# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

# x	ANNUAL	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE SECURITIES	EXCHANGE	ACT	OF	1934

For	the	fiscal	year	ended	December	31,	2007

Commission	file	number	1-3285

# 3M	COMPANY

State	of	Incorporation:	Delaware

# Principal	executive	offices:	3M	Center,	St.	Paul,	Minnesota	55144

# SECURITIES	REGISTERED	PURSUANT	TO	SECTION	12(b)	OF	THE	ACT:

Title	of	each	class

Common	Stock,	Par	Value	$.01	Per	Share

Name	of	each	exchange

on	which	registered

New	York	Stock	Exchange,	Inc.

Chicago	Stock	Exchange,	Inc.

Note:	The	common	stock	of	the	Registrant	is	also	traded	on	the	SWX	Swiss	Exchange.

Securities	registered	pursuant	to	section	12(g)	of	the	Act:	None

Indicate	by	check	mark	if	the	Registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities	Act.		Yes		x		.		No		o		.

Indicate	by	check	mark	if	the	Registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	Section	15(d)	of	the	Act.		Yes		o	.		No		x		.

Indicate	by	check	mark	whether	the	Registrant	(1)	has	filed	all	reports	required	to	be	filed	by	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934	during the	preceding	12	months	(or	for	such	shorter	period	that	the	Registrant	was	required	to	file	such	reports),	and	(2)	has	been	subject	to	such	filing	requirements	for	the	past 90	days.		Yes		x		.		No		o		.

Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	is	not	contained	herein,	and	will	not	be	contained,	to	the	best of	Registrant's	knowledge,	in	definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment	to	this	Form	10-K.	o

Indicate	by	check	mark	whether	the	Registrant	is	a	large	accelerated	filer,	an	accelerated	filer,	or	a	non-accelerated	filer.	See	definition	of	"accelerated	filer	and large	accelerated	filer"	in	Rule	12b-2	of	the	Exchange	Act.		Large	accelerated	filer	x						Accelerated	filer		o		Non-accelerated	filer		o

Indicate	by	check	mark	whether	the	Registrant	is	a	shell	company	(as	defined	in	Rule	12b-2	of	the	Exchange	Act).			Yes		o		.		No		x		.

The	aggregate	market	value	of	voting	stock	held	by	nonaffiliates	of	the	Registrant,	computed	by	reference	to	the	closing	price	and	shares	outstanding,	was approximately	$56.4	billion	as	of	January	31,	2008	(approximately	$62.1	billion	as	of	June	30,	2007,	the	last	business	day	of	the	Registrant's	most	recently	completed second	quarter).

# DOCUMENTS	INCORPORATED	BY	REFERENCE

Parts	of	the	Company's	definitive	proxy	statement	(to	be	filed	pursuant	to	Regulation	14A	within	120	days	after	Registrant's	fiscal	year-end	of	December	31, 2007)	for	its	annual	meeting	to	be	held	on	May	13,	2008,	are	incorporated	by	reference	in	this	Form	10-K	in	response	to	Part	III,	Items	10,	11,	12,	13	and	14.

This	document	(excluding	exhibits)	contains	92	pages.

The	table	of	contents	is	set	forth	on	page	2.	The	exhibit	index	begins	on	page	90.

For	the	Year	Ended	December	31,	2007 TABLE	OF	CONTENTS

| ITEM	1 | Business | 3 |
| :--- | :--- | :--- |
| ITEM\t1A | Risk\tFactors | 8 |
| ITEM\t1B | Unresolved\tStaff | 9 |
|  | Comments |  |
| ITEM\t2 | Properties | 9 |
| ITEM\t3 | Legal | 9 |

| ITEM	13 | Certain<br>Relationships<br>and	Related<br>Transactions,<br>and	Director<br>Independence | 89 |
| :--- | :--- | :--- |
| ITEM\t14 | Principal | 89 |
|  | Accounting\tFees |  |
|  | and\tServices |  |
| PART\tIV |  |  |
| ITEM\t15 | Exhibits\tand | 90 |
|  | Financial |  |
|  | Statement |  |
|  | Schedules |  |
|  | Index\tto\tExhibits | 90 |

# ANNUAL	REPORT	ON	FORM	10-K

PART	I

# Item	1.	Business.

3M	Company,	formerly	known	as	Minnesota	Mining	and	Manufacturing	Company,	was	incorporated	in	1929	under	the	laws	of	the	State	of	Delaware	to	continue operations	begun	in	1902.	The	Company's	ticker	symbol	is	MMM.	As	used	herein,	the	term	"3M"	or	"Company"	includes	3M	Company	and	its	subsidiaries	unless	the context	indicates	otherwise.	In	addition,	for	any	references	to	Note	1	through	Note	18,	refer	to	the	Notes	to	Consolidated	Financial	Statements	in	Item	8	of	this document.

# Available	Information

The	SEC	maintains	a	website	that	contains	reports,	proxy	and	information	statements,	and	other	information	regarding	issuers,	including	the	Company,	that	file electronically	with	the	SEC.	The	public	can	obtain	any	documents	that	the	Company	files	with	the	SEC	at	http://www.sec.gov.	The	Company	files	annual	reports, quarterly	reports,	proxy	statements	and	other	documents	with	the	Securities	and	Exchange	Commission	(SEC)	under	the	Securities	Exchange	Act	of	1934	(Exchange Act).	The	public	may	read	and	copy	any	materials	that	the	Company	files	with	the	SEC	at	the	SEC's	Public	Reference	Room	at	100	F	Street,	N.E.,	Room	1580, Washington,	D.C.	20549.	The	public	may	obtain	information	on	the	operation	of	the	Public	Reference	Room	by	calling	the	SEC	at	1-800-SEC-0330.

3M	also	makes	available	free	of	charge	through	its	website	(http://investor.3M.com)	the	Company's	Annual	Report	on	Form	10-K,	Quarterly	Reports	on	Form	10-Q, Current	Reports	on	Form	8-K,	and,	if	applicable,	amendments	to	those	reports	filed	or	furnished	pursuant	to	the	Exchange	Act	as	soon	as	reasonably	practicable	after	the Company	electronically	files	such	material	with,	or	furnishes	it	to,	the	SEC.

# General

3M	is	a	diversified	technology	company	with	a	global	presence	in	the	following	businesses:	industrial	and	transportation;	health	care;	display	and	graphics;	consumer and	office;	safety,	security	and	protection	services;	and	electro	and	communications.	3M	is	among	the	leading	manufacturers	of	products	for	many	of	the	markets	it serves.	Most	3M	products	involve	expertise	in	product	development,	manufacturing	and	marketing,	and	are	subject	to	competition	from	products	manufactured	and	sold by	other	technologically	oriented	companies.

At	December	31,	2007,	the	Company	employed	76,239	people,	with	34,138	employed	in	the	United	States	and	42,101	employed	internationally.

# Business	Segments

As	discussed	in	Note	16	to	the	Consolidated	Financial	Statements,	effective	in	the	first	quarter	of	2007,	3M	made	certain	product	moves	between	its	business	segments in	its	continuing	effort	to	drive	growth	by	aligning	businesses	around	markets	and	customers.	Segment	information	presented	herein	reflects	the	impact	of	these	changes for	all	periods	presented.

3M	continues	to	manage	its	operations	in	six	operating	business	segments:	Industrial	and	Transportation;	Health	Care;	Display	and	Graphics;	Consumer	and	Office; Safety,	Security	and	Protection	Services;	and	Electro	and	Communications.	3M's	six	business	segments	bring	together	common	or	related	3M	technologies,	enhancing the	development	of	innovative	products	and	services	and	providing	for	efficient	sharing	of	business	resources.	These	segments	have	worldwide	responsibility	for virtually	all	3M	product	lines.	Certain	small	businesses	and	lab-sponsored	products,	as	well	as	various	corporate	assets	and	expenses,	are	not	allocated	to	the	business segments.	Financial	information	and	other	disclosures	relating	to	3M's	business	segments	and	operations	in	major	geographic	areas	are	provided	in	the	Notes	to Consolidated	Financial	Statements.

Industrial	and	Transportation	Business:	The	Industrial	and	Transportation	Business	segment	serves	a	broad	range	of	markets,	such	as	appliance,	paper	and	packaging, food	and	beverage,	and	automotive.	Industrial	and	Transportation	products	include	tapes,	a	wide	variety	of	coated	and	nonwoven	abrasives,	adhesives,	specialty materials,	closures	for	disposable	diapers,	and	components	and	products	that	are	used	in	the	manufacture,	repair,	and	maintenance	of	automotive,	marine,	aircraft	and specialty	vehicles.	The	August	2005	acquisition	of	CUNO,	Incorporated	("CUNO")	added	a	comprehensive	line	of	filtration	products	for	the	separation,	clarification	and purification	of	fluids	and	gases.

Major	industrial	products	include	vinyl,	polyester,	foil	and	specialty	industrial	tapes	and	adhesives;	Scotch®	Masking	Tape,	Scotch®	Filament	Tape	and	Scotch® Packaging	Tape;	packaging	equipment;	3M™	VHB™	Bonding	Tapes;	conductive,	low	surface	energy,	hot	melt,	spray	and	structural	adhesives;	reclosable	fasteners; label	materials	for	durable

goods;	and	coated,	nonwoven	and	microstructured	surface	finishing	and	grinding	abrasives	for	the	industrial	market.	Other	products	include	a	comprehensive	line	of

filtration	products	for	the	separation,	clarification	and	purification	of	fluids	and	gases;	fluoroelastomers	for	seals,	tubes	and	gaskets	in	engines;	engineering	fluids;	and closures	for	disposable	diapers.

Major	transportation	products	include	insulation	components,	including	components	for	catalytic	converters;	functional	and	decorative	graphics;	abrasion-resistant	films; masking	tapes;	fasteners	and	tapes	for	attaching	nameplates,	trim,	moldings,	interior	panels	and	carpeting;	coated,	nonwoven	and	microstructured	finishing	and	grinding abrasives;	structural	adhesives;	and	other	specialty	materials.	In	addition,	3M	provides	paint	finishing	and	detailing	products,	including	a	complete	system	of	cleaners, dressings,	polishes,	waxes	and	other	products.

Health	Care	Business:	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,	drug	delivery	systems,	dental	and	orthodontic	products,	health	information	systems	and	microbiology	products.	As	discussed	in	Note	2,	the	global	branded pharmaceuticals	business	was	sold	in	December	2006	and	January	2007.

In	the	medical	and	surgical	areas,	3M	is	a	supplier	of	medical	tapes,	dressings,	wound	closure	products,	orthopedic	casting	materials,	electrodes	and	stethoscopes.	In infection	prevention,	3M	markets	a	variety	of	surgical	drapes,	masks	and	preps,	as	well	as	sterilization	assurance	equipment.	Other	products	include	drug	delivery systems,	such	as	metered-dose	inhalers,	transdermal	skin	patches	and	related	components.	Dental	and	orthodontic	products	include	restoratives,	adhesives,	finishing	and polishing	products,	crowns,	impression	materials,	preventive	sealants,	professional	tooth	whiteners,	prophylaxis	and	orthodontic	appliances.	In	health	information systems,	3M	develops	and	markets	computer	software	for	hospital	coding	and	data	classification,	as	well	as	providing	related	consulting	services.	3M	provides microbiology	products	that	make	it	faster	and	easier	for	food	processors	to	test	the	microbiological	quality	of	food.

Display	and	Graphics	Business:	The	Display	and	Graphics	segment	serves	markets	that	include	electronic	display,	touch	screen,	traffic	safety	and	commercial	graphics. This	segment	includes	optical	film	and	lens	solutions	for	electronic	displays;	touch	screens	and	touch	monitors;	computer	screen	filters;	reflective	sheeting	for transportation	safety;	and	commercial	graphics	systems.

The	optical	film	business	provides	films	that	serve	numerous	market	segments	of	the	electronic	display	industry.	3M	provides	distinct	products	for	five	market	segments, including	products	for:	1)	LCD	computer	monitors,	2)	LCD	televisions,	3)	hand-held	devices	such	as	cellular	phones,	4)	notebook	PCs	and	5)	automotive	displays.	Other optical	products	include	lens	systems	for	projection	televisions,	in	addition	to	desktop	and	notebook	computer	screen	filters	that	address	needs	for	light	control,	privacy viewing	and	glare	reduction.	The	touch	systems	business	includes	touch	screens	and	touch	monitors.	In	traffic	safety	systems,	3M	provides	reflective	sheetings	used	on highway	signs,	vehicle	license	plates,	construction	work-zone	devices,	trucks	and	other	vehicles,	and	also	provides	pavement	marking	systems.	Major	commercial graphics	products	include	films,	inks,	digital	signage	systems	and	related	products	used	to	produce	graphics	for	vehicles	and	signs.

Consumer	and	Office	Business:	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.

Major	consumer	and	office	products	include	Scotch®	brand	products,	such	as	Scotch®	Magic™	Tape,	Scotch®	Glue	Stick	and	Scotch®	Cushioned	Mailer;	Post-it® Products,	such	as	Post-it®	Flags,	Post-it®	Note	Pads,	Post-it®	Labeling	&	Cover-up	Tape,	and	Post-it®	Pop-up	Notes	and	Dispensers;	construction	and	home improvement	products,	including	surface-preparation	and	wood-finishing	materials,	Command™	Adhesive	Products	and	Filtrete™	Filters	for	furnaces	and	air conditioners;	home	care	products,	including	Scotch-Brite®	Scour	Pads,	Scotch-Brite®	Scrub	Sponges,	Scotch-Brite™	Microfiber	Cloth	products,	O-Cel-O™	Sponges and	Scotchgard™	Fabric	Protectors;	protective	material	products,	certain	maintenance-free	respirators,	and	Nexcare™	Adhesive	Bandages.

Safety,	Security	and	Protection	Services	Business:	The	Safety,	Security	and	Protection	Services	segment	serves	a	broad	range	of	markets	that	increase	the	safety, security	and	productivity	of	workers,	facilities	and	systems.	Major	product	offerings	include	personal	protection	products,	safety	and	security	products,	energy	control products,	cleaning	and	protection	products	for	commercial	establishments,	roofing	granules	for	asphalt	shingles,	and	supply	chain	execution	software	solutions.	In August	2006,	3M	completed	the	acquisition	of	Security	Printing	and	Systems	Limited,	a	producer	of	finished,	personalized	passports	and	secure	cards,	which	expanded the	3M	product	line	related	to	border	and	civil	security	solutions.	3M's	new	emerging	business	opportunity	in	its	Track	and	Trace	initiative	within	3M's	Safety,	Security and	Protection	Services	segment	resulted	in	the	merging	of	a	number	of	formerly	separate	efforts	into	one	concerted	effort	for

future	growth.	Track	and	Trace	has	a	growing	array	of	applications	—	from	tracking	packages	to	managing	medical	and	legal	records.

This	segment's	products	include	certain	maintenance-free	and	reusable	respirators,	personal	protective	equipment,	electronic	surveillance	products,	films	that	protect against	counterfeiting,	and	reflective	materials	that	are	widely	used	on	apparel,	footwear	and	accessories,	enhancing	visibility	in	low-light	situations.	Other	products include	theft	protection	systems	for	libraries	and	library	patron	self-checkout	systems;	spill-control	sorbents;	Thinsulate™	Insulation	and	Thinsulate™	Lite	Loft™ Insulation;	3M™	Scotchtint™	Window	Film	for	buildings;	3M™	Ultra	Safety	and	Security	Window	Film	for	property	and	personal	protection	during	destructive weather	conditions;	nonwoven	abrasive	materials	for	floor	maintenance	and	commercial	cleaning;	floor	matting;	natural	and	color-coated	mineral	granules	for	asphalt shingles;	and	supply	chain	execution	software	solutions.

Electro	and	Communications	Business:	The	Electro	and	Communications	segment	serves	the	electrical,	electronics	and	communications	industries,	including	electrical utilities;	electrical	construction,	maintenance	and	repair;	original	equipment	manufacturer	(OEM)	electrical	and	electronics;	computers	and	peripherals;	consumer electronics;	telecommunications	central	office,	outside	plant	and	enterprise;	as	well	as	aerospace,	military,	automotive	and	medical	markets;	with	products	that	enable the	efficient	transmission	of	electrical	power	and	speed	the	delivery	of	information	and	ideas.	Products	include	electronic	and	interconnect	solutions,	microinterconnect systems,	high-performance	fluids,	high-temperature	and	display	tapes,	telecommunications	products,	electrical	products,	and	visual	systems	products.

Major	electronic	and	electrical	products	include	packaging	and	interconnection	devices;	high-performance	fluids	used	in	the	manufacture	of	computer	chips,	and	for cooling	electronics	and	lubricating	computer	hard	disk	drives;	high-	temperature	and	display	tapes;	insulating	materials,	including	pressure-sensitive	tapes	and	resins; and	related	items.	3M™	Flexible	Circuits	use	electronic	packaging	and	interconnection	technology,	providing	more	connections	in	less	space,	and	are	used	in	ink-jet print	cartridges,	cell	phones	and	electronic	devices.	This	segment	serves	the	world's	telecommunications	companies	with	a	wide	array	of	products	for	fiber-optic	and copper-based	telecommunications	systems	for	rapid	deployment	in	fixed	and	wireless	networks.	The	3M™	Aluminum	Conductor	Composite	Reinforced	(ACCR) electrical	power	cable,	with	an	aluminum-based	metal	matrix	at	its	core,	increases	transmission	capacity	for	existing	power	lines.	Visual	communication	products	serve the	world's	office	and	education	markets	with	overhead	projectors	and	transparency	films,	as	well	as	equipment	and	materials	for	electronic	and	multimedia presentations.

# Distribution

3M	products	are	sold	through	numerous	distribution	channels,	including	directly	to	users	and	through	numerous	wholesalers,	retailers,	jobbers,	distributors	and	dealers in	a	wide	variety	of	trades	in	many	countries	around	the	world.	Management	believes	the	confidence	of	wholesalers,	retailers,	jobbers,	distributors	and	dealers	in	3M	and its	products	—	a	confidence	developed	through	long	association	with	skilled	marketing	and	sales	representatives	—	has	contributed	significantly	to	3M's	position	in	the marketplace	and	to	its	growth.	3M	has	157	sales	offices	worldwide,	with	nine	in	the	United	States	and	148	internationally.

# Research	and	Patents

Research	and	product	development	constitutes	an	important	part	of	3M's	activities	and	has	been	a	major	driver	of	3M's	sales	growth.	Research,	development	and	related

expenses	totaled	$1.368	billion	in	2007,	$1.522	billion	in	2006	and	$1.274	billion	in	2005.	The	global	branded	pharmaceuticals	business,	which	was	divested	in December	2006	and	January	2007,	incurred	research,	development	and	related	expenses	of	approximately	$120	million	in	2006	and	$142	million	in	2005.	The	2006 amount	also	included	a	$95	million	in-process	research	and	development	charge	(discussed	in	Note	2)	and	$75	million	in	restructuring	actions	(Note	4).	Research	and development,	covering	basic	scientific	research	and	the	application	of	scientific	advances	in	the	development	of	new	and	improved	products	and	their	uses,	totaled	$788 million	in	2007,	compared	to	$943	million	in	2006,	decreasing	due	to	the	$95	million	for	purchased	in-process	research	and	development	discussed	above	and	also	due to	the	pharmaceuticals	business	divestiture.	Research	and	development	expenses	totaled	$818	million	in	2005.	Related	expenses	primarily	include	technical	support provided	by	3M	to	existing	customers	who	are	using	3M	products,	and	the	costs	of	internally	developed	patents.

The	Company's	products	are	sold	around	the	world	under	various	trademarks	that	are	important	to	the	Company.	The	Company	also	owns,	or	holds	licenses	to	use, numerous	U.S.	and	foreign	patents.	The	Company's	research	and	development	activities	generate	a	steady	stream	of	inventions	that	are	covered	by	new	patents.	Patents applicable	to	specific	products	extend	for	varying	periods	according	to	the	date	of	patent	application	filing	or	patent	grant	and	the	legal	term	of	patents	in	the	various countries	where	patent	protection	is	obtained.	The	actual	protection	afforded	by	a	patent,	which	can	vary	from	country	to	country,	depends	upon	the	type	of	patent,	the scope	of	its	coverage	and	the	availability	of	legal	remedies	in	the	country.

The	Company	believes	that	its	patents	provide	an	important	competitive	advantage	in	many	of	its	businesses.	In	general,	no	single	patent	or	group	of	related	patents	is	in itself	essential	to	the	Company	as	a	whole	or	to	any	of	the	Company's

business	segments.	The	importance	of	patents	in	the	Display	and	Graphics	segments	is	described	in	"Performance	by	Business	Segment"	—	"Display	and	Graphics Business"	in	Part	II,	Item	7.

# Raw	Materials

In	2007,	the	Company	experienced	cost	increases	affecting	metals,	wood	pulp	and	oil-derived	raw	materials.	Costs	for	these	materials	have	remained	high	throughout	the year,	and	3M	would	expect	this	level	to	carry	over	into	early	2008,	with	some	moderation	occurring	later	in	the	year.	To	date,	the	Company	is	receiving	sufficient quantities	of	all	raw	materials	to	meet	its	reasonably	foreseeable	production	requirements.	It	is	impossible	to	predict	future	shortages	of	raw	materials	or	the	impact	any such	shortages	would	have.	3M	has	avoided	disruption	to	its	manufacturing	operations	through	careful	management	of	existing	raw	material	inventories	and development	and	qualification	of	additional	supply	sources.	3M	manages	commodity	price	risks	through	negotiated	supply	contracts,	price	protection	agreements	and forward	physical	contracts.

# Environmental	Law	Compliance

3M's	manufacturing	operations	are	affected	by	national,	state	and	local	environmental	laws	around	the	world.	3M	has	made,	and	plans	to	continue	making,	necessary expenditures	for	compliance	with	applicable	laws.	3M	is	also	involved	in	remediation	actions	relating	to	environmental	matters	from	past	operations	at	certain	sites	(refer to	"Environmental	and	Other	Liabilities	and	Insurance	Receivables"	in	Note	13,	Commitments	and	Contingencies).

Environmental	expenditures	relating	to	existing	conditions	caused	by	past	operations	that	do	not	contribute	to	current	or	future	revenues	are	expensed.	Reserves	for liabilities	for	anticipated	remediation	costs	are	recorded	on	an	undiscounted	basis	when	they	are	probable	and	reasonably	estimable,	generally	no	later	than	the completion	of	feasibility	studies	or	the	Company's	commitment	to	a	plan	of	action.	Environmental	expenditures	for	capital	projects	that	contribute	to	current	or	future operations	generally	are	capitalized	and	depreciated	over	their	estimated	useful	lives.

In	2007,	3M	expended	about	$21	million	for	capital	projects	related	to	protecting	the	environment.	This	amount	excludes	expenditures	for	remediation	actions	relating	to existing	matters	caused	by	past	operations.	Capital	expenditures	for	environmental	purposes	have	included	pollution	control	devices	—	such	as	wastewater	treatment plant	improvements,	scrubbers,	containment	structures,	solvent	recovery	units	and	thermal	oxidizers	—	at	new	and	existing	facilities	constructed	or	upgraded	in	the normal	course	of	business.	Consistent	with	the	Company's	policies	stressing	environmental	responsibility,	capital	expenditures	(other	than	for	remediation	projects)	for known	projects	are	presently	expected	to	be	about	$47	million	over	the	next	two	years	for	new	or	expanded	programs	to	build	facilities	or	modify	manufacturing processes	to	minimize	waste	and	reduce	emissions.

While	the	Company	cannot	predict	with	certainty	the	future	costs	of	such	cleanup	activities,	capital	expenditures	or	operating	costs	for	environmental	compliance,	the Company	does	not	believe	they	will	have	a	material	effect	on	its	capital	expenditures,	earnings	or	competitive	position.

# Executive	Officers

Following	is	a	list	of	the	executive	officers	of	3M,	and	their	age,	present	position,	the	year	elected	to	their	present	position	and	other	positions	they	have	held	during	the past	five	years.	No	family	relationships	exist	among	any	of	the	executive	officers	named,	nor	is	there	any	undisclosed	arrangement	or	understanding	pursuant	to	which any	person	was	selected	as	an	officer.	This	information	is	presented	as	of	the	date	of	the	10-K	filing	(February	15,	2008).

(continued)

Present	Position

Year Elected	to Present

Position

| Angela	S.	Lalor | 42 |
| :--- | :--- |
| Jean\tLobey | 55 |
| Robert\tD.\tMacDonald | 57 |
| Moe\tS.\tNozari | 65 |
| Frederick\tJ.\tPalensky | 58 |
| Brad\tT.\tSauer | 48 |
| Hak\tCheol\tShin | 50 |
| Marschall\tI.\tSmith | 63 |
| Inge\tG.\tThulin | 54 |
| John\tK.\tWoodworth | 56 |

Division	Vice	President,	Occupational	Health and	Environmental	Safety	Division,	2003- 2006

General	Manager,	Performance	Materials Division,	2003 Managing	Director,	3M	Korea,	2001-2003

# Item	1A.	Risk	Factors.

The	most	significant	risk	factors	applicable	to	the	Company	are	as	follows:

*	Results	are	impacted	by	the	effects	of,	and	changes	in,	worldwide	economic	conditions.	The	Company	operates	in	more	than	60	countries	and	derives	approximately 63%	of	its	revenues	from	outside	the	United	States.	The	Company's	business	may	be	affected	by	factors	in	the	United	States	and	other	countries	that	are	beyond	its control,	such	as	downturns	in	economic	activity	in	a	specific	country	or	region,	or	in	the	various	industries	in	which	the	Company	operates;	social,	political	or	labor conditions	in	a	specific	country	or	region;	or	adverse	changes	in	interest	rates,	tax,	or	regulations	in	the	jurisdictions	in	which	the	company	operates.

*	The	Company's	results	are	affected	by	competitive	conditions	and	customer	preferences.	Demand	for	the	Company's	products,	which	impacts	revenue	and	profit margins,	is	affected	by	(i)	the	development	and	timing	of	the	introduction	of	competitive	products;	(ii)	the	Company's	response	to	downward	pricing	to	stay	competitive; (iii)	changes	in	customer	order	patterns,	such	as	changes	in	the	levels	of	inventory	maintained	by	customers	and	the	timing	of	customer	purchases	which	may	be	affected by	announced	price	changes,	changes	in	the	Company's	incentive	programs,	or	the	customer's	ability	to	achieve	incentive	goals;	and	(iv)	changes	in	customers'

preferences	for	our	products,	including	the	success	of	products	offered	by	our	competitors,	and	changes	in	customer	designs	for	their	products	that	can	affect	the	demand for	some	of	the	Company's	products.

*	Foreign	currency	exchange	rates	and	fluctuations	in	those	rates	may	affect	the	Company's	ability	to	realize	projected	growth	rates	in	its	sales	and	earnings.	Because the	Company	derives	approximately	63%	of	its	revenues	from	outside	the	United	States,	its	ability	to	realize	projected	growth	rates	in	sales	and	earnings	could	be adversely	affected	if	the	U.S.	dollar	strengthens	significantly	against	foreign	currencies.

*	The	Company's	growth	objectives	are	largely	dependent	on	the	timing	and	market	acceptance	of	its	new	product	offerings,	including	its	ability	to	continually	renew	its pipeline	of	new	products	and	to	bring	those	products	to	market.	This	ability	may	be	adversely	affected	by	difficulties	or	delays	in	product	development,	such	as	the inability	to	identify	viable	new	products,	obtain	adequate	intellectual	property	protection,	or	gain	market	acceptance	of	new	products.	There	are	no	guarantees	that	new products	will	prove	to	be	commercially	successful.

*	The	Company's	future	results	are	subject	to	fluctuations	in	the	costs	and	availability	of	purchased	components,	compounds,	raw	materials	and	energy,	including	oil and	natural	gas	and	their	derivatives,	due	to	shortages,	increased	demand,	supply	interruptions,	currency	exchange	risks,	natural	disasters	and	other	factors.	The Company	depends	on	various	components,	compounds,	raw	materials,	and	energy	(including	oil	and	natural	gas	and	their	derivatives)	supplied	by	others	for	the manufacturing	of	its	products.	It	is	possible	that	any	of	its	supplier	relationships	could	be	interrupted	due	to	natural	and	other	disasters	and	other	events,	or	be	terminated in	the	future.	Any	sustained	interruption	in	the	Company's	receipt	of	adequate	supplies	could	have	a	material	adverse	effect	on	the	Company.	In	addition,	while	the Company	has	a	process	to	minimize	volatility	in	component	and	material	pricing,	no	assurance	can	be	given	that	the	Company	will	be	able	to	successfully	manage	price fluctuations	or	that	future	price	fluctuations	or	shortages	will	not	have	a	material	adverse	effect	on	the	Company.

*	Acquisitions,	strategic	alliances,	divestitures,	and	other	unusual	events	resulting	from	portfolio	management	actions	and	other	evolving	business	strategies,	and possible	organizational	restructuring	could	affect	future	results.	The	Company	monitors	its	business	portfolio	and	organizational	structure	and	has	made	and	may continue	to	make	acquisitions,	strategic	alliances,	divestitures	and	changes	to	its	organizational	structure.	With	respect	to	acquisitions,	future	results	will	be	affected	by the	Company's	ability	to	integrate	acquired	businesses	quickly	and	obtain	the	anticipated	synergies.

*	The	Company's	future	results	may	be	affected	if	the	Company	generates	fewer	productivity	improvements	than	estimated.	The	Company	utilizes	various	tools,	such	as Lean	Six	Sigma,	to	improve	operational	efficiency	and	productivity.	There	can	be	no	assurance	that	all	of	the	projected	productivity	improvements	will	be	realized.

*	The	Company's	future	results	may	be	affected	by	various	legal	and	regulatory	proceedings,	including	those	involving	product	liability,	antitrust,	environmental	or other	matters.	The	outcome	of	these	legal	proceedings	may	differ	from	the	Company's	expectations	because	the	outcomes	of	litigation,	including	regulatory	matters,	are often	difficult	to	reliably	predict.	Various	factors	or	developments	can	lead	the	Company	to	change	current	estimates	of	liabilities	and	related	insurance	receivables where	applicable,	or	make	such	estimates	for	matters	previously	not	susceptible	of	reasonable	estimates,	such	as	a	significant	judicial	ruling	or	judgment,	a	significant settlement,	significant	regulatory	developments	or	changes	in	applicable	law.	A	future	adverse	ruling,	settlement	or	unfavorable	development	could	result	in	future charges	that	could	have	a	material	adverse	effect	on	the	Company's	results	of	operations	or	cash	flows	in	any	particular	period.	For	a	more	detailed	discussion	of	the legal	proceedings	involving	the	Company	and	the	associated	accounting	estimates,	see	the	discussion	in	Note	13.

# Item	1B.	Unresolved	Staff	Comments.

# None.

# Item	2.	Properties.

3M's	general	offices,	corporate	research	laboratories,	and	certain	division	laboratories	are	located	in	St.	Paul,	Minnesota.	In	the	United	States,	3M	has	nine	sales	offices in	eight	states	and	operates	74	manufacturing	facilities	in	27	states.	Internationally,	3M	has	148	sales	offices.	The	Company	operates	93	manufacturing	and	converting facilities	in	32	countries	outside	the	United	States.

3M	owns	substantially	all	of	its	physical	properties.	3M's	physical	facilities	are	highly	suitable	for	the	purposes	for	which	they	were	designed.	Because	3M	is	a	global enterprise	characterized	by	substantial	intersegment	cooperation,	properties	are	often	used	by	multiple	business	segments.

# Item	3.	Legal	Proceedings.

Discussion	of	legal	matters	is	incorporated	by	reference	from	Part	II,	Item	8,	Note	13,	"Commitments	and	Contingencies,"	of	this	document,	and	should	be	considered an	integral	part	of	Part	I,	Item	3,	"Legal	Proceedings."

# Item	4.	Submission	of	Matters	to	a	Vote	of	Security	Holders.

None	in	the	quarter	ended	December	31,	2007.

# PART	II

# Item	5.	Market	for	Registrant's	Common	Equity,	Related	Stockholder	Matters	and	Issuer	Purchases	of	Equity	Securities.

Equity	compensation	plans'	information	is	incorporated	by	reference	from	Part	III,	Item	12,	"Security	Ownership	of	Certain	Beneficial	Owners	and	Management	and Related	Stockholder	Matters,"	of	this	document,	and	should	be	considered	an	integral	part	of	Item	5.	At	January	31,	2008,	there	were	approximately	121,302 shareholders	of	record.	3M's	stock	is	listed	on	the	New	York	Stock	Exchange,	Inc.	(NYSE),	the	Chicago	Stock	Exchange,	Inc.,	and	the	SWX	Swiss	Exchange.	Cash dividends	declared	and	paid	totaled	$.48	per	share	for	each	quarter	of	2007,	and	$.46	per	share	for	each	quarter	of	2006.	Stock	price	comparisons	follow:

# Stock	price	comparisons	(NYSE	composite	transactions)

|  | First | Second | Third | Fourth |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| (Per\tshare\tamounts) | Quarter | Quarter | Quarter | Quarter | Year |
| 2007\tHigh | $79.88 | $89.03 | $93.98 | $97.00 | $97.00 |
| 2007\tLow | 72.90 | 75.91 | 83.21 | 78.98 | 72.90 |
| 2006\tHigh | $79.83 | $88.35 | $81.60 | $81.95 | $88.35 |
| 2006\tLow | 70.30 | 75.76 | 67.05 | 73.00 | 67.05 |

# Issuer	Purchases	of	Equity	Securities

Repurchases	of	common	stock	are	made	to	support	the	Company's	stock-based	employee	compensation	plans	and	for	other	corporate	purposes.	On	February	13,	2006, the	Board	of	Directors	authorized	the	purchase	of	$2.0	billion	of	the	Company's	common	stock	between	February	13,	2006	and	February	28,	2007.	In	August	2006, 3M's	Board	of	Directors	authorized	the	repurchase	of	an	additional	$1.0	billion	in	share	repurchases,	raising	the	total	authorization	to	$3.0	billion	for	the	period	from February	13,	2006	to	February	28,	2007.	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.

Issuer	Purchases	of	Equity Securities	(registered	pursuant	to Section	12	of	the	Exchange	Act)

|  |  |  |  | Maximum |
| :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | Approximate |
|  |  |  | Total | Dollar\tValue |
|  |  |  | Number\tof | of\tShares |
|  |  |  | Shares | that\tMay\tYet |
|  |  |  | Purchased | Be |
|  | Total |  | as\tPart\tof | Purchased |
|  | Number\tof |  | Publicly | under\tthe |
|  | Shares |  | Announced | Plans\tor |
| Period | Purchased\n(1) | Average\tPrice | Plans\tor\nPrograms | Programs\n(Millions) |
|  |  | Paid\tper\tShare |  |  |
| January\t1-31,\t2007 | 1,311,268 | $76.33 | 1,277,200 | $651 |
| February\t1-28,\t2007 | 6,542,591 | $75.12 | 6,522,500 | $6,731 |
| March\t1-31,\t2007 | 8,187,472 | $75.59 | 8,151,700 | $6,115 |
| Total\tJanuary\t1\t—\tMarch\t31,\t2007 | 16,041,331 | $75.46 | 15,951,400 | $6,115 |
| April\t1-30,\t2007 | 3,548,221 | $77.55 | 3,476,700 | $5,846 |
| May\t1-31,\t2007 | 4,428,219 | $85.84 | 4,202,800 | $5,485 |
| June\t1-30,\t2007 | 3,885,033 | $86.58 | 3,810,800 | $5,155 |
| Total\tApril\t1\t—\tJune\t30,\t2007 | 11,861,473 | $83.60 | 11,490,300 | $5,155 |
| July\t1-31,\t2007 | 1,646,251 | $89.01 | 1,510,300 | $5,021 |
| August\t1-31,\t2007 | 2,329,478 | $87.05 | 2,247,300 | $4,825 |
| September\t1-30,\t2007 | 2,086,564 | $90.24 | 2,029,600 | $4,642 |
| Total\tJuly\t1\t—\tSeptember\t30,\t2007 | 6,062,293 | $88.68 | 5,787,200 | $4,642 |
| October\t1-31,\t2007 | 2,192,302 | $88.89 | 2,178,500 | $4,448 |
| November\t1-30,\t2007 | 1,702,375 | $82.35 | 1,692,000 | $4,309 |
| December\t1-31,\t2007 | 1,896,612 | $85.41 | 1,873,500 | $4,149 |
| Total\tOctober\t1\t—\tDec.\t31,\t2007 | 5,791,289 | $85.83 | 5,744,000 | $4,149 |
| Total\tJanuary\t1\t—\tDecember\t31,\t2007 | 39,756,386 | $81.42 | 38,972,900 | $4,149 |

# Item	6.	Selected	Financial	Data.

| (Dollars	in	millions,	except	per	share	amounts) | 2007 | 2006 | 2005 | 2004 | 2003 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Years\tended\tDecember\t31: |  |  |  |  |  |
| Net\tsales | $24,462 | $22,923 | $21,167 | $20,011 | $18,232 |
| Income\tbefore\tcumulative\teffect\tof\taccounting\tchange | 4,096 | 3,851 | 3,146 | 2,841 | 2,286 |
| Per\tshare\tof\tcommon\tstock: |  |  |  |  |  |
| Income\tbefore\tcumulative\teffect\tof\taccounting\tchange\t—\tbasic | 5.70 | 5.15 | 4.11 | 3.64 | 2.92 |
| Income\tbefore\tcumulative\teffect\tof\taccounting\tchange\t—\tdiluted | 5.60 | 5.06 | 4.03 | 3.56 | 2.88 |
| Cash\tdividends\tdeclared\tand\tpaid | 1.92 | 1.84 | 1.68 | 1.44 | 1.32 |
| At\tDecember\t31: |  |  |  |  |  |
| Total\tassets | $24,694 | $21,294 | $20,541 | $20,723 | $17,612 |
| Long-term\tdebt\t(excluding\tportion\tdue\twithin\tone\tyear)\tand\tlong-term |  |  |  |  |  |
| capital\tlease\tobligations | 4,088 | 1,112 | 1,368 | 798 | 1,805 |

The	above	income	and	earnings	per	share	information	exclude	a	cumulative	effect	of	accounting	change	in	2005	($35	million,	or	5	cents	per	diluted	share).	Refer	to	Note 1	for	more	detail.

2007	results	included	net	gains	that	increased	operating	income	by	$681	million	and	net	income	by	$448	million.	2007	included	gains	related	to	the	sale	of	businesses ($849	million	pre-tax,	$550	million	after-tax)	and	a	gain	on	sale	of	real	estate	($52	million	pre-tax,	$37	million	after-tax),	which	were	partially	offset	by	increases	in environmental	liabilities	($134	million	pre-tax,	$83	million	after-tax),	restructuring	actions	($41	million	pre-tax,	$27	million	after-tax),	and	other	exit	activities	($45 million	pre-tax,	$29	million	after-tax).	2006	results	included	net	gains	that	increased	operating	income	by	$523	million	and	net	income	by	$438	million.	2006	included net	benefits	from	gains	related	to	the	sale	of	certain	portions	of	3M's	branded	pharmaceuticals	business	($1.074	billion	pre-tax,	$674	million	after-tax)	and	favorable income	tax	adjustments	($149	million),	which	were	partially	offset	by	restructuring	actions	($403	million	pre-tax,	$257	million	after-tax),	acquired	in-process	research and	development	expenses	($95	million	pre-tax	and	after-tax),	settlement	costs	of	a	previously	disclosed	antitrust	class	action	($40	million	pre-tax,	$25	million	after-tax), and	environmental	obligations	related	to	the	pharmaceuticals	business	($13	million	pre-tax,	$8	million	after-tax).	2005	results	included	charges	that	reduced	net	income by	$75	million.	This	related	to	a	tax	liability	resulting	from	3M's	reinvestment	of	approximately	$1.7	billion	of	foreign	earnings	in	the	United	States	pursuant	to	the repatriation	provisions	of	the	American	Jobs	Creation	Act	of	2004.	2003	results	included	charges	related	to	an	adverse	ruling	in	a	lawsuit	filed	against	3M	in	1997	by LePage's	Inc.	that	reduced	operating	income	by	$93	million	($58	million	after	tax).

# Item	7.	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations.

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	nine	sections:

# OVERVIEW

3M	is	a	diversified	global	manufacturer,	technology	innovator	and	marketer	of	a	wide	variety	of	products.	3M	manages	its	operations	in	six	operating	business	segments: Industrial	and	Transportation;	Health	Care;	Display	and	Graphics;	Consumer	and	Office;	Safety,	Security	and	Protection	Services;	and	Electro	and	Communications.

3M's	strategy	continues	to	emphasize	a	commitment	to	grow	at	a	faster	pace,	using	a	four-pronged	approach,	which	includes	reinvesting	in	its	core	businesses, developing	adjacent	emerging	business	opportunities,	expanding	on	the	Company's	already	world-class	capabilities	internationally,	and	acquiring	companies	in complementary	faster-growing	industries.	The	Company	will	continue	to	invest	in	research	and	development	and	plant	start-ups	in	2008,	including	investments	in emerging	markets	around	the	world.	Research,	development	and	related	expenses	totaled	$1.368	billion	in	2007.	Capital	expenditures	totaled	$1.422	billion	in	2007,	up $254	million	compared	with	2006.	The	Company	expects	capital	expenditures	to	total	approximately	$1.3	billion	to	$1.4	billion	in	2008,	providing	the	capacity	to	meet expected	growth.

In	December	2006	and	January	2007,	3M	completed	the	sale	of	its	branded	pharmaceuticals	business,	resulting	in	gains	in	the	fourth	quarter	of	2006	and	first	quarter	of 2007.	In	addition,	3M	recorded	a	gain	related	to	the	sale	of	its	Opticom	Priority	Control	Systems	and	Canoga	Traffic	Detection	businesses	in	the	second	quarter	of	2007. In	both	2007	and	2006,	these	gains	on	sale	of	businesses	and	a	gain	on	sale	of	real	estate	were	partially	offset	by	restructuring	and	other	items.	Refer	to	Note	A	at	the end	of	this	overview	section	for	additional	details.	Including	these	items,	in	2007,	3M	reported	record	net	sales	of	$24.462	billion	and	record	net	income	of	$4.096 billion,	or	$5.60	per	diluted	share,	compared	with	net	sales	of	$22.923	billion	and	net	income	of	$3.851	billion,	or	$5.06	per	diluted	share,	in	2006.	Excluding	the	items in	Note	A	in	both	years,	the	Company	still	achieved	strong	underlying	operating	performance,	helped	by	a	6.7%	increase	in	net	sales,	which	included	the	divestiture impacts	discussed	above	that	reduced	sales	growth	by	3.8%.

The	following	table	contains	sales	and	operating	income	results	by	business	segment	for	the	years	ended	December	31,	2007	and	2006.	Refer	to	the	Performance	by Business	Segment	section	for	discussion	of	the	gain	on	sale	of	businesses,	restructuring	and	other	items	that	impacted	reported	operating	income	results.

|  |  |  |  |  |  |  | 2007	vs.	2006 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | 2007 |  |  | 2006 |  | %\tchange |  |
|  | Net | %\tof | Oper. | Net | %\tof | Oper. | Net | Oper. |
| (Dollars\tin\tmillions) | Sales | Total | Income | Sales | Total | Income | Sales | Income |
| Business\tSegments |  |  |  |  |  |  |  |  |
| Industrial\tand\tTransportation | $7,274 | 29.7% $ | 1,501 | $6,640 | 29.0% $ | 1,342 | 9.6% | 11.8% |
| Health\tCare | 3,968 | 16.2% | 1,882 | 4,011 | 17.5% | 1,845 | (1.1)% | 2.0% |
| Display\tand\tGraphics | 3,892 | 15.9% | 1,174 | 3,770 | 16.4% | 1,044 | 3.2% | 12.4% |
| Consumer\tand\tOffice | 3,403 | 13.9% | 688 | 3,164 | 13.8% | 629 | 7.6% | 9.3% |
| Safety,\tSecurity\tand |  |  |  |  |  |  |  |  |
| Protection\tServices | 3,070 | 12.6% | 611 | 2,663 | 11.6% | 549 | 15.3% | 11.3% |
| Electro\tand\tCommunications | 2,775 | 11.3% | 481 | 2,631 | 11.5% | 411 | 5.5% | 17.0% |
| Corporate\tand |  |  |  |  |  |  |  |  |
| Unallocated | 80 | 0.4% | (144) | 44 | 0.2% | (124) |  |  |
| Total\tCompany | $24,462 | 100% $ | 6,193 | $22,923 | 100% $ | 5,696 | 6.7% | 8.7% |

In	2007,	worldwide	total	sales	increased	6.7%.	Local-currency	sales	growth	(which	includes	volume,	selling	price	and	acquisition	impacts,	but	excludes	divestiture	and translation	impacts)	was	7.3%,	with	organic	local-currency	growth	of	4.9%	(including	0.7%	benefit	from	pharmaceuticals	supply	agreements)	and	acquisitions	adding 2.4%.	Divestitures,	primarily	the	sale	of	the	global	branded	pharmaceuticals	business	(Health	Care	segment),	decreased	worldwide	sales	growth	by	3.8%.	The	sale	of	the pharmaceuticals	business	is	not	presented	as	a	discontinued	operation	due	to	the	extent	of	the	projected	continuing	cash	flows	from	3M's	contractual	supply	relationship with	the	buyers	in	relation	to	those	of	the	business	that	was	sold.

