive sales growth, as 3M's respiratory factories have been running at capacity since May of this year to keep up with demand. 3M also posted sales improvement in each of its six business segments in the third quarter when compared to the second quarter.

On a worldwide basis, sales declined 5.6 percent, a substantial improvement from the 15.1 percent decline that 3M posted in the second quarter and the 21.3 percent decline in the first quarter. Sales also grew in all major geographic areas in the third quarter when compared to the second quarter. Organic sales volumes were down 7.1 percent year-on-year. Selling prices remained positive, rising 2.0 percent, and acquisitions added an additional 1.8 percentage points to growth. Sales in local currencies declined 3.3 percent. Finally, currency impacts reduced third-quarter sales by 2.3 percent.

Geographically, organic volumes in Asia Pacific grew 2.6 percent, the first such increase in that region since the first quarter of 2008. Organic volumes within Asia Pacific were positive in both Display and Graphics and in Health Care. Organic volumes in Europe declined 7.9 percent, as positive growth in Safety, Security and Protection Services related to the H1N1 virus and Health Care increases were more than offset by declines in the other segments. U.S. organic volumes declined 12.4 percent and the combined Latin America/Canada region declined 9 percent versus last year's third quarter.

Selling prices increased year-on-year in all regions, with the exception of Asia Pacific where prices typically decline due to the heavy mix of consumer electronics. Prices rose 10 percent in the combined Latin America and Canada region, largely due to currency, as 3M routinely raises prices in Latin America when the value of those currencies fall versus the U.S. dollar.

                                                            Nine months ended
                                                            September 30, 2009
                                                                                    Latin
                                                                                   America/
                               United States       Europe       Asia-Pacific        Canada        Worldwide
Net sales (millions)          $         6,387     $   4,360     $       4,434     $    1,820     $    17,001
% of worldwide sales                     37.6 %        25.6 %            26.1 %         10.7 %         100.0 %
Components of net sales
change:
Volume - organic                        (15.5 )%      (14.4 )%           (9.5 )%       (12.6 )%        (13.2 )%
Price                                     2.7           1.9              (1.9 )          9.4             2.0
Organic local-currency
sales                                   (12.8 )       (12.5 )           (11.4 )         (3.2 )         (11.2 )
Acquisitions                              2.8           4.0               0.6            1.6             2.4
Local-currency sales                    (10.0 )        (8.5 )           (10.8 )         (1.6 )          (8.8 )
Divestitures                             (0.3 )        (0.1 )               -              -            (0.2 )
Translation                                 -         (11.5 )            (1.3 )        (13.2 )          (5.0 )
Total sales change                      (10.3 )%      (20.1 )%          (12.1 )%       (14.8 )%        (14.0 )%

For the first nine months of 2009, worldwide sales declined 14.0 percent. While organic volumes declined 7.1 percent in the third quarter, it was an improvement from the second quarter decline of 13.5 percent and the first quarter decline of 19.5 percent, resulting in year-to-date organic volume sales declines of 13.2 percent. Year-to-date worldwide local-currency sales increased 2.9 percent in Health Care, but declined in the remaining segments, with Consumer and Office down 2.7 percent, Safety, Security and Protection Services down 5.5 percent, Display and Graphics down 7.6 percent, Industrial and Transportation down 14.3 percent, and Electro and Communications down 23.0 percent. In the United States, local-currency sales declined 10.0 percent. U.S. organic sales volumes declined 15.5 percent, while acquisitions added 2.8 percent and selling price increases added 2.7 percent. International local-currency sales declined 1.6 percent in Latin America and Canada, 8.5 percent in Europe, and 10.8 percent in Asia Pacific.

Operating Expenses:



                                Three months ended                 Nine months ended
                                   September 30                       September 30
(Percent of net sales)      2009        2008      Change       2009       2008      Change
Cost of sales                 51.2 %      52.3 %     (1.1 )%     52.5 %     52.0 %      0.5 %
Selling, general and
administrative expenses       19.5        19.3        0.2        21.4       19.9        1.5
Research, development
and related expenses           5.4         5.3        0.1         5.7        5.4        0.3
(Gain)/loss on sale of
business                         -           -          -           -        0.1       (0.1 )
Operating income              23.9 %      23.1 %      0.8 %      20.4 %     22.6 %     (2.2 )%

Cost of sales as a percent of net sales was 51.2 percent in the third quarter, a decrease of 1.1 percentage points from the same quarter last year. The Company was able to mitigate organic volume declines through reductions in 3M's manufacturing cost structure. Selling prices rose 2 percent, which added approximately one percentage point to gross margin year-on-year. In addition, raw material costs declined by approximately 3 percent year-on-year.

