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

†          Financial Condition and Liquidity

†          Cautionary Note Concerning Factors That May Affect Future Results

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. Any references to EMEA refer to Europe, Middle East and Africa on a combined basis.

Second-quarter 2012 sales totaled $7.5 billion, a decrease of 1.9 percent from the second quarter of 2011. The combination of challenging economic conditions and the strong U.S. dollar hurt sales in the quarter. Organic local-currency sales (which include organic volume impacts plus selling price impacts) grew 1.9 percent, driven by higher year-on-year selling prices, as volumes were basically flat versus last year's second quarter. Acquisitions added 0.5 percent to sales, largely related to the October 2011 acquisition of the do-it-yourself and professional business of GPI Group. Currency impacts reduced sales by 4.3 percent year-on-year, as the U.S. dollar strengthened considerably against the Euro, Brazil real, and other currencies. On a business segment basis, organic local-currency sales increased 5.4 percent in Health Care, 4.2 percent in Industrial and Transportation, 3.1 percent in Consumer and Office, and 3.1 percent in Safety, Security and Protection Services. Organic local-currency sales declined 1.8 percent in Electro and Communications and 6.6 percent in Display and Graphics, both impacted by weakness in the consumer electronics industry.

On a geographic basis, second-quarter 2012 sales increased 4.0 percent in the United States and 0.5 percent in Latin America/Canada, while sales declined 2.1 in Asia Pacific and 10.9 percent in the combined Europe, Middle East and Africa region (EMEA). Foreign currency translation impacts reduced sales in Latin America/Canada by 10.9 percent, EMEA by 10.6 percent, and Asia Pacific by 1.5 percent. Organic local-currency sales growth was led by Latin America/Canada at 11.4 percent, with all business segments contributing, led by Safety, Security and Protection Services, Electro and Communications, and Health Care. Organic local-currency sales in the United States increased 3.6 percent. Organic local-currency sales declined 0.6 percent in the Asia Pacific area, as strong sales performances in both Health Care and Industrial and Transportation were offset by slower year-on-year demand in the consumer electronics industry. 3M expects that its year-on-year growth rates in consumer electronics will begin to improve in the third quarter and continue into the fourth quarter, as sales to this market slowed in the second half of 2011. However, other factors, such as the timing of customer new-product launches, could impact this. Organic local-currency sales in Japan declined 2 percent and were up slightly year-on-year in China. 3M expects to see improving growth rates in China in the second half of 2012. Organic local-currency sales in EMEA declined 1.9 percent, driven by year-on-year declines in Western Europe, as these countries work through their economic and fiscal issues.

Operating income increased 4.4 percent in the second quarter and operating margins were 22.9 percent, an increase of 1.3 percentage points year-on-year. These results benefited from selling price increases (net of minimal raw material price changes), factory efficiency, and cost discipline throughout the organization. In the second quarter of 2012, 3M incurred expenses related to consolidating certain manufacturing and supply chain support activities within Western Europe, along with relocating a portion of its manufacturing operations from Western to Eastern Europe, which on a combined basis decreased earnings by approximately 3 cents per diluted share. In the second quarter of 2012, 3M recognized insurance recoveries related to the 2011 earthquake and tsunami in Japan, which increased earnings by approximately 2 cents per diluted share.

Net income attributable to 3M was $1.167 billion, or $1.66 per diluted share in the second quarter of 2012, compared to $1.160 billion, or $1.60 per diluted share, in the second quarter of 2011. Average diluted shares outstanding declined 3.3 percent year-on-year to 702.6 million, which increased earnings by approximately 5 cents per diluted share. The income tax rate was 30.1 percent in the second quarter, up 3 percentage points versus last year's second quarter, which

decreased earnings by approximately 7 cents per diluted share. This was largely due to the corporate reorganization of a wholly owned subsidiary that resulted in a one-time benefit to international taxes in the second quarter of 2011.

Sales in the first six months of 2012 totaled $15.0 billion, an increase of 0.2 percent, with organic local-currency sales growth led by Industrial and Transportation, Safety, Security and Protection Services, Health Care, and Consumer and Office. Organic local-currency sales declined in Electro and Communications and Display and Graphics, both impacted by weakness in the consumer electronics industry. Geographically, organic local-currency sales growth was led by Latin America/Canada and the United States, while sales declined in Asia Pacific and EMEA.