The	breadth	of	3M's	product	lines	was	evident	during	2007	as	the	Company	experienced	solid	sales	growth	across	the	portfolio.	Health	Care	led	all	segments	with	local- currency	sales	growth	of	18.3%	(excluding	divestitures).	This	includes	a	4.4%	benefit	from	acquisitions	and	4.5%	benefit	due	to	the	pharmaceuticals	supply	agreements. The	sale	of	3M's	global	branded	pharmaceuticals	business	reduced	Health	Care	sales	growth	by	23.7%.	Local-currency	sales	increased	10.8%	in	Safety,	Security	and Protection	Services,	including	7.4%	from	numerous	acquisitions.	Local-currency	sales	increased	5.8%	in	Industrial	and	Transportation,	5.0%	in	Consumer	and	Office, 2.3%	in	Electro	and	Communications,	and	1.8%	(excluding	the	impact	of	the	Opticom/Canoga	divestiture)	in	Display	and	Graphics.	While	3M	experienced	broad-based sales	growth,	there	was	softness	in	certain	markets	in	2007.	Within	Display	and	Graphics,	optical	film	sales	increased	slightly	year-on-year,	but	3M	experienced	an attachment	rate	loss	in	LCD	desktop	monitors	and	LCD	TV	segments,	particularly	in	the	second	half	of	2007,	as	competition	continued	to	intensify	in	this	market.	3M also	experienced	weakness	in	its	roofing	granules	business	for	residential	asphalt	shingles	and	in	its	electronic	solutions	business	due	to	softness	in	certain	segments	of the	consumer	electronics	market.	Refer	to	the	section	entitled	Performance	by	Business	Segment	for	a	more	detailed	discussion	of	the	results	of	the	respective	segments.

Geographically,	the	European	region	(which	includes	Europe,	Middle	East	and	Africa)	led	local-currency	sales	growth	in	2007,	with	an	increase	of	11.7%,	7.4%	of which	was	organic	(excluding	acquisitions,	divestiture	and	translation	impacts).	Sales	growth	in	Europe	was	led	by	Safety,	Security	and	Protection	Services	and	Health Care	(without	Pharmaceuticals).	The	combined	Latin	America	and	Canada	area	local-currency	sales	increased	10.6%,	of	which	9.6%	was	organic,	with	growth	led	by Industrial	and	Transportation,	Safety,	Security	and	Protection	Services	and	Health	Care	(without	Pharmaceuticals).	Asia	Pacific	local-currency	sales	increased	4.9%,	of which	4.5%	was	organic,	with	all	six	business	segments	contributing	to	this	increase.	United	States	local-currency	sales	increased	5.7%,	of	which	2.6%	was	organic. Organic	volume	growth	in	the	U.S.	was	led	by	Health	Care	(without	Pharmaceuticals)	and	Industrial	and	Transportation,	which	was	partially	offset	by	softness	in	the electronic	solutions	business	and	weakness	in	a	few	businesses	that	are	impacted	by	the	slowdown	in	the	U.S.	housing,	road	construction	and	mass	retail	markets, primarily	the	roofing	granules,	protective	materials,	traffic	safety	and	office	supply	businesses.	Divestitures,	primarily	the	sale	of	the	global	branded	pharmaceuticals business,	reduced	sales	in	Europe	by	6.6%,	in	the	United	States	by	4.2%,	in	the	combined	Latin	America	and	Canada	area	by	2.8%,	and	in	Asia	Pacific	by	1.3%. Currency	effects	increased	total	international	sales	by	5.2%,	with	Europe	positively	impacted	by	8.5%,	the	combined	Latin	America	and	Canada	area	by	5.9%,	and	Asia Pacific	by	2.0%,	as	the	U.S.	dollar	weakened	in	aggregate	against	the	multitude	of	currencies	in	these	geographic	areas.

Operating	income	for	2007	increased	8.7%	year-on-year,	including	a	net	2.2	percentage	point	benefit	from	the	impact	of	items	discussed	in	Note	A	below.	Operating income	margins	were	approximately	25%	in	both	2007	and	2006,	with	items	in	Note	A	positively	impacting	these	margins	in	both	years	by	approximately	2.5	percentage points.

3M	generated	$4.275	billion	of	operating	cash	flows	in	2007,	an	increase	of	$436	million	compared	to	2006.	In	2007,	the	Company	utilized	$4.619	billion	of	cash	to repurchase	3M	common	stock	and	pay	dividends,	compared	to	$3.727	billion	in	2006.	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.	As	of	December	31,	2007,	approximately	$4.1	billion	remained	available	for repurchase.	In	February	2008,	3M's	Board	authorized	a	dividend	increase	of	4.2%	for	2008,	marking	the	50 	consecutive	year	of	dividend	increases	for	3M.	3M's	debt to	total	capital	ratio	(total	capital	defined	as	debt	plus	equity)	as	of	December	31,	2007	was	30%.	3M	has	an	AA	credit	rating	from	Standard	&	Poor's,	with	a	stable outlook,	and	an	Aa1	credit	rating	from	Moody's	Investors	Service,	with	a	negative	outlook.	The	Company	has	sufficient	access	to	capital	markets	to	meet	currently

# anticipated	growth	and	acquisition	investment	funding	needs.

In	2007,	the	Company	modified	elements	of	its	long-term	incentive	compensation	programs.	With	the	May	2007	Management	Stock	Ownership	Program	(MSOP) Annual	Grant,	the	Company	reduced	the	number	of	traditional	stock	options	granted	by	reducing	the	number	of	employees	eligible	to	receive	annual	grants	and	by shifting	a	portion	of	the	annual	grant	away	from	traditional	stock	options	primarily	to	restricted	stock	units.	These	changes	will	reduce	the	annual	dilution	impact	from approximately	1.5%	of	total	outstanding	common	stock	to	approximately	1%.	However,	associated	with	the	reduction	in	the	number	of	eligible	employees,	the	Company provided	a	one-time	"buyout"	grant	of	restricted	stock	units	to	the	impacted	employees,	which	resulted	in	increased	stock-based	compensation	expense	in	2007.	Stock- based	compensation	expense	totaled	$0.18	per	diluted	share	in	2007,	compared	with	$0.17	per	diluted	share	in	2006.	The	Company's	MSOP,	including	restricted	stock units,	is	discussed	further	in	Note	15.

The	preceding	forward-looking	statements	involve	risks	and	uncertainties	that	could	cause	results	to	differ	materially	from	those	projected	(refer	to	the	forward-looking statements	section	in	Item	7	and	the	risk	factors	provided	in	Item	1A	for	discussion	of	these	risks	and	uncertainties).

(Note	A).	In	2007,	gains	on	sale	of	businesses	and	real	estate,	net	of	restructuring	and	other	items,	increased	operating	income	by	$681	million	and	net	income	by	$448 million,	or	$0.62	per	diluted	share.	2007	included	net	benefits	from	gains	related	to	the	sale	of	businesses	($849	million	pre-tax,	$550	million	after-tax)	and	a	gain	on sale	of	real	estate	($52	million	pre-tax,	$37	million	after-tax),	which	were	partially	offset	by	increases	in	environmental	liabilities	($134	million	pre-tax,	$83	million after-tax),	restructuring	actions	($41	million	pre-tax,	$27	million	after-tax),	and	other	exit	activities	($45	million	pre-tax,	$29	million	after-tax).	These	items,	except	the gain	on	sale	of	real	estate,	are	discussed	in	more	detail	in	Note	2	(Acquisitions	and	Divestitures),	Note	4	(Restructuring	Actions	and	Other	Exit	Activities)	and	Note	13 (Commitments	and	Contingencies).	Gains	on	sale	of	businesses	include	the	second-quarter	2007	sale	of	3M's	Opticom	Priority	Control	Systems	and	Canoga	Traffic Detection	businesses,	and	the	first-quarter	2007	sale	of	the	global	branded	pharmaceuticals	business	in	Europe.	Concerning	the	real	estate	sale,	3M	sold	its	current	lab facility	located	in	Suwon,	Korea	and	is	currently	building	a	new	state-of-the-art	customer-oriented	R&D	facility	closer	to	Seoul	and	many	of	3M's	major	customers.

In	2006,	gains	of	sale	of	businesses,	net	of	restructuring	and	other	items,	increased	operating	income	by	$523	million	and	net	income	by	$438	million,	or	$0.57	per diluted	share.	2006	included	net	benefits	from	gains	related	to	the	sale	of	certain	portions	of	3M's	branded	pharmaceuticals	business	($1.074	billion	pre-tax,	$674	million after-tax)	and	favorable	income	tax	adjustments	($149	million),	which	were	partially	offset	by	restructuring	actions	($403	million	pre-tax,	$257	million	after-tax), acquired	in-process	research	and	development	expenses	($95	million	pre-tax	and	after-tax),	settlement	costs	of	a	previously	disclosed	antitrust	class	action	($40	million pre-tax,	$25	million	after-tax),	and	environmental	obligations	related	to	the	pharmaceuticals	business	($13	million	pre-tax,	$8	million	after-tax).	These	items,	except	the settlement	costs	and	environmental	obligations,	are	discussed	in	more	detail	in	Note	2	(Acquisitions	and	Divestitures),	Note	4	(Restructuring	Actions	and	Other	Exit Activities),	Note	8	(Income	Taxes)	and	Note	13	(Commitments	and	Contingencies).	Concerning	settlement	costs,	the	Company	recorded	$40	million	in	2006	with respect	to	a	settlement	in	principle	related	to	the	antitrust	class	action	brought	on	behalf	of	direct	purchasers	who	did	not	purchase	private	label	tape.	Concerning environmental	obligations,	the	Company	increased	its	reserves	by	$13	million	during	2006	for	estimated	environmental	remediation	costs	at	a	European	pharmaceutical plant.

# RESULTS	OF	OPERATIONS

# Net	Sales:

|  |  | 2007 |  |  | 2006 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | U.S. | Intl. | Worldwide | U.S. | Intl. | Worldwide |
| Net\tsales\t(millions) | $8,987 | $15,475 | $24,462 | $8,853 | $14,070 | $22,923 |
| %\tof\tworldwide\tsales | 36.7% | 63.3% |  | 38.6% | 61.4% |  |
| Components\tof\tnet\tsales\tchange: |  |  |  |  |  |  |
| Volume\t—\torganic | 1.6% | 7.4% | 5.1% | 3.1% | 8.0% | 6.1% |
| Volume\t—\tacquisitions | 3.1 | 2.1 | 2.4 | 2.6 | 1.9 | 2.1 |
| Price | 1.0 | (1.1) | (0.2) | 1.4 | (1.8) | (0.5) |
| Local-currency\tsales |  |  |  |  |  |  |
| (including\tacquisitions) | 5.7 | 8.4 | 7.3 | 7.1 | 8.1 | 7.7 |
| Divestitures | (4.2) | (3.6) | (3.8) | — | — | — |
| Translation | — | 5.2 | 3.2 | — | 1.0 | 0.6 |
| Total\tsales\tchange | 1.5% | 10.0% | 6.7% | 7.1% | 9.1% | 8.3% |

In	2007,	local-currency	sales	growth	of	7.3%	(which	includes	acquisitions,	but	excludes	divestiture	and	translation	impacts)	was	led	by	the	Health	Care;	Safety,	Security and	Protection	Services;	Industrial	and	Transportation	and	Consumer	and	Office	segments.	All	business	segments	have	contributed	positive	local-currency	sales	growth for	four	consecutive	years.	Acquisitions	increased	2007	sales	by	2.4%,	led	by	the	August	2006	acquisition	of	Security	Printing	and	Systems	Limited	and	the	late	2006 acquisitions	of	Softmed	Systems	Inc.	and	Biotrace	International	PLC.

In	2006,	local-currency	sales	growth	of	7.7%	was	broad-based,	as	all	business	segments	made	positive	contributions	to	local-currency	sales	growth.	Acquisitions increased	2006	sales	by	2.1%,	driven	by	the	August	2005	acquisition	of	CUNO	and	the	August	2006	acquisition	of	Security	Printing	and	Systems	Limited.

Refer	to	both	the	"Performance	by	Business	Segment"	and	"Performance	by	Geographic	Area"	sections	for	additional	discussion	of	sales	change.

# Operating	Expenses:

|  |  |  |  | 2007 | 2006 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | Versus | Versus |
| (Percent\tof\tnet\tsales) | 2007 | 2006 | 2005 | 2006 | 2005 |
| Cost\tof\tsales | 52.1% | 51.1% | 49.2% | 1.0% | 1.9% |
| Selling,\tgeneral\tand\tadministrative\texpenses | 20.5 | 22.1 | 21.9 | (1.6) | 0.2 |
| Research,\tdevelopment\tand\trelated\texpenses | 5.6 | 6.6 | 6.0 | (1.0) | 0.6 |
| Gain\ton\tsale\tof\tbusinesses | (3.5) | (4.6) | — | 1.1 | (4.6) |

# Operating	income

As	discussed	in	the	preceding	overview	section,	the	2007	gain	on	sale	of	businesses	and	real	estate,	net	of	environmental	liability	charges,	restructuring	and	other	exit activities,	benefited	2007	operating	income	by	$681	million,	or	2.8%	of	net	sales.	In	addition,	the	2006	gain	on	sale,	net	of	restructuring	and	other	items,	benefited	2006 operating	income	by	$523	million,	or	2.2%	of	net	sales.	The	following	tables	summarize	these	items	by	operating	expense	category.	Items	included	in	the	"Other"

category	of	the	table	for	2006	are	acquired	in-process	research	and	development	expenses	($95	million),	settlement	costs	of	a	previously	disclosed	antitrust	class	action ($40	million),	and	environmental	obligations	related	to	the	pharmaceuticals	business	($13	million).

|  | Gain	on | Environ- | Restructuring | on	sale |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Sale\tof | mental | and\tother | of\treal |  |
| (Millions) | businesses | liabilities | exit\tactivities | estate | Total |
| Cost\tof\tsales | $— $— | $— $— | $64 | $— | $64 |
| Selling,\tgeneral\tand\tadministrative\texpenses | — | 134 | 26 | (52) | 108 |
| Research,\tdevelopment\tand\trelated\texpenses | — | — | (4) | — | (4) |
| Gain\ton\tsale\tof\tbusinesses | (849) | — | — |  | (849) |
| Total\toperating\tincome\tpenalty\t(benefit) | $(849) | $134 | $86 | $(52) | $(681) |

# 2006	Gain	on	Sale,	Restructuring	and	Other	Summary

|  |  |  | 2006	Gain	on	Sale,	Restructuring	and	Other	Summary | 2006	Gain	on	Sale,	Restructuring	and	Other	Summary | 2006	Gain	on	Sale,	Restructuring	and	Other	Summary |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Gain\ton\tsale | Pharma- |  |  | Total |  |  |
|  | \tof\tpharma- | ceuticals | Overhead | Business | restruc- |  |  |
|  | ceuticals | restructuring | reduction | specific | turing |  |  |
| (Millions) | business | actions | actions | actions | actions | Other | Total |
| Cost\tof\tsales | $— | $32 | $24 | $74 | $130 | $13 | $143 |
| Selling,\tgeneral\tand\tadministrative\texpenses | — | 66 | 81 | 51 | 198 | 40 | 238 |
| Research,\tdevelopment\tand\trelated\texpenses | — | 68 | 7 | — | 75 | 95 | 170 |
| Gain\ton\tsale\tof\tbusinesses | (1,074) | — | — | — | — | — | (1,074) |
| Total\toperating\tincome\tpenalty\t(benefit) | $(1,074) | $166 | $112 | $125 | $403 | $148 | $(523) |

# Cost	of	Sales:

Cost	of	sales	includes	manufacturing,	engineering	and	freight	costs.	Cost	of	sales	as	a	percent	of	net	sales	increased	1.0	percentage	point	in	2007	compared	to	2006,	with this	increase	primarily	due	to	the	sale	of	the	branded	pharmaceuticals	business,	which	had	lower	than	average	cost	of	sales.	Raw	material	costs	increased	approximately 1%	in	2007,	compared	with	2006.	In	2007,	restructuring	and	other	exit	costs	increased	cost	of	sales	by	$64	million,	or	0.3	percentage	points.	These	charges	primarily related	to	the	consolidation	of	certain	flexible	circuit	manufacturing	operations,	the	phase-out	of	operations	at	the	Company's	New	Jersey	roofing	granule	facility	and charges	related	to	the	Company's	decision	to	close	an	Electro	and	Communications	facility	in	Wisconsin.	In	2006,	restructuring	and	other	items	increased	cost	of	sales by	$143	million,	or	0.7	percentage	points.

Cost	of	sales	increased	1.9	percentage	points	in	2006.	Approximately	1.2	percentage	points	of	this	increase	related	to	numerous	items,	such	as	higher	raw	material	costs, slightly	lower	selling	prices,	and	higher	costs	associated	with	scaling	up	additional	manufacturing	capacity.	In	addition,	there	were	supply	chain	inefficiencies	caused	by capacity-constraints.	Finally,	3M	accelerated	the	pace	of	acquisitions	in	2006,	which	increased	cost	of	sales	slightly	for	the	year.	Broad-based	sales	volume	growth	and productivity	gains	helped	offset	some	of	this	impact.	Raw	material	costs	increased	approximately	3%	for	2006,	compared	with	2005.

# Selling,	General	and	Administrative	Expenses:

Selling,	general	and	administrative	(SG&A)	expenses	as	a	percent	of	net	sales	decreased	1.6	percentage	points	in	2007	when	compared	to	2006,	as	expenses	incurred	in 2006	in	the	Company's	now-divested	global	branded	Pharmaceuticals	business	did	not	repeat	in	2007.	Non-pharmaceutical	ongoing	SG&A	expenses,	after	adjusting	for the	following	items,	were	up	approximately	7%	in	dollars,	reflecting	the	Company's	continued	investment	in	sales	and	marketing	to	support	growth	markets.	In	2007, SG&A	includes	increases	in	environmental	liabilities,	restructuring	charges	and	other	exit	activities,	net	of	the	gain	on	sale	of	real	estate	($108	million	combined	net expense),	which	increased	SG&A	as	a	percent	of	sales	by	0.4	percentage	points.	2006	included	restructuring	actions	and	settlement	costs	of	a	previously	disclosed antitrust	class	action	($238	million	combined	expense),	which	increased	2006	SG&A	as	a	percent	of	sales	by	1.0	percentage	points.	In	dollars,	SG&A	decreased	$51 million	when	comparing	2007	to	2006,	with	the	change	in	restructuring	and	other	items	year-on-year	decreasing	SG&A	by	$130	million,	pharmaceutical	SG&A spending	decreasing	$241	million	and	other	SG&A	spending	increasing	$320	million,	or	approximately	7%	in	dollars.	The	Company	continues	to	constrain administrative	costs.

SG&A	expenses	as	a	percentage	of	net	sales	increased	0.2	of	a	percentage	point	in	2006	when	compared	to	2005.	In	dollars,	SG&A	increased	$435	million,	with restructuring	and	other	items	increasing	SG&A	by	$238	million	and	other	spending	increasing	SG&A	by	$197	million.	3M	continues	to	invest	in	growth-oriented	SG&A as	sales	and	marketing	costs	increased	faster	than	sales,	while	administrative	expenses	remained	relatively	flat	in	dollars,	attributable	to	ongoing	cost-control	efforts.

# Research,	Development	and	Related	Expenses:

Research,	development	and	related	expenses	(R&D)	as	a	percent	of	net	sales	decreased	1.0	percentage	point	in	2007	when	compared	to	2006,	as	expenses	incurred	in 2006	in	the	Company's	now-divested	R&D-intensive	Pharmaceuticals	business	did	not	repeat	in	2007.	Non-pharmaceutical	ongoing	R&D	expenses,	after	adjusting	for the	following	items,	were	up	approximately	11%	in	dollars,	as	the	Company	continued	to	aggressively	invest	in	future	technologies	and	growth	opportunities.	2006 spending	included	a	$95	million	in-process	research	and	development	charge	(discussed	in	Note	2)	and	$75	million	in	restructuring	actions	(Note	4),	which	increased 2006	R&D	as	a	percent	of	sales	by	0.7	percentage	points.	In	dollars,	R&D	spending	decreased	$154	million	when	comparing	2007	to	2006,	with	the	change	in restructuring	and	other	items	year-on-year	decreasing	R&D	by	$174	million,	2006	pharmaceutical	SG&A	spending	decreasing	$120	million	and	other	R&D	spending increasing	$140	million,	or	approximately	11%	in	dollars,	reflecting	3M's	continuing	commitment	to	fund	future	growth	for	the	Company.

R&D	increased	as	a	percent	of	sales	by	0.6	of	a	percentage	point,	or	$248	million,	when	comparing	2006	to	2005.	The	2006	spending	included	a	$95	million	in-process research	and	development	charge	(discussed	in	Note	2)	and	$75	million	in	restructuring	actions	(Note	4).	Other	spending	increased	approximately	$78	million, representing	an	increase	of	approximately	6%	compared	with	2005.

# Gain	on	Sale	of	Businesses:

In	January	2007,	3M	completed	the	sale	of	its	global	branded	pharmaceuticals	business	in	Europe	to	Meda	AB.	3M	received	proceeds	of	$817	million	for	this	transaction and	recognized,	net	of	assets	sold,	a	pre-tax	gain	of	$781	million	in	2007	(recorded	in	the	Health	Care	segment).	In	June	2007,	3M	completed	the	sale	of	its	Opticom

Priority	Control	Systems	and	Canoga	Traffic	Detection	businesses	to	TorQuest	Partners	Inc.,	a	Toronto-based	investment	firm.	3M	received	proceeds	of	$80	million	for this	transaction	and	recognized,	net	of	assets	sold,	transaction	and	other	costs,	a	pre-tax	gain	of	$68	million	(recorded	in	the	Display	and	Graphics	segment)	in	2007.

In	December	2006,	3M	completed	the	sale	of	its	global	branded	pharmaceuticals	businesses	in	the	United	States,	Canada,	and	Latin	America	region	and	the	Asia	Pacific region,	including	Australia	and	South	Africa.	3M	received	proceeds	of	$1.209	billion	for	these	transactions	and	recognized	a	pre-tax	gain	on	sale	of	$1.074	billion	in 2006	(recorded	in	the	Health	Care	segment).	For	more	detail,	refer	to	Note	2.

3M	uses	operating	income	as	one	of	its	primary	business	segment	performance	measurement	tools.	Operating	income	margins	over	the	past	several	years	have	been	in excess	of	22%,	helped	by	solid	sales	growth	and	an	ongoing	strong	commitment	to	maintaining	operational	discipline	throughout	3M's	global	operations.	Operating income	margins	of	25.3%	in	2007	were	positively	impacted	by	2.8	percentage	points	($681	million)	from	the	gain	on	sale	of	businesses	and	real	estate,	net	of environmental	liabilities,	restructuring	and	other	exit	activities.	Operating	income	margins	of	24.8%	for	2006	were	positively	impacted	by	2.2	percentage	points	($523 million)	from	the	gain	on	sale	of	portions	of	the	pharmaceuticals	business,	net	of	restructuring	and	other	actions.	Adjusting	for	the	preceding	items,	operating	income margins	in	2007	were	similar	to	2006.

# Interest	Expense	and	Income:

| (Millions) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Interest\texpense | $210 | $122 | $82 |
| Interest\tincome | (132) | (51) | (56) |
| Total | $78 | $71 | $26 |

Interest	Expense:	Interest	expense	increased	year-on-year	in	both	2007	and	2006,	primarily	due	to	higher	average	debt	balances	and	higher	interest	rates.

Interest	Income:	Interest	income	increased	in	2007	due	to	higher	average	cash,	cash	equivalent	and	marketable	securities	balances	and	higher	interest	rates.	Interest income	was	lower	in	2006,	with	lower	average	cash,	cash	equivalent	and	marketable	securities	balances	partially	offset	by	higher	interest	rates.

# Provision	for	Income	Taxes:

| (Percent	of	pre-tax	income) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Effective\ttax\trate | 32.1% | 30.6% | 33.7% |

The	effective	tax	rate	for	2007	was	32.1%,	compared	with	30.6%	in	2006.	The	Company's	2007	tax	rate	benefited	from	reduced	international	tax	rates	and	an	increased benefit	for	the	domestic	manufacturer's	deduction,	but	was	penalized	by	the	elimination	of	the	foreign	export	sales	benefit.	The	Company's	2006	tax	rate	included benefits	from	adjustments	to	its	reserves	for	tax	contingencies	following	the	settlement	of	income	tax	audits.	Refer	to	Note	8	for	additional	information.

The	tax	rate	for	2006	was	30.6%,	compared	with	33.7%	in	2005.	As	discussed	above,	the	Company's	2006	tax	rate	included	benefits	from	adjustments	to	its	reserves	for tax	contingencies.	In	2005,	the	Company	repatriated	approximately	$1.7	billion	of	foreign	earnings	under	the	American	Jobs	Creation	Act	of	2004	(Jobs	Act).	The	Jobs Act	provided	3M	the	opportunity	to	tax-effectively	repatriate	foreign	earnings	for	U.S.	qualifying	investments	specified	by	3M's	domestic	reinvestment	plan.	As	a consequence,	in	the	second	quarter	of	2005,	3M	recorded	a	tax	expense	of	$75	million,	net	of	available	foreign	tax	credits,	which	negatively	impacted	the	2005	effective worldwide	tax	rate	by	1.6%.	No	similar	repatriation	occurred	in	2006	since	this	Jobs	Act	provision	only	applied	to	2005.

# Minority	Interest:

| (Millions) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Minority\tinterest | $55 | $51 | $55 |

Minority	interest	expense	eliminates	the	income	or	loss	attributable	to	non-3M	ownership	interests	in	3M	consolidated	entities.	3M's	most	significant	consolidated	entity with	non-3M	ownership	interests	is	Sumitomo	3M	Limited	in	Japan	(3M	owns	75%	of	Sumitomo	3M	Limited).

# Cumulative	Effect	of	Accounting	Change:

As	of	December	31,	2005,	the	Company	adopted	FASB	Interpretation	No.	47,	"Accounting	for	Conditional	Asset	Retirement	Obligations"	(FIN	47).	This	accounting standard	applies	to	the	fair	value	of	a	liability	for	an	asset	retirement	obligation	associated	with	the	retirement	of	tangible	long-lived	assets	and	where	the	liability	can	be reasonably	estimated.	Conditional	asset	retirement	obligations	exist	for	certain	of	the	Company's	long-term	assets.	The	fair	value	of	these	obligations	is	recorded	as liabilities	on	a	discounted	basis.	Over	time	the	liabilities	are	accreted	for	the	change	in	the	present	value	and	the	initial	capitalized	costs	are	depreciated	over	the	useful lives	of	the	related	assets.	The	adoption	of	FIN	47	resulted	in	the	recognition	of	an	asset	retirement	obligation	liability	of	$59	million	at	December	31,	2005	and	an	after- tax	charge	of	$35	million	for	2005,	which	was	reflected	as	a	cumulative	change	in	accounting	principle	in	the	Consolidated	Statement	of	Income.	At	December	31,	2007, the	asset	retirement	obligation	liability	was	$59	million.

# Currency	Effects:

3M	estimates	that	year-on-year	currency	effects,	including	hedging	impacts,	increased	net	income	by	approximately	$150	million	in	2007,	$20	million	in	2006	and	$115 million	in	2005.	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.	3M	estimates	that	year-on-year	derivative	and	other	transaction	gains	and	losses	increased	net	income	by	approximately	$10	million	in	2007,	had	an immaterial	impact	on	net	income	in	2006,	and	increased	net	income	by	approximately	$50	million	in	2005.

# PERFORMANCE	BY	BUSINESS	SEGMENT

Disclosures	relating	to	3M's	business	segments	are	provided	in	Item	1,	Business	Segments.	Financial	information	and	other	disclosures	are	provided	in	the	Notes	to	the Consolidated	Financial	Statements.	As	discussed	in	Note	16	to	the	Consolidated	Financial	Statements,	effective	in	the	first	quarter	of	2007,	3M	made	certain	product moves	between	its	business	segments	in	its	continuing	effort	to	drive	growth	by	aligning	businesses	around	markets	and	customers.	Segment	information	presented herein	reflects	the	impact	of	these	changes	for	all	periods	presented.	The	reportable	segments	are	the	Health	Care	segment,	Industrial	and	Transportation	segment, Display	and	Graphics	segment,	Consumer	and	Office	segment,	Safety,	Security	and	Protection	Services	segment,	and	Electro	and	Communications	segment.

Information	related	to	3M's	business	segments	is	presented	in	the	tables	that	follow.	Local-currency	sales	(which	include	both	core	and	acquisition	volume	impacts,	plus price	impacts)	are	provided	for	each	segment.	The	divestiture	impact,	translation	impact	and	total	sales	change	are	also	provided	for	each	segment.

As	discussed	in	Note	1,	effective	January	1,	2006,	3M	adopted	Statement	of	Financial	Accounting	Standards	No.	123	(revised	2004),	"Share-Based	Payment"	(SFAS No.	123R),	which	required	3M	to	expense	stock-based	compensation.	The	Company	adopted	SFAS	No.	123R	using	the	modified	retrospective	method.	Effective January	1,	2006,	all	prior	periods	were	revised	to	give	effect	to	the	fair-value-based	method	of	accounting	for	awards	granted	in	fiscal	years	beginning	on	or	after January	1,	1995.	For	additional	discussion,	refer	to	Note	15.	Stock-based	compensation	expense	for	the	years	ended	December	31,	2007,	2006	and	2005	is	summarized by	business	segment	in	the	table	that	follows.

# Stock-based	compensation	expense

| (Millions) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Industrial\tand\tTransportation | $58 | $50 | $46 |
| Health\tCare | 40 | 42 | 35 |
| Display\tand\tGraphics | 33 | 27 | 19 |
| Consumer\tand\tOffice | 24 | 24 | 21 |
| Safety,\tSecurity\tand\tProtection\tServices | 23 | 21 | 16 |
| Electro\tand\tCommunications | 21 | 21 | 18 |
| Corporate\tand\tUnallocated | 29 | 15 | — |
| Total\tCompany | $228 | $200 | $155 |

As	discussed	in	the	preceding	overview	section,	the	combination	of	the	2007	gain	on	sale	of	businesses	and	real	estate,	net	of	environmental	liability	charges, restructuring	and	other	exit	activities	benefited	2007	operating	income	by	$681	million,	or	2.8%	of	net	sales.	The	2006	gain	on	sale	of	businesses,	net	of	restructuring and	other	items	benefited	2006	operating	income	by	$523	million,	or	2.2%	of	net	sales.	The	following	tables	summarize	these	items	by	business	segment.	In	2006,	items included	in	the	"Other"	category	of	the	table	are	acquired	in-process	research	and	development	expenses	($95	million),	settlement	costs	of	a	previously	disclosed antitrust	class	action	($40	million),	and	environmental	obligations	related	to	the	pharmaceuticals	business	($13	million).

|  |  | 2007	Gain	on	Sale,	Restructuring	and	Other	Summary | 2007	Gain	on	Sale,	Restructuring	and	Other	Summary | 2007	Gain	on	Sale,	Restructuring	and	Other	Summary |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Gain\ton | Environ- | Restructuring | Gain\ton |  |
|  | sale\tof | mental | and\tother\texit | sale\tof |  |
| (Millions) | businesses | liabilities | activities | real\testate | Total |
| Industrial\tand\tTransportation | $— | $— | $9 | $— | $9 |
| Health\tCare: |  |  |  |  |  |
| Gain\ton\tsale\tof\tpharmaceuticals\tbusiness | (781) | — | — | — | (781) |
| Restructuring\tactions\tand\tother | — | — | (10) | — | (10) |
| Display\tand\tGraphics | (68) | — | 17 | — | (51) |
| Consumer\tand\tOffice | — | — | — | — | — |
| Safety,\tSecurity\tand\tProtection\tServices | — | — | 29 | — | 29 |
| Electro\tand\tCommunications | — | — | 41 | — | 41 |
| Corporate\tand\tUnallocated | — | 134 | — | (52) | 82 |
| Total\toperating\tincome\tpenalty\t(benefit) | $(849) | $134 | $86 | $(52) | $(681) |

|  |  |  | 2006	Gain	on	Sale,	Restructuring	and	Other	Summary | 2006	Gain	on	Sale,	Restructuring	and	Other	Summary | 2006	Gain	on	Sale,	Restructuring	and	Other	Summary |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Gain\ton\tsale | Pharma- | Over- | Busi- | Total |  |  |
|  | of\tpharma- | ceuticals | head | ness | \trestruc- |  |  |
|  | ceuticals | restructuring | reduction | specific | turing |  |  |
| (Millions) | business | actions | actions | actions | actions | Other | Total |
| Industrial\tand\tTransportation | $— | $— | $— | $15 | $15 | $— | $15 |
| Health\tCare: |  |  |  |  |  |  |  |
| Gain\ton\tsale\tof\tpharmaceuticals\tbusiness | (1,074) | — | — | — | — | — | (1,074) |
| Restructuring\tactions\tand\tother | — | 166 | 112 | 15 | 293 | 108 | 401 |
| Display\tand\tGraphics | — | — | — | 39 | 39 | — | 39 |
| Consumer\tand\tOffice | — | — | — | — | — | — | — |
| Safety,\tSecurity\tand\tProtection\tServices | — | — | — | 10 | 10 | — | 10 |
| Electro\tand\tCommunications | — | — | — | 46 | 46 | — | 46 |
| Corporate\tand\tUnallocated | — | — | — | — | — | 40 | 40 |
| Total\toperating\tincome\tpenalty\t(benefit) | $(1,074) | $166 | $112 | $125 | $403 | $148 | $(523) |

# Industrial	and	Transportation	Business	(29.7%	of	consolidated	sales):

|  | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Sales\t(millions) | $7,274 | $6,640 | $6,047 |
| Sales\tchange\tanalysis: |  |  |  |
| Local\tcurrency\t(volume\tand\tprice) | 5.8% | 9.0% | 6.4% |
| Translation | 3.8 | 0.8 | 1.2 |
| Total\tsales\tchange | 9.6% | 9.8% | 7.6% |
| Operating\tincome\t(millions) | $1,501 | $1,342 | $1,210 |
| Percent\tchange | 11.8% | 11.0% | 16.7% |
| Percent\tof\tsales | 20.6% | 20.2% | 20.0% |

The	Industrial	and	Transportation	segment	serves	a	broad	range	of	markets,	such	as	appliance,	paper	and	packaging,	food	and	beverage,	and	automotive.	Industrial	and Transportation	products	include	tapes,	a	wide	variety	of	coated	and	non-woven	abrasives,	adhesives,	specialty	materials,	filtration	products,	closures	for	disposable diapers,	and	components	and	products	that	are	used	in	the	manufacture,	repair	and	maintenance	of	automotive,	marine,	aircraft	and	specialty	vehicles.	The	August	2005 acquisition	of	CUNO	added	a	comprehensive	line	of	filtration	products	for	the	separation,	clarification	and	purification	of	fluids	and	gases.

In	2007,	local-currency	sales	increased	5.8%,	including	1.8%	growth	from	acquisitions.	During	the	fourth	quarter	of	2007,	this	segment	added	four	complementary	gap- filling	acquisitions,	bringing	total	completed	acquisitions	for	the	year	to	seven.	In	combination	with	focused	investments	in	research	and	development,	these	acquisitions will	help	strengthen	the	core	tapes,	adhesives	and	abrasives	platforms	for	many	years	to	come.	Sales	growth	was	broad-based,	led	by	industrial	adhesives	and	tapes, automotive	aftermarket,	abrasives	and	automotive	OEM	businesses.	All	geographic	areas	contributed	positively	to	growth.	Significant	manufacturing	investments	were made	in	emerging	economies	such	as	India,	China	and	Poland	to	simplify	the	supply	chain	and	get	closer	to	local	customers.	Good	operational	discipline	helped	deliver operating	income	growth	of	11.8%,	with	operating	income	margins	of	20.6%.	Operating	income	included	$9	million	in	restructuring	and	other	exit	activity	expenses,

# primarily	comprised	of	severance	and	related	benefits.

In	2006,	local-currency	sales	grew	9.0%,	including	4.6%	growth	from	acquisitions,	primarily	related	to	the	August	2005	acquisition	of	CUNO.	Since	CUNO	was acquired	in	early	August	2005	and	is	thus	considered	part	of	organic	growth	effective	in	August	2006,	the	acquisition	benefit	reflected	in	2006	only	reflects	the	months from	January	2006	through	July	2006.	The	industrial	adhesives	and	tapes	business,	along	with	the	automotive	aftermarket	business,	which	sells	products	to	body	shops for	vehicle	repairs,	led	organic	sales	growth	in	2006.	3M	also	posted	good	sales	growth	in	its	abrasives	business	and	its	energy	and	advanced	materials	business.	Growth in	the	automotive	OEM	business	was	impacted	by	softness	in	the	U.S.	domestic	automotive	industry.	Geographically,	local-currency	sales	growth	in	dollars	was strongest	in	the	Asia	Pacific	and	Europe	areas.	Operating	income	increased	11.0%	to	$1.342	billion	in	2006.

Operating	income	included	$15	million	in	restructuring	expenses,	primarily	comprised	of	asset	impairments	and	severance	and	related	benefits,	which	negatively impacted	operating	income	growth	by	1.2%.

In	March	2005,	3M's	automotive	business	completed	the	purchase	of	19%	of	TI&M	Beteiligungsgesellschaft	mbH	(TI&M)	for	approximately	$55	million.	TI&M	is	the parent	company	of	I&T	Innovation	Technology	Entwicklungs-	und	Holding	Aktiengesellschaft	(I&T),	an	Austrian	maker	of	flat	flexible	cable	and	circuitry.	Pursuant	to a	Shareholders	Agreement,	3M	marketed	the	firm's	flat	flexible	wiring	systems	for	automotive	interior	applications	to	the	global	automotive	market.	I&T	filed	a	petition for	bankruptcy	protection	in	August	2006.	As	part	of	its	agreement	to	purchase	the	shares	of	TI&M,	the	Company	was	granted	a	put	option,	which	gave	the	Company	the right	to	sell	back	its	entire	ownership	interest	in	TI&M	to	the	other	investors	from	whom	3M	acquired	its	19%	interest.	The	put	option	became	exercisable	January	1, 2007.	The	Company	exercised	the	put	option	and	recovered	approximately	$25	million	of	its	investment	from	one	of	the	investors	based	in	Belgium	in	February	2007. The	other	two	TI&M	investors	have	filed	a	bankruptcy	petition	in	Austria.	The	Company	is	pursuing	recovery	of	the	balance	of	its	investment	both	through	the	Austrian bankruptcy	proceedings	and	pursuant	to	the	terms	of	the	Share	Purchase	Agreement.	The	Company	believes	collection	of	its	remaining	investment	is	probable	and,	as	a result,	no	impairment	reserve	has	been	recorded.

# Health	Care	Business	(16.2%	of	consolidated	sales):

|  | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Sales\t(millions) | $3,968 | $4,011 | $3,760 |
| Sales\tchange\tanalysis: |  |  |  |
| Local\tcurrency\t(volume\tand\tprice) | 18.3% | 6.0% | 4.2% |
| Divestitures | (23.7) | — | — |
| Translation | 4.3 | 0.7 | 0.4 |
| Total\tsales\tchange | (1.1)% | 6.7% | 4.6% |
| Operating\tincome\t(millions) | $1,882 | $1,845 | $1,114 |
| Percent\tchange | 2.0% | 65.6% | 14.6% |
| Percent\tof\tsales | 47.4% | 46.0% | 29.6% |

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,	drug	delivery systems,	dental	and	orthodontic	products,	health	information	systems	and	microbiology	solutions.	As	discussed	in	Note	2,	the	global	branded	pharmaceuticals	business was	sold	in	December	2006	and	January	2007.

In	2007,	Health	Care	sales	were	$3.968	billion.	Local-currency	growth	was	18.3%	(excluding	divestitures),	including	4.4	percentage	points	of	growth	from	acquisitions and	4.5	percentage	points	of	growth	from	supply	agreements	related	to	the	sale	of	the	global	branded	pharmaceuticals	business.	The	sale	of	the	pharmaceuticals	business reduced	Health	Care	sales	growth	by	23.7%.	3M	provides	disaggregated	information	on	sales	growth	for	Health	Care's	remaining	businesses	(without	pharmaceuticals) further	below.

The	combination	of	the	following	items	positively	impacted	total	year	2007	Health	Care	operating	income	by	$791	million.	As	discussed	in	Note	2,	in	January	2007	the Company	sold	its	branded	pharmaceuticals	business	in	the	Europe	region.	The	operating	income	gain	related	to	this	sale,	which	is	included	in	Health	Care,	totaled	$781 million.	In	addition,	as	discussed	in	Note	4,	a	net	operating	income	gain	of	$10	million	was	recorded	in	2007,	which	primarily	related	to	adjustments	to	restructuring costs	incurred	in	the	fourth	quarter	of	2006.

In	2006,	Health	Care	sales	were	$4.011	billion.	Organic	local-currency	growth	was	5.3%,	with	acquisitions	adding	an	additional	0.7%	of	growth.	Local-currency	growth was	led	by	the	medical	supplies	and	dental	businesses.	3M's	pharmaceutical	business	was	approximately	19%	of	Health	Care	sales	in	2006.	Pharmaceutical	local- currency	sales	declined	3.5%	in	2006,	while	the	remaining	businesses'	2006	local-currency	sales	growth	increased	8.5%.	Geographically,	Health	Care's	local-currency sales	growth	was	strongest	in	the	United	States,	Europe	and	Asia	Pacific	areas.	Operating	income	for	2006	was	up	65.6%,	impacted	by	the	gain	on	sale	of	3M's	branded pharmaceuticals	business,	restructuring	impacts	and	other	items	as	discussed	in	the	following	paragraph,	which	positively	impacted	operating	income	growth	by	60.4%.

The	combination	of	the	following	items	positively	impacted	total	year	2006	Health	Care	operating	income	by	$673	million,	primarily	in	the	fourth	quarter	of	2006.	As discussed	in	Note	2,	in	early	December	2006,	the	Company	sold	its	branded	pharmaceuticals	business	in	the	Asia	Pacific	region,	including	Australia	and	South	Africa. The	Company	also	sold	its	branded	pharmaceuticals	business	in	the	United	States,	Canada	and	Latin	America	in	late	December	2006.	The

operating	income	gain	related	to	this	sale,	which	is	included	in	Health	Care,	totaled	$1.074	billion.	In	addition,	as	discussed	in	Note	4,	the	Health	Care	segment	for	the year	2006	included	$293	million	in	restructuring	costs,	primarily	employee-related	severance	and	benefit	costs.	Of	the	$293	million,	$166	million	was	related	to	the pharmaceuticals	business	and	$15	million	related	to	Health	Care	severance	and	other	costs.	In	addition,	$112	million	of	severance	and	benefit	costs	were	recorded	in	the fourth	quarter	of	2006	related	to	worldwide	staff	overhead	reduction	actions	taken	to	streamline	the	Company's	cost	structure	in	response	to	the	sale	of	3M's	branded pharmaceuticals	business.	Health	Care	also	included	$95	million	of	expensed	in-process	research	and	development	costs	related	to	the	Brontes	acquisition	and	$13 million	in	environmental	reserves	related	to	the	pharmaceuticals	business.

3M	believes	the	following	disaggregated	information	for	3M	Health	Care's	remaining	businesses	(without	pharmaceuticals)	and	for	pharmaceuticals	on	a	stand-alone basis	provides	useful	information.