Cost of sales as a percent of net sales increased 0.5 percentage points for the nine months ended September 30, 2009 compared to the same period in 2008, with this increase related to higher year-on-year special items. As discussed in Note
4 (Restructuring Actions and Exit Activities), in the first nine months of 2009, 3M recorded $209 million in restructuring charges, of which $110 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 nine months of 2008, $44 million in exit activities were recorded in cost of sales. In order to manage its cash flow risk, 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 increased cost of sales.

Selling, general and administrative (SG&A) expenses as a percent of net sales increased 0.2 percentage points in the third quarter and increased 1.5 percentage points in the first nine months compared to the same periods in 2008. SG&A in dollars decreased 4.7 percent in the third quarter and decreased 7.5 percent in the first nine months of 2009. In the sales and marketing area, advertising and merchandising costs were down year-on-year, but were up sequentially in the third quarter in support of

customers' programs for back to school and the holiday seasons. As indicated in Note 4, in the first nine months of 2009, $91 million in restructuring expenses was recorded in SG&A, which increased SG&A as a percent of sales by 0.5 percentage points. In the first nine months of 2008, a gain on sale of real estate, net of exit activities, benefited SG&A by $21 million, which decreased SG&A as a percent of sales by 0.1 percentage points.

Research, development and related expenses (R&D) as a percent of net sales was 5.4 percent, an increase of 0.1 percentage points from the same quarter last year. R&D increased 0.3 percentage points for the first nine months compared to the same period in 2008, but in dollars decreased 8.6 percent. 3M has continued to support its key larger programs, but overall spending has been impacted by company-wide cost-cutting initiatives such as reductions in indirect spending.

Operating Income:

3M uses operating income as one of its primary business segment performance measurement tools. Operating income margins were 20.4 percent of sales in the first nine months of 2009 compared to 22.6 percent of sales in the first nine months of 2008. Restructuring charges, partially offset by a gain on sale of real estate, negatively impacted operating income by $194 million in the first nine months of 2009, compared to a penalty of $50 million in the first nine months of 2008 related to a loss on sale of businesses and exit activities, net of a gain on sale of real estate. These special items reduced first nine months 2009 operating income margins by 1.2 percentage points and first nine months 2008 operating income margins by 0.2 percentage points.

Interest Expense and Income:



                      Three months ended         Nine months ended
                         September 30               September 30
(Millions)            2009           2008        2009         2008
Interest expense   $       55     $       52   $     165    $     158
Interest income            (8 )          (28 )       (26 )        (76 )
Total              $       47     $       24   $     139    $      82

Interest expense was relatively flat for both the third quarter and first nine 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, primarily due to lower yields on investments.

Provision for Income Taxes:

The effective tax rate for the third quarter remained relatively flat year over year. The first nine months of 2009 effective tax rate 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. Refer to Note 6 for further discussion of income taxes.

Net Income Attributable to 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 third quarter and the first nine months of 2009 compared to the same periods last year primarily related to Sumitomo 3M Limited, which is 3M's most significant consolidated entity with non-3M ownership interests. The decline in net income attributable to noncontrolling interest primarily related to lower net income for Sumitomo 3M Limited. As discussed in Note 5, in the third quarter of 2009, 3M's effective ownership in Sumitomo 3M Limited was reduced from 75 percent to 71.5 percent.

Currency Effects:

3M estimates that year-on-year currency effects, including hedging impacts, decreased net income attributable to 3M by approximately $105 million and $205 million for the for the three and nine months ended September 30, 2009. 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. 3M estimates that year-on-year derivative and other transaction gains and losses decreased net income attributable to 3M by approximately $30 million for the three months ended September 30, 2009 and increased net income attributable to 3M by approximately $35 million for the nine months ended September 30, 2009.

Significant Accounting Policies:

As previously disclosed by the Company in Note 1 to the consolidated financial statements in 3M's Current Report on Form 8-K dated May 13, 2009 (which updated 3M's 2008 Annual Report on Form 10-K), 3M generally considers local currencies as the functional currencies outside the United States. The Company has a . . .