3M -March 17, Marc Dessel

General info Ticker: MMM Conglomerate Large Cap Five-star Morningstar Rating Named 19 th most admired U.S. company by Fortune Magazine

Many positives International exposure Terrific product mix, innovation Positioned well in economy Largest segments-industrial, health care Strong financial performance Stock is undervalued

Major segments 6 segments 2006 Revenues Industrial and transport 29.0% Health Care 17.5% Display and Graphics 16.4% Consumer & Office 13.8% Safety, security, protection services 11.6% Electronics and Communications 11.5% Other 0.2%

Products Industrial and transport – abrasives, adhesives, tapes, coatings, wiring, products to maintain military vehicles, products that can withstand high water pressure when drilling for oil Health Care – surgical supplies, infection prevention products, dental product Display and Graphics – optical film for LCD televisions and touch screens, computer screen filters Consumer & Office – stationary, consumer health products Safety, security, protection services – protective glasses, energy control products, roofing granules for asphalt shingles, protective gear for emergency responders Electronics and Communications – display tapes, high- performance fluids, wire connectors, circuits for ink-jet printers and cell phones

3M’s Brands Post-it notes Nexcare bandages Scotch tape Command Products in specialty stores, wholesalers

Distribution channels Directly -169 sales offices worldwide Indirectly -Retailers, wholesalers, specialty stores

International presence 2006 fiscal year revenue breakdown United States 38.6% Asia/Pacific 27.3% Europe, Middle East, Africa 25.0% Latin America 9.1% By 2011, Morningstar estimates over 65% of revenues will be international Highest margins in Asia and Latin America

Competitors Avery Dennison Corporation DuPont Johnson & Johnson Honeywell International Tyco Eastman Kodak Corning International Paper

SWOT Analysis Strengths Strong research and development -Morningstar estimates over next 5 years, 6-7% of revenues spent on R&D, same as previous years -Less cycle time – competitive advantage Diversified portfolio-products and geography 19 acquisitions in 2006 Strong financial performance

Company Fundamentals CriteriaMMMIndustryPerformance Current ratio Outperforms Interest coverage TTM Outperforms Equity multiplier Outperforms Receivables turnover TTM Outperforms Total asset turnover Outperforms Net profit margin % Outperforms ROA % Outperforms ROE % Outperforms Projected 5-year EPS growth % Outperforms EPS growth > sales growth of MMM % TTM Outperforms Revenue growth % TTM Underperforms

Forward Valuation Analysis CriteriaMMMIndustryPerformance PEG1.21.1Underperforms P/E Outperforms Dividend yield % Underperforms

Time series analysis Earnings per share Dividends per share ROE % ROA % Gross margin % Debt/equity Asset Turnover P/E

Weaknesses Poor inventory management Inventory turnover Industry average Increasing costs to health care segment -Restructuring – sold personal care unit, branded pharmaceuticals unit, severance pay

Opportunities Growing demand for LCD’s – optical films Rising health care spending in U.S. Global expansion – 19 new or expanding manufacturing plants – China, Mexico, Poland, South Korea, India, Russia -To shorten supply chain – only 35% of manufacturing is outside U.S. while 60% of revenues outside.

Threats Growth in private labels Global economic slowdown Exchange rate fluctuations

Undervalued Current price:$77.53 Beta week range $72.05 – $97.00 Morning Star fair value$97.00 Yahoo 1-year target estimate $ stage DDM model – intrinsic value $87.94 Margin of safety 15% –$74.75 – $ outside estimate of growth – 10.7% -payout ratio – 34.3% -discount rate – 7.82% -high growth rate – 13.30% -stable growth rate – 6%

One-year chart

Two-year chart

Insider Activity According to Morningstar website, executives have been purchasing the stock Nov 12 – 9 Directors purchased shares at $93.58 Feb 11 – 4 Directors purchased shares at $85.09 March 3 – 3 Executive VP’s purchased 25,481 shares each at $78.49.

Competitive advantages Innovative – organic and inorganic growth Manufacturing capability Distribution network Strong margins

Recent developments 2007 Fourth quarter earnings in line with expectations – -$1.19 per share, market expected $1.17, Health care and safety and security experienced highest growth -Internal growth – 5% during U.S. growth only - 1.6% during 2007 Feb 11 – Declared a 50 cent per share dividend for first quarter % greater than dividend for first quarter of th consecutive quarterly dividend and 50 th consecutive year of at least one dividend increase March 4 - Acquired Hitech Polymers Inc. The company makes specialty thermoplastic polymers that are used to manufacture plastic bottles, molded parts, valves, and pumps for construction and transportation

Recommendation Purchase 50 shares Approximately, $3900 -Increase diversification to portfolio -Larger weights in industrial, health care areas (top-down analysis) -Undervalued -Innovative company – organic (5% for 2007) and inorganic growth (19 acquisitions in 2006) -Strong financial performance