Net income attributable to 3M was $2.292 billion, or $3.25 per diluted share in the first six months of 2012, compared to $2.241 billion, or $3.09 per diluted share, in the first six months of 2011. In addition to the second-quarter 2012 restructuring actions discussed above, 3M incurred early retirement/restructuring costs of approximately 4 cents per diluted share in the first quarter of 2012. Of this amount, approximately 3 cents per diluted share related to special termination benefits for a voluntary early retirement incentive program in the United States (discussed in Note 8). The remainder related to selective restructuring in a few developed countries. These actions, in aggregate, are expected to be neutral to full-year 2012 earnings, with the costs incurred in the first quarter of 2012, and the associated benefits realized over the remainder of 2012.

3M estimates that combined direct and indirect business disruption resulting from the first-quarter 2011 earthquake and tsunami in Japan reduced second-quarter 2011 sales growth by 2.4 percentage points, operating margins by 0.5 percentage points, and earnings by approximately 7 cents per diluted share. This business disruption reduced first-quarter 2011 sales growth by 0.7 percentage points, operating margins by 0.4 percentage points, and earnings by approximately 3 cents per diluted share. Japan represented approximately 9 percent of total 3M sales for total year 2011. Refer to 3M's 2011 Annual Report on Form 10-K (Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview section) for more information concerning this item.

The following table contains sales and operating income results by business segment for the three months ended June 30, 2012 and 2011. In addition to the discussion below, refer to the section entitled "Performance by Business Segment" later in MD&A for a more detailed discussion of the sales and income results of the Company and its respective business segments (including Corporate and Unallocated). Refer to Note 13 for additional information on business segments, including Elimination of Dual Credit.

                                    Three months ended June 30,
                                   2012                     2011                  % change
                            Net       Operating      Net       Operating      Net      Operating
(Dollars in millions)      Sales       Income       Sales       Income       Sales      Income
Business Segments
Industrial and
Transportation            $  2,627   $       614   $  2,641   $       544      (0.6 )%      13.0 %
Health Care                  1,283           414      1,269           364       1.1         13.4
Consumer and Office          1,062           222      1,038           202       2.3         10.2
Safety, Security and
Protection Services            991           258      1,011           242      (1.9 )        6.3
Display and Graphics           882           179        973           222      (9.3 )      (19.1 )
Electro and
Communications                 824           195        864           200      (4.7 )       (2.3 )
Corporate and
Unallocated                      2          (124 )        3           (93 )       -            -
Elimination of Dual
Credit                        (137 )         (30 )     (119 )         (26 )       -            -
Total Company             $  7,534   $     1,728   $  7,680   $     1,655      (1.9 )%       4.4 %

Sales in the second quarter of 2012 decreased 1.9 percent. Organic local-currency sales increased 1.9 percent, acquisitions added 0.5 percent and foreign currency translation impacts reduced sales by 4.3 percent. Sales increased 2.3 percent in Consumer and Office, increased 1.1 percent in Health Care, declined 0.6 percent in Industrial and Transportation, and declined 1.9 percent in Safety, Security and Protection Services. Sales declined 4.7 percent in Electro and Communications and 9.3 percent in Display and Graphics, both impacted by weakness in the consumer electronics industry. 3M's six business segments all achieved operating income margins in excess of 20 percent. Worldwide operating income margins for the second quarter of 2012 were 22.9 percent, compared to 21.6 percent for the second quarter of 2011.

3M generated $2.217 billion of operating cash flows in the first six months of 2012, an increase of $33 million when compared to the first six months of 2011. Refer to the section entitled "Financial Condition and Liquidity" later in MD&A for a discussion of items impacting cash flows. In the first six months of 2012, the Company purchased $1.163 billion of

treasury stock compared to $1.358 billion of treasury stock repurchases in the first six months of 2011. As of June 30, 2012, approximately $3.5 billion of 3M common stock remained available for repurchase under the February 2011 repurchase authorization of $7.0 billion, which has no pre-established end date. In February 2012, 3M's Board of Directors authorized a dividend increase of 7.3 percent for 2012, marking the 54th consecutive year of dividend increases for
3M. 3M's debt to total capital ratio (total capital defined as debt plus equity) was 27 percent at June 30, 2012 and 25 percent at December 31, 2011. As discussed in Note 7, in June 2012, 3M issued $650 million aggregate principal amount of five-year fixed rate notes due 2017 and $600 million aggregate principal amount of ten-year fixed rate notes due 2022. 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. The Company has significant cash on hand and sufficient additional access to capital markets to meet its funding needs.