# 	Health	Care	Business	without	Pharmaceuticals:

| Translation | 4.3 | 0.7 | 0.4 |
| :--- | :--- | :--- | :--- |
| Total\tsales\tchange | 22.6% | 9.2% | 5.7% |
| Operating\tincome\t(millions) | $1,086 | $806 | $888 |
| Percent\tchange | 34.6% | (9.1)% | 14.0% |
| Percent\tof\tsales | 27.4% | 24.9% | 30.0% |

The	following	discussion	provides	information	on	3M	Health	Care's	remaining	businesses	(without	pharmaceuticals).

In	2007,	sales	growth	was	broad-based	across	all	platforms,	led	by	infection	prevention	solutions	and	skin	and	wound	care	therapy	products	in	medical,	HFA-based components	(non-CFC)	for	drug	inhalers	in	drug	delivery,	and	healthcare	funding	and	performance	management	solutions	for	the	hospital	market	in	health	information systems.	Geographically,	Health	Care	(without	pharmaceuticals)	achieved	strong	growth	rates	in	all	major	regions,	led	by	Europe,	the	United	States,	and	the	combined Latin	America	and	Canada	area.	Local-currency	sales	increased	18.3%,	with	acquisitions	contributing	4.4	percentage	points	of	this	growth.	Much	of	the	acquisition growth	came	from	two	deals	that	closed	in	late	2006	—	Biotrace	International,	PLC,	a	U.K.-based	provider	of	microbiology	products,	and	SoftMed,	a	Maryland-based provider	of	health	information	software	solutions.	Health	Care	also	closed	five	complementary	acquisitions	in	2007	to	strengthen	the	portfolio	and	accelerate	growth	into the	future	in	the	medical,	oral	care	and	health	information	systems	businesses.	Sales	growth	also	included	4.5	percentage	points	of	growth	due	to	supply	agreements related	to	the	sale	of	the	global	branded	pharmaceuticals	business.	Operating	income	increased	34.6%,	with	an	operating	income	margin	of	27.4%.	Operating	income	for 2007	included	$5	million	in	restructuring	expenses,	primarily	severance	and	related	benefits.

In	2006,	sales	were	$3.237	billion.	Organic	local-currency	growth	was	7.4%,	with	acquisitions	adding	an	additional	1.1%	of	growth.	Local-currency	growth	was	led	by the	medical	supplies	and	dental	businesses.	Geographically,	local-currency	sales	growth	was	strongest	in	the	United	States,	Europe	and	Asia	Pacific	areas.	Operating income	for	2006	included	$95	million	of	expensed	in-process	research	and	development	costs	related	to	the	Brontes	acquisition	and	also	included	business-specific restructuring	actions	that	totaled	$15	million,	primarily	comprised	of	severance	and	related	benefits	plus	asset	impairments.	Including	this	combined	operating	income penalty	of	$110	million,	or	12.4	percentage	point	negative	impact	on	operating	income	growth,	2006	operating	income	decreased	9.1%.

# Pharmaceuticals	Business:

|  | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Sales\t(millions) | $— | $774 | $797 |
| Sales\tchange\tanalysis: |  |  |  |
| Local\tcurrency\t(volume\tand\tprice) | N/A | (3.5)% | 0.3% |
| Translation | N/A | 0.6 | 0.3 |
| Total\tsales\tchange | N/A | (2.9)% | 0.6% |
| Operating\tincome\t(millions) | $796 | $1,039 | $226 |
| Percent\tchange | N/A | N/A | 16.6% |
| Percent\tof\tsales | N/A | N/A | 28.4% |

The	combination	of	the	following	items	positively	impacted	total	year	2007	pharmaceuticals	operating	income	by	$796	million.	As	discussed	in	Note	2,	in	January	2007 the	Company	sold	its	branded	pharmaceuticals	business	in	the	Europe	region.	The	operating	income	gain	related	to	this	sale	totaled	$781	million.	In	addition,	as discussed	in	Note	4,	a	net	operating	income	gain	of	$15	million	was	recorded	in	2007,	which	primarily	related	to	adjustments	to	restructuring	costs	incurred	in	the	fourth quarter	of	2006.	Drug	Delivery	Systems	Division	(part	of	Health	Care	without	Pharmaceuticals)	is	a	source	of	supply	to	the	acquiring	companies	and	records	sales	and operating	income	related	to	the	pharmaceuticals	supply	agreements.

In	total,	the	combination	of	the	following	items	positively	impacted	total	year	2006	pharmaceuticals	operating	income	by	$783	million,	primarily	in	the	fourth	quarter	of 2006.	As	discussed	in	Note	2,	in	early	December	2006,	the	Company	sold	its	branded	pharmaceuticals	business	in	the	Asia	Pacific	region,	including	Australia	and	South Africa.	The	Company	also	sold	its	branded	pharmaceuticals	business	in	the	United	States,	Canada	and	Latin	America	in	late	December	2006.	The	operating	income	gain related	to	these	transactions	totaled	$1.074	billion.	As	discussed	in	Note	4,	$112	million	of	severance	and	benefit	costs	were	recorded	in	the	fourth	quarter	of	2006	related to	worldwide	staff	overhead	reduction	actions	taken	to	streamline	the	Company's	cost	structure	in	response	to	the	sale	of	3M's	branded	pharmaceuticals	business.	As also	discussed	in	Note	4,	the	pharmaceuticals	business	for	total	year	2006	included	$97	million	in	employee-related	severance	and	benefits	and	$69	million	of	asset impairments	and	other	expenses.	In	addition,	an	environmental	reserve	of	$13	million	was	recognized	related	to	the	pharmaceuticals	business.

# Display	and	Graphics	Business	(15.9%	of	consolidated	sales):

|  | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Sales\t(millions) | $3,892 | $3,770 | $3,547 |
| Sales\tchange\tanalysis: |  |  |  |
| Local\tcurrency\t(volume\tand\tprice) | 1.8% | 6.0% | 4.6% |
| Divestitures | (0.4) | — | — |
| Translation | 1.8 | 0.3 | 0.2 |
| Total\tsales\tchange | 3.2% | 6.3% | 4.8% |
| Operating\tincome\t(millions) | $1,174 | $1,044 | $1,148 |
| Percent\tchange | 12.4% | (9.0)% | 2.9% |
| Percent\tof\tsales | 30.2% | 27.7% | 32.4% |

The	Display	and	Graphics	segment	serves	markets	that	include	electronic	display,	touch	screen,	traffic	safety	and	commercial	graphics.	This	segment	includes	optical film	and	lens	solutions	for	electronic	displays;	touch	screens	and	touch	monitors;	computer	screen	filters;	reflective	sheeting	for	transportation	safety;	and	commercial graphics	systems.	The	optical	film	business	provides	films	that	serve	numerous	market	segments	of	the	electronic	display	industry.	3M	provides	distinct	products	for five	market	segments,	including	products	for:	1)	LCD	computer	monitors	2)	LCD	televisions	3)	handheld	devices	such	as	cellular	phones	4)	notebook	PCs	and	5) automotive	displays.	The	optical	business	includes	a	number	of	different	products	that	are	protected	by	various	patents	and	groups	of	patents.	The	remaining	lifetimes	of such	patents,	as	well	as	patents	protecting	future	products,	range	from	less	than	a	few	years	to	more	than	10	years.	These	patents	provide	varying	measures	of	exclusivity to	3M	for	a	number	of	such	products.	3M's	proprietary	manufacturing	technology	and	know-how	also	provide	a	competitive	advantage	to	3M	with	respect	to	some	of these	products.

In	2007,	Display	and	Graphics	local-currency	sales	increased	1.8%,	excluding	the	impact	of	the	Opticom/Canoga	business	sale.	The	Company	recorded	positive	sales growth	in	all	major	businesses	—	commercial	graphics,	traffic	safety	systems	and	optical	systems.	Throughout	the	year,	commercial	graphics	saw	strong	performance	in

the	vehicle	wrapping	market	where	3M	provides	films,	inks	and	other	products	for	this	"rolling	billboard"	industry.	The	traffic	safety	systems	business	also	experienced growth	for	the	year,	with	faster	growth	internationally	as	the	3M	reflective	solutions	for	highway	construction	projects	are	a	perfect	match	in	developing	economies	that are	adding	infrastructure.	In	June	2007,	3M	completed	the	sale	of	its	Opticom	Priority	Control	Systems	and	Canoga	Traffic	Detection	businesses.	3M	received	proceeds of	$80	million	from	this	transaction	and	recognized	an	operating	income	gain	of	$68	million	in	the	Display	and	Graphics	segment	in	the	second	quarter	of	2007.	In addition,	Display	and	Graphics	recorded	restructuring	and	other	exit	activity	expenses	of	$17	million	in	2007.	Operating	income	in	2007	was	$1.174	billion,	including this	aggregate	net	operating	income	benefit	of	$51	million,	which	contributed	1.3	percentage	points	of	the	30.2%	operating	income	margin.	Operating	income	in	2006 (as	discussed	below)	included	$39	million	in	restructuring	expenses.	These	year-on-year	impacts	contributed	8.7	percentage	points	of	the	reported	12.4%	operating income	growth.

Optical	systems	continues	to	focus	on	market	segmentation,	with	strong	penetration	in	handhelds,	computer	displays	and	LCD	televisions.	3M	continues	to	experience attachment	rate	pressure	in	LCD	desktop	monitors	and	LCD	TV	segments,	although	in	the	fourth	quarter	of	2007	3M	saw	a	mix-shift	back	to	1080p	LCD	TV's	from 720p,	which	impacts	3M	business	as	3M	films	are	used	more	heavily	in	the	1080p	sets.	3M	believes	over	the	long	term	that	1080p	LCD	TV's	will	gain	an	increasing share	of	the	overall	LCD	TV	market.	While	3M	remains	optimistic	about	the	longer-term	prospects	for	the	optical	film	business,	continuing	price	and	attachment	rate pressure	is	expected	in	2008.	Due	to	this	pressure,	3M	expects	Display	and	Graphics	operating	income	margins	in	2008	to	decline	a	few	percentage	points	when compared	to	2007	(excluding	the	net	operating	income	benefit	of	1.3	percentage	points	in	2007	discussed	in	the	preceding	paragraph).	3M's	continued	investment	in	this business	has	led	to	a	solid	stream	of	new	products.	3M's	brightness	enhancement	films	provide	an	environmental	solution	through	reduced	energy	consumption	—	an increasingly	important	requirement	from	both	retail	customers	and	government	units.	3M	has	made	significant	sustainable	factory	improvements	by	relentlessly reducing	costs	and	by	adding	needed	capacity	to	secure	future	growth.

In	2006,	the	Display	and	Graphics	business	posted	local-currency	sales	growth	of	6.0%.	Optical	film	sales	volumes	increased	at	double-digit	rates	in	2006.	3M	saw	an acceleration	in	the	LCD	industry	due	to	strong	consumer	demand	for	LCD	TV's,	which	drove	record	sales	of	3M's	proprietary	optical	films,	despite	ongoing	downward pricing	pressure	in	these	consumer	electronic	applications.	Commercial	Graphics,	a	supplier	of	large-format	graphics	solutions	that	cut	across	a	range	of	industries, delivered	strong	double-digit	local-currency	growth	in	2006.	Traffic	Safety	Systems	also	posted	solid	local-currency	growth.	Operating	income	declined	by	9.0%. Operating	income	included	$39	million	in	restructuring	expenses,	primarily	comprised	of	asset	impairments	and	severance	and	related	benefits,	which	negatively impacted	operating	income	growth	by	3.4%.	These	asset	impairments	relate	to	decisions	the	Company	made	in	the	fourth	quarter	of	2006	to	exit	certain	marginal	product lines	in	the	Touch	Systems	and	Optical	Systems	businesses.	In	optical	film,	selling	price	declines,	the	sales	mix	shift	towards	larger	LCD	displays,	and	operational challenges	related	to	the	Company's	new	optical	film	manufacturing	production	line	penalized	operating	income	in	2006.

# Consumer	and	Office	Business	(13.9%	of	consolidated	sales):

|  | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Sales\t(millions) | $3,403 | $3,164 | $2,926 |
| Sales\tchange\tanalysis: |  |  |  |
| Local\tcurrency\t(volume\tand\tprice) | 5.0% | 7.4% | 6.1% |
| Translation | 2.6 | 0.7 | 1.0 |
| Total\tsales\tchange | 7.6% | 8.1% | 7.1% |
| Operating\tincome\t(millions) | $688 | $629 | $609 |
| Percent\tchange | 9.3% | 3.4% | 9.4% |
| Percent\tof\tsales | 20.2% | 19.9% | 20.8% |

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.

In	2007,	Consumer	and	Office	experienced	broad-based	local-currency	sales	growth	of	5.0%,	led	by	the	construction	and	home	improvement	and	home	cleaning businesses.	In	construction	and	home	improvement,	products	such	as	Scotch™	Blue	Painter's	Tape,	Filtrete™	home	furnace	filters	and	Command™	mounting	and fastening	products,	helped	drive	results.	Geographically,	international	growth	is	gaining	traction,	while	a	slowdown	in	the	United	States	was	driven	by	soft

overall	U.S.	retail	sales	and	a	soft	residential	housing	environment.	Approximately	60%	of	global	sales	for	this	segment	are	in	the	United	States.	Operating	income increased	9.3%	and	now	exceeds	20%	of	sales.

In	2006,	Consumer	and	Office	local-currency	sales	growth	of	7.4%	was	broad-based	across	the	portfolio,	led	by	the	construction	and	home	improvement	division,	which serves	the	do-it-yourself	retail	channel.	3M	also	posted	very	good	sales	growth	in	the	mass	retail	channel	and	continued	to	penetrate	large	key	accounts,	primarily	in	the United	States,	with	an	array	of	unique,	highly	functional	products	featuring	customer-inspired	designs.	Operating	income	was	$629	million,	up	3.4%	year	on	year.	3M experienced	slower	sales	growth	in	the	construction	and	home	improvement	market	in	the	fourth	quarter	of	2006,	impacted	by	a	housing	slowdown	in	the	United	States.

# Safety,	Security	and	Protection	Services	Business	(12.6%	of	consolidated	sales):

|  | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Sales\t(millions) | $3,070 | $2,663 | $2,320 |
| Sales\tchange\tanalysis: |  |  |  |
| Local\tcurrency\t(volume\tand\tprice) | 10.8% | 13.7% | 6.8% |
| Translation | 4.5 | 1.1 | 1.0 |
| Total\tsales\tchange | 15.3% | 14.8% | 7.8% |
| Operating\tincome\t(millions) | $611 | $549 | $513 |
| Percent\tchange | 11.3% | 7.1% | 14.3% |
| Percent\tof\tsales | 19.9% | 20.6% | 22.1% |

The	Safety,	Security	and	Protection	Services	segment	serves	a	broad	range	of	markets	that	increase	the	safety,	security	and	productivity	of	workers,	facilities	and systems.	Major	product	offerings	include	personal	protection	products,	safety	and	security	products,	energy	control	products,	cleaning	and	protection	products	for commercial	establishments,	roofing	granules	for	asphalt	shingles,	and	supply	chain	execution	software	solutions.	In	August	2006,	3M	completed	the	acquisition	of Security	Printing	and	Systems	Limited,	a	producer	of	finished,	personalized	passports	and	secure	cards,	which	expands	the	3M	product	line	related	to	border	and	civil security	solutions.	3M's	new	emerging	business	opportunity	in	its	Track	and	Trace	initiative	within	3M's	Safety,	Security	and	Protection	Services	segment	resulted	in the	merging	of	a	number	of	formerly	separate	efforts	into	one	concerted	effort	for	future	growth.	Track	and	Trace	has	a	growing	array	of	applications	—	from	tracking packages	to	managing	medical	and	legal	records.

In	2007,	local-currency	sales	in	the	Safety,	Security	and	Protection	Services	segment	were	up	10.8%.	Acquisitions	contributed	7.4	percentage	points	of	this	growth, including	a	carry-over	benefit	from	the	August	2006	acquisition	of	Security	Printing	and	Systems	Limited.	In	addition,	during	2007	3M	closed	two	small,	but	strategic, gap-filling	acquisitions.	These	included	E.	Wood,	a	U.K.-based	provider	of	corrosion	protection	products	and	Rochford	Thompson,	a	manufacturer	of	optical	character recognition	passport	readers	used	by	airlines	and	immigration	authorities.	Sales	growth	was	led	by	the	respiratory	protection	business,	followed	by	the	security	systems,

corrosion	protection	and	building	and	commercial	services	businesses.	2007	sales	growth	was	held	back	by	market	softness	in	the	U.S.	residential	construction	market, which	negatively	impacted	the	roofing	granules	business.	The	decline	in	the	roofing	granules	business	reduced	Safety,	Security	and	Protection	Services	2007	sales growth	by	approximately	1.5%.	Geographically,	sales	growth	was	led	by	Europe	and	the	combined	Latin	America	and	Canada	area.	This	segment	recorded	a restructuring	charge	of	$29	million	in	the	second	quarter	of	2007	related	to	the	phase-out	of	operations	at	its	New	Jersey	roofing	granule	facility.	This	included	fixed asset	impairments	and	employee-related	restructuring	liabilities.	Including	this	charge,	operating	income	margins	were	approximately	20%	for	total	year	2007.

In	2006,	local-currency	sales	in	the	Safety,	Security	and	Protection	Services	business	were	up	13.7%.	Growth	in	the	business	was	driven	by	strong	global	demand	for personal	safety	products,	especially	respiratory	protection.	Acquisitions	contributed	4.1%	of	growth,	primarily	due	to	the	Security	Printing	and	Systems	Limited acquisition	in	August	2006.	3M	continued	to	invest	in	additional	respirator	capacity,	such	as	a	new	respirator	manufacturing	facility	in	Korea,	which	will	serve	the	Asia Pacific	region.	3M	also	posted	outstanding	growth	in	corrosion	protection,	a	smaller	but	growing	business,	which	supplies	coatings	for	all	types	of	commercial	and industrial	applications	in	a	variety	of	industries.	3M's	roofing	granules	business	experienced	a	challenging	fourth	quarter,	with	a	sales	decline	of	nearly	50%,	resulting	in sales	in	this	business	declining	nearly	10%	when	comparing	total	year	2006	with	2005.	Geographically,	local-currency	growth	was	positive	across	all	regions	of	the world,	led	by	Europe	and	the	United	States.	Operating	income	increased	7.1%	to	$549	million	in	2006.	Operating	income	includes	$10	million	in	restructuring	expenses, primarily	severance	and	related	benefits,	which	negatively	impacted	operating	income	growth	by	1.9%.

# Electro	and	Communications	Business	(11.3%	of	consolidated	sales):

|  | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Sales\t(millions) | $2,775 | $2,631 | $2,509 |
| Sales\tchange\tanalysis: |  |  |  |
| Local\tcurrency\t(volume\tand\tprice) | 2.3% | 4.0% | 1.5% |
| Translation | 3.2 | 0.8 | 0.7 |
| Total\tsales\tchange | 5.5% | 4.8% | 2.2% |
| Operating\tincome\t(millions) | $481 | $411 | $422 |
| Percent\tchange | 17.0% | (2.6)% | 40.7% |
| Percent\tof\tsales | 17.3% | 15.6% | 16.8% |

The	Electro	and	Communications	segment	serves	the	electrical,	electronics	and	communications	industries,	including	electrical	utilities;	electrical	construction, maintenance	and	repair;	OEM	electrical	and	electronics;	computers	and	peripherals;	consumer	electronics;	telecommunications	central	office,	outside	plant	and enterprise;	as	well	as	aerospace,	military,	automotive	and	medical	markets;	with	products	that	enable	the	efficient	transmission	of	electrical	power	and	speed	the delivery	of	information	and	ideas.	Products	include	electronic	and	interconnect	solutions,	micro	interconnect	systems,	high-performance	fluids,	high-temperature	and display	tapes,	telecommunications	products,	electrical	products,	and	visual	systems	products.

In	2007,	the	Electro	and	Communications	segment	local-currency	sales	increased	2.3%,	including	1.5	percentage	points	from	acquisitions.	Strong	sales	growth	in	the communications	and	electrical	markets	businesses	was	partially	offset	by	the	flexible	circuits	business,	which	supplies	components	primarily	to	the	ink	jet	printer market.	This	business	continues	to	penalize	segment	results	as	the	ink	jet	market	has	become	commoditized	and	as	a	number	of	applications	go	end-of-life.	Softness	in this	business	held	back	overall	Electro	and	Communications	sales	and	operating	income	growth	by	2.5	percent	and	9.3	percent,	respectively.	Operating	income	increased 17%	as	this	segment	has	driven	productivity	improvements	and	taken	actions	to	improve	its	competitiveness.	Operating	income	in	2007	was	penalized	by	a	$23	million charge	related	to	consolidating	its	global	flexible	circuits	manufacturing	operations	and	$18	million	in	restructuring	expenses,	primarily	for	asset	impairment	charges related	to	the	Company's	decision	to	close	a	facility	in	Wisconsin.	Combined,	these	two	items	negatively	impacted	2007	operating	income	by	$41	million	and	operating income	margins	by	1.5	percentage	points.

In	2006,	the	Electro	and	Communications	business	organic	local-currency	growth	of	2.7%	was	attributable	to	the	electrical	and	electronics	markets.	Acquisitions contributed	1.3	percentage	points	to	sales	growth.	3M	generated	good	top-line	growth	in	its	electrical	markets	division,	which	sells	a	number	of	insulating,	testing	and connecting	products	and	solutions	to	both	power	utilities	and	manufacturing	OEMs.	3M	saw	good	growth	from	its	electronics	markets	business,	driven	by	double-digit growth	in	its	semi-conductor	and	assemblies	business.	Partially	offsetting	this	was	some	sales	softness	in	3M's	U.S.	communications	markets	business	due	to	higher copper	costs	and	a	decline	in	3M's	visual	systems	business,	which	traditionally	offered	analog	overhead	and	electronic	projectors	and	film.	Operating	income	declined by	2.6%	to	$411	million.	Operating	income	included	$46	million	in	restructuring	expenses,	primarily	comprised	of	asset	impairments	and	severance	and	related	benefits, which	negatively	impacted	operating	income	growth	by	10.9%.	Operating	margins	were	impacted	by	rising	raw	material	costs,	specifically	copper	costs,	in	3M's electrical	and	telecommunications	markets	businesses.

# PERFORMANCE	BY	GEOGRAPHIC	AREA

Financial	information	related	to	3M	operations	in	various	geographic	areas	is	provided	in	Note	17.	Operating	income	results	by	geographic	area	were	significantly impacted	by	the	gain	on	sale	businesses	and	other	items	as	discussed	in	Note	A	at	the	end	of	the	preceding	overview	section.	A	summary	of	key	information	and discussion	related	to	3M's	geographic	areas	follow:

| Geographic	Area |  | 2007 |  |  | 2007	vs.	2006	%	Change | 2007	vs.	2006	%	Change |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Net\tSales\tand |  |  |  |  |  |  | Total |  |
| Operating\tIncome |  | %\tof | Oper. | Local | Divesti- | Trans- | Sales | Oper. |
| (Dollars\tin\tmillions) | Sales | Total | Income | Currency | tures | lation | Change | Income |
| United\tStates | $8,987 | 36.7% $ | 1,692 | 5.7% | (4.2)% | — | 1.5% | (11.3)% |
| Asia\tPacific | 6,601 | 27.0% | 2,136 | 4.9% | (1.3)% | 2.0% | 5.6% | 1.8% |
| Europe,\tMiddle\tEast\tand\tAfrica | 6,503 | 26.6% | 1,705 | 11.7% | (6.6)% | 8.5% | 13.6% | 56.1% |
| Latin\tAmerica\tand\tCanada | 2,365 | 9.7% | 665 | 10.6% | (2.8)% | 5.9% | 13.7% | 5.8% |
| Other\tUnallocated | 6 | — | (5) |  |  |  |  |  |
| Total\tCompany | $24,462 | 100% $ | 6,193 | 7.3% | (3.8)% | 3.2% | 6.7% | 8.7% |

While	3M	manages	its	businesses	globally	and	believes	its	business	segment	results	are	the	most	relevant	measure	of	performance,	the	Company	also	utilizes geographic	area	data	as	a	secondary	performance	measure.	Export	sales	are	reported	within	the	geographic	area	where	the	final	sales	to	3M	customers	are	made.	A portion	of	the	products	or	components	sold	by	3M's	operations	to	its	customers	are	exported	by	these	customers	to	different	geographic	areas.	As	customers	move	their operations	from	one	geographic	area	to	another,	3M's	results	will	follow.	Thus,	net	sales	in	a	particular	geographic	area	are	not	indicative	of	end-user	consumption	in that	geographic	area.

U.S.	local-currency	sales	increased	5.7%,	with	acquisitions	contributing	3.1	percentage	points.	U.S.	local-currency	sales	growth	was	led	by	Health	Care	(without Pharmaceuticals)	and	Industrial	and	Transportation,	which	was	partially	offset	by	softness	in	the	electronic	solutions	business	and	weakness	in	a	few	businesses	that	are impacted	by	the	slowdown	in	the	U.S.	housing,	road	construction	and	mass	retail	markets,	primarily	roofing	granules,	protective	materials,	traffic	safety	and	office supply	businesses.	Asia	Pacific	local-currency	sales	increased	4.9%,	with	all	six	business	segments	contributing	to	this	increase.	Sales	in	Japan	totaled	approximately	$2

billion,	with	local-currency	sales	up	2%	from	2006.	European	local-currency	sales	increased	11.7%,	with	good	growth	across	all	segments,	especially	Safety,	Security and	Protection	Services	and	Health	Care	(without	Pharmaceuticals).	In	the	combined	Latin	America	and	Canada	area,	local-currency	sales	increases	of	10.6%	were	led by	Industrial	and	Transportation;	Safety,	Security	and	Protection	Services;	and	Health	Care	(without	Pharmaceuticals).	Foreign	currency	translation	positively	impacted European	area	sales	by	8.5%,	the	combined	Latin	America	and	Canada	area	sales	by	5.9%,	and	the	Asia	Pacific	area	by	2%,	as	the	U.S.	dollar	weakened	against	these currencies.	For	2007,	international	operations	represented	approximately	63%	of	3M's	sales.

Since	3M	sold	its	global	branded	pharmaceuticals	business	in	December	2006	and	January	2007,	both	sales	growth	and	operating	income	were	negatively	impacted when	comparing	2007	to	2006.	Sales	in	2006	for	pharmaceuticals	totaled	$332	million	in	the	United	States,	$315	million	in	the	Europe,	Middle	East	and	Africa	area, $77	million	in	the	Asia	Pacific	area,	and	$50	million	in	the	Latin	America	and	Canada	area.	In	2007,	the	gain	on	sale	of	businesses	and	a	gain	on	sale	of	real	estate,	net of	restructuring	and	other	items,	increased	worldwide	operating	income	by	$681	million,	with	the	largest	impact	in	the	Europe,	Middle	East	and	Africa	area.	In	2006,	the gain	on	sale,	restructuring	and	other	items	increased	worldwide	operating	income	by	$523	million,	with	the	largest	impact	in	the	United	States.	These	items	are	discussed in	more	detail	in	the	preceding	overview	section.

# Geographic	Area	Supplemental	Information

| (Millions,	except<br>Employees) | 2007 | Employees	as	of<br>December	31,<br>2006 | 2005 | 2007 | Capital<br>Spending<br>2006 | 2005 | 2007 | Property,	Plant	and<br>Equipment	—	net<br>2006 | 2005 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| United\tStates | 34,138 | 34,553 | 33,033 | $841 | $692 | $532 | $3,668 | $3,382 | $3,291 |
| Asia\tPacific | 12,970 | 12,487 | 11,574 | 299 | 252 | 228 | 1,116 | 959 | 865 |
| Europe,\tMiddle\tEast\tand\tAfrica | 17,675 | 17,416 | 16,722 | 203 | 134 | 120 | 1,308 | 1,162 | 1,076 |
| Latin\tAmerica\tand\tCanada | 11,456 | 10,877 | 9,898 | 79 | 90 | 63 | 490 | 404 | 361 |
| Total\tCompany | 76,239 | 75,333 | 71,227 | $1,422 | $1,168 | $943 | $6,582 | $5,907 | $5,593 |

# Employment:

Employment	increased	by	approximately	900	people	since	year-end	2006,	with	acquisitions	adding	approximately	2,500	employees,	while	restructuring	and	the pharmaceuticals	divestiture	reduced	employment.	Employment	increased	by	approximately	4,100	people	in	2006	compared	with	2005,	partially	due	to	acquisitions,	with more	than	750	people	added	by	3M's	three	largest	2006	acquisitions	alone.	In	addition,	3M	has	increased	employees	in	faster-growing	areas	of	the	world,	such	as	Brazil, India,	Russia,	China	and	Poland,	where	on	a	local-currency	basis	sales	increased	more	than	15%	in	both	2007	and	2006.

# Capital	Spending/Net	Property,	Plant	and	Equipment:

The	bulk	of	3M	capital	spending	historically	has	been	in	the	United	States,	resulting	in	higher	net	property,	plant	and	equipment	balances	in	the	United	States.	The Company	is	striving	to	more	closely	align	its	manufacturing	and	sourcing	with	geographic	market	sales,	and	because	approximately	63%	of	sales	are	outside	the	United States,	this	would	increase	production	outside	the	United	States,	helping	to	improve	customer	service	and	reduce	working	capital	requirements.	Capital	expenditures were	$1.422	billion	in	2007	and	are	expected	to	total	$1.3	billion	to	$1.4	billion	in	2008.

# CRITICAL	ACCOUNTING	ESTIMATES

Information	regarding	significant	accounting	policies	is	included	in	Note	1.	As	stated	in	Note	1,	the	preparation	of	financial	statements	requires	management	to	make estimates	and	assumptions	that	affect	the	reported	amounts	of	assets,	liabilities,	revenue	and	expenses,	and	related	disclosure	of	contingent	assets	and	liabilities. Management	bases	its	estimates	on	historical	experience	and	on	various	assumptions	that	are	believed	to	be	reasonable	under	the	circumstances,	the	results	of	which form	the	basis	for	making	judgments	about	the	carrying	values	of	assets	and	liabilities	that	are	not	readily	apparent	from	other	sources.	Actual	results	may	differ	from these	estimates.

The	Company	believes	its	most	critical	accounting	estimates	relate	to	legal	proceedings,	the	Company's	pension	and	postretirement	obligations,	asset	impairments	and income	taxes.	Senior	management	has	discussed	the	development,	selection	and	disclosure	of	its	critical	accounting	estimates	with	the	Audit	Committee	of	3M's	Board of	Directors.

# Legal	Proceedings:

The	categories	of	claims	for	which	the	Company	has	estimated	its	probable	liability,	the	amount	of	its	liability	accruals,	and	the	estimates	of	its	related	insurance receivables	are	critical	accounting	estimates	related	to	legal	proceedings.	Please	refer	to	the	section	entitled	"Accrued	Liabilities	and	Insurance	Receivables	Related	to Legal	Proceedings"	(contained	in	"Legal	Proceedings"	in	Note	13)	for	additional	information	about	such	estimates.

# Pension	and	Postretirement	Obligations:

3M	has	various	company-sponsored	retirement	plans	covering	substantially	all	U.S.	employees	and	many	employees	outside	the	United	States.	The	Company	accounts for	its	defined	benefit	pension	and	postretirement	health	care	and	life	insurance	benefit	plans	in	accordance	with	Statement	of	Financial	Accounting	Standards	(SFAS) No.	87,	"Employers'	Accounting	for	Pensions,"	SFAS	No.	106,	"Employer's	Accounting	for	Postretirement	Benefits	Other	than	Pensions,"	in	measuring	plan	assets	and benefit	obligations	and	in	determining	the	amount	of	net	periodic	benefit	cost,	and	SFAS	No.	158,	"Employer's	Accounting	for	Defined	Benefit	Pension	and	Other Postretirement	Benefit	Plans	an	amendment	of	FASB	Statements	No.	87,	88,	106	and	132(R),"	which	was	issued	in	September	2006	and	effective	as	of	December	31, 2006.	SFAS	No.	158	requires	employers	to	recognize	the	underfunded	or	overfunded	status	of	a	defined	benefit	postretirement	plan	as	an	asset	or	liability	in	its	statement of	financial	position	and	recognize	changes	in	the	funded	status	in	the	year	in	which	the	changes	occur	through	accumulated	other	comprehensive	income,	which	is	a component	of	stockholders'	equity.

Pension	benefits	associated	with	these	plans	are	generally	based	primarily	on	each	participant's	years	of	service,	compensation,	and	age	at	retirement	or	termination. Two	critical	assumptions,	the	discount	rate	and	the	expected	return	on	plan	assets,	are	important	elements	of	expense	and	liability	measurement.	The	assumed	health	care trend	rate	is	the	most	significant	postretirement	health	care	assumption.	See	Note	11	for	additional	discussion	of	actuarial	assumptions	used	in	determining	pension	and postretirement	health	care	liabilities	and	expenses.

The	Company	determines	the	discount	rate	used	to	measure	plan	liabilities	as	of	the	December	31	measurement	date	for	the	U.S.	pension	and	postretirement	benefit plans.	The	discount	rate	reflects	the	current	rate	at	which	the	associated	liabilities	could	be	effectively	settled	at	the	end	of	the	year.	In	estimating	this	rate,	the	Company looks	at	rates	of	return	on	fixed-income	investments	of	similar	duration	to	the	liabilities	in	the	plan	that	receive	high,	investment	grade	ratings	by	recognized	ratings agencies.	Using	this	methodology,	the	Company	determined	a	discount	rate	of	6.00%	to	be	appropriate	as	of	December	31,	2007,	which	is	an	increase	of	0.25	of	a percentage	point	from	the	rate	used	as	of	December	31,	2006.

A	significant	element	in	determining	the	Company's	pension	expense	in	accordance	with	SFAS	No.	87	is	the	expected	return	on	plan	assets,	which	is	based	on	historical results	for	similar	allocations	among	asset	classes.	For	the	U.S.	pension	plan,	the	Company's	assumption	for	the	expected	return	on	plan	assets	was	8.75%	for	2007	and will	be	reduced	to	8.50%	for	2008.	Refer	to	Note	11	for	information	on	how	this	rate	is	determined.

For	the	year	ended	December	31,	2007,	the	Company	recognized	total	consolidated	pre-tax	pension	expense	(after	settlements,	curtailments	and	special	termination benefits)	of	$190	million,	down	from	$347	million	in	2006.	Pension	expense	(before	settlements,	curtailments	and	special	termination	benefits)	is	anticipated	to	decrease to	approximately	$90	million	in	2008.	For	the	pension	plans,	holding	all	other	factors	constant,	an	increase/decrease	in	the	expected	long-term	rate	of	return	on	plan assets	of	0.25	of	a	percentage	point	would	decrease/increase	2008	pension	expense	by	approximately	$26	million	for	U.S.	pension	plans	and	approximately	$11	million for	international	pension	plans.	Also,	holding	all	other	factors	constant,	an	increase/decrease	in	the	discount	rate	used	to	measure	plan	liabilities	of	0.25	of	a	percentage point	would	decrease/increase	2008	pension	expense	by	approximately	$32	million	for	U.S.	pension	plans	and	approximately	$21	million	for	international	pension plans.	See	Note	11	for	details	of	the	impact	of	a	one	percentage	point	change	in	assumed	health	care	trend	rates	on	the	postretirement	health	care	benefit	expense	and obligation.

# Asset	Impairments:

3M	net	property,	plant	and	equipment	totaled	$6.6	billion	as	of	December	31,	2007.	Management	makes	estimates	and	assumptions	in	preparing	the	consolidated financial	statements	for	which	actual	results	will	emerge	over	long	periods	of	time.	This	includes	the	recoverability	of	long-lived	assets	employed	in	the	business, including	assets	of	acquired	businesses.	These	estimates	and	assumptions	are	closely	monitored	by	management	and	periodically	adjusted	as	circumstances	warrant.	For instance,	expected	asset	lives	may	be	shortened	or	an	impairment	recorded	based	on	a	change	in	the	expected	use	of	the	asset	or	performance	of	the	related	business reporting	unit.	Impairments	recorded	in	2007	and	2006	related	to	restructuring	actions	and	other	exit	activities	are	discussed	in	Note	4.

3M	goodwill	totaled	approximately	$4.6	billion	as	of	December	31,	2007,	which,	based	on	impairment	testing,	is	not	impaired.	Impairment	testing	for	goodwill	is	done at	a	reporting	unit	level.	Reporting	units	are	one	level	below	the	business	segment	level,	but	can	be	combined	when	reporting	units	within	the	same	segment	have	similar economic	characteristics.	The	majority	of	goodwill	relates	to	and	is	assigned	directly	to	a	specific	reporting	unit.	An	impairment	loss	generally	would	be	recognized when	the	carrying	amount	of	the	reporting	unit's	net	assets	exceeds	the	estimated	fair	value	of	the	reporting	unit.	The	estimated	fair	value	of	a	reporting	unit	is determined	using	earnings	for	the	reporting	unit	multiplied	by	a	price/earnings	ratio	for	comparable	industry	groups,	or	by	using	a	discounted	cash	flow	analysis.

# Income	Taxes:

The	extent	of	3M's	operations	involves	dealing	with	uncertainties	and	judgments	in	the	application	of	complex	tax	regulations	in	a	multitude	of	jurisdictions.	The	final taxes	paid	are	dependent	upon	many	factors,	including	negotiations	with	taxing	authorities	in	various	jurisdictions	and	resolution	of	disputes	arising	from	federal,	state, and	international	tax	audits.	The	Company	recognizes	potential	liabilities	and	records	tax	liabilities	for	anticipated	tax	audit	issues	in	the	U.S.	and	other	tax	jurisdictions based	on	its	estimate	of	whether,	and	the	extent	to	which,	additional	taxes	will	be	due.	As	of	January	1,	2007,	the	Company	follows	FIN	48	guidance	to	record	these liabilities	(refer	to	Note	8	for	additional	information).	The	Company	adjusts	these	reserves	in	light	of	changing	facts	and	circumstances;	however,	due	to	the	complexity of	some	of	these	uncertainties,	the	ultimate	resolution	may	result	in	a	payment	that	is	materially	different	from	the	Company's	current	estimate	of	the	tax	liabilities.	If the	Company's	estimate	of	tax	liabilities	proves	to	be	less	than	the	ultimate	assessment,	an	additional	charge	to	expense	would	result.	If	payment	of	these	amounts ultimately	proves	to	be	less	than	the	recorded	amounts,	the	reversal	of	the	liabilities	would	result	in	tax	benefits	being	recognized	in	the	period	when	the	Company determines	the	liabilities	are	no	longer	necessary.

# NEW	ACCOUNTING	PRONOUNCEMENTS

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

# FINANCIAL	CONDITION	AND	LIQUIDITY

The	Company	generates	significant	ongoing	cash	flow.	Increases	in	long-term	debt	have	been	used,	in	part,	to	fund	share	repurchase	activities	and	acquisitions.	On November	15,	2007,	3M	(Safety,	Security	and	Protection	Services	Business)	announced	that	it	had	entered	into	a	definitive	agreement	for	3M's	acquisition	of	100 percent	of	the	outstanding	shares	of	Aearo	Holding	Corp.		a	global	leader	in	the	personal	protection	industry	that	manufactures	and	markets	personal	protection	and energy	absorbing	products		for	approximately	$1.2	billion.	The	sale	is	expected	to	close	towards	the	end	of	the	first	quarter	of	2008.

| (Millions) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Total\tDebt | $4,920 | $3,553 | $2,381 |
| Less:\tCash,\tcash\tequivalents\tand\tmarketable\tsecurities | 2,955 | 2,084 | 1,072 |
| Net\tDebt | $1,965 | $1,469 | $1,309 |

Cash,	cash	equivalents	and	marketable	securities	at	December	31,	2007	totaled	approximately	$3	billion,	helped	by	strong	cash	flow	generation	and	by	the	timing	of	debt issuances.	At	December	31,	2006,	cash	balances	were	higher	due	to	the	significant	pharmaceuticals	sales	proceeds	received	in	December	2006.	3M	believes	its	ongoing cash	flows	provide	ample	cash	to	fund	expected	investments	and	capital	expenditures.	The	Company	has	sufficient	access	to	capital	markets	to	meet	currently	anticipated growth	and	acquisition	investment	funding	needs.	The	Company	does	not	utilize	derivative	instruments	linked	to	the	Company's	stock.	However,	the	Company	does have	contingently	convertible	debt	that,	if	conditions	for	conversion	are	met,	is	convertible	into	shares	of	3M	common	stock	(refer	to	Note	10	in	this	document).

The	Company's	financial	condition	and	liquidity	are	strong.	Various	assets	and	liabilities,	including	cash	and	short-term	debt,	can	fluctuate	significantly	from	month	to month	depending	on	short-term	liquidity	needs.	Working	capital	(defined	as	current	assets	minus	current	liabilities)	totaled	$4.476	billion	at	December	31,	2007, compared	with	$1.623	billion	at	December	31,	2006.	Working	capital	was	higher	primarily	due	to	increases	in	cash	and	cash	equivalents,	short-term	marketable securities,	receivables	and	inventories	and	decreases	in	short-term	debt	and	accrued	income	taxes.

The	Company's	liquidity	remains	strong,	with	cash,	cash	equivalents	and	marketable	securities	at	December	31,	2007	totaling	approximately	$3	billion.	Primary	short- term	liquidity	needs	are	provided	through	U.S.	commercial	paper	and	euro	commercial	paper	issuances.	As	of	December	31,	2007,	outstanding	total	commercial	paper issued	totaled	$349	million	and	averaged	$1.249	billion	during	2007.	The	Company	believes	it	unlikely	that	its	access	to	the	commercial	paper	market	will	be	restricted. In	June	2007,	the	Company	established	a	medium-term	notes	program	through	which	up	to	$3	billion	of	medium-term	notes	may	be	offered,	with	remaining	shelf borrowing	capacity	of	$2.5	billion	as	of	December	31,	2007.	On	April	30,	2007,	the	Company	replaced	its	$565-million	credit	facility	with	a	new	$1.5-billion	five-year credit	facility,	which	has	provisions	for	the	Company	to	request	an	increase	of	the	facility	up	to	$2	billion	(at	the	lenders'	discretion),	and	providing	for	up	to	$150 million	in	letters	of	credit.	As	of	December	31,	2007,	there	are	$110	million	in	letters	of	credit	drawn	against	the	facility.	At	December	31,	2007,	available	short-term committed	lines	of	credit	internationally	totaled	approximately	$67	million,	of	which	$13	million	was	utilized.	Debt	covenants	do	not	restrict	the	payment	of	dividends. The	Company	has	a	"well-known	seasoned	issuer"	shelf	registration	statement,	effective	February	24,	2006,	to	register	an	indeterminate	amount	of	debt	or	equity securities	for	future	sales.	The	Company	intends	to	use	the	proceeds	from	future	securities	sales	off	this	shelf	for	general	corporate	purposes.

At	December	31,	2007,	certain	debt	agreements	($350	million	of	dealer	remarketable	securities	and	$87	million	of	ESOP	debt)	had	ratings	triggers	(BBB-/Baa3	or lower)	that	would	require	repayment	of	debt.	The	Company	has	an	AA	credit	rating,	with	a	stable	outlook,	from	Standard	&	Poor's	and	an	Aa1	credit	rating,	with	a negative	outlook,	from	Moody's	Investors	Service.	In	addition,	under	the	$1.5-billion	five-year	credit	facility	agreement,	3M	is	required	to	maintain	its	EBITDA	to Interest	Ratio	as	of	the	end	of	each	fiscal	quarter	at	not	less	than	3.0	to	1.	This	is	calculated	(as	defined	in	the	agreement)	as	the	ratio	of	consolidated	total	EBITDA	for the	four	consecutive	quarters	then	ended	to	total	interest	expense	on	all	funded	debt	for	the	same	period.	At	December	31,	2007,	this	ratio	was	approximately	35	to	1.

3M's	cash	and	cash	equivalents	balance	at	December	31,	2007	totaled	$1.896	billion,	with	an	additional	$1.059	billion	in	current	and	long-term	marketable	securities. 3M's	strong	balance	sheet	and	liquidity	provide	the	Company	with	significant	flexibility	to	take	advantage	of	numerous	opportunities	going	forward.	The	Company	will continue	to	invest	in	its	operations	to	drive	growth,	including	continual	review	of	acquisition	opportunities.	As	previously	discussed,	3M	expects	to	complete

the	acquisition	of	Aearo	Holding	Corp.	for	approximately	$1.2	billion	in	2008.	3M	paid	dividends	of	$1.380	billion	in	2007,	and	has	a	long	history	of	dividend	increases. In	February	2008,	the	Board	of	Directors	increased	the	quarterly	dividend	on	3M	common	stock	by	4.2%	to	50	cents	per	share,	equivalent	to	an	annual	dividend	of	$2.00 per	share.	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.	At	December	31,	2007,	the	Company	has	$4.1	billion	remaining	under	this	authorization,	which	the	Company	does	not	currently	expect	to	fully	utilize	by February	28,	2009.