On a worldwide basis, 3M's pension and postretirement plans were 82 percent funded at year-end 2011. The U.S. qualified plans, which were approximately 71 percent of the worldwide pension obligation, were 86 percent funded, the international pension plans were 87 percent funded, and the U.S. non-qualified pension plan is not funded. Asset returns in 2011 for the U.S. qualified plan were 8.7%. The year-end 2011 discount rate was 4.15%, down 1.08 percentage points from the 2010 discount rate of 5.23%. The decrease in discount rates, both U.S. and internationally, resulted in a significantly higher valuation of the projected benefit obligation, which reduced the plans' funded status. The changes in 3M's defined-benefit pension and postretirement plans' funded status significantly impacted several balance sheet lines at year-end 2011. These changes increased long-term liabilities by approximately $2.4 billion and decreased stockholders' equity by approximately $1.6 billion, with the other major impact primarily related to increased deferred taxes within other assets. Other pension and postretirement changes during the year, such as contributions and amortization, also impacted these balance sheet captions.

3M expects to contribute approximately $1 billion of cash to its global pension and postretirement plans in 2012, with $672 million contributed in the first half of 2012. On July 2, 2012, the Company contributed an additional $200 million to its U.S. qualified plan. The Company does not have a required minimum cash pension contribution obligation for its U.S. plans in 2012. 3M expects pension and postretirement benefit expense in 2012 to increase by approximately $89 million pre-tax, or approximately 9 cents per diluted share, when compared to 2011. This 9 cents per diluted share increase includes the costs associated with the first-quarter 2012 voluntary early retirement incentive program in the United States (discussed earlier).

There are a few major items that will negatively impact earnings in 2012. As discussed further above, 3M expects that pension and postretirement expense will decrease 2012 earnings, when compared to 2011, by approximately 9 cents per diluted share. 3M's assessment of the income tax rate indicates an expected 2012 effective tax rate of approximately 29.5 percent compared to 27.8 percent for 2011. In addition, currency effects are expected to have a negative impact on earnings. 3M currently expects that sales growth and related incremental income, in addition to expected productivity improvements, selling price increases in excess of raw material price inflation, and other benefits, should more than offset the items that will negatively impact earnings.

Forward-looking statements in Part I, Item 2 may involve risks and uncertainties that could cause results to differ materially from those projected (refer to the section entitled "Cautionary Note Concerning Factors That May Affect Future Results" in Part I, Item 2 and the risk factors provided in Part II, Item 1A for discussion of these risks and uncertainties).

RESULTS OF OPERATIONS

Percent change information compares the second quarter or first six months of 2012 with the same period last year, unless otherwise indicated.

Net Sales:



                                                     Three months ended June 30, 2012
                                                         Europe,         Latin
                             United        Asia        Middle East      America/        Other
                             States      Pacific        & Africa         Canada      Unallocated     Worldwide
Net sales (millions)        $   2,683   $    2,269    $       1,695    $      888   $          (1 ) $     7,534
% of worldwide sales             35.6 %       30.1 %           22.5 %        11.8 %             -         100.0 %
Components of net sales
change:
Volume - organic                  0.7 %        0.3 %           (4.6 )%        6.6 %             -            -%
Price                             2.9         (0.9 )            2.7           4.8               -           1.9
Organic local-currency
sales                             3.6         (0.6 )           (1.9 )        11.4               -           1.9
Acquisitions                      0.4            -              1.6             -               -           0.5
Translation                         -         (1.5 )          (10.6 )       (10.9 )             -          (4.3 )
Total sales change                4.0 %       (2.1 )%         (10.9 )%        0.5 %             -          (1.9 )%

Sales in the second quarter of 2012 decreased 1.9 percent. Organic local-currency sales grew 1.9 percent, led by Latin America/Canada at 11.4 percent and the United States at 3.6 percent. Organic local-currency sales declined 0.6 percent in Asia Pacific, impacted by softness in China and electronics. Organic local-currency sales declined 1.9 percent in Europe, Middle East and Africa, impacted by weakness in Western Europe. Acquisitions added 0.5 percent to worldwide growth and currency impacts reduced second quarter 2012 worldwide sales growth by 4.3 percent. Worldwide selling prices rose 1.9 percent in the second quarter, despite selling price declines in 3M's optical systems business, where prices typically decline each year, which is common for the electronics' industry.