In	2008,	the	Company	expects	to	contribute	an	amount	in	the	range	of	$100	million	to	$400	million	to	its	U.S.	and	international	pension	plans.	The	Company	does	not have	a	required	minimum	pension	contribution	obligation	for	its	U.S.	plans	in	2008.	Therefore,	the	amount	of	the	anticipated	discretionary	contribution	could	vary significantly	depending	on	the	U.S.-plans	funding	status	as	of	the	2008	measurement	date	and	the	anticipated	tax	deductibility	of	the	contribution.	Future	contributions will	also	depend	on	market	conditions,	interest	rates	and	other	factors.	3M	believes	its	strong	cash	flow	and	balance	sheet	will	allow	it	to	fund	future	pension	needs without	compromising	growth	opportunities.

The	Company	uses	various	working	capital	measures	that	place	emphasis	and	focus	on	certain	working	capital	assets	and	liabilities.	These	measures	are	not	defined under	U.S.	generally	accepted	accounting	principles	and	may	not	be	computed	the	same	as	similarly	titled	measures	used	by	other	companies.	One	of	the	primary working	capital	measures	3M	uses	is	a	combined	index,	which	includes	accounts	receivable,	inventory	and	accounts	payable.	This	combined	index	(defined	as	quarterly net	sales	—	fourth	quarter	at	year-end	—	multiplied	by	four,	divided	by	ending	net	accounts	receivable	plus	inventory	less	accounts	payable)	was	5.3	at	December	31, 2007,	down	from	5.4	at	December	31,	2006.	Receivables	increased	$260	million,	or	8.4%,	compared	with	December	31,	2006.	Currency	translation	increased	accounts receivable	by	$159	million	year-on-year,	as	the	U.S.	dollar	weakened	in	aggregate	against	a	multitude	of	currencies.	Inventories	increased	$251	million,	or	9.7%, compared	with	December	31,	2006.	Currency	translation	increased	inventories	by	$132	million	year-on-year.	Accounts	payable	increased	$103	million	compared	with December	31,	2006,	with	$65	million	of	this	year-on-year	increase	related	to	currency	translation.

Cash	flows	from	operating,	investing	and	financing	activities	are	provided	in	the	tables	that	follow.	Individual	amounts	in	the	Consolidated	Statement	of	Cash	Flows exclude	the	effects	of	acquisitions,	divestitures	and	exchange	rate	impacts,	which	are	presented	separately	in	the	cash	flows.	Thus,	the	amounts	presented	in	the	following operating,	investing	and	financing	activities	tables	reflect	changes	in	balances	from	period	to	period	adjusted	for	these	effects.

# Cash	Flows	from	Operating	Activities:

| (Millions) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Net\tincome | $4,096 | $3,851 | $3,111 |
| Depreciation\tand\tamortization | 1,072 | 1,079 | 986 |
| Company\tpension\tcontributions | (376) | (348) | (654) |
| Company\tpostretirement\tcontributions | (3) | (37) | (134) |
| Company\tpension\texpense | 190 | 347 | 331 |
| Company\tpostretirement\texpense | 65 | 93 | 106 |
| Stock-based\tcompensation\texpense | 228 | 200 | 155 |
| Gain\tfrom\tsale\tof\tbusinesses | (849) | (1,074) | — |
| Income\ttaxes\t(deferred\tand\taccrued\tincome\ttaxes) | (34) | (178) | 402 |
| Excess\ttax\tbenefits\tfrom\tstock-based\tcompensation | (74) | (60) | (54) |
| Accounts\treceivable | (35) | (103) | (184) |
| Inventories | (54) | (309) | (294) |
| Accounts\tpayable | (4) | 68 | 113 |
| Product\tand\tother\tinsurance\treceivables\tand\tclaims | 158 | 58 | 122 |
| Other\t—\tnet | (105) | 252 | 198 |
| Net\tcash\tprovided\tby\toperating\tactivities | $4,275 | $3,839 | $4,204 |

Cash	flows	from	operating	activities	can	fluctuate	significantly	from	period	to	period,	as	pension	funding	decisions,	tax	timing	differences	and	other	items	can significantly	impact	cash	flows.	In	both	2007	and	2006,	the	Company	made	discretionary	contributions	of	$200	million	to	its	U.S.	qualified	pension	plan,	and	in	2005 made	discretionary	contributions	totaling	$500	million.

In	2007,	cash	flows	provided	by	operating	activities	increased	$436	million,	including	an	increase	in	net	income	of	$245	million.	Since	the	gain	from	sale	of	businesses is	included	in	and	increases	net	income,	the	pre-tax	gain	from	the	sale	of	the	businesses	must	be	subtracted,	as	shown	above,	to	properly	reflect	operating	cash	flows.	The cash	proceeds	from	the	sale	of	the	pharmaceuticals	business	are	shown	as	part	of	cash	from	investing	activities;	however,	when	the	related	taxes	are	paid	they	are required	to	be	shown	as	part	of	cash	provided	by	operating	activities.	Thus,	operating	cash	flows	for	2007	were	penalized	due	to	cash	income	tax	payments	of approximately	$630	million	in	2007	that	related	to	the	sale	of	the	global	branded	pharmaceuticals	business.	Non-pharmaceutical	related	cash	income	tax	payments	were approximately	$475	million	lower	than	2006	due	to	normal	timing	differences	in	tax	payments,	which	benefited	cash	flows.	Accounts	receivable	and	inventory	increases reduced	cash	flows	in	2007,	but	decreased	cash	flow	less	than	in	2006,	resulting	in	a	year-on-year	benefit	to	cash	flows	of	$323	million.	The	category	"Other-net"	in	the preceding	table	reflects	changes	in	other	asset	and	liability	accounts,	including	the	impact	of	cash	payments	made	in	connection	with	3M's	restructuring	actions	(Note	4).

In	2006,	cash	flows	provided	by	operating	activities	decreased	$365	million.	This	decrease	was	due	in	large	part	to	an	increase	of	approximately	$600	million	in	tax payments	in	2006	compared	with	2005.	The	higher	tax	payments	in	2006	primarily	related	to	the	Company's	repatriation	of	$1.7	billion	of	foreign	earnings	in	the	United States	pursuant	to	the	provisions	of	the	American	Jobs	Creation	Act	of	2004.	The	category	"Other-net"	in	the	preceding	table	reflects	changes	in	other	asset	and	liability accounts,	including	outstanding	liabilities	at	December	31,	2006,	related	to	3M's	restructuring	actions	(Note	4).

# Cash	Flows	from	Investing	Activities:

| (Millions) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Purchases\tof\tproperty,\tplant\tand\tequipment\t(PP&amp;E) | $(1,422) | $(1,168) | $(943) |
| Proceeds\tfrom\tsale\tof\tPP&amp;E\tand\tother\tassets | 103 | 49 | 41 |
| Acquisitions,\tnet\tof\tcash\tacquired | (539) | (888) | (1,293) |
| Proceeds\tfrom\tsale\tof\tbusinesses | 897 | 1,209 | — |
| Purchases\tand\tproceeds\tfrom\tsale\tor\tmaturities\tof\tmarketable\tsecurities |  |  |  |
| and\tinvestments\t—\tnet | (406) | (662) | (46) |
| Net\tcash\tused\tin\tinvesting\tactivities | $(1,367) | $(1,460) | $(2,241) |

Investments	in	property,	plant	and	equipment	enable	growth	in	diverse	markets,	helping	to	meet	product	demand	and	increasing	manufacturing	efficiency.	In	2007, numerous	plants	were	opened	or	expanded	internationally.	This	included	two	facilities	in	Korea	(respirator	manufacturing	facility	and	optical	plant),	an	optical	plant	in Poland,	industrial	adhesives/tapes	facilities	in	both	Brazil	and	the	Philippines,	a	plant	in	Russia	(corrosion	protection,	industrial	adhesive	and	tapes,	and	respirators),	a

plant	in	China	(optical	systems,	industrial	adhesives	and	tapes,	and	personal	care),	an	expansion	in	Canada	(construction	and	home	improvement	business),	in	addition	to investments	in	India,	Mexico	and	other	countries.	In	addition,	3M	expanded	manufacturing	capabilities	in	the	U.S.,	including	investments	in	industrial	adhesives/tapes and	optical.	3M	also	exited	several	high-cost	underutilized	manufacturing	facilities	and	streamlined	several	supply	chains	by	relocating	equipment	from	one	facility	to another.	The	streamlining	work	has	primarily	occurred	inside	the	U.S.	and	is	in	addition	to	the	streamlining	achieved	through	plant	construction.	As	a	result	of	this increased	activity,	capital	expenditures	were	$1.422	billion	in	2007,	an	increase	of	$254	million	when	compared	to	2006.	The	Company	expects	capital	expenditures	to total	approximately	$1.3	billion	to	$1.4	billion	in	2008.	Refer	to	the	preceding	"Capital	Spending/Net	Property,	Plant	and	Equipment"	section	for	more	detail.

Refer	to	Note	2	for	information	on	2007,	2006	and	2005	acquisitions.	Note	2	also	provides	information	on	the	proceeds	from	the	sale	of	businesses.	The	Company	is actively	considering	additional	acquisitions,	investments	and	strategic	alliances,	and	from	time	to	time	may	also	divest	certain	businesses.

Purchases	of	marketable	securities	and	investments	and	proceeds	from	sale	(or	maturities)	of	marketable	securities	and	investments	are	primarily	attributable	to	asset- backed	securities,	agency	securities,	corporate	medium-term	note	securities,	auction	rate	securities	and	other	securities,	which	are	classified	as	available-for-sale.	Refer to	Note	9	for	more	details	about	3M's	diversified	marketable	securities	portfolio,	which	totaled	$1.059	billion	as	of	December	31,	2007.	Purchases	of	marketable securities,	net	of	sales	and	maturities,	totaled	$429	million	for	2007	and	$637	million	for	2006.	Purchases	of	investments	in	2005	include	the	purchase	of	19%	of	TI&M Beteiligungsgesellschaft	mbH	for	approximately	$55	million,	which	is	reported	as	"Investments"	in	the	Consolidated	Balance	Sheet	and	as	"Purchases	of	marketable securities	and	investments"	in	the	Consolidated	Statement	of	Cash	Flows.	The	recovery	of	approximately	$25	million	of	this	investment	in	2007	reduced	"Investments" and	is	shown	in	cash	flows	within	"Proceeds	from	sale	of	marketable	securities	and	investments."	This	investment	is	discussed	in	more	detail	under	the	preceding	section

entitled	Industrial	and	Transportation	Business.	Additional	purchases	of	investments	include	additional	survivor	benefit	insurance	and	equity	investments.

# Cash	Flows	from	Financing	Activities:

| (Millions) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Change\tin\tshort-term\tdebt\t—\tnet | $(1,222) | $882 | $(258) |
| Repayment\tof\tdebt\t(maturities\tgreater\tthan\t90\tdays) | (1,580) | (440) | (656) |
| Proceeds\tfrom\tdebt\t(maturities\tgreater\tthan\t90\tdays) | 4,024 | 693 | 429 |
| Total\tcash\tchange\tin\tdebt | $1,222 | $1,135 | $(485) |
| Purchases\tof\ttreasury\tstock | (3,239) | (2,351) | (2,377) |
| Reissuances\tof\ttreasury\tstock | 796 | 523 | 545 |
| Dividends\tpaid\tto\tstockholders | (1,380) | (1,376) | (1,286) |
| Excess\ttax\tbenefits\tfrom\tstock-based\tcompensation | 74 | 60 | 54 |
| Distributions\tto\tminority\tinterests\tand\tother\t—\tnet | (20) | (52) | (76) |
| Net\tcash\tused\tin\tfinancing\tactivities | $(2,547) | $(2,061) | $(3,625) |

Total	debt	at	December	31,	2007,	was	$4.920	billion,	up	from	$3.553	billion	at	year-end	2006.	The	net	change	in	short-term	debt	is	primarily	due	to	commercial	paper activity.	In	2007,	the	repayment	of	debt	for	maturities	greater	than	90	days	is	primarily	comprised	of	commercial	paper	repayments	of	approximately	$1.15	billion	and the	November	2007	redemption	of	approximately	$322	million	in	Convertible	Notes.	In	2007,	proceeds	from	debt	included	long-term	debt	and	commercial	paper issuances	totaling	approximately	$4	billion.	This	was	comprised	of	Eurobond	issuances	in	December	2007	and	July	2007	totaling	approximately	$1.5	billion	in	U.S. dollars,	a	March	2007	long-term	debt	issuance	of	$750	million	and	a	December	2007	fixed	rate	note	issuance	of	$500	million,	plus	commercial	paper	issuances (maturities	greater	than	90	days)	of	approximately	$1.25	billion.	Increases	in	long-term	debt	have	been	used,	in	part,	to	fund	share	repurchase	activities.	The	Company accelerated	purchases	of	treasury	stock	when	compared	to	prior	years,	buying	back	$3.2	billion	in	shares	in	2007.	Total	debt	was	30%	of	total	capital	(total	capital	is defined	as	debt	plus	equity),	compared	with	26%	at	year-end	2006.

Debt	securities,	including	2007	debt	issuances,	the	Company's	shelf	registration,	dealer	remarketable	securities	and	Convertible	Notes,	are	all	discussed	in	more	detail	in Note	10.	The	Company	has	a	"well-known	seasoned	issuer"	shelf	registration	statement,	effective	February	24,	2006,	to	register	an	indeterminate	amount	of	debt	or equity	securities	for	future	sales.	On	June	15,	2007,	the	Company	registered	150,718	shares	of	the	Company's	common	stock	under	this	shelf	on	behalf	of	and	for	the sole	benefit	of	the	selling	stockholders	in	connection	with	the	Company's	acquisition	of	assets	of	Diamond	Productions,	Inc.	The	Company	intends	to	use	the	proceeds from	future	securities	sales	off	this	shelf	for	general	corporate	purposes.	In	connection	with	this	shelf	registration,	in	June	2007	the	Company	established	a	medium-term notes	program	through	which	up	to	$3	billion	of	medium-term	notes	may	be	offered.	In	December	2007,	3M	issued	a	five-year,	$500	million,	fixed	rate	note	with	a coupon	rate	of	4.65%	under	this	medium-term	notes	program.	This	program	has	a	remaining	capacity	of	$2.5	billion	as	of	December	31,	2007.

The	Company's	$350	million	of	dealer	remarketable	securities	(classified	as	current	portion	of	long-term	debt)	were	remarketed	for	one	year	in	December	2007.	At December	31,	2007,	$350	million	of	dealer	remarketable	securities	(final	maturity	2010)	and	$62	million	of	floating	rate	notes	(final	maturity	2044)	are	classified	as current	portion	of	long-term	debt	as	the	result	of	put	provisions	associated	with	these	debt	instruments.	The	Company	has	Convertible	Notes	with	a	book	value	of	$222 million	at	December	31,	2007.	The	next	put	option	date	for	these	Convertible	Notes	is	November	2012.	In	November	2007,	364,598	outstanding	bonds	were	redeemed resulting	in	a	payout	from	3M	of	approximately	$322	million.

Repurchases	of	common	stock	are	made	to	support	the	Company's	stock-based	employee	compensation	plans	and	for	other	corporate	purposes.	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.	As	of	December	31,	2007, approximately	$4.1	billion	remained	available	for	repurchase.	Refer	to	the	table	titled	"Issuer	Purchases	of	Equity	Securities"	in	Part	II,	Item	5,	for	more	information.

Cash	dividends	paid	to	stockholders	totaled	$1.380	billion	($1.92	per	share)	in	2007,	$1.376	billion	($1.84	per	share)	in	2006	and	$1.286	billion	($1.68	per	share)	in 2005.	3M	has	paid	dividends	since	1916.	In	February	2008,	the	Board	of	Directors	increased	the	quarterly	dividend	on	3M	common	stock	by	4.2%	to	50	cents	per	share, equivalent	to	an	annual	dividend	of	$2.00	per	share.	This	marked	the	50th	consecutive	year	of	dividend	increases.	Other	cash	flows	from

financing	activities	primarily	include	distributions	to	minority	interests,	excess	tax	benefits	from	stock-based	compensation,	changes	in	cash	overdraft	balances,	and principal	payments	for	capital	leases.

# Off-Balance	Sheet	Arrangements	and	Contractual	Obligations:

As	of	December	31,	2007,	the	Company	has	not	utilized	special	purpose	entities	to	facilitate	off-balance	sheet	financing	arrangements.	3M's	accrued	product	warranty liabilities,	recorded	on	the	Consolidated	Balance	Sheet	as	part	of	current	and	long-term	liabilities,	are	estimated	at	approximately	$21	million.	3M	does	not	consider	this amount	to	be	material.	The	fair	value	of	3M	guarantees	of	loans	with	third	parties	and	other	guarantee	arrangements	are	not	material.

In	addition	to	guarantees,	3M,	in	the	normal	course	of	business,	periodically	enters	into	agreements	that	require	the	Company	to	indemnify	either	major	customers	or suppliers	for	specific	risks,	such	as	claims	for	injury	or	property	damage	arising	out	of	the	use	of	3M	products	or	the	negligence	of	3M	personnel,	or	claims	alleging	that 3M	products	infringe	third-party	patents	or	other	intellectual	property.	While	3M's	maximum	exposure	under	these	indemnification	provisions	cannot	be	estimated,

these	indemnifications	are	not	expected	to	have	a	material	impact	on	the	Company's	consolidated	results	of	operations	or	financial	condition.

A	summary	of	the	Company's	significant	contractual	obligations	as	of	December	31,	2007,	follows:

# Contractual	Obligations

|  |  |  |  |  |  |  | After |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (Millions) | Total | 2008 | 2009 | 2010 | 2011 | 2012 | 2012 |
| Long-term\tdebt,\tincluding\tcurrent\tportion\t(Note\t10) | $4,559 | $540 | $477 | $24 | $— | $500 | $3,018 |
| Interest\ton\tlong-term\tdebt | 2,671 | 211 | 185 | 170 | 169 | 169 | 1,767 |
| Operating\tleases\t(Note\t13) | 441 | 98 | 79 | 58 | 35 | 30 | 141 |
| Capital\tleases\t(Note\t13) | 84 | 7 | 6 | 6 | 6 | 5 | 54 |
| Unconditional\tpurchase\tobligations\tand\tother | 787 | 626 | 120 | 33 | 5 | 2 | 1 |
| Total\tcontractual\tcash\tobligations | $8,542 | $1,482 | $867 | $291 | $215 | $706 | $4,981 |

Long-term	debt	payments	due	in	2008	include	$350	million	of	dealer	remarketable	securities	(final	maturity	2010)	and	$62	million	of	floating	rate	notes	(final	maturity 2044).	These	securities	are	classified	as	the	current	portion	of	long-term	debt	as	the	result	of	put	provisions	associated	with	these	debt	instruments.

Unconditional	purchase	obligations	are	defined	as	an	agreement	to	purchase	goods	or	services	that	is	enforceable	and	legally	binding	on	the	Company.	Included	in	the unconditional	purchase	obligations	category	above	are	certain	obligations	related	to	take	or	pay	contracts,	capital	commitments,	service	agreements	and	utilities.	These estimates	include	both	unconditional	purchase	obligations	with	terms	in	excess	of	one	year	and	normal	ongoing	purchase	obligations	with	terms	of	less	than	one	year. Many	of	these	commitments	relate	to	take	or	pay	contracts,	in	which	3M	guarantees	payment	to	ensure	availability	of	products	or	services	that	are	sold	to	customers.	The Company	expects	to	receive	consideration	(products	or	services)	for	these	unconditional	purchase	obligations.	Contractual	capital	commitments	are	included	in	the preceding	table,	but	these	commitments	represent	a	small	part	of	the	Company's	expected	capital	spending	in	2008	and	beyond.	The	purchase	obligation	amounts	do	not represent	the	entire	anticipated	purchases	in	the	future,	but	represent	only	those	items	for	which	the	Company	is	contractually	obligated.	The	majority	of	3M's	products and	services	are	purchased	as	needed,	with	no	unconditional	commitment.	For	this	reason,	these	amounts	will	not	provide	a	reliable	indicator	of	the	Company's	expected future	cash	outflows	on	a	stand-alone	basis.

Other	obligations,	included	in	the	preceding	table	within	the	caption	entitled	"Unconditional	purchase	obligations	and	other,"	include	the	current	portion	of	the	liability for	uncertain	tax	positions	under	FIN	48.	The	Company	is	not	able	to	reasonably	estimate	the	timing	of	the	long-term	payments	or	the	amount	by	which	the	liability	will increase	or	decrease	over	time;	therefore,	the	long-term	portion	of	the	liability	of	$304	million	is	excluded	from	the	preceding	table.	Refer	to	Note	8	for	further	details.

As	discussed	in	Note	11,	the	Company	does	not	have	a	required	minimum	pension	contribution	obligation	for	its	U.S.	plans	in	2008	and	Company	contributions	to	its U.S.	and	international	pension	plans	are	expected	to	be	largely	discretionary	in	2008	and	future	years;	therefore,	amounts	related	to	these	plans	are	not	included	in	the preceding	table.

# FINANCIAL	INSTRUMENTS

The	Company	enters	into	contractual	derivative	arrangements	in	the	ordinary	course	of	business	to	manage	foreign	currency	exposure,	interest	rate	risks	and	commodity price	risks.	A	financial	risk	management	committee,	composed	of	senior	management,	provides	oversight	for	risk	management	and	derivative	activities.	This	committee determines	the	Company's	financial	risk	policies	and	objectives,	and	provides	guidelines	for	derivative	instrument	utilization.	This	committee	also	establishes procedures	for	control	and	valuation,	risk	analysis,	counterparty	credit	approval,	and	ongoing	monitoring	and	reporting.

The	Company	enters	into	foreign	exchange	forward	contracts,	options	and	swaps	to	hedge	against	the	effect	of	exchange	rate	fluctuations	on	cash	flows	denominated	in foreign	currencies	and	certain	intercompany	financing	transactions.	The	Company	manages	interest	rate	risks	using	a	mix	of	fixed	and	floating	rate	debt.	To	help manage	borrowing	costs,	the	Company	may	enter	into	interest	rate	swaps.	Under	these	arrangements,	the	Company	agrees	to	exchange,	at	specified	intervals,	the difference	between	fixed	and	floating	interest	amounts	calculated	by	reference	to	an	agreed-upon	notional	principal	amount.	The	Company	manages	commodity	price risks	through	negotiated	supply	contracts,	price	protection	agreements	and	forward	physical	contracts.

A	Monte	Carlo	simulation	technique	was	used	to	test	the	Company's	exposure	to	changes	in	currency	and	interest	rates	and	assess	the	risk	of	loss	or	benefit	in	after-tax earnings	of	financial	instruments,	derivatives	and	underlying	exposures	outstanding	at	December	31,	2007.	The	model	(third-party	bank	dataset)	used	a	95%	confidence level	over	a	12-month	time	horizon.	The	model	used	analyzed	17	currencies,	interest	rates	related	to	three	currencies,	and	five	commodities,	but	does	not	purport	to represent	what	actually	will	be	experienced	by	the	Company.	This	model	does	not	include	certain	hedge	transactions,	because	the	Company	believes	their	inclusion would	not	materially	impact	the	results.	The	following	table	summarizes	the	possible	adverse	and	positive	impacts	to	after-tax	earnings	related	to	these	exposures.

|  | Adverse	impact	on |  | Positive	impact	on |  |
| :--- | :--- | :--- | :--- | :--- |
| (Millions) | after-tax\tearnings |  | after-tax\tearnings |  |
|  | 2007 | 2006 | 2007 | 2006 |
| Foreign\texchange\trates | $(54) | $(56) | $57 | $61 |
| Interest\trates | (13) | (15) | 15 | 17 |
| Commodity\trates | (3) | (6) | 2 | 5 |

The	global	exposures	related	to	purchased	components	and	materials	are	such	that	a	1%	price	change	would	result	in	a	pre-tax	cost	or	savings	of	approximately	$60 million	per	year.	The	global	energy	exposure	is	such	that	a	10%	price	change	would	result	in	a	pre-tax	cost	or	savings	of	approximately	$38	million	per	year.	Derivative instruments	are	used	to	hedge	approximately	1%	of	the	purchased	components	and	materials	exposure	and	are	used	to	hedge	approximately	10%	of	this	energy	exposure.

# FORWARD-LOOKING	STATEMENTS

This	Annual	Report	on	Form	10-K,	including	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations"	in	Item	7,	contains	forward- looking	statements	within	the	meaning	of	the	Private	Securities	Litigation	Reform	Act	of	1995.	The	Company	may	also	make	forward-looking	statements	in	other reports	filed	with	the	Securities	and	Exchange	Commission,	in	materials	delivered	to	stockholders	and	in	press	releases.	In	addition,	the	Company's	representatives	may from	time	to	time	make	oral	forward-looking	statements.

Forward-looking	statements	relate	to	future	events	and	typically	address	the	Company's	expected	future	business	and	financial	performance.	Words	such	as		"plan," "expect,"	"aim,"	"believe,"	"project,"	"target,"	"anticipate,"	"intend,"	"estimate,"	"will,"	"should,"	"could"	and	other	words	and	terms	of	similar	meaning,	typically identify	such	forward-looking	statements.	In	particular,	these	include	statements	about	the	Company's	strategy	for	growth,	product	development,	market	position,	future performance	or	results	of	current	or	anticipated	products,	interest	rates,	foreign	exchange	rates,	financial	results,	and	the	outcome	of	contingencies,	such	as	legal proceedings.	The	Company	assumes	no	obligation	to	update	or	revise	any	forward-looking	statements.

Forward-looking	statements	are	based	on	certain	assumptions	and	expectations	of	future	events	and	trends	that	are	subject	to	risks	and	uncertainties.	Actual	future	results and	trends	may	differ	materially	from	historical	results	or	those	reflected	in	any	such	forward-looking	statements	depending	on	a	variety	of	factors.	Discussion	of	these factors	is	incorporated	by	reference	from	Part	I,	Item	1A,	"Risk	Factors,"	of	this	document,	and	should	be	considered	an	integral	part	of	Part	II,	Item	7,	"Management's Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations."

# Item	7A.	Quantitative	and	Qualitative	Disclosures	About	Market	Risk.

In	the	context	of	Item	7A,	market	risk	refers	to	the	risk	of	loss	arising	from	adverse	changes	in	financial	and	derivative	instrument	market	rates	and	prices,	such	as fluctuations	in	interest	rates	and	foreign	currency	exchange	rates.	The	Company	discusses	risk	management	in	various	places	throughout	this	document,	including discussions	in	Item	7	concerning	Financial	Condition	and	Liquidity,	and	Financial	Instruments,	and	in	the	Notes	to	Consolidated	Financial	Statements	(Long-Term	Debt and	Short-Term	Borrowings,	Derivatives	and	Other	Financial	Instruments,	and	the	Derivatives	and	Hedging	Activities	accounting	policy).	All	derivative	activity	is governed	by	written	policies,	and	a	value-at-risk	analysis	is	provided	for	these	derivatives.	The	Company	does	not	have	leveraged	derivative	positions.	However,	the Company	does	have	contingently	convertible	debt	that,	if	conditions	for	conversion	are	met,	is	convertible	into	shares	of	3M	common	stock	(refer	to	Note	10	in	this document).

# Item	8.	Financial	Statements	and	Supplementary	Data.

# Management's	Responsibility	for	Financial	Reporting

Management	is	responsible	for	the	integrity	and	objectivity	of	the	financial	information	included	in	this	report.	The	financial	statements	have	been	prepared	in accordance	with	accounting	principles	generally	accepted	in	the	United	States	of	America.	Where	necessary,	the	financial	statements	reflect	estimates	based	on management's	judgment.

Management	has	established	and	maintains	a	system	of	internal	accounting	and	other	controls	for	the	Company	and	its	subsidiaries.	This	system	and	its	established accounting	procedures	and	related	controls	are	designed	to	provide	reasonable	assurance	that	assets	are	safeguarded,	that	the	books	and	records	properly	reflect	all transactions,	that	policies	and	procedures	are	implemented	by	qualified	personnel,	and	that	published	financial	statements	are	properly	prepared	and	fairly	presented.	The Company's	system	of	internal	control	is	supported	by	widely	communicated	written	policies,	including	business	conduct	policies,	which	are	designed	to	require	all employees	to	maintain	high	ethical	standards	in	the	conduct	of	Company	affairs.	Internal	auditors	continually	review	the	accounting	and	control	system.

Management's	Report	on	Internal	Control	Over	Financial	Reporting

Management	is	responsible	for	establishing	and	maintaining	an	adequate	system	of	internal	control	over	financial	reporting.	Management	conducted	an	assessment	of	the Company's	internal	control	over	financial	reporting	based	on	the	framework	established	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	in Internal	Control	—	Integrated	Framework.	Based	on	the	assessment,	management	concluded	that,	as	of	December	31,	2007,	the	Company's	internal	control	over financial	reporting	is	effective.

The	Company's	internal	control	over	financial	reporting	as	of	December	31,	2007	has	been	audited	by	PricewaterhouseCoopers	LLP,	an	independent	registered	public accounting	firm,	as	stated	in	their	report	which	is	included	herein,	which	expresses	an	unqualified	opinion	on	the	effectiveness	of	the	Company's	internal	control	over financial	reporting	as	of	December	31,	2007.

# Report	of	Independent	Registered	Public	Accounting	Firm

# To	the	Stockholders	and	Board	of	Directors	of	3M	Company:

In	our	opinion,	the	consolidated	financial	statements	listed	in	the	accompanying	index	present	fairly,	in	all	material	respects,	the	financial	position	of	3M	Company	and its	subsidiaries	(the	"Company")	at	December	31,	2007	and	2006,	and	the	results	of	their	operations	and	their	cash	flows	for	each	of	the	three	years	in	the	period	ended December	31,	2007	in	conformity	with	accounting	principles	generally	accepted	in	the	United	States	of	America.	Also	in	our	opinion,	the	Company	maintained,	in	all material	respects,	effective	internal	control	over	financial	reporting	as	of	December	31,	2007,	based	on	criteria	established	in	Internal	Control	—	Integrated	Framework issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(COSO).	The	Company's	management	is	responsible	for	these	financial	statements, for	maintaining	effective	internal	control	over	financial	reporting	and	for	its	assessment	of	the	effectiveness	of	internal	control	over	financial	reporting,	included	in "Management's	Report	on	Internal	Control	Over	Financial	Reporting"	in	the	accompanying	index.	Our	responsibility	is	to	express	opinions	on	these	financial	statements and	on	the	Company's	internal	control	over	financial	reporting	based	on	our	integrated	audits.	We	conducted	our	audits	in	accordance	with	the	standards	of	the	Public Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we	plan	and	perform	the	audits	to	obtain	reasonable	assurance	about	whether	the financial	statements	are	free	of	material	misstatement	and	whether	effective	internal	control	over	financial	reporting	was	maintained	in	all	material	respects.	Our	audits	of the	financial	statements	included	examining,	on	a	test	basis,	evidence	supporting	the	amounts	and	disclosures	in	the	financial	statements,	assessing	the	accounting principles	used	and	significant	estimates	made	by	management,	and	evaluating	the	overall	financial	statement	presentation.	Our	audit	of	internal	control	over	financial reporting	included	obtaining	an	understanding	of	internal	control	over	financial	reporting,	assessing	the	risk	that	a	material	weakness	exists,	and	testing	and	evaluating the	design	and	operating	effectiveness	of	internal	control	based	on	the	assessed	risk.	Our	audits	also	included	performing	such	other	procedures	as	we	considered necessary	in	the	circumstances.	We	believe	that	our	audits	provide	a	reasonable	basis	for	our	opinions.

As	discussed	in	Note	1	to	the	consolidated	financial	statements,	the	Company	changed	the	manner	in	which	it	accounts	for	conditional	asset	retirement	obligations	in 2005,	the	manner	in	which	it	accounts	for	defined	benefit	pension	and	other	post-retirement	plans	in	2006,	and	the	manner	in	which	it	accounts	for	uncertain	tax	positions in	2007.

A	company's	internal	control	over	financial	reporting	is	a	process	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the preparation	of	financial	statements	for	external	purposes	in	accordance	with	generally	accepted	accounting	principles.	A	company's	internal	control	over	financial reporting	includes	those	policies	and	procedures	that	(i)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the	transactions	and dispositions	of	the	assets	of	the	company;	(ii)	provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in accordance	with	generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in	accordance	with	authorizations	of management	and	directors	of	the	company;	and	(iii)	provide	reasonable	assurance	regarding	prevention	or	timely	detection	of	unauthorized	acquisition,	use,	or disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the	financial	statements.

Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements.		Also,	projections	of	any	evaluation	of	effectiveness to	future	periods	are	subject	to	the	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the	policies	or procedures	may	deteriorate.

/s/	PricewaterhouseCoopers	LLP PricewaterhouseCoopers	LLP Minneapolis,	Minnesota

# Consolidated	Statement	of	Income

| (Millions,	except	per	share	amounts) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Net\tsales | $24,462 | $22,923 | $21,167 |
| Operating\texpenses |  |  |  |
| Cost\tof\tsales | 12,735 | 11,713 | 10,408 |
| Selling,\tgeneral\tand\tadministrative\texpenses | 5,015 | 5,066 | 4,631 |
| Research,\tdevelopment\tand\trelated\texpenses | 1,368 | 1,522 | 1,274 |
| Gain\ton\tsale\tof\tbusinesses | (849) | (1,074) | — |
| Total | 18,269 | 17,227 | 16,313 |
| Operating\tincome | 6,193 | 5,696 | 4,854 |
| Interest\texpense\tand\tincome |  |  |  |
| Interest\texpense | 210 | 122 | 82 |
| Interest\tincome | (132) | (51) | (56) |
| Total | 78 | 71 | 26 |
| Income\tbefore\tincome\ttaxes,\tminority\tinterest\tand\tcumulative\teffect\tof\taccounting\tchange | 6,115 | 5,625 | 4,828 |
| Provision\tfor\tincome\ttaxes | 1,964 | 1,723 | 1,627 |
| Minority\tinterest | 55 | 51 | 55 |
| Income\tbefore\tcumulative\teffect\tof\taccounting\tchange | 4,096 | 3,851 | 3,146 |

| Cumulative	effect	of	accounting	change | — | — | (35) |
| :--- | :--- | :--- | :--- |
| Net\tincome | $4,096 | $3,851 | $3,111 |
| Weighted\taverage\tcommon\tshares\toutstanding\t—\tbasic | 718.3 | 747.5 | 764.9 |
| Earnings\tper\tshare\t—\tbasic |  |  |  |
| Income\tbefore\tcumulative\teffect\tof\taccounting\tchange | $5.70 | $5.15 | $4.11 |
| Cumulative\teffect\tof\taccounting\tchange | — | — | (0.04) |
| Net\tincome | $5.70 | $5.15 | $4.07 |
| Weighted\taverage\tcommon\tshares\toutstanding\t—\tdiluted | 732.0 | 761.0 | 781.3 |
| Earnings\tper\tshare\t—\tdiluted |  |  |  |
| Income\tbefore\tcumulative\teffect\tof\taccounting\tchange | $5.60 | $5.06 | $4.03 |
| Cumulative\teffect\tof\taccounting\tchange | — | — | (0.05) |
| Net\tincome | $5.60 | $5.06 | $3.98 |

The	accompanying	Notes	to	Consolidated	Financial	Statements	are	an	integral	part	of	this	statement.

# Consolidated	Balance	Sheet

| (Dollars	in	millions,	except	per	share	amount) | 2007 | 2006 |
| :--- | :--- | :--- |
| Assets |  |  |
| Current\tassets |  |  |
| Cash\tand\tcash\tequivalents | $1,896 | $1,447 |
| Marketable\tsecurities\t—\tcurrent | 579 | 471 |
| Accounts\treceivable\t—\tnet\tof\tallowances\tof\t$75\tand\t$71 | 3,362 | 3,102 |
| Inventories |  |  |
| Finished\tgoods | 1,349 | 1,235 |
| Work\tin\tprocess | 880 | 795 |
| Raw\tmaterials\tand\tsupplies | 623 | 571 |
| Total\tinventories | 2,852 | 2,601 |
| Other\tcurrent\tassets | 1,149 | 1,325 |
| Total\tcurrent\tassets | 9,838 | 8,946 |
| Marketable\tsecurities\t—\tnon-current | 480 | 166 |
| Investments | 298 | 314 |
| Property,\tplant\tand\tequipment | 18,390 | 17,017 |
| Less:\tAccumulated\tdepreciation | (11,808) | (11,110) |
| Property,\tplant\tand\tequipment\t—\tnet | 6,582 | 5,907 |
| Goodwill | 4,589 | 4,082 |
| Intangible\tassets\t—\tnet | 801 | 708 |
| Prepaid\tpension\tand\tpostretirement\tbenefits | 1,378 | 395 |
| Other\tassets | 728 | 776 |
| Total\tassets | $24,694 | $21,294 |
| Liabilities\tand\tStockholders'\tEquity |  |  |
| Current\tliabilities |  |  |
| Short-term\tborrowings\tand\tcurrent\tportion\tof\tlong-term\tdebt | $901 | $2,506 |
| Accounts\tpayable | 1,505 | 1,402 |
| Accrued\tpayroll | 580 | 520 |
| Accrued\tincome\ttaxes | 543 | 1,134 |
| Other\tcurrent\tliabilities |  |  |
|  | 1,833 | 1,761 |
| Total\tcurrent\tliabilities | 5,362 | 7,323 |
| Long-term\tdebt | 4,019 | 1,047 |
| Other\tliabilities | 3,566 | 2,965 |
| Total\tliabilities | $12,947 | $11,335 |
| Commitments\tand\tcontingencies\t(Note\t13) |  |  |
| Stockholders'\tequity |  |  |
| Common\tstock,\tpar\tvalue\t$.01\tper\tshare | 9 | 9 |
| Shares\toutstanding\t—\t2007:\t709,156,031 |  |  |
| Shares\toutstanding\t—\t2006:\t734,362,802 |  |  |
| Additional\tpaid-in\tcapital | 2,785 | 2,484 |
| Retained\tearnings | 20,316 | 17,933 |
| Treasury\tstock | (10,520) | (8,456) |
| Unearned\tcompensation | (96) | (138) |
| Accumulated\tother\tcomprehensive\tincome\t(loss) | (747) | (1,873) |
| Stockholders'\tequity\t—\tnet | 11,747 | 9,959 |
| Total\tliabilities\tand\tstockholders'\tequity | $24,694 | $21,294 |

Consolidated	Statement	of	Changes	in	Stockholders'	Equity	and	Comprehensive	Income

# 3M	Company	and	Subsidiaries

| (Millions) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Common\tStock,\tpar\tvalue | $9 | $9 | $9 |
| Additional\tPaid-in\tCapital |  |  |  |
| Beginning\tbalance | 2,484 | 2,225 | 2,018 |
| Stock-based\tcompensation\texpense\t(excluding\ttax\tbenefit) | 228 | 200 | 155 |
| Stock-based\tcompensation\ttax\tbenefit | 73 | 59 | 52 |
| Ending\tbalance | 2,785 | 2,484 | 2,225 |
| Retained\tEarnings |  |  |  |
| Beginning\tbalance | 17,933 | 15,715 | 14,198 |
| Adjustment\tto\tbeginning\tbalance\tto\tinitially\tapply\tFIN\t48 | (1) | — | — |
| Net\tincome | 4,096 | 3,851 | 3,111 |
| Dividends\tpaid | (1,380) | (1,376) | (1,286) |
| Issuances\tpursuant\tto\tstock\toption\tand\tbenefit\tplans | (332) | (257) | (308) |
| Ending\tbalance | 20,316 | 17,933 | 15,715 |
| Treasury\tStock |  |  |  |
| Beginning\tbalance | (8,456) | (6,965) | (5,503) |
| Reacquired\tstock | (3,237) | (2,332) | (2,377) |
| Issuances\tpursuant\tto\tstock\toption\tand\tbenefit\tplans | 1,160 | 841 | 915 |
| Issuances\tpursuant\tto\tacquisitions | 13 | — | — |
| Ending\tbalance | (10,520) | (8,456) | (6,965) |
| Unearned\tCompensation |  |  |  |
| Beginning\tbalance | (138) | (178) | (196) |
| Amortization\tof\tunearned\tcompensation | 42 | 40 | 18 |
| Ending\tbalance | (96) | (138) | (178) |
| Accumulated\tOther\tComprehensive\tIncome\t(Loss) |  |  |  |
| Beginning\tbalance | (1,873) | (411) | 132 |
| Cumulative\ttranslation\tadjustment | 532 | 506 | (578) |
| Defined\tbenefit\tpension\tplans\tadjustment | 614 | 7 | (46) |
| Adjustment\tto\tinitially\tapply\tSFAS\tNo.\t158 | — | (1,918) | — |
| Debt\tand\tequity\tsecurities\t—\tunrealized\tgain\t(loss) | (10) | (1) | 1 |
| Cash\tflow\thedging\tinstruments\t—\tunrealized\tgain\t(loss) | (10) | (56) | 80 |
| Ending\tbalance | (747) | (1,873) | (411) |
| Total\tStockholder's\tEquity | $11,747 | $9,959 | $10,395 |
| Comprehensive\tIncome |  |  |  |
| Net\tincome | 4,096 | 3,851 | 3,111 |
| Cumulative\ttranslation\tadjustment | 532 | 506 | (578) |
| Defined\tbenefit\tpension\tplans\tadjustment | 614 | 7 | (46) |
| Debt\tand\tequity\tsecurities\t—\tunrealized\tgain\t(loss) | (10) | (1) | 1 |
| Cash\tflow\thedging\tinstruments\t—\tunrealized\tgain\t(loss) | (10) | (56) | 80 |
| Total\tComprehensive\tIncome | $5,222 | $4,307 | $2,568 |

# Consolidated	Statement	of	Cash	Flows

| (Millions) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Cash\tFlows\tfrom\tOperating\tActivities |  |  |  |
| Net\tincome | $4,096 | $3,851 | $3,111 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tnet\tcash\tprovided\tby\toperating\tactivities |  |  |  |
| Depreciation\tand\tamortization | 1,072 | 1,079 | 986 |
| Company\tpension\tand\tpostretirement\tcontributions | (379) | (385) | (788) |
| Company\tpension\tand\tpostretirement\texpense | 255 | 440 | 437 |
| Stock-based\tcompensation\texpense | 228 | 200 | 155 |
| Gain\tfrom\tsale\tof\tbusinesses | (849) | (1,074) | — |
| Deferred\tincome\ttaxes | 11 | (316) | 132 |
| Excess\ttax\tbenefits\tfrom\tstock-based\tcompensation | (74) | (60) | (54) |
| Changes\tin\tassets\tand\tliabilities |  |  |  |
| Accounts\treceivable | (35) | (103) | (184) |
| Inventories | (54) | (309) | (294) |
| Accounts\tpayable | (4) | 68 | 113 |
| Accrued\tincome\ttaxes | (45) | 138 | 270 |

| Product	and	other	insurance	receivables	and	claims | 158 | 58 | 122 |
| :--- | :--- | :--- | :--- |
| Other\t—\tnet | (105) | 252 | 198 |
| Net\tcash\tprovided\tby\toperating\tactivities | 4,275 | 3,839 | 4,204 |
| Cash\tFlows\tfrom\tInvesting\tActivities |  |  |  |
| Purchases\tof\tproperty,\tplant\tand\tequipment\t(PP&amp;E) | (1,422) | (1,168) | (943) |
| Proceeds\tfrom\tsale\tof\tPP&amp;E\tand\tother\tassets | 103 | 49 | 41 |
| Acquisitions,\tnet\tof\tcash\tacquired | (539) | (888) | (1,293) |
| Purchases\tof\tmarketable\tsecurities\tand\tinvestments | (8,194) | (3,253) | (1,627) |
| Proceeds\tfrom\tsale\tof\tmarketable\tsecurities\tand\tinvestments | 6,902 | 2,287 | 1,573 |
| Proceeds\tfrom\tmaturities\tof\tmarketable\tsecurities | 886 | 304 | 8 |
| Proceeds\tfrom\tsale\tof\tbusinesses | 897 | 1,209 | — |
| Net\tcash\tused\tin\tinvesting\tactivities | (1,367) | (1,460) | (2,241) |
| Cash\tFlows\tfrom\tFinancing\tActivities |  |  |  |
| Change\tin\tshort-term\tdebt\t—\tnet | (1,222) | 882 | (258) |
| Repayment\tof\tdebt\t(maturities\tgreater\tthan\t90\tdays) | (1,580) | (440) | (656) |
| Proceeds\tfrom\tdebt\t(maturities\tgreater\tthan\t90\tdays) | 4,024 | 693 | 429 |
| Purchases\tof\ttreasury\tstock | (3,239) | (2,351) | (2,377) |
| Reissuances\tof\ttreasury\tstock | 796 | 523 | 545 |
| Dividends\tpaid\tto\tstockholders | (1,380) | (1,376) | (1,286) |
| Distributions\tto\tminority\tinterests | (20) | (38) | (56) |
| Excess\ttax\tbenefits\tfrom\tstock-based\tcompensation | 74 | 60 | 54 |
| Other\t—\tnet | — | (14) | (20) |
| Net\tcash\tused\tin\tfinancing\tactivities | (2,547) | (2,061) | (3,625) |
| Effect\tof\texchange\trate\tchanges\ton\tcash\tand\tcash\tequivalents | 88 | 57 | (23) |
| Net\tincrease/(decrease)\tin\tcash\tand\tcash\tequivalents | 449 | 375 | (1,685) |
| Cash\tand\tcash\tequivalents\tat\tbeginning\tof\tyear | 1,447 | 1,072 | 2,757 |
| Cash\tand\tcash\tequivalents\tat\tend\tof\tyear | $1,896 | $1,447 | $1,072 |

# Notes	to	Consolidated	Financial	Statements

# NOTE	1.		Significant	Accounting	Policies

Consolidation:	3M	is	a	diversified	global	manufacturer,	technology	innovator	and	marketer	of	a	wide	variety	of	products.	All	significant	subsidiaries	are	consolidated. All	significant	intercompany	transactions	are	eliminated.	As	used	herein,	the	term	"3M"	or	"Company"	refers	to	3M	Company	and	subsidiaries	unless	the	context indicates	otherwise.