                                                      Six months ended June 30, 2012
                                                         Europe,         Latin
                             United        Asia        Middle East      America/        Other
                             States      Pacific        & Africa         Canada      Unallocated     Worldwide
Net sales (millions)        $   5,240   $    4,566    $       3,460    $    1,758   $          (4 ) $    15,020
% of worldwide sales             34.9 %       30.4 %           23.0 %        11.7 %             -         100.0 %
Components of net sales
change:
Volume - organic                  2.0 %       (1.5 )%          (3.6 )%        7.2 %             -           0.1 %
Price                             2.7         (0.8 )            2.7           4.4               -           1.8
Organic local-currency
sales                             4.7         (2.3 )           (0.9 )        11.6               -           1.9
Acquisitions                      0.4          0.5              2.6           0.1               -           1.0
Translation                         -         (0.2 )           (7.3 )        (7.4 )             -          (2.7 )
Total sales change                5.1 %       (2.0 )%          (5.6 )%        4.3 %             -           0.2 %

Sales in the first six months of 2012 increased 0.2 percent. Organic local-currency sales grew 1.9 percent, led by Latin America/Canada at 11.6 percent and the United States at 4.7 percent. Organic local-currency sales declined 0.9 percent in Europe, Middle East and Africa, impacted by weakness in Western Europe. Organic local-currency sales declined 2.3 percent in Asia Pacific, impacted by softness in China and electronics. Acquisitions added 1.0 percent to worldwide growth and currency impacts reduced first six months 2012 worldwide sales growth by 2.7 percent. Worldwide selling prices rose 1.8 percent in the first six months, despite selling price declines in 3M's optical systems business, where prices typically decline each year, which is common for the electronics' industry.

Operating Expenses:



                                       Three months ended           Six months ended
                                            June 30,                    June 30,
(Percent of net sales)              2012     2011     Change    2012     2011     Change
Cost of sales                        51.4 %   52.6 %    (1.2 )%  51.6 %   52.3 %    (0.7 )%
Selling, general and
administrative expenses              20.3     20.6      (0.3 )   20.5     20.8      (0.3 )
Research, development and
related expenses                      5.4      5.2       0.2      5.5      5.3       0.2
Operating income                     22.9 %   21.6 %     1.3 %   22.4 %   21.6 %     0.8 %

As discussed in the overview section, 3M expects pension and postretirement expense to increase approximately $89 million for total year 2012 when compared to 2011. This includes a $26 million charge related to the first-quarter 2012 voluntary early retirement incentive program (discussed in Note 8). Including this charge, the year-on-year increase in pension and postretirement expense for the first six months was $67 million, with $22 million of this year-on-year increase in the second quarter. This increase negatively impacted cost of sales; selling, general and administrative expenses (SG&A); and research, development and related expenses (R&D).

Cost of Sales:

Cost of sales includes manufacturing, engineering and freight costs. Cost of sales as a percent of net sales was 51.4 percent in the second quarter of 2012, a decrease of 1.2 percentage points from the same quarter last year. Second-quarter selling price increases, net of minimal raw material price changes, benefited second-quarter 2012 cost of sales as a percent of sales. Foreign currency impacts also benefited cost of sales. Offsetting this benefit was higher pension and postretirement costs (of which a portion impacts cost of sales).

Cost of sales in the first six months of 2012 was 51.6 percent, a decrease of 0.7 percentage points from the same period last year. First six months 2012 selling price increases, net of raw material price changes, benefited first six months 2012 cost of sales as a percent of sales, with this benefit partially offset by higher pension and postretirement costs.

Selling, General and Administrative Expenses:

SG&A in dollars decreased $53 million, or 3.3 percent, in the second quarter of 2012 when compared to the second quarter of 2011. In addition to cost-control efforts, 3M experienced some savings from its first-quarter 2012 voluntary early retirement incentive program and restructuring actions. Higher year-on-year pension and postretirement expense negatively impacted SG&A. SG&A, measured as a percent of sales, declined 0.3 percentage points to 20.3 percent.

SG&A in dollars decreased $34 million, or 1.1 percent, in the first six months of 2012 when compared to the first six months of 2011. In addition to cost-control efforts, 3M experienced some savings from its first-quarter 2012 voluntary early retirement incentive program and restructuring actions. First six months 2012 SG&A included increases from acquired businesses which were largely not in 3M's first-quarter 2011 base spending, primarily related to SG&A spending for Winterthur Technologie AG and the do-it-yourself and professional business of GPI Group. In addition, higher year-on-year pension and postretirement expense, including the impact of the voluntary early retirement incentive program, plus expense related to restructuring actions, negatively impacted SG&A. SG&A, measured as a percent of sales, declined 0.3 percentage points to 20.5 percent.

Research, Development and Related Expenses:

R&D expense in dollars increased $4 million, or 1.1 percent, in the second quarter of 2012 when compared to the second quarter of 2011, and increased $17 million, or 2.2 percent, in the first six months of 2012 when compared to the first six months of 2011. 3M continued to support its key growth initiatives. In both the second-quarter and first six months of 2012, in addition to cost-control efforts, 3M experienced some savings from its first-quarter 2012 voluntary early retirement incentive program and restructuring actions. R&D expense was also impacted in the second-quarter and first six months of 2012 by higher pension and postretirement expense. R&D, measured as a percent of sales, increased to 5.5 percent of sales in the first six months of 2012, compared to 5.3 percent of sales in the first six months of 2011.

Operating Income:

Operating income margins were 22.9 percent in the second quarter of 2012 compared to 21.6 in the second quarter of 2011, an increase of 1.3 percentage points. This included a 1.6 percentage point benefit from selling price increases, net of minimal raw material price changes, and a 0.3 percentage point benefit from foreign currency impacts. These benefits were partially offset by increased pension and postretirement benefit costs, which decreased margins by 0.3 percentage points, and other net impacts, which also decreased margins by 0.3 percentage points.

Operating income margins were 22.4 percent in the first six months of 2012 compared to 21.6 in the first six months of 2011, an increase of 0.8 percentage points. This was primarily comprised of a 1.2 percentage point benefit from selling price increases, net of raw material price changes. This was partially offset by increased pension and postretirement benefit costs, which reduced margins by 0.4 percentage points.

Interest Expense and Income:



                      Three months ended         Six months ended
                           June 30,                  June 30,
(Millions)            2012           2011        2012         2011
Interest expense   $       43     $       50   $      83     $   93
Interest income           (10 )           (9 )       (19 )      (19 )
Total              $       33     $       41   $      64     $   74

Interest expense was lower in both the second quarter and first six months of 2012 compared to the same periods last year, primarily due to lower average worldwide debt balances and lower interest rates on U.S. debt, partially offset by higher interest rates on international debt. Interest income was relatively flat year-on-year when comparing the second quarter and first six months of 2012 to the same periods last year.

Provision for Income Taxes:

The effective tax rate for the second quarter of 2012 was 30.1 percent, compared to 27.1 percent in the second quarter of 2011, an increase of 3.0 percentage points. The effective tax rate for the first six months of 2012 was 29.5 percent, compared to 27.8 percent in the first six months of 2011, an increase of 1.7 percentage points. Various factors increased or decreased the effective tax rate when compared to the same periods last year. Factors which increased the Company's effective tax rate year-on-year included international taxes, specifically with respect to the corporate reorganization of a wholly owned international subsidiary (which benefited 2011), adjustments to its income tax reserves, and the lapse of the U.S. research and development credit. These factors, when compared to the same periods last year, increased the effective tax rate in the second quarter and first six months of 2012 by 4.9 and 2.9 percentage points, respectively. Factors which decreased the effective tax rate year-on-year included international taxes as a result of changes to the geographic mix of income before taxes and benefits from certain realized credits. These factors, when compared to the same periods last year, decreased the effective tax rate in the second quarter and first six months of 2012 by 1.9 and 1.2 percentage points, respectively.

The company currently expects that its effective tax rate for total year 2012 will be approximately 29.5 percent. The rate will change from quarter to quarter due to discrete items, such as the settlement of income tax audits and changes . . .