Foreign	currency	translation:	Local	currencies	generally	are	considered	the	functional	currencies	outside	the	United	States.	Assets	and	liabilities	for	operations	in	local- currency	environments	are	translated	at	year-end	exchange	rates.	Income	and	expense	items	are	translated	at	average	rates	of	exchange	prevailing	during	the	year. Cumulative	translation	adjustments	are	recorded	as	a	component	of	accumulated	other	comprehensive	income	(loss)	in	stockholders'	equity.

Reclassifications:	Certain	amounts	in	the	prior	years'	consolidated	financial	statements	have	been	reclassified	to	conform	to	the	current	year	presentation.

Use	of	estimates:	The	preparation	of	financial	statements	in	conformity	with	U.S.	generally	accepted	accounting	principles	requires	management	to	make	estimates	and assumptions	that	affect	the	reported	amounts	of	assets	and	liabilities	and	the	disclosure	of	contingent	assets	and	liabilities	at	the	date	of	the	financial	statements,	and	the reported	amounts	of	revenues	and	expenses	during	the	reporting	period.	Actual	results	could	differ	from	these	estimates.

Cash	and	cash	equivalents:	Cash	and	cash	equivalents	consist	of	cash	and	temporary	investments	with	maturities	of	three	months	or	less	when	purchased.

Investments:	Investments	primarily	include	the	cash	surrender	value	of	life	insurance	policies,	real	estate	not	used	in	the	business,	venture	capital	and	equity-method investments.	Unrealized	gains	and	losses	relating	to	investments	classified	as	available-for-sale	are	recorded	as	a	component	of	accumulated	other	comprehensive income	(loss)	in	stockholders'	equity.

Inventories:	Inventories	are	stated	at	the	lower	of	cost	or	market,	with	cost	generally	determined	on	a	first-in,	first-out	basis.

Property,	plant	and	equipment:	Property,	plant	and	equipment,	including	capitalized	interest	and	internal	engineering	costs,	are	recorded	at	cost.	Depreciation	of property,	plant	and	equipment	generally	is	computed	using	the	straight-line	method	based	on	the	estimated	useful	lives	of	the	assets.	The	estimated	useful	lives	of buildings	and	improvements	primarily	range	from	10	to	40	years,	with	the	majority	in	the	range	of	20	to	40	years.	The	estimated	useful	lives	of	machinery	and	equipment primarily	range	from	three	to	15	years,	with	the	majority	in	the	range	of	five	to	10	years.	Fully	depreciated	assets	are	retained	in	property	and	accumulated	depreciation accounts	until	disposal.	Upon	disposal,	assets	and	related	accumulated	depreciation	are	removed	from	the	accounts	and	the	net	amount,	less	proceeds	from	disposal,	is charged	or	credited	to	operations.	Property,	plant	and	equipment	amounts	are	reviewed	for	impairment	whenever	events	or	changes	in	circumstances	indicate	that	the carrying	amount	of	an	asset	(asset	group)	may	not	be	recoverable.	An	impairment	loss	would	be	recognized	when	the	carrying	amount	of	an	asset	exceeds	the	estimated undiscounted	future	cash	flows	expected	to	result	from	the	use	of	the	asset	and	its	eventual	disposition.	The	amount	of	the	impairment	loss	to	be	recorded	is	calculated	by the	excess	of	the	asset's	carrying	value	over	its	fair	value.	Fair	value	is	generally	determined	using	a	discounted	cash	flow	analysis.

Goodwill:	Goodwill	is	the	excess	of	cost	of	an	acquired	entity	over	the	amounts	assigned	to	assets	acquired	and	liabilities	assumed	in	a	business	combination.	Goodwill is	not	amortized.	Goodwill	is	tested	for	impairment	annually,	and	will	be	tested	for	impairment	between	annual	tests	if	an	event	occurs	or	circumstances	change	that would	indicate	the	carrying	amount	may	be	impaired.	Impairment	testing	for	goodwill	is	done	at	a	reporting	unit	level.	Reporting	units	are	one	level	below	the	business segment	level,	but	can	be	combined	when	reporting	units	within	the	same	segment	have	similar	economic	characteristics.	The	majority	of	goodwill	relates	to	and	is assigned	directly	to	specific	reporting	units.	An	impairment	loss	generally	would	be	recognized	when	the	carrying	amount	of	the	reporting	unit's	net	assets	exceeds	the estimated	fair	value	of	the	reporting	unit.	The	estimated	fair	value	of	a	reporting	unit	is	determined	using	earnings	for	the	reporting	unit	multiplied	by	a	price/earnings ratio	for	comparable	industry	groups,	or	by	using	a	discounted	cash	flow	analysis.	The	Company	completed	its	annual	goodwill	impairment	test	in	the	fourth	quarter	of 2007	and	determined	that	no	goodwill	was	impaired.

Intangible	assets:	Intangible	assets	include	patents,	tradenames	and	other	intangible	assets	acquired	from	an	independent	party.	Intangible	assets	with	an	indefinite	life, namely	certain	tradenames,	are	not	amortized.	Intangible	assets	with	a	definite	life	are	amortized	on	a	straight-line	basis,	with	estimated	useful	lives	ranging	from	one	to 20	years.	Indefinite-lived	intangible	assets	are	tested	for	impairment	annually,	and	will	be	tested	for	impairment	between	annual	tests	if	an	event	occurs	or	circumstances change	that	would	indicate	that	the	carrying	amount	may	be	impaired.	Intangible	assets	with	a	definite	life	are	tested	for	impairment	whenever	events	or	circumstances indicate	that	the

carrying	amount	of	an	asset	(asset	group)	may	not	be	recoverable.	An	impairment	loss	is	recognized	when	the	carrying	amount	of	an	asset	exceeds	the	estimated undiscounted	cash	flows	used	in	determining	the	fair	value	of	the	asset.	The	amount	of	the	impairment	loss	to	be	recorded	is	calculated	by	the	excess	of	the	asset's carrying	value	over	its	fair	value.	Fair	value	is	generally	determined	using	a	discounted	cash	flow	analysis.	Costs	related	to	internally	developed	intangible	assets,	such as	patents,	are	expensed	as	incurred,	primarily	in	"Research,	development	and	related	expenses."

Revenue	(sales)	recognition:	The	Company	sells	a	wide	range	of	products	to	a	diversified	base	of	customers	around	the	world	and	has	no	material	concentration	of	credit risk.	Revenue	is	recognized	when	the	risks	and	rewards	of	ownership	have	substantively	transferred	to	customers.	This	condition	normally	is	met	when	the	product	has been	delivered	or	upon	performance	of	services.	The	Company	records	estimated	reductions	to	revenue	for	customer	and	distributor	incentives,	such	as	rebates,	at	the time	of	the	initial	sale.	The	estimated	reductions	are	based	on	the	sales	terms,	historical	experience,	trend	analysis	and	projected	market	conditions	in	the	various	markets served.	Sales,	use,	value-added	and	other	excise	taxes	are	not	recognized	in	revenue.

The	majority	of	3M's	sales	agreements	are	for	standard	products	and	services	with	customer	acceptance	occurring	upon	delivery	of	the	product	or	performance	of	the service.	3M	also	enters	into	agreements	that	contain	multiple	elements	(such	as	equipment,	installation	and	service)	or	non-standard	terms	and	conditions.	For	multiple- element	arrangements,	3M	recognizes	revenue	for	delivered	elements	when	it	has	stand-alone	value	to	the	customer,	the	fair	values	of	undelivered	elements	are	known, customer	acceptance	of	the	delivered	elements	has	occurred,	and	there	are	only	customary	refund	or	return	rights	related	to	the	delivered	elements.	In	addition	to	the preceding	conditions,	equipment	revenue	is	not	recorded	until	the	installation	has	been	completed	if	equipment	acceptance	is	dependent	upon	installation,	or	if installation	is	essential	to	the	functionality	of	the	equipment.	Installation	revenues	are	not	recorded	until	installation	has	been	completed.	For	prepaid	service	contracts, sales	revenue	is	recognized	on	a	straight-line	basis	over	the	term	of	the	contract,	unless	historical	evidence	indicates	the	costs	are	incurred	on	other	than	a	straight-line basis.	License	fee	revenue	is	recognized	as	earned,	and	no	revenue	is	recognized	until	the	inception	of	the	license	term.	On	occasion,	agreements	will	contain	milestones, or	3M	will	recognize	revenue	based	on	proportional	performance.	For	these	agreements,	and	depending	on	the	specifics,	3M	may	recognize	revenue	upon	completion	of a	substantive	milestone,	or	in	proportion	to	costs	incurred	to	date	compared	with	the	estimate	of	total	costs	to	be	incurred.

Accounts	Receivable	and	Allowances:	Trade	accounts	receivable	are	recorded	at	the	invoiced	amount	and	do	not	bear	interest.	The	Company	maintains	allowances	for bad	debts,	cash	discounts,	product	returns	and	various	other	items.	The	allowance	for	doubtful	accounts	and	product	returns	is	based	on	the	best	estimate	of	the	amount of	probable	credit	losses	in	existing	accounts	receivable	and	anticipated	sales	returns.	The	Company	determines	the	allowances	based	on	historical	write-off	experience by	industry	and	regional	economic	data	and	historical	sales	returns.	The	Company	reviews	the	allowance	for	doubtful	accounts	monthly.	The	Company	does	not	have any	significant	off-balance-sheet	credit	exposure	related	to	its	customers.

Advertising	and	merchandising:	These	costs	are	charged	to	operations	in	the	year	incurred,	and	totaled	$469	million	in	2007,	$471	million	in	2006	and	$457	million	in 2005.

Research,	development	and	related	expenses:	These	costs	are	charged	to	operations	in	the	year	incurred	and	are	shown	on	a	separate	line	of	the	Consolidated	Statement of	Income.	Research,	development	and	related	expenses	totaled	$1.368	billion	in	2007,	$1.522	billion	in	2006	and	$1.274	billion	in	2005.	In	2006,	this	included	a	$95 million	in-process	research	and	development	charge	(discussed	in	Note	2)	and	$75	million	in	restructuring	actions	(Note	4).	Research	and	development	expenses, covering	basic	scientific	research	and	the	application	of	scientific	advances	in	the	development	of	new	and	improved	products	and	their	uses,	totaled	$788	million	in 2007	compared	to	$943	million	in	2006,	decreasing	due	to	the	$95	million	for	purchased	in-process	research	and	development	discussed	above	and	also	due	to	the pharmaceuticals	business	divestiture	(Note	2).	Research	and	development	expenses	totaled	$818	million	in	2005.	Related	expenses	primarily	include	technical	support provided	by	3M	to	customers	who	are	using	existing	3M	products,	and	internally	developed	patent	costs,	which	include	costs	and	fees	incurred	to	prepare,	file,	secure and	maintain	patents.

Internal-use	software:	The	Company	capitalizes	direct	costs	of	materials	and	services	used	in	the	development	of	internal-use	software.	Amounts	capitalized	are amortized	on	a	straight-line	basis	over	a	period	of	three	to	five	years	and	are	reported	as	a	component	of	machinery	and	equipment	within	property,	plant	and	equipment.

Environmental:	Environmental	expenditures	relating	to	existing	conditions	caused	by	past	operations	that	do	not	contribute	to	current	or	future	revenues	are	expensed. Reserves	for	liabilities	for	anticipated	remediation	costs	are	recorded	on	an	undiscounted	basis	when	they	are	probable	and	reasonably	estimable,	generally	no	later	than the	completion	of	feasibility	studies	or	the	Company's	commitment	to	a	plan	of	action.	Environmental	expenditures	for	capital	projects	that	contribute	to	current	or future	operations	generally	are	capitalized	and	depreciated	over	their	estimated	useful	lives.

Income	taxes:	The	provision	for	income	taxes	is	determined	using	the	asset	and	liability	approach.	Under	this	approach,	deferred	income	taxes	represent	the	expected future	tax	consequences	of	temporary	differences	between	the	carrying	amounts	and	tax	basis	of	assets	and	liabilities.	The	Company	records	a	valuation	allowance	to reduce	its	deferred	tax	assets	when	uncertainty	regarding	their	reliability	exists.	As	of	December	31,	2007,	no	significant	valuation	allowances	were	recorded.

Earnings	per	share:	The	difference	in	the	weighted	average	shares	outstanding	for	calculating	basic	and	diluted	earnings	per	share	is	attributable	to	the	dilution associated	with	the	Company's	stock-based	compensation	plans.	Certain	Management	Stock	Ownership	Program	average	options	outstanding	during	the	years	2007, 2006	and	2005	were	not	included	in	the	computation	of	diluted	earnings	per	share	because	they	would	not	have	had	a	dilutive	effect	(21.6	million	average	options	for 2007,	31.5	million	average	options	for	2006,	and	15.4	million	average	options	for	2005).	As	discussed	in	Note	10,	the	conditions	for	conversion	related	to	the Company's	Convertible	Notes	have	never	been	met.	If	the	conditions	for	conversion	are	met,	3M	may	choose	to	pay	in	cash	and/or	common	stock;	however,	if	this occurs,	the	Company	has	the	intent	and	ability	to	settle	this	debt	security	in	cash.	Accordingly,	there	was	no	impact	on	3M's	diluted	earnings	per	share.	The computations	for	basic	and	diluted	earnings	per	share	for	the	years	ended	December	31	follow:

| (Amounts	in	millions,	except	per	share	amounts) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Numerator: |  |  |  |
| Net\tincome | $4,096 | $3,851 | $3,111 |
| Denominator: |  |  |  |
| Denominator\tfor\tweighted\taverage\tcommonshares\toutstanding\t— |  |  |  |
| basic | 718.3 | 747.5 | 764.9 |
| Dilution\tassociated\twith\tthe\tCompany's\tstock-based\tcompensation\nplans | 13.7 | 13.5 | 16.4 |
| Denominator\tfor\tweighted\taverage\tcommon\tshares\toutstanding\t—\ndiluted | 732.0 | 761.0 | 781.3 |

| Earnings	per	share	—	basic | $5.70 | $5.15 | $4.07 |
| :--- | :--- | :--- | :--- |
| Earnings\tper\tshare\t—\tdiluted | $5.60 | $5.06 | $3.98 |

Stock-based	compensation:	In	December	2004,	the	Financial	Accounting	Standards	Board	(FASB)	issued	SFAS	No.	123	(revised	2004).	SFAS	No.	123R	supersedes APB	Opinion	No.	25.	Under	APB	Opinion	No.	25,	no	compensation	expense	is	recognized	for	employee	stock	option	grants	if	the	exercise	price	of	the	Company's	stock option	grants	is	at	or	above	the	fair	market	value	of	the	underlying	stock	on	the	date	of	grant.	Under	SFAS	No.	123R,	compensation	expense	is	recognized	for	both	the General	Employees'	Stock	Purchase	Plan	(GESPP)	and	the	Management	Stock	Ownership	Plan	(MSOP).	SFAS	No.	123R	requires	the	determination	of	the	fair	value	of the	share-based	compensation	at	the	grant	date	and	the	recognition	of	the	related	expense	over	the	period	in	which	the	share-based	compensation	vests.	The	Company adopted	SFAS	No.	123R	effective	January	1,	2006.	The	Company	adopted	SFAS	No.	123R	using	the	modified	retrospective	method.	All	prior	periods	have	been restated	to	give	effect	to	the	fair-value-based	method	of	accounting	for	awards	granted	in	fiscal	years	beginning	on	or	after	January	1,	1995.	The	Company	believes	that the	modified	retrospective	application	of	this	standard	achieves	the	highest	level	of	clarity	and	comparability	among	the	presented	periods.	On	November	10,	2005,	the FASB	issued	FASB	Staff	Position	No.	FAS	123(R)-3,	Transition	Election	Related	to	Accounting	for	the	Tax	Effects	of	Share-Based	Payment	Awards	(the	FSP).	The FSP	provides	that	companies	may	elect	to	use	a	specified	"short-cut"	method	to	calculate	the	historical	pool	of	windfall	tax	benefits	upon	adoption	of	SFAS	No.	123R. The	Company	elected	to	use	the	"short-cut"	method	when	it	adopted	SFAS	No.	123R	on	January	1,	2006.	Refer	to	Note	15	for	additional	information.

Comprehensive	income:	Total	comprehensive	income	and	the	components	of	accumulated	other	comprehensive	income	(loss)	are	presented	in	the	Consolidated Statement	of	Changes	in	Stockholders'	Equity	and	Comprehensive	Income.	Accumulated	other	comprehensive	income	(loss)	is	composed	of	foreign	currency translation	effects	(including	hedges	of	net	investments	in	international	companies),	defined	benefit	pension	plan	adjustments,	unrealized	gains	and	losses	on	available- for-sale	debt	and	equity	securities,	and	unrealized	gains	and	losses	on	cash	flow	hedging	instruments.

Derivatives	and	hedging	activities:	All	derivative	instruments	are	recorded	on	the	balance	sheet	at	fair	value.	The	Company	uses	interest	rate	swaps,	currency	swaps,	and forward	and	option	contracts	to	manage	risks	generally

associated	with	foreign	exchange	rate,	interest	rate	and	commodity	market	volatility.	All	hedging	instruments	that	qualify	for	hedge	accounting	are	designated	and effective	as	hedges,	in	accordance	with	U.S.	generally	accepted	accounting	principles.	If	the	underlying	hedged	transaction	ceases	to	exist,	all	changes	in	fair	value	of	the related	derivatives	that	have	not	been	settled	are	recognized	in	current	earnings.	Instruments	that	do	not	qualify	for	hedge	accounting	are	marked	to	market	with	changes recognized	in	current	earnings.	The	Company	does	not	hold	or	issue	derivative	financial	instruments	for	trading	purposes	and	is	not	a	party	to	leveraged	derivatives. However,	the	Company	does	have	contingently	convertible	debt	that,	if	conditions	for	conversion	are	met,	is	convertible	into	shares	of	3M	common	stock	(refer	to	Note 10	in	this	document).

As	of	December	31,	2005,	the	Company	adopted	FASB	Interpretation	No.	47,	"Accounting	for	Conditional	Asset	Retirement	Obligations"	(FIN	47).	This	accounting standard	applies	to	the	fair	value	of	a	liability	for	an	asset	retirement	obligation	associated	with	the	retirement	of	tangible	long-lived	assets	and	where	the	liability	can	be reasonably	estimated.	Conditional	asset	retirement	obligations	exist	for	certain	of	the	Company's	long-term	assets.	The	fair	value	of	these	obligations	is	recorded	as liabilities	on	a	discounted	basis.	Over	time	the	liabilities	are	accreted	for	the	change	in	the	present	value	and	the	initial	capitalized	costs	are	depreciated	over	the	useful lives	of	the	related	assets.	The	adoption	of	FIN	47	effective	December	31,	2005,	resulted	in	the	recognition	of	an	asset	retirement	obligation	liability	of	$59	million	at December	31,	2005,	and	an	after-tax	charge	of	$35	million	for	2005,	which	is	reflected	as	a	cumulative	effect	of	change	in	accounting	principle	in	the	Consolidated Statement	of	Income.	At	December	31,	2007,	the	asset	retirement	obligation	liability	was	$59	million.

In	February	2006,	the	FASB	issued	Statement	of	Financial	Accounting	Standards	(SFAS)	No.	155,	"Hybrid	Instruments."		SFAS	No.	155	amends	SFAS	No.	133	and SFAS	No.	140,	"Accounting	for	Transfers	and	Servicing	of	Financial	Assets	and	Extinguishments	of	Liabilities."	SFAS	No.	155	also	resolves	issues	addressed	in Statement	133	Implementation	Issue	No.	D1,	"Application	of	Statement	133	to	Beneficial	Interests	in	Securitized	Financial	Assets."	SFAS	No.	155:	a)	permits	fair	value remeasurement	for	any	hybrid	financial	instrument	that	contains	an	embedded	derivative	that	otherwise	would	require	bifurcation,	b)	clarifies	which	interest-only	strips and	principal-only	strips	are	not	subject	to	the	requirements	of	SFAS	No.	133,	c)	establishes	a	requirement	to	evaluate	interests	in	securitized	financial	assets	to	identify interests	that	are	freestanding	derivatives	or	that	are	hybrid	financial	instruments	that	contain	an	embedded	derivative	requiring	bifurcation,	d)	clarifies	that concentrations	of	credit	risk	in	the	form	of	subordination	are	not	embedded	derivatives,	and	e)	amends	SFAS	No.	140	to	eliminate	the	prohibition	on	a	qualifying	special purpose	entity	from	holding	a	derivative	financial	instrument	that	pertains	to	a	beneficial	interest	other	than	another	derivative	financial	instrument.	The	Company adopted	SFAS	No.	155	effective	January	1,	2007;	however,	there	was	no	material	impact.

In	June	2006,	the	FASB	issued	Interpretation	No.	48	(FIN	48),	"Accounting	for	Uncertainty	in	Income	Taxes,	an	interpretation	of	FASB	Statement	No.	109."	This interpretation	was	effective	as	of	January	1,	2007.	Refer	to	Note	8	for	additional	information	concerning	this	standard.

In	September	2006,	the	FASB	issued	SFAS	No.	157,	"Fair	Value	Measurements."	SFAS	No.	157	establishes	a	single	definition	of	fair	value	and	a	framework	for measuring	fair	value,	sets	out	a	fair	value	hierarchy	to	be	used	to	classify	the	source	of	information	used	in	fair	value	measurements,	and	requires	new	disclosures	of assets	and	liabilities	measured	at	fair	value	based	on	their	level	in	the	hierarchy.	SFAS	No.	157	is	effective	for	all	fiscal	years	beginning	after	November	15,	2007 (January	1,	2008	for	3M)	and	is	to	be	applied	prospectively.	In	February	2008,	the	FASB	issued	Staff	Positions	No.	157-1	and	No.	157-2	which	partially	defer	the effective	date	of	SFAS	No.	157	for	one	year	for	certain	nonfinancial	assets	and	liabilities	and	remove	certain	leasing	transactions	from	its	scope.	The	Company	is currently	evaluating	the	impacts	and	disclosures	of	this	standard,	but	would	not	expect	SFAS	No.	157	to	have	a	material	impact	on	3M's	consolidated	results	of operations	or	financial	condition.

In	September	2006,	the	Financial	Accounting	Standards	Board	(FASB)	issued	SFAS	No.	158,	"Employers'	Accounting	for	Defined	Benefit	Pension	and	Other Postretirement	Plans,	an	amendment	of	FASB	Statements	No.	87,	88,	106	and	132(R)."	Refer	to	Note	11	for	additional	information	concerning	this	standard.

In	February	2007,	the	FASB	issued	SFAS	No.	159,	"The	Fair	Value	Option	for	Financial	Assets	and	Financial	Liabilities".	SFAS	No.	159	permits	an	entity	to	choose,	at specified	election	dates,	to	measure	eligible	financial	instruments	and	certain	other	items	at	fair	value	that	are	not	currently	required	to	be	measured	at	fair	value.	An entity	shall	report	unrealized	gains	and	losses	on	items	for	which	the	fair	value	option	has	been	elected	in	earnings	at	each	subsequent	reporting	date.	Upfront	costs	and fees	related	to	items	for	which	the	fair	value	option	is	elected	shall	be	recognized	in	earnings	as	incurred	and	not	deferred.	SFAS	No.	159	also	establishes	presentation and	disclosure	requirements	designed	to	facilitate	comparisons	between	entities	that	choose	different	measurement	attributes	for	similar	types	of	assets	and	liabilities. SFAS	No.	159	is	effective	for	financial	statements	issued	for	fiscal	years	beginning	after	November	15,	2007	(January	1,	2008	for	3M)	and	interim	periods	within	those fiscal	years.	At	the

effective	date,	an	entity	may	elect	the	fair	value	option	for	eligible	items	that	exist	at	that	date.	The	entity	shall	report	the	effect	of	the	first	remeasurement	to	fair	value	as a	cumulative-effect	adjustment	to	the	opening	balance	of	retained	earnings.	The	Company	has	not	elected	the	fair	value	option	for	eligible	items	that	existed	as	of January	1,	2008.

In	June	2007,	the	FASB's	Emerging	Issues	Task	Force	reached	a	consensus	on	EITF	Issue	No.	07-3,	"Accounting	for	Nonrefundable	Advance	Payments	for	Goods	or Services	to	Be	Used	in	Future	Research	and	Development	Activities"	that	would	require	nonrefundable	advance	payments	made	by	the	Company	for	future	R&D activities	to	be	capitalized	and	recognized	as	an	expense	as	the	goods	or	services	are	received	by	the	Company.	EITF	Issue	No.	07-3	is	effective	for	3M	with	respect	to new	arrangements	entered	into	beginning	January	1,	2008.	The	Company	is	currently	evaluating	the	impacts	and	disclosures	of	this	standard,	but	would	not	expect	EITF Issue	No.	07-3	to	have	a	material	impact	on	3M's	consolidated	results	of	operations	or	financial	condition.

In	December	2007,	the	FASB	issued	SFAS	No.	141R,	"Business	Combinations,"	which	changes	how	business	acquisitions	are	accounted.		SFAS	No.	141R	requires	the acquiring	entity	in	a	business	combination	to	recognize	all	(and	only)	the	assets	acquired	and	liabilities	assumed	in	the	transaction	and	establishes	the	acquisition-date fair	value	as	the	measurement	objective	for	all	assets	acquired	and	liabilities	assumed	in	a	business	combination.		Certain	provisions	of	this	standard	will,	among	other things,	impact	the	determination	of	acquisition-date	fair	value	of	consideration	paid	in	a	business	combination	(including	contingent	consideration);	exclude	transaction costs	from	acquisition	accounting;	and	change	accounting	practices	for	acquired	contingencies,	acquisition-related	restructuring	costs,	in-process	research	and development,	indemnification	assets,	and	tax	benefits.		For	3M,	SFAS	No.	141R	is	effective	for	business	combinations	and	adjustments	to	an	acquired	entity's	deferred tax	asset	and	liability	balances	occurring	after	December	31,	2008.		The	Company	is	currently	evaluating	the	future	impacts	and	disclosures	of	this	standard.

In	December	2007,	the	FASB	issued	SFAS	No.	160,	"Noncontrolling	Interests	in	Consolidated	Financial	Statements,	an	amendment	of	ARB	No.	51,"	which	establishes new	standards	governing	the	accounting	for	and	reporting	of	noncontrolling	interests	(NCIs)	in	partially	owned	consolidated	subsidiaries	and	the	loss	of	control	of subsidiaries.		Certain	provisions	of	this	standard	indicate,	among	other	things,	that	NCIs	(previously	referred	to	as	minority	interests)	be	treated	as	a	separate	component of	equity,	not	as	a	liability;	that	increases	and	decrease	in	the	parent's	ownership	interest	that	leave	control	intact	be	treated	as	equity	transactions,	rather	than	as	step acquisitions	or	dilution	gains	or	losses;	and	that	losses	of	a	partially	owned	consolidated	subsidiary	be	allocated	to	the	NCI	even	when	such	allocation	might	result	in	a deficit	balance.	This	standard	also	requires	changes	to	certain	presentation	and	disclosure	requirements.	For	3M,	SFAS	No.	160	is	effective	beginning	January	1,	2009. The	provisions	of	the	standard	are	to	be	applied	to	all	NCIs	prospectively,	except	for	the	presentation	and	disclosure	requirements,	which	are	to	be	to	applied retrospectively	to	all	periods	presented.	The	Company	is	currently	evaluating	the	future	impacts	and	disclosures	of	this	standard.

In	December	2007,	the	FASB	ratified	the	Emerging	Issues	Task	Force	consensus	on	EITF	Issue	No.	07-1,	"Accounting	for	Collaborative	Arrangements"	that	discusses how	parties	to	a	collaborative	arrangement	(which	does	not	establish	a	legal	entity	within	such	arrangement)	should	account	for	various	activities.	The	consensus indicates	that	costs	incurred	and	revenues	generated	from	transactions	with	third	parties	(i.e.	parties	outside	of	the	collaborative	arrangement)	should	be	reported	by	the collaborators	on	the	respective	line	items	in	their	income	statements	pursuant	to	EITF	Issue	No.	99-19,	"Reporting	Revenue	Gross	as	a	Principal	Versus	Net	as	an Agent."		Additionally,	the	consensus	provides	that	income	statement	characterization	of	payments	between	the	participants	in	a	collaborative	arrangement	should	be based	upon	existing	authoritative	pronouncements;	analogy	to	such	pronouncements	if	not	within	their	scope;	or	a	reasonable,	rational,	and	consistently	applied accounting	policy	election.	EITF	Issue	No.	07-1	is	effective	for	3M	beginning	January	1,	2009	and	is	to	be	applied	retrospectively	to	all	periods	presented	for collaborative	arrangements	existing	as	of	the	date	of	adoption.	The	Company	is	currently	evaluating	the	impacts	and	disclosures	of	this	standard,	but	would	not	expect EITF	Issue	No.	07-1	to	have	a	material	impact	on	3M's	consolidated	results	of	operations	or	financial	condition.

# NOTE	2.		Acquisitions	and	Divestitures

# Divestitures:

In	January	2007,	3M	completed	the	sale	of	its	global	branded	pharmaceuticals	business	in	Europe	to	Meda	AB.	3M	received	proceeds	of	$817	million	for	this	transaction and	recognized,	net	of	assets	sold,	a	pre-tax	gain	of	$781	million	(recorded	in	the	Health	Care	segment)	in	2007.

In	December	2006,	3M	completed	the	sale	of	its	global	branded	pharmaceuticals	business	in	the	United	States,	Canada,	and	Latin	America	region	and	the	Asia	Pacific region,	including	Australia	and	South	Africa.	3M	received	proceeds	of	$1.209	billion	for	this	transaction	and	recognized,	net	of	assets	sold,	a	pre-tax	gain	of	$1.074 billion	(recorded	in	Health	Care	Business)	in	2006.

Buyer	and	sale	price	information	by	region	is	as	follows:

·										Graceway	Pharmaceuticals	Inc.	acquired	3M's	pharmaceutical	operations	in	the	United	States,	Canada,	and	Latin	America	for	$860	million	in	2006.

·										Ironbridge	Capital	and	Archer	Capital	acquired	3M's	pharmaceuticals	business	in	the	Asia	Pacific	region,	including	Australia	and	South	Africa	for	$349	million	in 2006.

The	agreements	are	the	result	of	a	review	of	strategic	options	for	the	branded	pharmaceuticals	business	and	its	immune	response	modifier	(IRM)	platform	that	3M announced	in	April	2006.	Under	the	agreements,	the	purchasers	acquired	regional	marketing	and	intellectual	property	rights	for	3M's	well-known	branded pharmaceuticals,	including	Aldara,	Difflam,	Duromine,	Tambocor,	Maxair,	Metrogel-Vaginal	and	Minitran.	As	part	of	the	transaction,	Graceway	Pharmaceuticals	also acquired	the	rights	to	certain	IRM	molecules.

In	connection	with	these	transactions,	3M	entered	into	agreements	whereby	its	Drug	Delivery	Systems	Division	became	a	source	of	supply	to	the	acquiring	companies. Because	of	the	extent	of	3M	cash	flows	from	these	agreements	in	relation	to	those	of	the	disposed-of	businesses,	the	operations	of	the	branded	pharmaceuticals	business are	not	classified	as	discontinued	operations.	See	Note	4	for	further	discussion	of	restructuring	actions	that	resulted	from	the	divesture	of	the	Company's	global	branded pharmaceuticals	business.

In	June	2007,	3M	completed	the	sale	of	its	Opticom	Priority	Control	Systems	and	Canoga	Traffic	Detection	businesses	to	TorQuest	Partners	Inc.,	a	Toronto-based investment	firm.	3M	received	proceeds	of	$80	million	for	this	transaction	and	recognized,	net	of	assets	sold,	transaction	and	other	costs,	a	pre-tax	gain	of	$68	million (recorded	in	the	Display	and	Graphics	segment)	in	2007.

# Acquisitions:

During	2007,	the	purchase	price	paid	for	business	combinations	totaled	$539	million,	net	of	cash	acquired,	plus	approximately	150	thousand	shares	of	3M	common stock,	which	had	a	market	value	of	approximately	$13	million.

The	16	business	combinations	completed	during	2007	are	summarized	as	follows:

1)	In	February	2007,	3M	(Industrial	and	Transportation	Business)	purchased	certain	assets	of	Accuspray	Application	Technologies	Inc.,	a	manufacturer	of	spray	paint equipment	with	a	wide	array	of	spray	guns	for	architectural,	automotive	refinishing,	industrial	and	woodworking	applications.

2)	In	February	2007,	3M	(Industrial	and	Transportation	Business)	purchased	Sealed	Air	Corporation's	50	percent	interest	in	PolyMask	Corporation,	a	joint	venture between	3M	and	Sealed	Air	that	produces	protective	films.	The	acquisition	of	Sealed	Air's	interest	results	in	100	percent	ownership	by	3M.

3)	In	February	2007,	3M	(Health	Care	Business)	purchased	100	percent	of	the	outstanding	shares	of	Acolyte	Biomedica	Ltd.,	a	Salisbury,	U.K.-based	provider	of	an automated	microbial	detection	platform	that	aids	in	the	rapid	detection,	diagnosis,	and	treatment	of	infectious	diseases.

4)	In	May	2007,	3M	(Safety,	Security	and	Protection	Services	Business)	purchased	100	percent	of	the	outstanding	shares	of	E	Wood	Holdings	PLC,	a	North	Yorkshire, UK-based	manufacturer	of	high	performance	protective	coatings	for	oil,	gas,	water,	rail	and	automotive	industries.

5)	In	May	2007,	3M	(Electro	and	Communications	Business)	purchased	certain	assets	of	Innovative	Paper	Technologies	LLC,	a	manufacturer	of	inorganic-based technical	papers,	boards	and	laminates	for	a	wide	variety	of	high	temperature	applications	and	Powell	LLC,	a	supplier	of	non-woven	polyester	mats	for	the	electrical industry.

6)	In	May	2007,	3M	(Health	Care	Business)	purchased	certain	assets	of	Articulos	de	Papel	DMS	Chile,	a	Santiago,	Chile-based	manufacturer	of	disposable	surgical packs,	drapes,	gowns	and	kits.

7)	In	June	2007,	3M	(Industrial	and	Transportation	Business)	purchased	certain	assets	of	Diamond	Productions	Inc.,	a	manufacturer	of	superabrasive	diamond	and	cubic boron	nitride	wheels	and	tools	for	dimensioning	and	finishing	hard-to-grind	materials	in	metalworking,	woodworking	and	stone	fabrication	markets	in	exchange	for approximately	150	thousand	shares	of	3M	common	stock,	which	had	a	market	value	of	$13	million	at	the	acquisition	measurement	date	and	was	previously	held	as	3M treasury	stock.

8)	In	July	2007,	3M	(Safety,	Security	and	Protection	Services	Business)	purchased	100	percent	of	the	outstanding	shares	of	Rochford	Thompson	Equipment	Ltd.,	a manufacturer	of	optical	character	recognition	passport	readers	used	by	airlines	and	immigration	authorities,	headquartered	in	Newbury,	U.K.

9)	In	August	2007,	3M	(Health	Care	Business)	purchased	certain	assets	of	Neoplast	Co.	Ltd.,	a	manufacturer/distributor	of	surgical	tapes	and	dressings	and	first	aid bandages	for	both	the	professional	and	consumer	markets	across	the	Asia	Pacific	region.

10)	In	October	2007,	3M	(Health	Care	Business)	purchased	100	percent	of	the	outstanding	shares	of	Abzil	Industria	e	Comercio	Ltda.,	a	manufacturer	of	orthodontic products	based	in	Sao	Jose	do	Rio	Preto,	Sao	Paulo,	Brazil.

11)	In	October	2007,	3M	(Industrial	and	Transportation	Business)	purchased	100	percent	of	the	outstanding	shares	of	Venture	Tape	Corp.	and	certain	related	entities,	a global	provider	of	pressure	sensitive	adhesive	tapes	based	in	Rockland,	Mass.

12)	In	October	2007,	3M	(Display	and	Graphics	Business)	purchased	certain	assets	of	Macroworx	Media	Pvt	Ltd.,	a	software	company	that	specializes	in	the	design	and development	of	digital	signage	solutions	based	in	Bangalore,	India.

13)	In	October	2007,	3M	(Health	Care	Business)	purchased	100	percent	of	the	outstanding	shares	of	Lingualcare	Inc.,	a	Dallas-based	orthodontic	technology	and services	company	offering	the	iBraces	system,	a	customized,	lingual	orthodontic	solution.

14)	In	November	2007,	3M	(Industrial	and	Transportation	Business)	purchased	certain	assets	of	Standard	Abrasives,	a	manufacturer	of	coated	abrasive	specialties	and non-woven	abrasive	products	for	the	metalworking	industry	headquartered	in	Simi	Valley,	Ca.

15)	In	November	2007,	3M	(Industrial	and	Transportation	Business)	purchased	100	percent	of	the	outstanding	shares	of	Unifam	Sp.	z	o.o.,	a	manufacturer	of	cut-off wheels,	depressed	center	grinding	wheels	and	flap	discs	based	in	Poland.

16)	In	November	2007,	3M	(Industrial	and	Transportation	Business)	purchased	certain	assets	of	Bondo	Corp.,	a	manufacturer	of	auto	body	repair	products	for	the automotive	aftermarket	and	various	other	professional	and	consumer	applications	based	in	Atlanta,	Ga.

In	addition	to	the	business	combinations	above,	3M	periodically	acquires	certain	tangible	and/or	intangible	assets	and	purchases	interests	in	certain	enterprises	that	do not	otherwise	qualify	for	accounting	as	business	combinations.	These	transactions	are	largely	reflected	as	additional	asset	purchase	and	investment	activity.

Purchased	identifiable	intangible	assets	for	the	16	business	combinations	closed	during	the	twelve	months	ended	December	31,	2007	totaled	$124	million	and	will	be amortized	on	a	straight-line	basis	over	lives	ranging	from	2	to	10	years	(weighted-average	life	of	six	years).

In	2007	and	2006,	pro	forma	information	related	to	acquisitions	was	not	included	because	the	impact	on	the	Company's	consolidated	results	of	operations	was	not considered	to	be	material.	There	were	no	material	in-process	research	and	development	charges	associated	with	2007,	while	2006	included	$95	million	in	charges	for	the Brontes	Technologies	Inc.	acquisition.	The	purchase	price	allocation	of	certain	2007	business	combinations	is	considered	preliminary.	The	impact	on	the	Consolidated Balance	Sheet	of	the	purchase	price	allocations	related	to	acquisitions	and	adjustments	relative	to	other	acquisitions	within	the	allocation	period	follow:

| Asset	(Liability) | 2007 | 2006 |
| :--- | :--- | :--- |
| (Millions) | Impact | Impact |
| Accounts\treceivable | $69 | $76 |
| Inventory | 79 | 55 |
| Other\tcurrent\tassets | 5 | 8 |
| Property,\tplant,\tand\tequipment\t—\tnet | 68 | 65 |
| Purchased\tintangible\tassets | 131 | 282 |
| Purchased\tgoodwill | 326 | 536 |
| In-process\tR&amp;D | 1 | 95 |
| Accounts\tpayable\tand\tother\tcurrent\tliabilities,\tnet\tof\tother\tassets | (115) | (152) |
| Deferred\ttax\tliability | (12) | (77) |
| Net\tassets\tacquired | $552 | $888 |
| Supplemental\tinformation: |  |  |
| Cash\tpaid | $546 | $962 |
| Less:\tCash\tacquired | 7 | 74 |
| Cash\tpaid,\tnet\tof\tcash\tacquired | $539 | $888 |
| Non-cash\t(3M\tshares\tat\tfair\tvalue) | 13 | — |
| Net\tassets\tacquired | $552 | $888 |

Year	2006	acquisitions:

During	the	12	months	ended	December	31,	2006,	3M	completed	19	business	combinations	for	a	total	purchase	price	of	$888	million,	net	of	cash	acquired.	Purchased identifiable	intangible	assets	of	$282	million	for	these	acquisitions	will	be	amortized	on	a	straight-line	basis	over	lives	ranging	from	1	to	17	years	(weighted-average	life

of	9	years).	The	purchase	price	of	several	of	these	acquisitions	is	subject	to	increases,	which	could	be	triggered	by	the	achievement	of	certain	milestones.

The	largest	of	these	acquisitions	was	the	August	2006	purchase	of	100	percent	of	the	outstanding	shares	of	Security	Printing	and	Systems	Limited	(Safety,	Security	and Protection	Services	Business)	from	authentos	GmbH,	Germany.	The	acquired	company	is	a	producer	of	finished,	personalized	passports	and	secure	cards.

In	October	2006,	3M	(Health	Care	Business)	purchased	100	percent	of	the	outstanding	shares	of	Brontes	Technologies	Inc.	(Brontes),	a	Lexington,	Massachusetts-based developer	of	proprietary	3-D	imaging	technology	for	dental	and	orthodontic	applications,	for	$95	million	in	cash.	Brontes	was	a	"development	stage	enterprise"	that	did not	yet	have	revenues	from	its	principal	operations	and	the	technology	acquired	did	not	have	any	alternative	future	use.	This	transaction	resulted	in	a	2006	charge	of	$95 million,	or	$0.13	per	diluted	share,	reflecting	the	write-off	of	acquired	in-process	research	and	development	costs,	which	are	recognized	as	research,	development	and related	expenses	in	the	Consolidated	Statement	of	Income.

The	17	additional	business	combinations	are	summarized	as	follows:

1)	In	January	2006,	3M	(Consumer	and	Office	Business)	purchased	100	percent	of	the	outstanding	common	shares	of	Interchemall	Dom.,	a	provider	of	household cleaning	products	based	in	Poland.

2)	In	March	2006,	3M	(Industrial	and	Transportation	Business)	purchased	certain	assets	of	General	Industrial	Diamond	Company	Inc.,	a	U.S.	operation.	The	acquired company	is	a	manufacturer	of	superabrasive	grinding	wheels,	dressing	tools	and	machines	used	to	dimension	and	finish	hard-to-grind	materials	in	the	industrial	and commercial	markets.

3)	In	April	2006,	3M	(Health	Care	Business)	purchased	100	percent	of	the	outstanding	shares	of	OMNII	Oral	Pharmaceuticals,	a	provider	of	differentiated	preventive dental	products,	solutions	and	support	for	dental	professionals.

4)	In	April	2006,	3M	(Health	Care	Business)	purchased	certain	assets	of	ClozeX	Medical	LLC,	a	provider	of	unique	skin	closure	devices	to	treat	lacerations	and	close surgical	incisions.	The	agreement	gives	3M	exclusive	worldwide	rights	for	the	manufacturing	and	distribution	of	ClozeX	Wound	Closures.

5)	In	June	2006,	3M	(Health	Care	Business)	purchased	100	percent	of	the	outstanding	shares	of	SBG	(Software	und	Beratung	im	Gesundheitswesen)	GmbH,	a	Berlin- based	developer	of	software	for	managing	diagnosis-related	information	in	hospitals.

6)	In	June	2006,	3M	(Safety,	Security	and	Protection	Services	Business)	purchased	certain	assets	of	POMP	Medical	and	Occupational	Health	Products	LLC,	a	Porto Alegre,	Brazil-based	provider	of	earplugs,	eyewear	and	hand	cream.

7)	In	July	2006,	3M	(Industrial	and	Transportation	Business)	purchased	certain	assets	of	Pinnacle	Distribution	Concepts	Inc.,	a	leading	transportation	management system	(TMS)	provider	specializing	in	the	delivery	of	Web-based,	"on-demand"	solutions.

8)	In	July	2006,	3M	(Electro	and	Communications	Business)	purchased	certain	assets	of	SCC	Products	Inc.	and	JJ	Converting	LLC,	both	based	in	Sanford,	N.C.	SCC Products	Inc.	is	a	provider	of	flexible	static	control	packaging	and	workstation	products	for	electronic	devices.	JJ	Converting	LLC	is	a	producer	of	films	used	to	make static	control	bags.

9)	In	August	2006,	3M	(Display	and	Graphics	Business)	purchased	100	percent	of	the	outstanding	shares	of	Archon	Technologies	Inc.,	a	Denver,	Colorado-based provider	of	enterprise	software	solutions	for	motor	vehicle	agencies.

10)	In	August	2006,	3M	(Safety,	Security	and	Protection	Services	Business)	purchased	100	percent	of	the	outstanding	shares	of	Aerion	Technologies,	a	Denver, Colorado-based	maker	of	safety	products,	including	heat	stress	monitors,	thermal	cameras	and	carbon	monoxide	detectors.

11)	In	September	2006,	3M	(Electro	and	Communications	Business)	purchased	100	percent	of	the	outstanding	shares	of	Credence	Technologies	Inc.,	a	Soquel, California-based	provider	of	instruments	and	high-end	monitoring	equipment	for	electrostatic	discharge	control	and	electromagnetic	compliance.

12)	In	October	2006,	3M	(Consumer	and	Office	Business)	purchased	certain	assets	of	Nylonge	Corp.,	a	global	provider	of	household	cleaning	products,	including cellulose	sponges,	scrub	sponges	and	household	wipes.

13)	In	October	2006,	3M	(Industrial	and	Transportation	Business)	purchased	100	percent	of	the	outstanding	shares	of	NorthStar	Chemicals,	Inc.,	a	Cartersville,	Georgia- based	adhesive	manufacturer.

14)	In	November	2006,	3M	(Industrial	and	Transportation	Business)	purchased	100	percent	of	the	outstanding	shares	of	Global	Beverage	Group	Inc.,	a	Canadian-based provider	of	delivery	management	software	solutions	for	the	direct-store-delivery	of	consumer	packaged	goods.

15)	In	November	2006,	3M	(Health	Care	Business)	purchased	100	percent	of	the	outstanding	shares	of	Biotrace	International	PLC,	a	Bridgend,	UK-based	manufacturer and	supplier	of	industrial	microbiology	products	used	in	food	processing	safety,	health	care,	industrial	hygiene	and	defense	applications.

16)	In	December	2006,	3M	(Electro	and	Communications	Business)	purchased	certain	assets	of	Mahindra	Engineering	and	Chemical	Products	LTD,	an	India-based manufacturer	of	cable	jointing	kits	and	accessories.

17)	In	December	2006,	3M	(Health	Care	Business)	purchased	100	percent	of	the	outstanding	shares	of	SoftMed	Systems	Inc.,	a	Maryland-based	provider	of	health information	management	software	and	services	that	improve	the	workflow	and	efficiency	of	health	care	organizations.

The	2006	impact	on	the	Consolidated	Balance	Sheet	of	the	purchase	price	allocations	related	to	the	2006	acquisitions	and	adjustments	relative	to	other	acquisitions within	the	allocation	period	were	provided	in	the	preceding	table.

The	Company	acquired	CUNO	on	August	2,	2005.	The	operating	results	of	CUNO	are	included	in	the	Industrial	and	Transportation	Business	segment.	CUNO	is engaged	in	the	design,	manufacture	and	marketing	of	a	comprehensive	line	of	filtration	products	for	the	separation,	clarification	and	purification	of	fluids	and	gases.	3M and	CUNO	have	complementary	sets	of	filtration	technologies,	creating	an	opportunity	to	bring	an	even	wider	range	of	filtration	solutions	to	customers	around	the world.	3M	acquired	CUNO	for	approximately	$1.36	billion,	comprised	of	$1.27	billion	of	cash	paid	(net	of	cash	acquired)	and	the	acquisition	of	$80	million	of	debt, most	of	which	has	been	repaid.

Purchased	identifiable	intangible	assets	of	$268	million	for	the	CUNO	acquisition	will	be	amortized	on	a	straight-line	basis	over	lives	ranging	from	5	to	20	years (weighted-average	life	of	15	years).	In-process	research	and	development	charges	from	the	CUNO	acquisition	were	not	material.	Pro	forma	information	related	to	this acquisition	is	not	included	because	its	impact	on	the	Company's	consolidated	results	of	operations	is	not	considered	to	be	material.	The	allocation	of	the	purchase	price is	presented	in	the	table	that	follows.

# 2005	CUNO	ACQUISITION

During	the	year	ended	December	31,	2005,	3M	entered	into	two	immaterial	additional	business	combinations	for	a	total	purchase	price	of	$27	million,	net	of	cash acquired.

1)	3M	(Electro	and	Communications	Business)	purchased	certain	assets	of	Siemens	Ultrasound	division's	flexible	circuit	manufacturing	line,	a	U.S.	operation.	The acquired	operation	produces	flexible	interconnect	circuits	that	provide	electrical	connections	between	components	in	electronics	systems	used	primarily	in	the transducers	of	ultrasound	machines.

2)	3M	(Display	and	Graphics	Business)	purchased	certain	assets	of	Mercury	Online	Solutions	Inc.,	a	U.S.	operation.	The	acquired	operation	provides	hardware	and software	technologies	and	network	management	services	for	digital	signage	and	interactive	kiosk	networks.

# NOTE	3.		Goodwill	and	Intangible	Assets

As	discussed	in	Note	16	to	the	Consolidated	Financial	Statements,	effective	in	the	first	quarter	of	2007,	3M	made	certain	product	moves	between	its	business	segments, which	resulted	in	changes	in	the	goodwill	balances	by	business	segment	as	presented	below.	For	those	changes	that	resulted	in	reporting	unit	changes,	the	Company applied	the	relative	fair	value	method	to	determine	the	impact	to	reporting	units.	SFAS	No.	142,	"Goodwill	and	Other	Intangible	Assets,"	requires	that	goodwill	be	tested for	impairment	at	least	annually	and	when	reporting	units	are	changed.

Purchased	goodwill	from	acquisitions	totaled	$326	million	in	2007,	$55	million	of	which	is	deductible	for	tax	purposes.	Purchased	goodwill	from	acquisitions	totaled $536	million	in	2006,	$41	million	of	which	is	deductible	for	tax	purposes.	The	sale	of	3M's	global	branded	pharmaceuticals	business	(Health	Care)	resulted	in	the	write- off	of	$54	million	in	goodwill,	which	is	reflected	in	the	2006	translation	and	other	column	below.	Changes	in	foreign	currency	exchange	rates	impacted	both	2007	and 2006	goodwill	balances.	The	goodwill	balance	by	business	segment	follows:

# Goodwill

|  |  |  | 2006 |  |  | 2007 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Dec.\t31, | 2006 | translation | Dec.\t31, | 2007 | translation | Dec.\t31, |
|  | 2005 | acquisition | and | 2006 | acquisition | and | 2007 |
| (Millions) | Balance | activity | other | Balance | activity | other | Balance |
| Industrial\tand\tTransportation | $1,283 | $26 | $(7) | $1,302 | $155 | $67 | $1,524 |
| Health\tCare | 559 | 191 | (37) | 713 | 73 | 53 | 839 |
| Display\tand\tGraphics | 871 | 12 | 3 | 886 | — | 8 | 894 |
| Consumer\tand\tOffice | 71 | 11 | 7 | 89 | — | 5 | 94 |
| Safety,\tSecurity\tand\tProtection\tServices | 234 | 264 | 27 | 525 | 70 | 16 | 611 |
| Electro\tand\tCommunications | 512 | 32 | 23 | 567 | 28 | 32 | 627 |
| Total\tCompany | $3,530 | $536 | $16 | $4,082 | $326 | $181 | $4,589 |

# Acquired	Intangible	Assets

The	carrying	amount	and	accumulated	amortization	of	acquired	intangible	assets	as	of	December	31	follow:

| (Millions) | 2007 | 2006 |
| :--- | :--- | :--- |
| Patents | $446 | $419 |
| Other\tamortizable\tintangible\tassets\t(primarily\ttradenames\tand\tcustomer-related |  |  |
| intangibles) | 801 | 641 |
| Non-amortizable\tintangible\tassets\t(tradenames) | 75 | 68 |
| Total\tgross\tcarrying\tamount | $1,322 | $1,128 |
| Accumulated\tamortization\t—\tpatents | (305) | (266) |
| Accumulated\tamortization\t—\tother | (216) | (154) |
| Total\taccumulated\tamortization | (521) | (420) |
| Total\tintangible\tassets\t—\tnet | $801 | $708 |

Amortization	expense	for	acquired	intangible	assets	for	the	years	ended	December	31	follows:

# Amortization	expense

The	preceding	expected	amortization	expense	is	an	estimate.	Actual	amounts	of	amortization	expense	may	differ	from	estimated	amounts	due	to	additional	intangible asset	acquisitions,	changes	in	foreign	currency	exchange	rates,	impairment	of	intangible	assets,	accelerated	amortization	of	intangible	assets	and	other	events.

# NOTE	4.		Restructuring	Actions	and	Other	Exit	Activities

# Restructuring	Actions:

During	the	fourth	quarter	of	2006	and	the	first	six	months	of	2007,	management	approved	and	committed	to	undertake	the	following	restructuring	actions:

·																		Pharmaceuticals	business	actions	-	employee-related,	asset	impairment	and	other	costs	pertaining	to	the	Company's	exit	of	its	branded	pharmaceuticals operations.	These	costs	included	severance	and	benefits	for	pharmaceuticals	business	employees	who	are	not	obtaining	employment	with	the	buyers	as	well	as impairment	charges	associated	with	certain	assets	not	transferred	to	the	buyers.

·																		Overhead	reduction	actions	-	employee-related	costs	for	severance	and	benefits,	costs	associated	with	actions	to	reduce	the	Company's	cost	structure.

·																		Business-specific	actions	-	employee-related	costs	for	severance	and	benefits,	fixed	and	intangible	asset	impairments,	certain	contractual	obligations,	and expenses	from	the	exit	of	certain	product	lines.

Components	of	these	restructuring	actions	include:

| (Millions) | Employee-<br>Related	Items<br>And	Benefits | Contract<br>Terminations<br>and	Other | Asset<br>Impairments | Total |
| :--- | :--- | :--- | :--- | :--- |
| Expense\tincurred\tin\t2006: |  |  |  |  |
| Pharmaceuticals\tbusiness\tactions | $97 | $8 | $61 | $166 |
| Overhead\treduction\tactions | 112 | — | — | 112 |
| Business-specific\tactions | 34 | 8 | 83 | 125 |
| Total\t2006\texpense | $243 | $16 | $144 | $403 |
| Non-cash\tchanges\tin\t2006: |  |  |  |  |
| Pharmaceuticals\tbusiness\tactions | $(19) | $— | $(61) | $(80) |
| Overhead\treduction\tactions | (12) | — | — | (12) |
| Business-specific\tactions | (4) | — | (83) | (87) |
| Total\t2006\tnon-cash | $(35) | $— | $(144) | $(179) |
| Cash\tpayments\tin\t2006: |  |  |  |  |
| Pharmaceuticals\tbusiness\tactions | $— | $(2) | $— | $(2) |
| Overhead\treduction\tactions | — | — | — | — |
| Business-specific\tactions | — | — | — | — |
| Total\t2006\tcash\tpayments | $— | $(2) | $— | $(2) |
| Accrued\tliability\tbalances\tas\tof\tDec.\t31,\t2006: |  |  |  |  |
| Pharmaceuticals\tbusiness\tactions | $78 | $6 | $— | $84 |
| Overhead\treduction\tactions | 100 | — | — | 100 |
| Business-specific\tactions | 30 | 8 | — | 38 |
| Total\taccrued\tbalance | $208 | $14 | $— | $222 |
| Expenses\t(credits)\tincurred\tin\t2007: |  |  |  |  |
| Pharmaceuticals\tbusiness\tactions | $(12) | $(4) | $— | $(16) |
| Overhead\treduction\tactions | 2 | — | — | 2 |
| Business-specific\tactions | 13 | 4 | 35 | 52 |
| 2007\texpense | $3 | $— | $35 | $38 |
| Non-cash\tchanges\tin\t2007: |  |  |  |  |
| Pharmaceuticals\tbusiness\tactions | $(21) | $4 | $— | $(17) |
| Overhead\treduction\tactions | (5) | — | — | (5) |
| Business-specific\tactions | (12) | (4) | (35) | (51) |
| 2007\tnon-cash | $(38) | $— | $(35) | $(73) |
| Cash\tpayments\tin\t2007: |  |  |  |  |
| Pharmaceuticals\tbusiness\tactions | $(40) | $(6) | $— | $(46) |
| Overhead\treduction\tactions | (87) | — | — | (87) |
| Business-specific\tactions | (26) | (8) | — | (34) |
| 2007\tcash\tpayments | $(153) | $(14) | $— | $(167) |
| Accrued\tliability\tbalances\tas\tof\tDec.\t31,\t2007: |  |  |  |  |
| Pharmaceuticals\tbusiness\tactions | $5 | $— $— | $— $— | $5 |
| Overhead\treduction\tactions | 10 | — | — | 10 |
| Business-specific\tactions | 5 | — | — | 5 |

# Income	statement	line	in	which	the	preceding	2007	and	2006	expenses	(credits)	are	reflected:

| (Millions) | 2007 | 2006 |
| :--- | :--- | :--- |
| Cost\tof\tsales | $40 | $130 |
| Selling,\tgeneral\tand\tadministrative\texpenses | 5 | 198 |
| Research,\tdevelopment\tand\trelated\texpenses | (7) | 75 |
| Total | $38 | $403 |

# The	amount	of	expenses	(credits)	incurred	in	2007	and	2006	associated	with	the	preceding		are	reflected	in	the	Company's	business	segments	as	follows:

| (Millions) | 2007 | 2006 |
| :--- | :--- | :--- |
| Industrial\tand\tTransportation | $2 | $15 |
| Health\tCare | (11) | 293 |
| Display\tand\tGraphics | 3 | 39 |
| Safety,\tSecurity\tand\tProtection\tServices | 28 | 10 |
| Electro\tand\tCommunications | 18 | 46 |
| Corporate\tand\tUnallocated | (2) | — |
| Total | $38 | $403 |

Actions	with	respect	to	the	above	activities	were	substantially	completed	in	2007	and	additional	charges	and	adjustments	are	not	expected	to	be	material.

In	connection	with	this	targeted	restructuring	plan,	the	Company	eliminated	a	total	of	approximately	1,900	positions	from	various	functions	within	the	Company. Approximately	390	positions	were	pharmaceuticals	business	employees,	approximately	960	positions	related	primarily	to	corporate	staff	overhead	reductions,	and approximately	550	positions	were	business-specific	reduction	actions.	Of	the	1,900	employment	reductions,	about	58%	are	in	the	United	States,	21%	in	Europe,	12%	in Latin	America	and	Canada,	and	9%	in	the	Asia	Pacific	area.	As	a	result	of	the	second-quarter	2007	phase-out	of	operations	at	a	New	Jersey	roofing	granule	facility	and the	sale	of	the	Company's	Opticom	Priority	Control	Systems	and	Canoga	Traffic	Detection	businesses,	the	Company	eliminated	approximately	100	additional	positions.

Employee-related	severance	charges	are	largely	based	upon	distributed	employment	policies	and	substantive	severance	plans	and	were	reflected	in	the	quarter	in	which management	approved	the	restructuring	actions.	Severance	amounts	for	which	affected	employees	were	required	to	render	service	in	order	to	receive	benefits	at	their termination	dates	were	measured	at	the	date	such	benefits	were	communicated	to	the	applicable	employees	and	recognized	as	expense	over	the	employees'	remaining service	periods.

Non-cash	employee-related	changes	in	2007	and	2006	primarily	relate	to	special	termination	pension	and	medical	benefits	granted	to	certain	U.S.	eligible	employees. These	pension	and	medical	benefits	were	reflected	as	a	component	of	the	benefit	obligation	of	the	Company's	pension	and	medical	plans	as	of	December	31,	2007	and 2006.	In	addition,	these	changes	also	reflect	non-cash	stock	option	expense	due	to	the	reclassification	of	certain	employees	age	50	and	older	to	retiree	status,	resulting	in a	modification	of	their	original	stock	option	awards	for	accounting	purposes.

Contract	termination	and	other	charges	primarily	reflect	costs	to	terminate	a	contract	before	the	end	of	its	term	(measured	at	fair	value	at	the	time	the	Company	provided notice	to	the	counterparty)	or	costs	that	will	continue	to	be	incurred	under	the	contract	for	its	remaining	term	without	economic	benefit	to	the	Company.

Business-specific	asset	impairment	charges	for	2007	totaled	$35	million.	This	included	charges	of	$24	million	related	to	property,	plant	and	equipment	associated	with the	Company's	decision	to	phase-out	operations	at	a	New	Jersey	roofing	granule	facility	(Safety,	Security	and	Protection	Services	segment)	and	charges	of	$11	million ($10	million	related	to	property,	plant	and	equipment	and	$1	million	related	to	intangible	assets)	related	to	the	Company's	decision	to	close	an	Electro	and Communications	facility	in	Wisconsin.	Asset	impairment	charges	related	to	intangible	assets	and	property,	plant	and	equipment	reflect	the	excess	of	the	assets'	carrying values	over	their	fair	values.

Asset	impairment	charges	in	2006	associated	with	the	pharmaceuticals	business	and	business-specific	actions	include	$109	million	relative	to	property,	plant	and equipment;	$30	million	relative	to	intangible	assets;	and	$5	million	relative	to	other	assets.	Impairment	charges	relative	to	intangible	assets	and	property,	plant	and equipment	reflect	the	excess	of	the	assets'	carrying	values	over	their	fair	values	as	discussed	in	Note	1.	The	pharmaceuticals	business	asset	impairment	charges	are	for certain	assets	not	transferred	to	the	buyers	and	primarily	relate	to	the	write-down	of	the	assets	to	salvage	value.	The	business-specific	asset	impairment	charges	primarily relate	to	decisions	the	Company	made	in	the	fourth	quarter	of	2006	to	exit	certain	marginal	product	lines	in	the	Display	and	Graphics	segment	and	Electro	and Communications	segment.

# Other	Exit	Activities:

During	the	second	half	of	2007,	the	Company	recorded	net	pre-tax	charges	of	$45	million	related	to	exit	activities.	These	charges	related	to	employee	reductions	and fixed	asset	impairments,	including	the	consolidation	of	certain	flexible	circuit	manufacturing	operations	($23	million	recorded	in	the	Electro	and	Communications segment)	and	other	actions,	primarily	in	the	Display	and	Graphics	segment	and	Industrial	and	Transportation	segment.	These	charges	were	recorded	in	cost	of	sales	and selling,	general	and	administrative	expenses	and	research,	development	and	related	expenses.

# NOTE	5.		Supplemental	Balance	Sheet	Information

| (Millions) | 2007 | 2006 |
| :--- | :--- | :--- |
| Other\tcurrent\tassets |  |  |
| Product\tand\tother\tinsurance\treceivables | $220 | $255 |
| Deferred\tincome\ttaxes | 428 | 412 |
| Prepaid\texpenses\tand\tother | 501 | 658 |
| Total\tother\tcurrent\tassets | $1,149 | $1,325 |
| Investments |  |  |
| Available-for-sale\t(fair\tvalue) | $16 | $14 |

| Equity-method | 64 | 86 |
| :--- | :--- | :--- |
| Cash\tsurrender\tvalue\tof\tlife\tinsurance\tpolicies,\treal\testate\tand\tother\t(cost,\twhich\tapproximates |  |  |
| fair\tvalue) | 218 | 214 |
| Total\tinvestments | $298 | $314 |
| Property,\tplant\tand\tequipment\t—\tat\tcost |  |  |
| Land | $303 | $281 |
| Buildings\tand\tleasehold\timprovements | 5,496 | 5,002 |
| Machinery\tand\tequipment | 11,801 | 11,130 |
| Construction\tin\tprogress | 684 | 505 |
| Capital\tleases | 106 | 99 |
| Gross\tproperty,\tplant\tand\tequipment | 18,390 | 17,017 |
| Accumulated\tdepreciation* | (11,808) | (11,110) |
| Property,\tplant\tand\tequipment\t—\tnet | $6,582 | $5,907 |
| Other\tassets |  |  |
| Product\tand\tother\tinsurance\treceivables | $318 | $373 |
| Deferred\tincome\ttaxes | 176 | 253 |
| Other | 234 | 150 |
| Total\tother\tassets | $728 | $776 |
| Other\tcurrent\tliabilities |  |  |
| Accrued\ttrade\tpayables | $458 | $556 |
| Employee\tbenefits\tand\twithholdings | 228 | 168 |
| Deferred\tincome | 323 | 299 |
| Property\tand\tother\ttaxes | 169 | 176 |
| Product\tand\tother\tclaims | 120 | 115 |
| Non-funded\tpension\tbenefits | 35 | 31 |
| Deferred\tincome\ttaxes | 22 | 7 |
| Other | 478 | 409 |
| Total\tother\tcurrent\tliabilities | $1,833 | $1,761 |

Accounts	payable	(included	as	a	separate	line	item	in	the	Consolidated	Balance	Sheet)	includes	drafts	payable	on	demand	of	$44	million	and	$65	million	as	of December	31,	2007,	and	2006,	respectively.

# Supplemental	Balance	Sheet	Information	(continued)

| (Millions) | 2007 | 2006 |
| :--- | :--- | :--- |
| Other\tliabilities |  |  |
| Non-funded\tpension\tand\tpostretirement\tbenefits | $1,348 | $1,437 |
| Employee\tbenefits | 576 | 602 |
| Product\tand\tother\tclaims | 372 | 311 |
| Deferred\tincome\ttaxes | 355 | 84 |
| Long\tterm\ttaxes\tpayable | 310 | — |
| Minority\tinterest\tin\tsubsidiaries | 325 | 278 |
| Deferred\tincome | 36 | 50 |
| Capital\tlease\tobligations | 69 | 65 |
| Other | 175 | 138 |
| Total\tother\tliabilities | $3,566 | $2,965 |

# NOTE	6.		Supplemental	Stockholders'	Equity	and	Accumulated	Other	Comprehensive	Income	Information

The	components	of	the	ending	balances	of	accumulated	other	comprehensive	income	(loss)	as	of	December	31	follow:

# Accumulated	Other	Comprehensive	Income	(Loss)

| (Millions) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Cumulative\ttranslation\tadjustment |  |  |  |
| Balance\tat\tJanuary\t1 | $210 | $(296) | $282 |
| Pre-tax\tamount | 456 | 503 | (597) |
| Tax\teffect | 76 | 3 | 19 |
| Net\tof\ttax\tamount | 532 | 506 | (578) |
| Balance\tat\tDecember\t31 | 742 | 210 | (296) |
| Defined\tbenefit\tpension\tplans\tadjustment |  |  |  |
| Balance\tat\tJanuary\t1 | (2,067) | (156) | (110) |
| Pre-tax\tamount | 941 | (3,208) | (28) |
| Tax\teffect | (327) | 1,297 | (18) |
| Net\tof\ttax\tamount | 614 | (1,911) | (46) |
| Balance\tat\tDecember\t31 | (1,453) | (2,067) | (156) |
| Unrealized\tgain\t(loss)\ton\tdebt\tand\tequity\tsecurities |  |  |  |
| Balance\tat\tJanuary\t1 | 2 | 3 | 2 |

| Pre-tax	amount | (16) | (1) | 2 |
| :--- | :--- | :--- | :--- |
| Tax\teffect | 6 | — | (1) |
| Net\tof\ttax\tamount | (10) | (1) | 1 |
| Balance\tat\tDecember\t31 | (8) | 2 | 3 |
| Unrealized\tgain\t(loss)\ton\tcash\tflow\thedging\tinstruments |  |  |  |
| Balance\tat\tJanuary\t1 | (18) | 38 | (42) |
| Pre-tax\tamount | (24) | (85) | 126 |
| Tax\teffect | 14 | 29 | (46) |
| Net\tof\ttax\tamount | (10) | (56) | 80 |
| Balance\tat\tDecember\t31 | (28) | (18) | 38 |
| Total\taccumulated\tother\tcomprehensive\tincome\t(loss) |  |  |  |
| Balance\tat\tJanuary\t1 | (1,873) | (411) | 132 |
| Pre-tax\tamount | 1,374 | (2,791) | (497) |
| Tax\teffect | (248) | 1,329 | (46) |
| Net\tof\ttax\tamount | 1,126 | (1,462) | (543) |
| Balance\tat\tDecember\t31 | $(747) | $(1,873) | $(411) |

In	September	2006,	the	FASB	issued	SFAS	No.	158,	"Employers'	Accounting	for	Defined	Benefit	Pension	and	Other	Postretirement	Plans,	an	amendment	of	FASB Statements	No.	87,	88,	106	and	132(R)."	This	standard	eliminated	the	requirement	for	a	"minimum	pension	liability	adjustment"	that	was	previously	required	under SFAS	No.	87	and	required	employers	to	recognize	the	underfunded	or	overfunded	status	of	a	defined	benefit	plan	as	an	asset	or	liability	in	its	statement	of	financial position.	In	2006,	as	a	result	of	the	implementation	of	SFAS	No.	158,	the	Company	recognized	an	after-tax	decrease	in	accumulated	other	comprehensive	income	of $1.187	billion	and	$513	million	for	the	U.S.	and	International	pension	benefit	plans,	respectively,	and	$218	million	for	the	postretirement	health	care	and	life	insurance benefit	plan.	See	Note	11	for	additional	detail.

Reclassification	adjustments	are	made	to	avoid	double	counting	in	comprehensive	income	items	that	are	also	recorded	as	part	of	net	income.	In	2007,	as	disclosed	in	the net	periodic	benefit	cost	table	in	Note	11,	$198	million	pre-tax	($123	million	after-tax)	were	reclassified	to	earnings	from	accumulated	other	comprehensive	income	to pension	and	postretirement	expense	in	the	income	statement.	These	pension	and	postretirement	expense	amounts	are	shown	in	the	table	in	Note	11	as	amortization	of transition	(asset)	obligation,	amortization	of	prior	service	cost	(benefit)	and	amortization	of	net	actuarial	(gain)	loss.	Other	reclassification	adjustments	(except	for	cash flow	hedging	instruments	adjustments	provided	in	Note	12)	were	not	material.	No	tax	provision	has	been	made	for	the	translation	of	foreign	currency	financial statements	into	U.S.	dollars.

# NOTE	7.		Supplemental	Cash	Flow	Information

| (Millions) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Cash\tincome\ttax\tpayments | $1,999 | $1,842 | $1,277 |
| Cash\tinterest\tpayments | 162 | 119 | 79 |
| Capitalized\tinterest | 25 | 16 | 12 |

Individual	amounts	in	the	Consolidated	Statement	of	Cash	Flows	exclude	the	impacts	of	acquisitions,	divestitures	and	exchange	rate	impacts,	which	are	presented separately.	"Other	—	net"	in	the	Consolidated	Statement	of	Cash	Flows	within	operating	activities	in	2007	and	2006	includes	changes	in	liabilities	related	to	3M's restructuring	actions	(Note	4)	and	in	2005	includes	the	non-cash	impact	of	adopting	FIN	47	($35	million	cumulative	effect	of	accounting	change).

Transactions	related	to	investing	and	financing	activities	with	significant	non-cash	components	are	as	follows:	In	2007,	3M	purchased	certain	assets	of	Diamond Productions,	Inc.	for	approximately	150	thousand	shares	of	3M	common	stock,	which	has	a	market	value	of	approximately	$13	million	at	the	acquisition's	measurement date.	Liabilities	assumed	from	acquisitions	are	provided	in	the	tables	in	Note	2.

# NOTE	8.		Income	Taxes

The	Company	files	income	tax	returns	in	the	U.S.	federal	jurisdiction,	and	various	states	and	foreign	jurisdictions.	With	few	exceptions,	the	Company	is	no	longer subject	to	U.S.	federal,	state	and	local,	or	non-U.S.	income	tax	examinations	by	tax	authorities	for	years	before	1999.	It	is	anticipated	that	its	examination	for	the Company's	U.S.	income	tax	returns	for	the	years	2002	through	2004	will	be	completed	by	the	end	of	first	quarter	2008.	As	of	December	31,	2007,	the	IRS	has	proposed adjustments	to	the	Company's	tax	positions	for	which	the	Company	is	fully	reserved.	Payments	relating	to	any	proposed	assessments	arising	from	the	2002	through 2004	audit	may	not	be	made	until	a	final	agreement	is	reached	between	the	Company	and	the	IRS	on	such	assessments	or	upon	a	final	resolution	resulting	from	the administrative	appeals	process	or	judicial	action.	In	addition	to	the	U.S.	federal	examination,	there	is	also	limited	audit	activity	in	several	U.S.	state	and	foreign jurisdictions.	Currently,	the	Company	expects	the	liability	for	unrecognized	tax	benefits	to	change	by	an	insignificant	amount	during	the	next	12	months.

The	Company	adopted	the	provisions	of	FASB	Interpretation	No.	48,	"Accounting	for	Uncertainty	in	Income	Taxes,"	on	January	1,	2007.	As	a	result	of	the implementation	of	Interpretation	48,	the	Company	recognized	an	immaterial	increase	in	the	liability	for	unrecognized	tax	benefits,	which	was	accounted	for	as	a reduction	to	the	January	1,	2007,	balance	of	retained	earnings.	A	reconciliation	of	the	beginning	and	ending	amount	of	gross	unrecognized	tax	benefits	("UTB")	is	as follows:

The	total	amount	of	unrecognized	tax	benefits	that,	if	recognized,	would	affect	the	effective	tax	rate	as	of	January	1,	2007	and	December	31,	2007,	respectively,	are	$261 million	and	$334	million.	The	ending	net	UTB	results	from	adjusting	the	gross	balance	at	December	31,	2007	for	items	such	as	Federal,	State,	and	non-U.S.	deferred items,	interest	and	penalties,	and	deductible	taxes.	The	net	UTB	is	included	as	components	of	Accrued	Income	Taxes	and	Other	Liabilities	within	the	Consolidated Balance	Sheet.

The	Company	recognizes	interest	and	penalties	accrued	related	to	unrecognized	tax	benefits	in	tax	expense.	At	January	1,	2007	and	December	31,	2007,	accrued	interest and	penalties	on	a	gross	basis	were	$65	million	and	$69	million,	respectively.	Included	in	these	interest	and	penalty	amounts	is	interest	and	penalties	related	to	tax positions	for	which	the	ultimate	deductibility	is	highly	certain	but	for	which	there	is	uncertainty	about	the	timing	of	such	deductibility.	Because	of	the	impact	of	deferred tax	accounting,	other	than	interest	and	penalties,	the	disallowance	of	the	shorter	deductibility	period	would	not	affect	the	annual	effective	tax	rate	but	would	accelerate the	payment	of	cash	to	the	taxing	authority	to	an	earlier	period.

In	2007,	the	Company	completed	the	preparation	and	filing	of	its	2006	U.S.	federal	and	state	income	tax	returns,	which	did	not	result	in	any	material	changes	to	the Company's	financial	position.	In	2006,	an	audit	of	the	Company's	U.S.	tax	returns	for	years	through	2001	was	completed.	The	Company	and	the	Internal	Revenue Service	reached	a	final	settlement	for	these	years,	including	an	agreement	on	the	amount	of	a	refund	claim	to	be	filed	by	the	Company.	The	Company	also	substantially resolved	audits	in	certain	European	countries.	In	addition,	the	Company	completed	the	preparation	and	filing	of	its	2005	U.S.	federal	income	tax	return	and	the corresponding	2005	state	income	tax	returns.	The	adjustments	from	amounts	previously	estimated	in	the	U.S.	federal	and	state	income	tax	returns	(both	positive	and negative)	included	lower	U.S.	taxes	on	dividends	received	from	the	Company's	foreign	subsidiaries.	The	Company	also	made	quarterly	adjustments	(both	positive	and negative)	to	its	reserves	for	tax	contingencies.	Considering	the	developments	noted	above	and	other	factors,	including	the	impact	on	open	audit	years	of	the	recent resolution	of	issues	in	various	audits,	these	reassessments	resulted	in	a	reduction	of	the	reserves	in	2006	by	$149	million,	inclusive	of	the	expected	amount	of	certain refund	claims.

In	2005,	the	Company	announced	its	intent	to	reinvest	$1.7	billion	of	foreign	earnings	in	the	United	States	pursuant	to	the	provisions	of	the	American	Jobs	Creation	Act of	2004.	This	Act	provided	the	Company	the	opportunity	to	tax-

efficiently	repatriate	foreign	earnings	for	U.S.	qualifying	investments	specified	in	its	domestic	reinvestment	plan.	As	a	consequence,	in	2005,	3M	recorded	a	charge	of $75	million.

The	Company	made	discretionary	contributions	to	its	U.S.	qualified	pension	plan	of	$200	million	in	2007,	$200	million	in	2006,	and	$500	million	in	2005.	The	current income	tax	provision	includes	a	benefit	for	the	pension	contributions;	the	deferred	tax	provision	includes	a	cost	for	the	related	temporary	difference.

As	a	result	of	certain	employment	commitments	and	capital	investments	made	by	3M,	income	from	manufacturing	activities	in	certain	countries	is	subject	to	reduced	tax rates	or,	in	some	cases,	is	exempt	from	tax	for	years	through	2014.	The	income	tax	benefits	attributable	to	the	tax	status	of	these	subsidiaries	are	estimated	to	be	$47 million	(6	cents	per	diluted	share)	in	2007,	$20	million	(3	cents	per	diluted	share)	in	2006,	and	$23	million	(3	cents	per	diluted	share)	in	2005.

The	Company	has	not	provided	deferred	taxes	on	unremitted	earnings	attributable	to	international	companies	that	have	been	considered	to	be	reinvested	indefinitely. These	earnings	relate	to	ongoing	operations	and	were	approximately	$5.7	billion	as	of	December	31,	2007.	Because	of	the	availability	of	U.S.	foreign	tax	credits,	it	is	not practicable	to	determine	the	income	tax	liability	that	would	be	payable	if	such	earnings	were	not	indefinitely	reinvested.

# NOTE	9.		Marketable	Securities

The	Company	invests	in	asset-backed	securities,	agency	securities,	corporate	medium-term	note	securities,	auction	rate	securities	and	other	securities.	The	following	is	a summary	of	amounts	recorded	on	the	Consolidated	Balance	Sheet	for	marketable	securities	(current	and	non-current)	at	December	31,	2007.

| (Millions) | Dec.	31,	2007 |
| :--- | :--- |
| Agency\tsecurities | $260 |
| Asset-backed\tsecurities | 186 |
| Other\tsecurities | 133 |
| Current\tmarketable\tsecurities | 579 |
| Asset-backed\tsecurities | 267 |
| Corporate\tmedium-term\tnotes\tsecurities | 112 |
| Agency\tsecurities | 56 |
| Auction\trate\tsecurities | 16 |
| Other\tsecurities | 29 |
| Non-current\tmarketable\tsecurities | 480 |
| Total\tmarketable\tsecurities | $1,059 |

Classification	of	marketable	securities	as	current	or	non-current	is	dependent	upon	management's	intended	holding	period,	the	security's	maturity	date	and	liquidity considerations	based	on	market	conditions.	If	management	intends	to	hold	the	securities	for	longer	than	one	year	as	of	the	balance	sheet	date,	they	are	classified	as	non- current.	The	fair	value	of	marketable	securities	approximates	cost,	except	for	certain	auction	rate	securities	discussed	in	the	next	paragraph.	Gross	unrealized	gains	and losses	for	marketable	securities	were	not	material	as	of	December	31,	2007	and	2006;	however,	in	2007	the	Company	did	have	both	realized	and	unrealized	losses associated	with	auction	rate	securities	as	discussed	below.	Gross	realized	gains	and	losses	on	sales	of	marketable	securities	were	not	material	for	2007,	2006	or	2005,	but in	2007	pre-tax	gains	totaled	approximately	$7	million.	Cost	of	securities	sold	or	reclassified	use	the	first	in,	first	out	(FIFO)	method.	Since	these	marketable	securities are	classified	as	available-for-sale	securities,	changes	in	fair	value	will	flow	through	other	comprehensive	income,	with	amounts	reclassified	out	of	other	comprehensive income	into	earnings	upon	sale	or	"other-than-temporary"	impairment	(as	discussed	below).

3M	has	a	diversified	marketable	securities	portfolio	of	$1.059	billion	as	of	December	31,	2007.	Within	this	portfolio,	current	and	long-term	asset-backed	securities (estimated	fair	value	of	$453	million)	are	primarily	comprised	of	interests	in	automobile	loans	and	credit	cards,	with	only	$27	million	invested	in	interests	in	mortgage- backed	securities	or	home	equity	loans.	3M's	marketable	securities	portfolio	also	includes	auction	rate	securities	(estimated	fair	value	of	$16	million)	that	represent interests	in	collateralized	debt	obligations,	which	are	collateralized	by	pools	of	residential	and	commercial	mortgages,	and	interests	in	investment	grade	credit	default swaps.	During	the	second	half	of	2007,	these	auction	rate	securities	failed	to	auction	due	to	sell	orders	exceeding	buy	orders.	Liquidity	for	these	auction-rate	securities	is typically	provided	by	an	auction	process	that	resets	the	applicable	interest	rate	at	pre-determined	intervals,

usually	every	7,	28,	35,	or	90	days.	The	funds	associated	with	failed	auctions	will	not	be	accessible	until	a	successful	auction	occurs	or	a	buyer	is	found	outside	of	the auction	process.	Based	on	broker-dealer	valuation	models	and	an	analysis	of	other-than-temporary	impairment	factors,	auction	rate	securities	with	an	original	par	value of	approximately	$34	million	were	written-down	to	an	estimated	fair	value	of	$16	million	as	of	December	31,	2007.	This	write-down	resulted	in	an	"other-than- temporary"	impairment	charge	of	approximately	$8	million	(pre-tax)	included	in	net	income	and	a	temporary	impairment	charge	of	$10	million	(pre-tax)	reflected	as	an unrealized	loss	within	other	comprehensive	income	for	2007.	As	of	December	31,	2007,	these	investments	in	auction	rate	securities	have	been	in	a	loss	position	for	less than	six	months.	These	auction	rate	securities	are	classified	as	non-current	marketable	securities	as	of	December	31,	2007	as	indicated	in	the	preceding	table.

3M	reviews	impairments	associated	with	the	above	in	accordance	with	Emerging	Issues	Task	Force	(EITF)	03-1	and	FSP	SFAS	115-1	and	124-1,	"The	Meaning	of Other-Than-Temporary-Impairment	and	Its	Application	to	Certain	Investments,"	to	determine	the	classification	of	the	impairment	as	"temporary"	or	"other-than- temporary."	A	temporary	impairment	charge	results	in	an	unrealized	loss	being	recorded	in	the	other	comprehensive	income	component	of	stockholders'	equity.	Such	an unrealized	loss	does	not	reduce	net	income	for	the	applicable	accounting	period	because	the	loss	is	not	viewed	as	other-than-temporary.	The	company	believes	that	a portion	of	the	impairment	of	its	auction	rate	securities	investments	is	temporary	and	a	portion	is	other-than-temporary.	The	factors	evaluated	to	differentiate	between temporary	and	other-than-temporary	include	the	projected	future	cash	flows,	credit	ratings	actions,	and	assessment	of	the	credit	quality	of	the	underlying	collateral.

The	balance	at	December	31,	2007	for	marketable	securities	and	short-term	investments	by	contractual	maturity	are	shown	below.	Actual	maturities	may	differ	from contractual	maturities	because	the	issuers	of	the	securities	may	have	the	right	to	prepay	obligations	without	prepayment	penalties.

| (Millions) | Dec.	31,	2007 |
| :--- | :--- |
| Due\tin\tone\tyear\tor\tless | $231 |
| Due\tafter\tone\tyear\tthrough\tthree\tyears | 545 |
| Due\tafter\tthree\tyears\tthrough\tfive\tyears | 221 |
| Due\tafter\tfive\tyears | 62 |
| Total\tmarketable\tsecurities | $1,059 |

# NOTE	10.		Long-Term	Debt	and	Short-Term	Borrowings

Long-term	debt	and	short-term	borrowings	as	of	December	31	consisted	of	the	following	(with	interest	rates	as	of	December	31,	2007):

Long-Term	Debt

Currency/

Effective

*	Debt	tables	reflect	the	effects	of	interest	rate	swaps	at	December	31;	weighted-average	effective	interest	rate	table	reflects	the	combined	effects	of	interest	rate	and currency	swaps	at	December	31.

Maturities	of	long-term	debt	for	the	five	years	subsequent	to	December	31,	2007	are	as	follows	(in	millions):

| 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| $540 | $477 | $24 | $— | $500 | $3,018 | $4,559 |

Long-term	debt	payments	due	in	2008	include	$350	million	of	dealer	remarketable	securities	(final	maturity	2010)	and	$62	million	of	floating	rate	notes	(final	maturity 2044).	These	securities	are	classified	as	current	portion	of	long-term	debt	as	the	result	of	put	provisions	associated	with	these	debt	instruments.

The	ESOP	debt	is	serviced	by	dividends	on	stock	held	by	the	ESOP	and	by	Company	contributions.	These	contributions	are	not	reported	as	interest	expense,	but	are reported	as	an	employee	benefit	expense	in	the	Consolidated	Statement	of	Income.	Other	borrowings	includes	debt	held	by	3M's	international	companies	and	floating

rate	notes	in	the	United	States,	with	the	long-term	portion	of	this	debt	primarily	composed	of	U.S.	dollar	floating	rate	debt.

At	December	31,	2007,	certain	debt	agreements	($350	million	of	dealer	remarketable	securities	and	$87	million	of	ESOP	debt)	had	ratings	triggers	(BBB-/Baa3	or lower)	that	would	require	repayment	of	debt.	The	Company	has	an	AA	credit	rating	from	Standard	&	Poor's,	with	a	stable	outlook,	and	an	Aa1	credit	rating	from Moody's	Investors	Service,	with	a	negative	outlook.	On	April	30,	2007,	the	Company	replaced	its	$565	million	credit	facility	with	a	new	$1.5	billion	five-year	credit facility,	which	has	provisions	for	the	Company	to	request	an	increase	of	the	facility	up	to	$2	billion	(at	the	lenders'	discretion),	and	providing	for	up	to	$150	million	in letters	of	credit.	As	of	December	31,	2007,	there	are	$110	million	in	letters	of	credit	drawn	against	the	facility.	Under	the	new	credit	agreement,	3M	is	required	to maintain	its	EBITDA	to	Interest	Ratio	as	of	the	end	of	each	fiscal	quarter	at	not	less	than	3.0	to	1.	This	is	calculated	(as	defined	in	the	agreement)	as	the	ratio	of consolidated	total	EBITDA	for	the	four	consecutive	quarters	then	ended	to	total	interest	expense	on	all	funded	debt	for	the	same	period.	At	December	31,	2007,	this	ratio was	approximately	35	to	1.	At	December	31,	2007,	available	short-term	committed	lines	of	credit	internationally	totaled	approximately	$67	million,	of	which approximately	$13	million	was	utilized.	Debt	covenants	do	not	restrict	the	payment	of	dividends.

The	Company	has	a	"well-known	seasoned	issuer"	shelf	registration	statement,	effective	February	24,	2006,	to	register	an	indeterminate	amount	of	debt	or	equity securities	for	future	sales.	On	June	15,	2007,	the	Company	registered	150,718	shares	of	the	Company's	common	stock	under	this	shelf	on	behalf	of	and	for	the	sole benefit	of	the	selling	stockholders	in	connection	with	the	Company's	acquisition	of	assets	of	Diamond	Productions,	Inc.	The	Company	intends	to	use	the	proceeds	from future	securities	sales	off	this	shelf	for	general	corporate	purposes.	In	connection	with	this	shelf	registration,	in	June	2007	the	Company	established	a	medium-term	notes program	through	which	up	to	$3	billion	of	medium-term	notes	may	be	offered.	In	December	2007,	3M	issued	a	five-year,	$500	million,	fixed	rate	note	with	a	coupon rate	of	4.65%	under	this	medium-term	notes	program.	This	program	has	a	remaining	capacity	of	$2.5	billion	as	of	December	31,	2007.

In	September	2003,	the	Company	filed	a	shelf	registration	statement	with	the	Securities	and	Exchange	Commission	relating	to	the	potential	offering	of	debt	securities	of up	to	$1.5	billion.	This	shelf	registration	became	effective	in	October	2003.	In	December	2003,	the	Company	established	under	the	shelf	a	medium-term	notes	program through	which	up	to	$1.5	billion	of	medium-term	notes	may	be	offered.	In	March	2007,	the	Company	issued	a	30-year,	$750	million,	fixed	rate	note	with	a	coupon	rate of	5.70%.	In	November	2006,	3M	issued	a	three-year,	$400	million,	fixed	rate	note.	The	Company	entered	into	an	interest	rate	swap	to	convert	this	to	a	rate	based	on	a floating	LIBOR	index.	In	December	2004,	3M	issued	a	40-year,	$62	million,	floating	rate	note,	with	the	rate	based	on	a	floating	LIBOR	index.	This	$1.5	billion	medium term	notes	program	was	replaced	by	the	$3	billion	program	established	in	June	2007.

In	July	2007,	3M	issued	a	seven	year	5.0%	fixed	rate	Eurobond	for	an	amount	of	750	million	Euros	(approximately	$1.102	billion	in	U.S.	Dollars	at	December	31, 2007).	Upon	debt	issuance	in	July	2007,	3M	completed	a	fixed-to-floating	interest	rate	swap	on	a	notional	amount	of	400	million	Euros	as	a	fair	value	hedge	of	a	portion of	the	fixed	interest	rate	Eurobond	obligation.	In	December	2007,	3M	reopened	the	existing	seven	year	5.0%	fixed	rate	Eurobond	for	an	additional	amount	of	275 million	Euros	(approximately	$404	million	in	U.S.	Dollars	at	December	31,	2007).	This	security	was	issued	at	a	premium	and	was	subsequently	consolidated	with	the original	security	on	January	15,	2008.

3M	may	redeem	its	30-year	zero-coupon	senior	notes	(the	"Convertible	Notes")	at	any	time	in	whole	or	in	part,	beginning	November	21,	2007,	at	the	accreted conversion	price;	however,	bondholders	may	convert	upon	notification	of	redemption	each	of	the	notes	into	9.4602	shares	of	3M	common	stock.	Holders	of	the	30-year zero-coupon	senior	notes	have	the	option	to	require	3M	to	purchase	their	notes	at	accreted	value	on	November	21	in	the	years	2005,	2007,	2012,	2017,	2022	and	2027. In	November	2005,	22,506	of	the	639,000	in	outstanding	bonds	were	redeemed,	resulting	in	a	payout	from	3M	of	approximately	$20	million.	In	November	2007,	an additional	364,598	outstanding	bonds	were	redeemed	resulting	in	a	payout	from	3M	of	approximately	$322	million.	These	payouts	reduced	the	Convertible	Notes'	face value	at	maturity	to	$252	million,	which	equates	to	a	book	value	of	approximately	$222	million	at	December	31,	2007.	As	disclosed	in	a	Form	8-K	in	November	2005, 3M	amended	the	terms	of	these	securities	to	pay	cash	at	a	rate	of	2.40%	per	annum	of	the	principal	amount	at	maturity	of	the	Company's	Convertible	Notes,	which equates	to	2.75%	per	annum	of	the	notes'	accreted	value	on	November	21,	2005.	The	cash	interest	payments	were	made	semiannually	in	arrears	on	May	22,	2006, November	22,	2006,	May	22,	2007	and	November	22,	2007	to	holders	of	record	on	the	15th	calendar	day	preceding	each	such	interest	payment	date.	Effective November	22,	2007,	the	effective	interest	rate	reverted	back	to	the	original	yield	of	0.50%.

3M	originally	sold	$639	million	in	aggregate	face	amount	of	these	"Convertible	Notes"	on	November	15,	2002,	which	are	convertible	into	shares	of	3M	common	stock. The	gross	proceeds	from	the	offering,	to	be	used	for	general	corporate	purposes,	were	$550	million	($540	million	net	of	issuance	costs).	Debt	issuance	costs	were amortized	on	a	straight-line	basis	over	a	three-year	period	beginning	in	November	2002.	On	February	14,	2003,	3M	registered	these	Convertible	Notes	in	a	registration statement	filed	with	the	Securities	and	Exchange	Commission.	The	terms	of	the

Convertible	Notes	include	a	yield	to	maturity	of	.50%	and	an	initial	conversion	premium	of	40%	over	the	$65.00	(split-adjusted)	closing	price	of	3M	common	stock	on November	14,	2002.	If	certain	conditions	for	conversion	(relating	to	the	closing	common	stock	prices	of	3M	exceeding	the	conversion	trigger	price	for	specified	periods) are	met,	holders	may	convert	each	of	the	30-year	zero-coupon	senior	notes	into	9.4602	shares	of	3M	common	stock	in	any	calendar	quarter	commencing	after	March	31, 2003.	The	conversion	trigger	price	for	the	fourth	quarter	of	2007	was	$121.21	per	share.	If	the	conditions	for	conversion	are	met,	and	3M	elects	not	to	settle	in	cash,	the 30-year	zero-coupon	senior	notes	will	be	convertible	in	the	aggregate	into	approximately	2.4	million	shares	of	3M	common	stock.	The	conditions	for	conversion	related to	the	Company's	Convertible	Notes	have	never	been	met.	If	the	conditions	for	conversion	are	met,	3M	may	choose	to	pay	in	cash	and/or	common	stock;	however,	if	this occurs,	the	Company	has	the	intent	and	ability	to	settle	this	debt	security	in	cash.	Accordingly,	there	was	no	impact	on	3M's	diluted	earnings	per	share.

In	December	2007,	the	Company's	$350	million	of	dealer	remarketable	securities	were	remarketed	for	one	year.	They	were	reissued	with	a	fixed	coupon	rate	of	5.83%. These	securities,	which	are	classified	as	current	portion	of	long-term	debt,	were	issued	in	December	2000.	The	remarketable	securities	can	be	remarketed	annually,	at	the option	of	the	dealer,	for	a	year	each	time,	with	a	final	maturity	date	of	December	2010.	In	the	second	quarter	of	2007,	3M	repurchased	$42	million	in	floating	rate	notes due	in	2037	at	par	as	the	bondholder	exercised	put	provisions	associated	with	this	debt	instrument.

# NOTE	11.		Pension	and	Postretirement	Benefit	Plans

3M	has	various	company-sponsored	retirement	plans	covering	substantially	all	U.S.	employees	and	many	employees	outside	the	United	States.	Pension	benefits associated	with	these	plans	generally	are	based	on	each	participant's	years	of	service,	compensation,	and	age	at	retirement	or	termination.	In	addition	to	providing pension	benefits,	the	Company	provides	certain	postretirement	health	care	and	life	insurance	benefits	for	substantially	all	of	its	U.S.	employees	who	reach	retirement	age while	employed	by	the	Company.	Most	international	employees	and	retirees	are	covered	by	government	health	care	programs.	The	cost	of	company-provided postretirement	health	care	plans	for	international	employees	is	not	material	and	is	combined	with	U.S.	amounts.

The	Company's	pension	funding	policy	is	to	deposit	with	independent	trustees	amounts	allowable	by	law.	Trust	funds	and	deposits	with	insurance	companies	are maintained	to	provide	pension	benefits	to	plan	participants	and	their	beneficiaries.	There	are	no	plan	assets	in	the	non-qualified	plan	due	to	its	nature.	For	its	U.S. postretirement	health	care	and	life	insurance	benefit	plans,	the	Company	has	set	aside	amounts	at	least	equal	to	annual	benefit	payments	with	an	independent	trustee.

In	August	2006,	the	Pension	Protection	Act	(PPA)	was	signed	into	law	in	the	U.S.	The	PPA	increases	the	funding	target	for	defined	benefit	pension	plans	to	100%	of	the target	liability.	The	PPA	transition	rules	require	a	funding	liability	target	of	92%	in	2008,	reaching	100%	by	2011.	3M's	U.S.	qualified	defined	benefit	plans	are	funded in	excess	of	the	applicable	transition	funding	liability	target	for	2008;	therefore,	the	Company	expects	that	the	plans	will	not	be	subject	to	the	minimum	required contribution	of	the	PPA	and	its	transition	rules	will	not	have	a	material	impact	on	expected	future	contributions.

In	September	2006,	the	FASB	issued	SFAS	No.	158,	"Employers'	Accounting	for	Defined	Benefit	Pension	and	Other	Postretirement	Plans,	an	amendment	of	FASB Statements	No.	87,	88,	106	and	132(R)."	This	standard	requires	employers	to	recognize	the	underfunded	or	overfunded	status	of	defined	benefit	pension	and postretirement	plans	as	an	asset	or	liability	in	its	statement	of	financial	position,	and	recognize	changes	in	the	funded	status	in	the	year	in	which	the	changes	occur through	accumulated	other	comprehensive	income,	which	is	a	component	of	stockholders'	equity.	This	standard	also	eliminates	the	requirement	for	Additional	Minimum Pension	Liability	(AML)	required	under	SFAS	No.	87.	As	a	result	of	the	application	of	SFAS	No.	158	as	of	December	31,	2006,	3M	reversed	assets	of	$2.515	billion and	increased	liabilities	by	$703	million.	These	liabilities	were	offset	to	accumulated	other	comprehensive	income	and	deferred	taxes.	In	2006,	as	a	result	of	the implementation	of	SFAS	No.	158,	the	Company	recognized	an	after-tax	decrease	in	accumulated	other	comprehensive	income	of	$1.187	billion	and	$513	million	for	the U.S.	and	International	pension	benefit	plans,	respectively,	and	$218	million	for	the	postretirement	health	care	and	life	insurance	benefit	plan.

The	following	illustrates	the	adjustments	to	the	Balance	Sheet	to	record	the	initial	adoption	of	the	SFAS	No.	158	funded	status	as	of	December	31,	2006:

|  |  |  | Pre-SFAS | SFAS |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | No.\t158 | No.158 | Post |
|  | With\tAML | AML | with\tAML | adoption | SFAS |
| (Millions) | from\t2005 | adjustment | adjustments | adjustments | No.\t158 |
| Prepaid\tPension/(accrued\tpension\tliability) | $2,111 | $15 | $2,126 | $(3,199) | $(1,073) |
| Intangible\tasset | 24 | (5) | 19 | (19) | — |
| Deferred\ttax\tasset | 98 | (3) | 95 | 1,300 | 1,395 |
| Accumulated\tother\tcomprehensive\t\tincome,\tnet\tof |  |  |  |  |  |
| tax | 156 | (7) | 149 | 1,918 | 2,067 |
| Accumulated\tother\tcomprehensive\t\tincome,\tpre-tax | 254 | (10) | 244 | 3,218 | 3,462 |

Following	is	a	reconciliation	of	the	beginning	and	ending	balances	of	the	benefit	obligation	and	the	fair	value	of	plan	assets	as	of	December	31:

|  |  | Qualified	and	Non-qualified<br>Pension	Benefits |  |  | Postretirement<br>Benefits | Postretirement<br>Benefits |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | United\tStates |  | International | International |  |  |
| (Millions) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 |
| Change\tin\tbenefit\tobligation |  |  |  |  |  |  |
| Benefit\tobligation\tat\tbeginning\tof\tyear | 10,149 | $10,052 | $4,450 | $3,884 | $1,841 | $1,918 |

| Acquisitions | — | — | 3 | 22 | — | — |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Service\tcost | 192 | 196 | 125 | 124 | 57 | 58 |
| Interest\tcost | 568 | 539 | 228 | 183 | 104 | 104 |
| Participant\tcontributions | — | — | 4 | 4 | 47 | 41 |
| Foreign\texchange\trate\tchanges | — | — | 337 | 365 | 14 | — |
| Plan\tamendments | 18 | 2 | 17 | (1) | (98) | (157) |
| Actuarial\t(gain)\tloss | (154) | (142) | (114) | 26 | (16) | 35 |
| Medicare\tPart\tD\tReimbursement | — | — | — | — | 10 | 10 |
| Benefit\tpayments | (565) | (530) | (175) | (146) | (159) | (168) |
| Settlements,\tcurtailments,\tspecial\ttermination |  |  |  |  |  |  |
| benefits\tand\tother | 7 | 32 | (19) | (11) | 9 | — |
| Benefit\tobligation\tat\tend\tof\tyear | $10,215 | $10,149 | $4,856 | $4,450 | $1,809 | $1,841 |
| Change\tin\tplan\tassets |  |  |  |  |  |  |
| Fair\tvalue\tof\tplan\tassets\tat\tbeginning\tof\tyear | 10,060 | 9,285 | $3,970 | 3,340 | $1,337 | 1,239 |
| Acquisitions | — | — | 1 | 21 | — | — |
| Actual\treturn\ton\tplan\tassets | 1,376 | 1,072 | 188 | 325 | 127 | 188 |
| Company\tcontributions | 225 | 233 | 151 | 115 | 3 | 37 |
| Participant\tcontributions | — | — | 4 | 4 | 47 | 41 |
| Foreign\texchange\trate\tchanges | — | — | 300 | 316 | — | — |
| Benefit\tpayments | (565) | (530) | (175) | (146) | (159) | (168) |
| Settlements,\tcurtailments,\tspecial\ttermination |  |  |  |  |  |  |
| benefits\tand\tother | — | — | (15) | (5) | — | — |
| Fair\tvalue\tof\tplan\tassets\tat\tend\tof\tyear | $11,096 | $10,060 | $4,424 | $3,970 | $1,355 | $1,337 |
| Funded\tstatus\tat\tend\tof\tyear | $881 | $(89) | $(432) | $(480) | $(454) | $(504) |

| (Millions) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Amounts\trecognized\tin\tthe\tConsolidated\tBalance\tSheet\tas\tof |  |  |  |  |  |  |
| Dec.\t31, |  |  |  |  |  |  |
| Non-current\tassets | $1,246 | $269 | $132 | $126 | $— | $— |
| Accrued\tbenefit\tcost |  |  |  |  |  |  |
| Current\tliabilities | (27) | (26) | (6) | (5) | (2) | — |
| Non-current\tliabilities | (338) | (332) | (558) | (601) | (452) | (504) |
| Ending\tbalance | $881 | $(89) | $(432) | $(480) | $(454) | $(504) |
| Amounts\trecognized\tin\taccumulated\tother\tcomprehensive\tincome |  |  |  |  |  |  |
| as\tof\tDec.\t31, |  |  |  |  |  |  |
| Net\ttransition\tobligation\t(asset) | $— | $— | $1 | $3 | $— | $— |
| Net\tactuarial\tloss\t(gain) | 1,210 | 2,027 | 884 | 899 | 768 | 874 |
| Prior\tservice\tcost\t(credit) | 68 | 64 | (45) | (65) | (365) | (339) |
| Ending\tbalance | $1,278 | $2,091 | $840 | $837 | $403 | $535 |

The	accumulated	benefit	obligation	of	the	U.S.	pension	plans	was	$9.643	billion	and	$9.560	billion	at	December	31,	2007	and	2006,	respectively.	The	accumulated benefit	obligation	of	the	international	pension	plans	was	$4.421	billion	and	$3.756	billion	at	December	2007	and	2006,	respectively.

The	U.S.	nonqualified	pension	plan	had	a	projected	benefit	obligation	of	$360	million	and	$354	million,	respectively,	as	of	December	31,	2007	and	2006,	and	has	no plan	assets	due	to	the	nature	of	the	plan.	The	accumulated	benefit	obligation	of	the	nonqualified	pension	plan	is	equal	to	the	projected	benefit	obligation.

The	following	amounts	relate	to	international	pension	plans	with	projected	benefit	obligations	in	excess	of	plan	assets	as	of	December	31:

| (Millions) | 2007 | 2006 |
| :--- | :--- | :--- |
| Projected\tbenefit\tobligation | $4,346 | $3,680 |
| Accumulated\tbenefit\tobligation | 3,989 | 3,049 |
| Fair\tvalue\tof\tplan\tassets | 3,782 | 3,073 |

The	following	amounts	relate	to	international	pension	plans	with	accumulated	benefit	obligations	in	excess	of	plan	assets	as	of	December	31:

| (Millions) | 2007 | 2006 |
| :--- | :--- | :--- |
| Projected\tbenefit\tobligation | $3,497 | $1,020 |
| Accumulated\tbenefit\tobligation | 3,271 | 854 |
| Fair\tvalue\tof\tplan\tassets | 2,984 | 578 |

Components	of	net	periodic	benefit	cost	and	other	supplemental	information	for	the	years	ended	December	31	follow:

| Components	of	net	periodic	benefit |  |  | Qualified	and	Non-qualified | Qualified	and	Non-qualified |  |  |  | Postretirement |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| cost\tand\tother\tamounts\trecognizedin\tother\ncomprehensive\tincome\n(Millions) | 2007 | United\tStates\n2006 | Pension\tBenefits\n2005 | 2007 | International\n2006 | 2005 | 2007 | Benefits\n2006 | 2005 |
| Net\tperiodic\tbenefit\tcost |  |  |  |  |  |  |  |  |  |
| Service\tcost | $192 | $196 | $177 | $125 | $124 | $102 | $57 | $58 | $53 |
| Interest\tcost | 568 | 539 | 502 | 228 | 183 | 177 | 104 | 104 | 101 |
| Expected\treturn\ton\tplan\tassets | (840) | (764) | (665) | (290) | (245) | (217) | (107) | (103) | (93) |
| Amortization\tof\ttransition\t(asset)\tobligation | — | — | — | 3 | 3 | 4 | — | — | — |

| Amortization	of	prior	service	cost	(benefit) | 14 | 13 | 13 | (2) | (3) | (3) | (72) | (50) | (39) |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Amortization\tof\tnet\tactuarial\t(gain)\tloss | 126 | 202 | 179 | 55 | 63 | 58 | 74 | 84 | 84 |
| Net\tperiodic\tbenefit\tcost | $60 | $186 | $206 | $119 | $125 | $121 | $56 | $93 | $106 |
| Settlements,\tcurtailments,\tspecial\ttermination\tbenefits |  |  |  |  |  |  |  |  |  |
| and\tother | 7 | 32 | 6 | 4 | 4 | (2) | 9 | — | — |
| Net\tperiodic\tbenefit\tcost\tafter\tsettlements, |  |  |  |  |  |  |  |  |  |
| curtailments,\tspecial\ttermination\tbenefits\tand\tother | $67 | $218 | $212 | $123 | $129 | $119 | $65 | $93 | $106 |

The	estimated	amortization	from	accumulated	other	comprehensive	income	into	net	periodic	benefit	cost	in	2008	follows:

# Amounts	expected	to	be	amortized	from	accumulated	other

# comprehensive	income	into	net	periodic	benefit	costs	over	next

| fiscal	year |  |  | Postretirement |
| :--- | :--- | :--- | :--- |
| (Millions) | Qualified\tand\tNon-qualified\tPension\tBenefits |  | Benefits |
|  | United\tStates | International |  |
| Amortization\tof\ttransition\t(asset)\tobligation | $— | $3 | $— |
| Amortization\tof\tprior\tservice\tcost\t(benefit) | 15 | (2) | (85) |
| Amortization\tof\tnet\tactuarial\t(gain)\tloss | 58 | 40 | 59 |
|  | $73 | $41 | $(26) |

Other	supplemental	information	for	the	years	ended	December	31	follows:

As	of	December	31,	2005,	the	Company	converted	to	the	RP	(Retirement	Plans)	2000	Mortality	Table	for	calculating	the	year-end	2005	U.S.	pension	and	postretirement obligations	and	2006	expense.	The	impact	of	this	change	increased	the	year-end	2005	U.S.	Projected	Benefit	Obligations	for	pension	by	$385	million,	the	year-end	2005 U.S.	Accumulated	Benefit	Obligations	for	pension	by	$349	million	and	the	2005	U.S.	Accumulated	Postretirement	Benefit	Obligation	by	$93	million.	This	change	also increased	pension	expenses	for	2006	by	$64	million	and	postretirement	expenses	by	$17	million.

The	Company	reviews	external	data	and	its	own	historical	trends	for	health	care	costs	to	determine	the	health	care	trend	rates	for	the	postretirement	medical	plans.	As	of December	31,	2006,	the	Company	modified	its	health	care	trend	rates	assumption	by	raising	the	rate	and	separating	the	trend	rates	used	for	plan	participants	less	than	65 years	of	age	and	plan	participants	65	years	of	age	or	older.	The	separation	of	the	trend	rates	reflects	the	higher	costs	associated	with	prescription	drugs	in	the	65	or	older age	group.	The	assumed	health	care	trend	rates	as	of	December	31	are	as	follows:

| Assumed	health	care	trend	rates | Pre-65 | Post-65 | Pre-65 | Post-65 |
| :--- | :--- | :--- | :--- | :--- |
| Health\tcare\tcost\ttrend\trate\tused\tto\tdetermine\tbenefit |  |  |  |  |
| obligations | 8.50% | 9.75% | 9.00% | 10.25% |
| Rate\tthat\tthe\tcost\ttrend\trate\tis\tassumed\tto\tdecline\tto |  |  |  |  |
| (ultimate\ttrend\trate) | 5.00% | 5.00% | 5.00% | 5.00% |
| Years\tto\tUltimate\tTrend\tRate | 8 | 8 | 9 | 9 |

The	assumed	health	care	trend	rates	shown	above	reflect	3M's	expected	medical	and	drug	claims	experience.	The	Company	has	developed	certain	long-term	strategies	to help	offset	trend	rates	through	care	management,	strategic	sourcing	activities	and	plan	design.	A	one	percentage	point	change	in	assumed	health	cost	trend	rates	would have	the	following	effects:

| Health	Care	Cost | One	Percentage | One	Percentage |
| :--- | :--- | :--- |
| (Millions) | Point\tIncrease | Point\tDecrease |
| Effect\ton\ttotal\tof\tservice\tand\tinterest\tcost | $23 | $(19) |
| Effect\ton\tpostretirement\tbenefit\tobligation | 195 | (165) |

3M's	investment	strategy	for	its	pension	and	postretirement	plans	is	to	manage	the	plans	on	a	going-concern	basis.	The	primary	goal	of	the	funds	is	to	meet	the obligations	as	required.	The	secondary	goal	is	to	earn	the	highest	rate	of	return	possible,	without	jeopardizing	its	primary	goal,	and	without	subjecting	the	Company	to an	undue	amount	of	contribution	rate	volatility.	Fund	returns	are	used	to	help	finance	present	and	future	obligations	to	the	extent	possible	within	actuarially	determined funding	limits	and	tax-determined	asset	limits,	thus	reducing	the	level	of	contributions	3M	must	make.

3M	does	not	buy	or	sell	any	of	its	own	stock	as	a	direct	investment	for	its	pension	and	other	postretirement	benefit	funds.	However,	due	to	external	investment management	of	the	funds,	the	plans	may	indirectly	buy,	sell	or	hold	3M	stock.	The	aggregate	amount	of	the	shares	would	not	be	considered	to	be	material	relative	to	the aggregate	fund	percentages.

For	the	U.S.	pension	plan,	the	Company's	assumption	for	the	expected	return	on	plan	assets	was	8.75%	in	2007.	The	Company	is	lowering	the	2008	expected	return	on plan	assets	for	its	U.S.	pension	plan	by	0.25	percentage	points	to	8.50%.	This	will	reduce	2008	expected	pension	income	by	approximately	$26	million.	Projected	returns are	based	primarily	on	broad,	publicly	traded	equity	and	fixed-income	indices	and	forward-looking	estimates	of	active	portfolio	and	investment	management.	As	of December	31,	2007,	the	Company's	2008	expected	long-term	rate	of	return	on	U.S.	plan	assets	is	based	on	an	asset	allocation	assumption	of	46%	global	equities,	with an	expected	long-term	rate	of	return	of	7.75%,	13%	private	equities	with	an	expected	long-term	rate	of	return	of	12.75%;	24%	fixed-income	securities	with	an	expected long-term	rate	of	return	of	5.0%;	12%	absolute	return	investments	independent	of	traditional	performance	benchmarks,	with	an	expected	long	term	return	of	7%,	5% commodities	with	an	expected	long-term	rate	of	return	of	6.5%.	The	company	expects	additional	positive	return	from	active	investment	management.	These	assumptions result	in	an	8.50%	expected	rate	of	return	on	an	annualized	basis.	The	plan	assets	earned	a	rate	of	return	in	excess	of	14%,	12%	and	10%	in	2007,	2006	and	2005, respectively.	The	average	annual	actual	return	on	the	plan	assets	over	the	past	10	and	25	years	has	been	9.1%	and	12.2%,	respectively.

During	2006,	certain	absolute	return	and	commodity	investments	were	included	in	equity	and	fixed	income	allocations.	The	2006	presentation	in	the	table	that	follows has	been	reclassified	to	conform	to	the	2007	presentation.

The	U.S.	plan's	asset	allocation	by	asset	category	as	of	plan	measurement	dates	follows:

|  |  | Percentage |  |
| :--- | :--- | :--- | :--- |
|  | Target | of\tPlan\tAssets |  |
| Asset\tCategory | Allocation | 2007 | 2006 |
| U.S.\tqualified\tpension\tplan |  |  |  |
| Global\tequity | 46% | 45% | 57% |
| Fixed\tincome | 24 | 23 | 19 |
| Private\tequity | 13 | 16 | 12 |
| Absolute\treturn | 12 | 11 | 9 |
| Commodities | 5 | 4 | 2 |
| Cash | — | 1 | 1 |
| Total | 100% | 100% | 100% |
| Postretirement\tbenefits |  |  |  |
| Global\tequity | 69% | 75% | 79% |
| Fixed\tincome | 10 | 9 | 10 |
| Private\tequity | 18 | 13 | 10 |
| Absolute\treturn | 2 | 2 | — |
| Commodities | 1 | 1 | — |
| Cash | — | — | 1 |
| Total | 100% | 100% | 100% |

While	the	target	asset	allocations	do	not	have	a	percentage	allocated	to	cash,	the	plans	will	always	have	some	cash	due	to	cash	flows.	The	postretirement	allocation shown	above	represents	a	weighted-average	allocation	for	U.S.	plans.

The	international	plans'	weighted-average	asset	allocation	as	of	plan	measurement	dates	follows:

|  | Percentage	of |  |
| :--- | :--- | :--- |
|  | Plan\tAssets |  |
| Asset\tCategory | 2007 | 2006 |
| International\tpension\tplans |  |  |
| Global\tequity | 46% | 35% |
| Domestic\tequity | 8 | 11 |
| Foreign\tequity | 4 | 11 |
| Real\testate | 3 | 3 |
| Domestic\tfixed\tincome | 19 | 19 |
| Foreign\tfixed\tincome | 11 | 5 |
| Insurance | 9 | 15 |
| Cash | — | 1 |
| Total | 100% | 100% |

The	preceding	asset	allocations	for	international	plans	represent	the	top	six	countries	by	projected	benefit	obligation.	These	countries	represent	approximately	90%	of	the total	international	plan	assets.	The	other	countries'	asset	allocations	would	not	have	a	significant	impact	on	the	information	presented.

In	the	third	quarter	of	2007,	the	Company	made	discretionary	contributions	totaling	$200	million	to	its	U.S.	qualified	pension	plan.	In	2008,	the	Company	expects	to contribute	an	amount	in	the	range	of	$100	million	to	$400	million	to	its	U.S.	and	international	pension	plans.	The	Company	does	not	have	a	required	minimum	pension contribution	obligation	for	its	U.S.	plans	in	2008.	Therefore,	the	amount	of	the	anticipated	discretionary	contribution	could	vary	significantly	depending	on	the	U.S. plans'	funding	status	as	of	the	2008	measurement	date	and	the	anticipated	tax	deductibility	of	the	contribution.

The	following	estimated	benefit	payments	are	payable	from	the	plans	to	participants:

| (Millions) | Qualified	and	Non-qualified<br>Pension	Benefits<br>United	States | International | Postretirement<br>Benefits | Subsidy<br>Receipts |
| :--- | :--- | :--- | :--- | :--- |
| 2008\tBenefit\tPayments | $574 | $188 | $117 | $13 |
| 2009\tBenefit\tPayments | 588 | 192 | 124 | 15 |
| 2010\tBenefit\tPayments | 607 | 197 | 130 | 17 |
| 2011\tBenefit\tPayments | 628 | 209 | 138 | 18 |
| 2012\tBenefit\tPayments | 665 | 222 | 143 | 20 |
| Following\tfive\tyears | 3,626 | 1,259 | 799 | 128 |

# NOTE	12.		Derivatives	and	Other	Financial	Instruments

The	Company	uses	interest	rate	swaps,	currency	swaps,	and	forward	and	option	contracts	to	manage	risks	generally	associated	with	foreign	exchange	rate,	interest	rate and	commodity	price	fluctuations.	The	information	that	follows	explains	the	various	types	of	derivatives	and	financial	instruments,	and	includes	a	table	that	recaps	cash flow	hedging	amounts.

Cash	Flow	Hedging	—	Foreign	Currency	Forward	and	Option	Contracts:	The	Company	enters	into	foreign	exchange	forward	contracts,	options	and	swaps	to	hedge against	the	effect	of	exchange	rate	fluctuations	on	cash	flows	denominated	in	foreign	currencies	and	certain	intercompany	financing	transactions.	These	transactions	are designated	as	cash	flow	hedges.	At	December	31,	2007,	the	Company	had	various	open	foreign	exchange	forward	and	option	contracts,	the	majority	of	which	had maturities	of	one	year	or	less.	The	settlement	or	extension	of	these	derivatives	will	result	in	reclassifications	to	earnings	in	the	period	during	which	the	hedged transactions	affect	earnings	(from	other	comprehensive	income).	The	maximum	length	of	time	over	which	3M	is	hedging	its	exposure	to	the	variability	in	future	cash flows	for	a	majority	of	the	forecasted	transactions	is	12	months.	Hedge	ineffectiveness	was	not	material	for	the	years	2007,	2006	and	2005.

Cash	Flow	Hedging	—	Commodity	Price	Management:	The	Company	manages	commodity	price	risks	through	negotiated	supply	contracts,	price	protection	agreements and	forward	physical	contracts.	The	Company	uses	commodity	price	swaps	as	cash	flow	hedges	of	forecasted	transactions	to	manage	price	volatility.	The	related	mark- to-market	gain	or	loss	on	qualifying	hedges	is	included	in	other	comprehensive	income	to	the	extent	effective,	and	reclassified	into	cost	of	sales	in	the	period	during which	the	hedged	transaction	affects	earnings.	3M	has	hedged	its	exposure	to	the	variability	of	future	cash	flows	for	certain	forecasted	transactions	through	2008.	No significant	commodity	cash	flow	hedges	were	discontinued	and	hedge	ineffectiveness	was	not	material	during	the	years	2007,	2006	and	2005.

Cash	Flow	Hedging	—	Forecasted	Debt	Issuance:		In	June	2007,	the	Company	executed	a	pre-issuance	cash	flow	hedge	by	entering	into	a	floating-to-fixed	interest	rate swap	on	a	notional	amount	of	350	million	Euros	related	to	the	anticipated	July	2007	Eurobond	issuance	of	750	million	Euros.	Upon	debt	issuance	in	July	2007,	3M terminated	the	floating-to-fixed	swap.	The	termination	of	the	swap	resulted	in	an	immaterial	gain,	which	is	being	amortized	over	the	seven	year	life	of	the	Eurobond.

Amounts	recorded	in	accumulated	other	comprehensive	income	(loss)	related	to	cash	flow	hedging	instruments	follow.

| Cash	Flow	Hedging	Instruments<br>Net	of	Tax<br>(Millions) | 2007 | Twelve	months	ended<br>December	31<br>2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Beginning\tbalance | $(18) | $38 | $(42) |
| Changes\tin\tfair\tvalue\tof\tderivatives | (17) | (53) | 70 |
| Reclassifications\tto\tearnings\tfrom\tequity | 7 | (3) | 10 |
| Total\tactivity | (10) | (56) | 80 |
| Ending\tbalance | $(28) | $(18) | $38 |

At	December	31,	2007,	the	Company	expects	to	reclassify	to	earnings	over	the	next	12	months	a	majority	of	the	cash	flow	hedging	instruments	after-tax	loss	of	$28 million	(with	the	impact	offset	by	cash	flows	from	underlying	hedged	items).

Fair	Value	Hedging	—	Interest	Rate	Swaps:	The	Company	manages	interest	expense	using	a	mix	of	fixed	and	floating	rate	debt.	To	help	manage	borrowing	costs,	the Company	may	enter	into	interest	rate	swaps.	Under	these	arrangements,	the	Company	agrees	to	exchange,	at	specified	intervals,	the	difference	between	fixed	and floating	interest	amounts	calculated	by	reference	to	an	agreed-upon	notional	principal	amount.

At	December	31,	2007,	the	Company	had	interest	rate	swaps	designated	as	fair	value	hedges	of	underlying	fixed	rate	obligations.	In	June	2006,	the	Company	entered into	a	$330	million	fixed-to-floating	interest	rate	swap	to	hedge	the	30-year	bond	due	in	2028.	The	Company	terminated	the	swap	in	March	2007	and	the	resulting	gain will	be	recognized	over	the	remaining	life	of	the	underlying	debt.	Accordingly,	the	termination	of	the	swap	did	not	have	a	material	impact	on	3M's	consolidated	results of	operations	or	financial	condition.	As	indicated	in	Note	10,	in	November	2006,	the	Company	entered	into	a	$400	million	fixed-to-floating	interest	rate	swap	concurrent with	the	issuance	of	the	three-year	medium-term	note	due	in	2009.	Also	as	indicated	in	Note	10,	in	July	2007,	in	connection	with	the	issuance	of	a	seven-year	Eurobond for	an	amount	of	750	million	Euros,	the	Company	completed	a	fixed-to-floating	interest	rate	swap	on	a	notional	amount	of	400	million	Euros	as	a	fair	value	hedge	of	a portion	of	the	fixed	interest	rate	Eurobond	obligation.	The	mark-to-market	of	these	fair	value	hedges	is	recorded	as	gains	or	losses	in	interest	expense	and	is	offset	by	the gain	or	loss	on	the	underlying	debt	instrument,	which	also	is	recorded	in	interest	expense.	The	fair	value	of	these	interest	rate	swaps	were	$36	million	and	$26	million	as of	December	31,	2007	and	2006,	respectively.	These	fair	value	hedges	are	100%	effective	and,	thus,	there	is	no	impact	on	earnings	due	to	hedge	ineffectiveness.

Net	Investment	Hedging:	As	circumstances	warrant,	the	Company	uses	cross	currency	swaps,	forwards	and	foreign	currency	denominated	debt	to	hedge	portions	of	the Company's	net	investments	in	foreign	operations.	For	hedges	that	meet	the	effectiveness	requirements,	the	net	gains	or	losses	attributable	to	changes	in	spot	exchange rates	are	recorded	in	cumulative	translation	within	other	comprehensive	income.	The	remainder	of	the	change	in	value	of	such	instruments	is	recorded	in	earnings.

In	September	2006,	the	Company	entered	into	a	three-year	floating-to-floating	cross	currency	swap	with	a	notional	amount	of	$300	million.	This	transaction	is	a	partial hedge	of	the	Company's	net	investment	in	its	Japanese	subsidiaries.	This	swap	converts	U.S.	dollar-based	variable	interest	payments	to	yen-based	variable	interest payments	associated	with	the	notional	amount.

In	November	2006,	the	Company	entered	into	a	three-year	floating-to-floating	cross	currency	swap	with	a	notional	amount	of	$200	million.	This	transaction	is	a	partial hedge	of	the	Company's	net	investment	in	its	European	subsidiaries.	This	swap	converts	U.S.	dollar-based	variable	interest	payments	to	Euro-based	variable	interest payments	associated	with	the	notional	amount.

In	December	2006,	the	Company	entered	into	foreign	currency	forward	contracts	with	a	notional	amount	of	$556	million	relative	to	the	Company's	net	investment	in	its European	subsidiaries	and	with	a	notional	amount	of	$209	million	relative	to	the	Company's	net	investment	in	its	Japanese	subsidiaries.	These	forwards	matured	in December	2007.

In	July	and	December	2007,	as	discussed	in	Note	10,	the	Company	issued	seven-year	fixed	rate	Eurobond	securities	for	amounts	of	750	million	Euros	and	275	million Euros,	respectively.	3M	designated	each	of	these	Eurobond	issuances	as	hedging	instruments	of	the	Company's	net	investment	in	its	European	subsidiaries.

In	November	and	December	2007,	the	Company	entered	into	foreign	currency	forward	contracts	with	a	notional	amount	of	$200	million	that	were	designated	as	a	partial hedge	of	the	Company's	net	investment	in	its	Chinese	subsidiaries.	These	forwards	mature	in	December	2008.

The	unrealized	loss	recorded	in	cumulative	translation	related	to	net	investment	hedging	at	December	31,	2007	was	$28	million	and	the	unrealized	loss	at	December	31, 2006	was	$18	million.

Currency	Effects:	3M	estimates	that	year-on-year	currency	effects,	including	hedging	impacts,	increased	net	income	by	approximately	$150	million	in	2007,	$20	million in	2006,	and	$115	million	in	2005.	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.	3M	estimates	that	year-on-year	derivative	and	other	transaction	gains	and	losses	increased	net	income	by	approximately	$10 million	in	2007,	had	an	immaterial	impact	on	net	income	in	2006,	and	increased	net	income	by	approximately	$50	million	in	2005.

Credit	risk:	The	Company	is	exposed	to	credit	loss	in	the	event	of	nonperformance	by	counterparties	in	interest	rate	swaps,	currency	swaps,	and	option	and	foreign exchange	contracts.	However,	the	Company's	risk	is	limited	to	the	fair	value	of	the	instruments.	The	Company	actively	monitors	its	exposure	to	credit	risk	through	the use	of	credit	approvals	and	credit	limits,	and	by	selecting	major	international	banks	and	financial	institutions	as	counterparties.	The	Company	does	not	anticipate nonperformance	by	any	of	these	counterparties.	During	the	second	quarter	of	2006,	the	Company	entered	into	a	credit	support	agreement	with	one	of	its	primary derivatives	counterparties.	Under	this	agreement	either	party	is	required	to	post	eligible	collateral	when	the	market	value	of	transactions	covered	by	the	agreement

# exceeds	specified	thresholds,	thus	limiting	credit	exposure	for	both	parties.

Fair	value	of	financial	instruments:	At	December	31,	2007	and	2006,	the	Company's	financial	instruments	included	cash	and	cash	equivalents,	marketable	securities, accounts	receivable,	investments,	accounts	payable,	borrowings,	and	derivative	contracts.	The	fair	values	of	cash	and	cash	equivalents,	accounts	receivable,	accounts payable,	and	short-term	borrowings	and	current	portion	of	long-term	debt	(except	the	$350	million	dealer	remarketable	security)	approximated	carrying	values	because of	the	short-term	nature	of	these	instruments.	Available-for-sale	marketable	securities,	investments	and	derivative	contracts	are	reported	at	fair	values.	Fair	values	for investments	held	at	cost	are	not	readily	available,	but	are	estimated	to	approximate	fair	value.	The	carrying	amounts	and	estimated	fair	values	of	other	financial instruments	based	on	third-party	quotes	as	of	December	31	follow:

# Financial	Instruments'	Carrying	Amounts	and	Estimated	Fair	Values

|  | Carrying | Fair | Carrying | Fair |
| :--- | :--- | :--- | :--- | :--- |
| (Millions) | Amount | Value | Amount | Value |
| Dealer\tremarketable\tsecurities | $350 | $368 | $350 | $358 |
| Convertible\tnote\t(long-term\tin\t2007\tand\tshort-term\tin\t2006) | 222 | 212 | 542 | 568 |
| Long-term\tdebt | 3,797 | 3,796 | 1,047 | 1,054 |

# NOTE	13.		Commitments	and	Contingencies

# Capital	and	Operating	Leases:

Rental	expense	under	operating	leases	was	$226	million	in	2007,	$211	million	in	2006,	and	$195	million	in	2005.	It	is	3M's	practice	to	secure	renewal	rights	for	leases, thereby	giving	3M	the	right,	but	not	the	obligation,	to	maintain	a	presence	in	a	leased	facility.	3M's	primary	capital	lease,	which	became	effective	in	April	2003,	involves a	building	in	the	United	Kingdom	(with	a	lease	term	of	22	years).	During	the	second	quarter	of	2003,	3M	recorded	a	capital	lease	asset	and	obligation	of	approximately 33.5	million	United	Kingdom	pounds	(approximately	$67	million	at	December	31,	2007	exchange	rates).	Minimum	lease	payments	under	capital	and	operating	leases with	non-cancelable	terms	in	excess	of	one	year	as	of	December	31,	2007,	were	as	follows:

|  | Capital | Operating |
| :--- | :--- | :--- |
| (Millions) | Leases | Leases |
| 2008 | $7 | $98 |
| 2009 | 6 | 79 |
| 2010 | 6 | 58 |
| 2011 | 6 | 35 |
| 2012 | 5 | 30 |
| After\t2012 | 54 | 141 |
| Total | 84 | $441 |
| Less:\tAmounts\trepresenting\tinterest | 13 |  |
| Present\tvalue\tof\tfuture\tminimum\tlease\tpayments | 71 |  |
| Less:\tCurrent\tobligations\tunder\tcapital\tleases | 2 |  |
| Long-term\tobligations\tunder\tcapital\tleases | $69 |  |

# Warranties/Guarantees:

3M's	accrued	product	warranty	liabilities,	recorded	on	the	Consolidated	Balance	Sheet	as	part	of	current	and	long-term	liabilities,	are	estimated	at	approximately	$21 million	as	of	December	31,	2007.	3M	does	not	consider	this	amount	to	be	material.	The	fair	value	of	3M	guarantees	of	loans	with	third	parties	and	other	guarantee arrangements	are	not	material.

# Related	Party	Activity:

Purchases	from	related	parties	(largely	related	to	companies	in	which	3M	has	an	equity	interest)	totaled	approximately	$144	million	in	2007	($160	million	in	2006	and $141	million	in	2005).	Receivables	due	from	related	parties	(largely	related	to	receivables	from	employees	for	relocation	and	other	ordinary	business	expense	advances) totaled	approximately	$40	million	in	2007	($36	million	in	2006,	and	$37	million	in	2005).	3M	sales	to	related	parties	totaled	approximately	$6	million	in	2007	($4 million	in	2006,	and	$5	million	in	2005).	Indebtedness	to	3M	from	related	parties	was	not	material	in	2007,	2006	and	2005.

The	Company	and	some	of	its	subsidiaries	are	involved	in	numerous	claims	and	lawsuits,	principally	in	the	United	States,	and	regulatory	proceedings	worldwide.	These include	various	products	liability	(involving	products	that	the	Company	now	or	formerly	manufactured	and	sold),	intellectual	property,	and	commercial	claims	and lawsuits,	including	those	brought	under	the	antitrust	laws,	and	environmental	proceedings.	The	following	sections	first	describe	the	significant	legal	proceedings	in which	the	Company	is	involved,	and	then	describe	the	liabilities	and	associated	insurance	receivables	the	Company	has	accrued	relating	to	its	significant	legal proceedings.	Unless	otherwise	stated,	the	Company	is	vigorously	defending	all	such	litigation.

# Shareholder	Derivative	Litigation

As	previously	reported,	in	July	2007,	a	shareholder	derivative	lawsuit	was	filed	in	the	U.S.	District	Court	for	the	District	of	Delaware	against	the	Company	as	nominal defendant	and	against	each	then	current	member	of	the	Board	of	Directors	and	the	officers	named	in	the	Summary	Compensation	Table	of	the	2007	Proxy	Statement. The	suit	alleges	that	the	Company's	2007	Proxy	Statement	contained	false	and	misleading	statements	concerning	the	tax	deductibility	of	compensation	payable	under	the Executive	Annual	Incentive	Plan	("Plan")	and	the	standards	for	determining	the	amounts	payable	under	the	Plan.	The	lawsuit	seeks	a	declaration	voiding	shareholder approval	of	the	Plan,	termination	of	the	Plan,	voiding	the	elections	of	directors,	equitable	accounting,	and	awarding	costs,	including	attorneys'	fees.	Plaintiff	filed	a motion	for	summary	judgment,	and	the	defendants	filed	a	motion	to	dismiss	all	claims	on	the	grounds	that	plaintiff	had	failed	to	make	a	demand	on	the	Board	and	had otherwise	failed	to	state	a	proper	claim	under	the	Private	Securities	Litigation	Reform	Act.	The	defendants	also	moved	to	transfer	the	case	from	the	District	of	Delaware to	the	District	of	Minnesota.	In	February	2008,	the	Court	denied	without	prejudice	the	plaintiff's	motion	for	summary	judgment.

# Breast	Implant	Litigation

The	Company	and	certain	other	companies	were	named	as	defendants	in	past	years	in	numerous	claims	and	lawsuits	alleging	damages	for	personal	injuries	of	various types	resulting	from	breast	implants	formerly	manufactured	by	the	Company	or	a	related	company.	The	vast	majority	of	claims	against	the	Company	have	been resolved.	The	Company	does	not	consider	its	remaining	probable	liability	to	be	material.	Information	concerning	the	associated	insurance	receivable	and	legal proceedings	related	to	it	follows	in	the	paragraph	entitled	Breast	Implant	Insurance	Receivables.

# Respirator	Mask/Asbestos	Litigation

For	more	than	25	years	the	Company	has	defended	and	resolved	the	claims	of	hundreds	of	thousands	of	individual	claimants	alleging	injuries	from	occupational	dust

exposures.	As	of	December	31,	2007,	the	Company	is	a	named	defendant,	with	multiple	co-defendants,	in	numerous	lawsuits	in	various	courts	that	purport	to	represent approximately	8,750	individual	claimants,	a	decrease	from	the	approximately	17,700	individual	claimants	with	actions	pending	at	December	31,	2006.

The	vast	majority	of	the	lawsuits	and	claims	resolved	by	and	currently	pending	against	the	Company	allege	use	of	some	of	the	Company's	mask	and	respirator	products and	seek	damages	from	the	Company	and	other	defendants	for	alleged	personal	injury	from	workplace	exposures	to	asbestos,	silica,	coal	or	other	occupational	dusts found	in	products	manufactured	by	other	defendants	or	generally	in	the	workplace.	A	minority	of	claimants	generally	allege	personal	injury	from	occupational	exposure to	asbestos	from	products	previously	manufactured	by	the	Company,	which	are	often	unspecified,	as	well	as	products	manufactured	by	other	defendants,	or	occasionally at	Company	premises.

In	many	of	these	lawsuits	and	claims,	the	Company	is	named	as	a	defendant	with	multiple	co-defendants	where	no	product	the	Company	manufactured	is	identified	or where	the	Company	is	ultimately	determined	not	to	have	manufactured	the	products	identified	by	the	plaintiffs.	The	Company's	vigorous	defense	of	this	litigation	has resulted	in	dismissals	of	many	claims	without	any	payment	by	the	Company,	and	jury	verdicts	for	the	Company	in	seven	of	the	eight	cases	tried	to	verdict	(such	trials occurred	in	1999,	2000,	2003,	2004	and	2007),	and	an	appellate	reversal	in	2005	of	the	one	jury	verdict	adverse	to	the	Company.

As	previously	reported,	the	Company	won	a	defense	verdict	in	July	2007	from	a	jury	in	the	federal	court	in	Eastern	District	of	Missouri.		The	jury	found	the	Company had	no	liability	whatever	to	a	plaintiff	who	claimed	he	had	silicosis	and	a	related	cancer	and	sought	to	recover	damages	from	the	Company	arising	from	his	alleged illness,	which	he	claimed	to	have	contracted	from	occupational	exposure	to	silica	despite	his	purported	use	of	the	Company's	respirator	mask	equipment	at	various times.	The	jury	rejected	each	of	the	plaintiff's	theories	of	liability	against	the	Company.

Many	of	the	resolved	lawsuits	and	claims	involved	unimpaired	claimants	who	were	recruited	by	plaintiffs'	lawyers	through	mass	chest	x-ray	screenings.	The	Company experienced	a	significant	decline	in	the	number	of	claims	filed	in	2007	from	prior	years	by	apparently	unimpaired	claimants.	The	Company	attributes	this	decline	to several	factors,	including	certain	changes	enacted	in	several	states	in	recent	years	of	the	law	governing	asbestos-related	claims,	and	the	highly-publicized	decision	in mid-2005	of	the	United	States	District	Court	for	the	Southern	District	of	Texas	that	identified	and	criticized	abuses	by	certain	attorneys,	doctors	and	x-ray	screening companies	on	behalf	of	claimants.	The	Company	expects	the	filing	of	claims	by	unimpaired	claimants	in	the	future	to	continue	at	much	lower	levels	than	in	the	past.	The Company	believes	that	due	to	this	change	in	the	type	and	volume	of	incoming	claims,	it	is	likely	that	the	number	of	claims	alleging	more	serious	injuries,	including mesothelioma	and	other	malignancies,	while	remaining	relatively	constant,	will	represent	a	greater	percentage	of	total	claims	than	in	the	past.	The	Company	has demonstrated	in	past	trial	proceedings	that	its	respiratory	protection	products	are	effective	as	claimed	when	used	in	the	intended	manner	and	in	the	intended circumstances.	Consequently	the	Company	believes	that	claimants	are	unable	to	establish	that	their	medical	conditions,	even	if	significant,	are	attributable	to	the Company's	respiratory	protection	products.	Nonetheless	the	Company's	litigation	experience	indicates	that	such	claims	are	costlier	to	resolve	than	the	claims	of unimpaired	persons,	and	it	therefore	anticipates	an	increase	in	the	average	cost	of	resolving	pending	and	future	claims	on	a	per-claim	basis	than	it	experienced	in	prior periods	when	the	vast	majority	of	claims	were	asserted	by	the	unimpaired.

Plaintiffs	have	asserted	specific	dollar	claims	for	damages	in	approximately	66%	of	the	3,979	lawsuits	that	were	pending	against	the	Company	at	the	end	of	2007	in	all jurisdictions.	A	majority	of	states	restrict	or	prohibit	specifying	damages	in	tort	cases	such	as	these,	and	most	of	the	remaining	jurisdictions	do	not	require	such specification.	In	those	cases	in	which	plaintiffs	choose	to	assert	specific	dollar	amounts	in	their	complaints,	brought	in	states	that	permit	such	pleading,	the	amounts claimed	are	typically	not	meaningful	as	an	indicator	of	the	Company's	potential	liability.	This	is	because	(a)	the	amounts	claimed	typically	bear	no	relation	to	the	extent of	the	plaintiff's	injury,	if	any;	(b)	the	complaints	nearly	always	assert	claims	against	multiple	defendants	with	the	typical	complaint	asserting	claims	against	as	few	as	a dozen	different	defendants	to	upwards	of	275	different	defendants,	the	damages	alleged	are	not	attributed	to	individual	defendants,	and	a	defendant's	share	of	liability may	turn	on	the	law	of	joint	and	several	liability,	which	can	vary	by	state,	and	by	the	amount	of	fault	a	jury	allocates	to	each	defendant	if	a	case	is	ultimately	tried	before a	jury;	(c)	many	cases	are	filed	against	the	Company	even	though	the	plaintiffs	did	not	use	any	of	the	Company's	products	and,	ultimately,	are	withdrawn	or	dismissed without	any	payment;	and	(d)	many	cases	are	brought	on	behalf	of	plaintiffs	who	have	not	suffered	any	medical	injury,	and,	ultimately,	are	resolved	without	any payment	or	a	payment	that	is	a	small	fraction	of	the	damages	initially	claimed.	Of	the	2,629	pending	cases	in	which	purported	damage	amounts	are	specified	in	the complaints,	860	cases	involve	claims	of	$100,000	or	less,	(one	(1)	of	them	also	alleges	punitive	damages	of	$15,000,	nine	(9)	of	them	also	allege	punitive	damages	of $30,000,	and	three	(3)	of	them	also	allege	punitive	damages	of	$1,000,000);	186	cases	involve	claims	between	$100,000	and	$3	million	(thirty-three	(33)	of	them	also allege	punitive	damages	of	$250,000,	one	(1)	of	them	also	alleges	punitive	damages	of	$1	million,	forty-three	(43)	of	them	also	allege	punitive	damages	of	$1.5	million, and	106	of	them	also	allege	punitive	damages	of	$2	million);	two	(2)	cases	involve	claims	of	$3	million	to	$7.5	million	(one	(1)	also	alleges	punitive	damages	of $350,000	and	one	(1)	of	them	also	alleges	punitive	damages	of	$5	million);	21	cases	involve	claims	of	$7.5	million;	four	(4)	cases	involve	claims	of	$7.5	million	to	$10 million	(four	(4)	of	them	also	allege	damages	of	$21	million);	1,540	cases	involve	claims	of	$10	million	(two	(2)	of	them	also	allege	punitive	damages	of	$350,000, 1,531	of	them	also	allege	punitive	damages	of	$10	million,	and	one	(1)	of	them	also	alleges	punitive	damages	of	$15	million);	13	cases	involve	claims	of	$10	million	to $50	million	(one	(1)	of	them	also	allege	punitive	damages	of	$15	million,	five	(5)	of	them	also	allege	punitive	damages	of	$15.5	million,	and	three	(3)	of	them	also	allege punitive	damages	of	$20	million);	and	three	(3)	cases	involve	claims	of	$50	million	(two	(2)	of	them	also	alleges	punitive	damages	of	$50	million).	Some	complaints allege	that	the	compensatory	and	punitive	damages	are	at	least	the	amounts	specified.	As	stated,	the	Company's	experience	and	the	other	reasons	cited	indicate	that	the damage	amounts	specified	in	complaints	are	not	a	meaningful	factor	in	any	assessment	of	the	Company's	potential	liability.

As	previously	reported,	the	State	of	West	Virginia,	through	its	Attorney	General,	filed	a	complaint	in	2003	against	the	Company	and	two	other	manufacturers	of respiratory	protection	products	in	the	Circuit	Court	of	Lincoln	County,	West	Virginia	and	amended	it	in	2005.	The	amended	complaint	seeks	substantial,	but	unspecified, compensatory	damages	primarily	for	reimbursement	of	the	costs	allegedly	incurred	by	the	State	for	worker's	compensation	and	healthcare	benefits	provided	to	all workers	with	occupational	pneumoconiosis	and	unspecified	punitive	damages.

# Employment	Litigation

As	previously	reported,	one	current	and	one	former	employee	of	the	Company	filed	a	purported	class	action	in	the	District	Court	of	Ramsey	County,	Minnesota,	in December	2004,	seeking	to	represent	a	class	of	all	current	and	certain	former	salaried	employees	employed	by	3M	in	Minnesota	below	a	certain	salary	grade	who	were age	46	or	older	at	any	time	during	the	applicable	period	to	be	determined	by	the	Court.	The	complaint	alleges	the	plaintiffs	suffered	various	forms	of	employment discrimination	on	the	basis	of	age	in	violation	of	the	Minnesota	Human	Rights	Act	and	seeks	injunctive	relief,	unspecified	compensatory	damages	(which	they	seek	to treble	under	the	statute),	including	back	and	front	pay,	punitive	damages	(limited	by	statute	to	$8,500	per	claimant)	and	attorneys'	fees.	In	January	2006,	the	plaintiffs filed	a	motion	to	join	four	additional	named	plaintiffs.	This	motion	was	unopposed	by	the	Company	and	the	four	plaintiffs	were	joined	in	the

case,	although	one	claim	has	been	dismissed	following	an	individual	settlement.	The	class	certification	hearing	was	held	in	December	2007.	The	Company	expects	a ruling	on	the	class	certification	in	the	first	half	of	2008.

A	similar	age	discrimination	purported	class	action	was	filed	against	the	Company	in	November	2005	in	the	Superior	Court	of	Essex	County,	New	Jersey,	on	behalf	of	a class	of	New	Jersey-based	employees	of	the	Company.	The	Company	removed	this	case	to	the	United	States	District	Court	for	the	District	of	New	Jersey.	On	June	29, 2007,	the	attorneys	for	the	plaintiff	amended	their	complaint	and	dropped	the	class	action	allegations.

In	addition,	three	former	employees	filed	age	discrimination	charges	against	the	Company	with	the	U.S.	Equal	Employment	Opportunity	Commission	and	the	pertinent state	agencies	in	Minnesota	and	California	during	2005;	two	of	these	charges	were	amended	in	2006.	Such	filings	include	allegations	that	the	release	of	claims	signed	by

certain	former	employees	in	the	purported	class	defined	in	the	charges	is	invalid	for	various	reasons	and	assert	age	discrimination	claims	on	behalf	of	certain	current	and former	salaried	employees	in	states	other	than	Minnesota	and	New	Jersey.	In	2006,	one	current	employee	filed	an	age	discrimination	charge	against	the	Company	with the	U.S.	Equal	Employment	Opportunity	Commission	and	the	pertinent	state	agency	in	Missouri,	asserting	claims	on	behalf	of	a	class	of	all	current	and	certain	former salaried	employees	who	worked	in	Missouri	and	other	states	other	than	Minnesota	and	New	Jersey.	The	same	law	firm	represents	the	plaintiffs	and	claimants	in	each	of these	proceedings.

# Environmental	Matters	and	Litigation

The	Company's	operations	are	subject	to	environmental	laws	and	regulations	including	those	pertaining	to	air	emissions,	wastewater	discharges,	toxic	substances,	and the	handling	and	disposal	of	solid	and	hazardous	wastes	enforceable	by	national,	state,	and	local	authorities	around	the	world,	and	private	parties	in	the	United	States	and abroad.	These	laws	and	regulations	provide,	under	certain	circumstances,	a	basis	for	the	remediation	of	contamination	and	for	personal	injury	and	property	damage claims.	The	Company	has	incurred,	and	will	continue	to	incur,	costs	and	capital	expenditures	in	complying	with	these	laws	and	regulations,	defending	personal	injury and	property	damage	claims,	and	modifying	its	business	operations	in	light	of	its	environmental	responsibilities.	In	its	effort	to	satisfy	its	environmental	responsibilities and	comply	with	environmental	laws	and	regulations,	the	Company	has	established,	and	periodically	updates,	policies	relating	to	environmental	standards	of performance	for	its	operations	worldwide.

Remediation:	Under	certain	environmental	laws,	including	the	United	States	Comprehensive	Environmental	Response,	Compensation	and	Liability	Act	of	1980	and similar	state	laws,	the	Company	may	be	jointly	and	severally	liable,	typically	with	other	companies,	for	the	costs	of	environmental	contamination	at	current	or	former facilities	and	at	off-site	locations.	The	Company	has	identified	numerous	locations,	most	of	which	are	in	the	United	States,	at	which	it	may	have	some	liability.	Please refer	to	the	following	section,	"Accrued	Liabilities	and	Insurance	Receivables	Related	to	Legal	Proceedings"	for	more	information	on	this	subject.

Regulatory	Activities:	As	previously	reported,	the	Company	has	been	voluntarily	cooperating	with	ongoing	reviews	by	local,	state,	national	(primarily	the	U.S. Environmental	Protection	Agency	(EPA)),	and	international	agencies	of	possible	environmental	and	health	effects	of	perfluorooctanyl	compounds	(perflurooctanoic	acid or	"PFOA"	and	perfluorooctane	sulfonate	or	"PFOS")	and	related	compounds.	As	a	result	of	its	phase-out	decision	in	May	2000,	the	Company	no	longer	manufactures perfluorooctanyl	compounds,	except	that	a	subsidiary	recovers	and	recycles	PFOA	in	Gendorf,	Germany,	for	internal	use	in	production	processes	and	has	agreed	to	a product	stewardship	initiative	with	the	EPA	to	work	toward	elimination	of	its	use	of	PFOA	by	2015.

Regulatory	activities	concerning	PFOA	and/or	PFOS	continue	in	Europe	and	elsewhere,	and	before	certain	international	bodies.	These	activities	include	gathering	of exposure	and	use	information,	risk	assessment,	and	consideration	of	regulatory	approaches.

As	previously	reported,	the	Company,	in	cooperation	with	state	agencies,	tested	soil	and	groundwater	beneath	three	former	waste	disposal	sites	in	Washington	County, Minnesota,	used	many	years	ago	by	the	Company	to	dispose	lawfully	of	waste	containing	perfluorinated	compounds.	In	addition,	subsequent	testing	of	water	from certain	municipal	wells	in	Oakdale,	Minnesota	and	some	private	wells	in	Lake	Elmo,	Minnesota,	indicated	the	presence	of	low	levels	of	PFOS	and	PFOA	that,	in	some cases,	were	slightly	above	guidelines	established	by	the	Minnesota	Department	of	Health	("MDH").		As	previously	reported,	the	Company	addressed	the	presence	of these	compounds	in	the	water	by	treating	certain	municipal	wells	in	Oakdale	and	by	providing	a	grant	to	the	City	of	Lake	Elmo	to	extend	city	water	to	certain	residents with	these	compounds	in	their	private	wells.	In	March	2007	the	MDH	lowered	the	Health-Based	Values	(HBVs)	(i.e.,	the	amount	of	a	chemical	in	drinking	water considered	by	the	MDH	staff	to	be	safe	for	people	to	drink	for	a	lifetime)	for	PFOA	from	7	parts	per	billion	(ppb)	to	0.5	ppb	and	for	PFOS	from	1	ppb	to	0.3	ppb.	In August	2007	the	MDH	established	these	same	levels	as	Health	Risk	Limits	("HRL")	(i.e.,	the	amount	of	a	chemical	in	drinking	water	determined	by	the	MDH	to	be	safe for	people	to	drink	for	a	lifetime)	through	an	expedited	rule-making	process.	In	a	final	report	issued	on	January	15,	2008,	the	MDH	proposed	a	draft	value	to	lower	the HRL	for	PFOA	from	0.5	ppb	to	0.3	ppb	in	anticipation	of	HRL	rule-making	in	2008.

As	previously	reported,	the	MDH	has	also	detected	low	levels	of	a	perfluorinated	compound	called	perfluorobutanoic	acid	(PFBA)	in	municipal	wells	(and	in	private wells	as	announced	by	the	MDH	in	June	2007)	in	six	nearby	communities	(Woodbury,	Cottage	Grove,	Newport,	St.	Paul	Park,	South	St.	Paul,	and	Hastings,	all communities	located	southeast	of

St.	Paul),	some	of	which	slightly	exceed	the	MDH's	well	guidance	for	PFBA,	currently	at	1	ppb.	The	Company	is	working	with	the	MDH	and	the	Minnesota	Pollution Control	Agency	(MPCA)	in	assessing	the	source	of	PFBA	in	these	wells	and	is	supplying	data	that	could	be	used	in	determining	an	appropriate	drinking	water	guideline level.	The	MDH	has	not	issued	an	HBV	for	PFBA,	but	the	Company	expects	the	MDH	to	issue	further	guidance	in	the	first	quarter	of	2008.	The	Company	has	advised the	affected	communities	that	it	will	assist	them	in	assuring	their	drinking	water	falls	below	the	HBV	for	PFBA	when	such	value	is	finally	determined.

On	May	22,	2007,	the	MPCA	Citizen's	Board	approved	the	Settlement	Agreement	and	Consent	Order	to	address	the	presence	of	perfluorinated	compounds	in	the	soil and	groundwater	at	former	disposal	sites	in	Washington	County	Minnesota	and	at	the	Company's	manufacturing	facility	at	Cottage	Grove	Minnesota.	Under	this agreement,	the	Company	agreed	to	(i)	evaluate	releases	of	perfluorinated	compounds	from	these	sites	and	propose	response	actions;	(ii)	provide	alternative	drinking water	if	and	when	an	HBV	or	HRL	is	exceeded	for	any	perfluorinated	compounds	as	a	result	of	contamination	from	these	sites;	(iii)	share	information	with	the	MPCA about	perfluorinated	compounds;	(iv)	reimburse	the	MPCA	future	costs	of	research	that	are	connected	to	releases	from	the	Company's	operations	in	Minnesota	(the Company	agreed	to	reimburse	the	MPCA	for	past	research	costs	and	provided	a	grant	up	to	$5	million	over	the	next	four	years	for	the	purpose	of	investigating	and assessing	the	presence	and	effects	of	perflouronated	compounds	in	the	environment	and	biota);	and	(v)	pay	the	MPCA	up	to	$8	million	towards	the	implementation	of remedial	actions	at	the	Washington	County	Landfill.		The	Company	is	working	with	the	MPCA	under	the	terms	of	the	Settlement	Agreement	and	Consent	Order	to propose	alternatives	that	the	MPCA	will	consider	to	address	the	presence	of	perfluorinated	compounds	in	the	soil	and	groundwater	at	these	sites.

The	Company	cannot	predict	what	regulatory	actions	arising	from	the	foregoing	proceedings	and	activities,	if	any,	may	be	taken	regarding	such	compounds	or	the consequences	of	any	such	actions.

In	February	2008,	the	EPA	notified	the	Company	that	it	is	seeking	$173,000	in	penalties	due	to	alleged	past	violations	of	certain	monitoring	and	record	keeping requirements	under	federal	air	pollution	regulations	at	the	Company's	manufacturing	facility	in	Cottage	Grove,	Minnesota.	The	Company	had	been	operating	under	a monitoring	and	record	keeping	approach	that	had	been	approved	by	the	MPCA.	The	EPA	has	now	approved	the	Company's	alternative	monitoring	and	record	keeping approach.

Litigation:	As	previously	reported,	a	former	employee	filed	a	purported	class	action	lawsuit	in	2002	in	the	Circuit	Court	of	Morgan	County,	Alabama,	involving perfluorooctanyl	chemistry,	alleging	that	the	plaintiffs	suffered	fear,	increased	risk,	subclinical	injuries,	and	property	damage	from	exposure	to	perfluorooctanyl chemistry	at	or	near	the	Company's	Decatur,	Alabama,	manufacturing	facility.	The	Circuit	Court	in	2005	granted	the	Company's	motion	to	dismiss	the	named	plaintiff's personal	injury-related	claims	on	the	basis	that	such	claims	are	barred	by	the	exclusivity	provisions	of	the	state's	Workers	Compensation	Act.	The	plaintiffs'	counsel	filed an	amended	complaint	in	November	2006,	limiting	the	case	to	property	damage	claims	on	behalf	of	a	purported	class	of	residents	and	property	owners	in	the	vicinity	of the	Decatur	plant.	Also	in	2005,	the	judge	in	a	second	purported	class	action	lawsuit	(filed	by	three	residents	of	Morgan	County,	Alabama,	seeking	unstated compensatory	and	punitive	damages	involving	alleged	damage	to	their	property	from	emissions	of	perfluorooctanyl	compounds	from	the	Company's	Decatur,	Alabama, manufacturing	facility	that	formerly	manufactured	those	compounds)	granted	the	Company's	motion	to	abate	the	case,	effectively	putting	the	case	on	hold	pending	the resolution	of	class	certification	issues	in	the	action	described	above	filed	in	the	same	court	in	2002.	Despite	the	stay,	plaintiffs	filed	an	amended	complaint	seeking damages	for	alleged	personal	injuries	and	property	damage	on	behalf	of	the	named	plaintiffs	and	the	members	of	a	purported	class.	No	further	action	in	the	case	is expected	unless	and	until	the	stay	is	lifted.

As	previously	reported,	two	residents	of	Washington	County,	Minnesota,	filed	in	October	2004	a	purported	class	action	in	the	District	Court	of	Washington	County	on behalf	of	Washington	county	residents	who	have	allegedly	suffered	personal	injuries	and	property	damage	from	alleged	emissions	from	the	former	perfluorooctanyl

production	facility	at	Cottage	Grove,	Minnesota,	and	from	historic	waste	disposal	sites	in	the	vicinity	of	that	facility.	After	the	District	Court	granted	the	Company's motion	to	dismiss	the	claims	for	medical	monitoring	and	public	nuisance	in	April	2005,	the	plaintiffs	filed	an	amended	complaint	adding	additional	allegations	involving other	perfluorinated	compounds	manufactured	by	the	Company,	alleging	additional	legal	theories	in	support	of	their	claims,	adding	four	plaintiffs,	and	seeking	relief based	on	alleged	contamination	of	the	City	of	Oakdale	municipal	water	supply	and	certain	private	wells	in	the	vicinity	of	Lake	Elmo,	Minnesota.	In	April	2006,	the plaintiffs	filed	a	second	amended	complaint	adding	two	additional	plaintiffs.	The	two	original	plaintiffs	thereafter	dismissed	their	claims	against	the	Company.	After	a hearing	on	the	plaintiffs'	motion	to	certify	the	case	as	a	class	action	at	the	end	of	March	2007,	the	Court	on	June	19,	2007	denied	the	plaintiffs'	motion	to	certify	the litigation	as	a	class	action.	The	trial	of	the	individual	cases	is	scheduled	for	January	2009.

Several	hundred	plaintiffs	who	claim	to	have	lived	in	the	vicinity	of	the	ACME	Barrel	Company's	storage	drum	reconditioning	facility	in	Chicago,	Illinois,	filed	a lawsuit	in	the	third	quarter	of	2003	in	the	Circuit	Court	of	Cook	County,	Illinois,	against	3M	and	a	number	of	other	companies	that	allegedly	were	customers	of	ACME Barrel.	Since	the	Court	rejected	plaintiffs'	attempt	to	have	this	litigation	proceed	as	a	class	action,	71	individuals	have	asserted	claims	against	the	Company	and	several other	defendants	for	damages	allegedly	caused	by	emissions	of	hazardous	materials	from	the	ACME	Barrel	drum	reconditioning	facility.

In	the	second	quarter	of	2006,	the	New	Jersey	Department	of	Environmental	Protection	served	a	lawsuit	that	was	filed	in	New	Jersey	state	court	against	the	Company and	several	other	companies	seeking	cleanup	and	removal	costs	and	damages	to	natural	resources	allegedly	caused	by	the	discharge	of	hazardous	substances	from	two former	waste	disposal	sites	in	New	Jersey.	During	the	fourth	quarter,	the	Company	negotiated	a	settlement	of	New	Jersey's	claims.		Under	the	terms	of	the	settlement, the	company	will	transfer	to	the	State	of	New	Jersey	150	acres	of	undeveloped	land	with	groundwater	recharge	potential,	which	the	Company	acquired	for	purposes	of the	settlement,	and	will	pay	the	state's	attorneys'	fees.	Notice	of	the	settlement	was	published	for	public	comment	in	December	2007,	and	no	objections	were	received. As	a	result,	the	Company	and	the	State	of	New	Jersey	have	signed	the	formal	settlement	agreement	pursuant	to	which	the	Company	will	transfer	title	to	the	property	and will	be	dismissed	from	the	lawsuit,	which	will	continue	against	the	codefendants.

# Accrued	Liabilities	and	Insurance	Receivables	Related	to	Legal	Proceedings

The	Company	complies	with	the	requirements	of	Statement	of	Financial	Accounting	Standards	No.	5,	"Accounting	for	Contingencies,"	and	related	guidance,	and	records liabilities	for	legal	proceedings	in	those	instances	where	it	can	reasonably	estimate	the	amount	of	the	loss	and	where	liability	is	probable.	Where	the	reasonable	estimate of	the	probable	loss	is	a	range,	the	Company	records	the	most	likely	estimate	of	the	loss,	or	the	low	end	of	the	range	if	there	is	no	one	best	estimate.	The	Company	either discloses	the	amount	of	a	possible	loss	or	range	of	loss	in	excess	of	established	reserves	if	estimable,	or	states	that	such	an	estimate	cannot	be	made.	For	those	insured matters	where	the	Company	has	taken	a	reserve,	the	Company	also	records	receivables	for	the	amount	of	insurance	that	it	expects	to	recover	under	the	Company's insurance	program.	For	those	insured	matters	where	the	Company	has	not	taken	a	reserve	because	the	liability	is	not	probable	or	the	amount	of	the	liability	is	not estimable,	or	both,	but	where	the	Company	has	incurred	an	expense	in	defending	itself,	the	Company	records	receivables	for	the	amount	of	insurance	that	it	expects	to recover	for	the	expense	incurred.	The	Company	discloses	significant	legal	proceedings	even	where	liability	is	not	probable	or	the	amount	of	the	liability	is	not	estimable, or	both,	if	the	Company	believes	there	is	at	least	a	reasonable	possibility	that	a	loss	may	be	incurred.

Because	litigation	is	subject	to	inherent	uncertainties,	and	unfavorable	rulings	or	developments	could	occur,	there	can	be	no	certainty	that	the	Company	may	not ultimately	incur	charges	in	excess	of	presently	recorded	liabilities.	A	future	adverse	ruling,	settlement,	or	unfavorable	development	could	result	in	future	charges	that could	have	a	material	adverse	effect	on	the	Company's	results	of	operations	or	cash	flows	in	the	period	in	which	they	are	recorded.	The	Company	currently	believes	that such	future	charges,	if	any,	would	not	have	a	material	adverse	effect	on	the	consolidated	financial	position	of	the	Company,	taking	into	account	its	significant	available insurance	coverage.	Based	on	experience	and	developments,	the	Company	periodically	reexamines	its	estimates	of	probable	liabilities	and	associated	expenses	and receivables,	and	whether	it	is	able	to	estimate	a	liability	previously	determined	to	be	not	estimable	and/or	not	probable.	Where	appropriate,	the	Company	makes additions	to	or	adjustments	of	its	estimated	liabilities.	As	a	result,	the	current	estimates	of	the	potential	impact	on	the	Company's	consolidated	financial	position,	results of	operations	and	cash	flows	for	the	legal	proceedings	and	claims	pending	against	the	Company	could	change	in	the	future.

The	Company	estimates	insurance	receivables	based	on	an	analysis	of	its	numerous	policies,	including	their	exclusions,	pertinent	case	law	interpreting	comparable policies,	its	experience	with	similar	claims,	and	assessment	of	the	nature	of	the	claim,	and	records	an	amount	it	has	concluded	is	likely	to	be	recovered.

The	following	table	shows	the	major	categories	of	on-going	litigation,	environmental	remediation	and	other	environmental	liabilities	for	which	the	Company	has	been able	to	estimate	its	probable	liability	and	for	which	the	Company	has	taken	reserves	and	the	related	insurance	receivables:

| (Millions) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Breast\timplant\tliabilities | $1 | $4 | $7 |
| Breast\timplant\treceivables | 64 | 93 | 130 |
| Respirator\tmask/asbestos\tliabilities | 121 | 181 | 210 |
| Respirator\tmask/asbestos\treceivables | 332 | 380 | 447 |
| Environmental\tremediation\tliabilities | 37 | 44 | 30 |
| Environmental\tremediation\treceivables | 15 | 15 | 15 |
| Other\tenvironmental\tliabilities | 147 | 14 | 8 |

For	those	significant	pending	legal	proceedings	that	do	not	appear	in	the	table	and	that	are	not	the	subject	of	pending	settlement	agreements,	the	Company	has determined	that	liability	is	not	probable	or	the	amount	of	the	liability	is	not	estimable,	or	both,	and	the	Company	is	unable	to	estimate	the	possible	loss	or	range	of	loss	at this	time.	The	amounts	in	the	preceding	table	with	respect	to	breast	implant	and	environmental	remediation	represent	the	Company's	best	estimate	of	the	respective liabilities.	The	Company	does	not	believe	that	there	is	any	single	best	estimate	of	the	respirator/mask/asbestos	liability	or	the	other	environmental	liabilities	shown above,	nor	that	it	can	reliably	estimate	the	amount	or	range	of	amounts	by	which	those	liabilities	may	exceed	the	reserves	the	Company	has	established.

Breast	Implant	Insurance	Receivables:		In	the	breast	implant	insurance	coverage	litigation,	the	District	Court	in	Ramsey	County	Minnesota	entered	an	order	in September	2007	dismissing	from	the	suit	the	last	of	the	insurers	that	were	still	contesting	the	extent	of	their	coverage	for	the	Company's	breast	implant	product	liability claims.	The	dismissal	was	pursuant	to	a	settlement	the	Company	reached	with	those	insurers	during	the	third	quarter	of	2007.	As	of	December	31,	2007,	the	Company had	receivables	for	insurance	recoveries	related	to	the	breast	implant	matter	of	$64	million.	The	Company	received	$29	million	in	2007,	reducing	this	receivable	by	that amount.	The	Company	also	received	$48	million	in	January	2008	and	expects	to	receive	an	additional	$10	million	by	the	end	of	2008	pursuant	to	a	settlement	agreement with	three	insurers.	The	Company	continues	to	pursue	recovery	against	its	remaining	insurers	and	expects	to	collect	the	remaining	receivable.

Respirator	Mask/Asbestos	Liabilities	and	Insurance	Receivables:	The	Company	estimates	its	respirator	mask/asbestos	liabilities,	including	the	cost	to	resolve	the	claim and	defense	costs,	by	examining:	(i)	the	Company's	experience	in	resolving	claims,	(ii)	apparent	trends,	(iii)	the	apparent	quality	of	claims	(e.g.,	whether	the	claim	has been	asserted	on	behalf	of	asymptomatic	claimants),	(iv)	changes	in	the	nature	and	mix	of	claims	(e.g.,	the	proportion	of	claims	asserting	usage	of	the	Company's	mask or	respirator	products	and	alleging	exposure	to	each	of	asbestos,	silica,	coal	or	other	occupational	dusts,	and	claims	pleading	use	of	asbestos-containing	products

allegedly	manufactured	by	the	Company),	(v)	the	number	of	current	claims	and	a	projection	of	the	number	of	future	asbestos	and	other	claims	that	may	be	filed	against the	Company,	(vi)	the	cost	to	resolve	recently	settled	claims,	and	(vii)	an	estimate	of	the	cost	to	resolve	and	defend	against	current	and	future	claims.	Because	of	the inherent	difficulty	in	projecting	the	number	of	claims	that	have	not	yet	been	asserted,	particularly	with	respect	to	the	Company's	respiratory	products	that	themselves	did not	contain	any	harmful	materials	(which	makes	the	various	published	studies	that	purport	to	project	future	asbestos	claims	substantially	removed	from	the	Company's principal	experience	and	which	themselves	vary	widely),	the	Company	does	not	believe	that	there	is	any	single	best	estimate	of	this	liability,	nor	that	it	can	reliably estimate	the	amount	or	range	of	amounts	by	which	the	liability	may	exceed	the	reserve	the	Company	has	established.	No	liability	has	been	recorded	regarding	the pending	action	brought	by	the	West	Virginia	Attorney	General	previously	described.

Developments	may	occur	that	could	affect	the	Company's	estimate	of	its	liabilities.	These	developments	include,	but	are	not	limited	to,	significant	changes	in	(i)	the number	of	future	claims,	(ii)	the	average	cost	of	resolving	claims,	(iii)	the	legal	costs	of	defending	these	claims	and	in	maintaining	trial	readiness,	(iv)	changes	in	the	mix and	nature	of	claims	received,	(v)	trial	and	appellate	outcomes,	(vi)	changes	in	the	law	and	procedure	applicable	to	these	claims,	and	(vii)	the	financial	viability	of	other co-defendants	and	insurers.

As	of	December	31,	2007,	the	Company's	receivable	for	insurance	recoveries	related	to	the	respirator	mask/asbestos	litigation	was	$332	million.	Various	factors	could affect	the	timing	and	amount	of	recovery	of	this	receivable,	including	(i)	delays	in	or	avoidance	of	payment	by	insurers;	(ii)	the	extent	to	which	insurers	may	become insolvent	in	the	future,	and	(iii)	the	outcome	of	negotiations	with	insurers	and	legal	proceedings	with	respect	to	respirator	mask/asbestos	liability	insurance	coverage. The	difference	between	the	accrued	liability	and	insurance	receivable	represents	in	part	the	time	delay	between	payment	of	claims	on	the	one	hand	and	receipt	of insurance	reimbursements	on	the	other	hand.	Because	of	the	lag	time	between	settlement	and	payment	of	a	claim,	no	meaningful	conclusions	may	be	drawn	from quarterly	changes	in	the	amount	of	receivables	for	expected	insurance	recoveries	and	the	quarterly	changes	in	the	number	of	claimants	at	the	end	of	each	quarter.

On	January	5,	2007	the	Company	was	served	with	a	declaratory	judgment	action	filed	on	behalf	of	two	of	its	insurers	(Continental	Casualty	and	Continental	Insurance Co.)	disclaiming	coverage	for	respirator/mask	claims.	The	action	was	filed	in	Hennepin	County,	Minnesota	and	names,	in	addition	to	the	Company,	over	60	of	the Company's	insurers.	This	action	is	similar	in	nature	to	an	action	filed	in	1994	with	respect	to	breast	implant	coverage,	which	ultimately	resulted	in	the	Minnesota Supreme	Court's	ruling	of	2003	that	was	largely	in	the	Company's	favor.	At	the	company's	request,	the	case	was	transferred	to	Ramsey	County,	over	the	objections	of the	insurers.	The	Minnesota	Supreme	Court	agreed	to	hear	the	insurers'	appeal	of	that	decision.	Oral	argument	on	the	appeal	is	scheduled	for	March	2008.

Environmental	and	Other	Liabilities	and	Insurance	Receivables:	As	of	December	31,	2007,	the	Company	had	recorded	liabilities	of	$37	million	for	estimated environmental	remediation	costs	based	upon	an	evaluation	of	currently	available	facts	with	respect	to	each	individual	site	and	also	recorded	related	insurance	receivables of	$15	million.	The	Company	records	liabilities	for	remediation	costs	on	an	undiscounted	basis	when	they	are	probable	and	reasonably	estimable,	generally	no	later	than the	completion	of	feasibility	studies	or	the	Company's	commitment	to	a	plan	of	action.	Liabilities	for	estimated	costs	of	environmental	remediation,	depending	on	the site,	are	based	primarily	upon	internal	or	third-party	environmental	studies,	and	estimates	as	to	the	number,	participation	level	and	financial	viability	of	any	other potentially	responsible	parties,	the	extent	of	the	contamination	and	the	nature	of	required	remedial	actions.	The	Company	adjusts	recorded	liabilities	as	further information	develops	or	circumstances	change.	The	Company	expects	that	it	will	pay	the	amounts	recorded	over	the	periods	of	remediation	for	the	applicable	sites, currently	ranging	up	to	30	years.

As	of	December	31,	2007,	the	Company	had	recorded	liabilities	of	$147	million	for	estimated	other	environmental	liabilities	based	upon	an	evaluation	of	currently available	facts.	As	previously	reported,	the	Company	increased	its	other	environmental	liabilities	by	$121	million	in	the	first	quarter	of	2007	as	a	result	of	regulatory developments	in	Minnesota	and	the	completion	of	a	comprehensive	review	with	environmental	consultants	regarding	its	other	environmental	liabilities	which	include the	estimated	costs	of	addressing	trace	amounts	of	perfluorinated	compounds	in	drinking	water	sources	in	the	City	of	Oakdale	and	Lake	Elmo,	Minnesota,	as	well	as presence	in	the	soil	and	groundwater	at	the	Company's	manufacturing	facilities	in	Decatur,	Alabama,	and	Cottage	Grove,	Minnesota,	and	at	two	former	disposal	sites	in Minnesota.	The	Company	expects	that	most	of	the	spending	will	occur	over	the	next	three	to	seven	years.	While	the	Company	is	not	able	to	estimate	the	total	costs	of implementing	the	Settlement	Agreement	and	Consent	Order	with	the	MPCA	(described	above	under	Environmental	Matters	and	Litigation	-	Regulatory	Matters),	the Company	increased	its	other	environmental	liabilities	by	an	additional	$13	million	in	the	second	quarter	of	2007	to	reflect	its	best	estimate	of	the	specific	payment obligations	under	that	agreement.

It	is	difficult	to	estimate	the	cost	of	environmental	compliance	and	remediation	given	the	uncertainties	regarding	the	interpretation	and	enforcement	of	applicable environmental	laws	and	regulations,	the	extent	of	environmental	contamination	and	the	existence	of	alternate	cleanup	methods.	Developments	may	occur	that	could affect	the	Company's	current	assessment,	including,	but	not	limited	to:	(i)	changes	in	the	information	available	regarding	the	environmental	impact	of	the	Company's operations	and	products;	(ii)	changes	in	environmental	regulations,	changes	in	permissible	levels	of	specific	compounds	in	drinking	water	sources,	or	changes	in enforcement	theories	and	policies,	including	efforts	to	recover	natural	resource	damages;	(iii)	new	and	evolving	analytical	and	remediation	techniques;	(iv)	success	in allocating	liability	to	other	potentially	responsible	parties;	and	(v)	the	financial	viability	of	other	potentially	responsible	parties	and	third-party	indemnitors.

# NOTE	14.		Employee	Savings	and	Stock	Ownership	Plans

The	Company	sponsors	employee	savings	plans	under	Section	401(k)	of	the	Internal	Revenue	Code.	These	plans	are	offered	to	substantially	all	regular	U.S.	employees. Employee	contributions	of	up	to	6%	of	compensation	are	matched	at	rates	ranging	from	35%	to	50%,	with	additional	Company	contributions	depending	upon	Company performance.	All	Company	contributions	initially	are	invested	in	3M	common	stock,	with	employee	contributions	invested	in	a	number	of	investment	funds	pursuant	to their	elections.	Vested	employees	may	diversify	their	3M	shares	into	other	investment	options.

The	Company	maintains	an	Employee	Stock	Ownership	Plan	(ESOP).	This	plan	was	established	in	1989	as	a	cost-effective	way	of	funding	the	majority	of	the Company's	contributions	under	401(k)	employee	savings	plans.	Total	ESOP	shares	are	considered	to	be	shares	outstanding	for	earnings	per	share	calculations.

Dividends	on	shares	held	by	the	ESOP	are	paid	to	the	ESOP	trust	and,	together	with	Company	contributions,	are	used	by	the	ESOP	to	repay	principal	and	interest	on	the outstanding	ESOP	debt.	The	tax	benefit	related	to	dividends	paid	on	unallocated	shares	was	charged	directly	to	equity	and	totaled	approximately	$3	million	in	2007,	$3 million	in	2006,	and	$4	million	in	2005.	Over	the	life	of	the	ESOP	debt,	shares	are	released	for	allocation	to	participants	based	on	the	ratio	of	the	current	year's	debt service	to	the	remaining	debt	service	prior	to	the	current	payment.

The	ESOP	has	been	the	primary	funding	source	for	the	Company's	employee	savings	plans.	As	permitted	by	AICPA	Statement	of	Position	93-6,	"Employers' Accounting	for	Employee	Stock	Ownership	Plans,"	the	Company	has	elected	to	continue	its	practices,	which	are	based	on	Statement	of	Position	76-3,	"Accounting Practices	for	Certain	Employee	Stock	Ownership	Plans"	and	subsequent	consensus	of	the	EITF	of	the	FASB.	Accordingly,	the	debt	of	the	ESOP	is	recorded	as	debt,	and shares	pledged	as	collateral	are	reported	as	unearned	compensation	in	the	Consolidated	Balance	Sheet	and	Consolidated	Statement	of	Changes	in	Stockholders'	Equity and	Comprehensive	Income.	Unearned	compensation	is	reduced	symmetrically	as	the	ESOP	makes	principal	payments	on	the	debt.	Expenses	related	to	the	ESOP include	total	debt	service	on	the	notes,	less	dividends.	The	Company	contributes	treasury	shares,	accounted	for	at	fair	value,	to	employee	savings	plans	to	cover obligations	not	funded	by	the	ESOP	(reported	as	an	employee	benefit	expense).

| (Millions) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Dividends\ton\tshares\theld\tby\tthe\tESOP | $37 | $39 | $36 |
| Company\tcontributions\tto\tthe\tESOP | 10 | 9 | 12 |
| Interest\tincurred\ton\tESOP\tnotes | 5 | 8 | 10 |
| Amounts\treported\tas\tan\temployee\tbenefit\texpense: |  |  |  |
| Expenses\trelated\tto\tESOP\tdebt\tservice | 5 | 4 | 7 |

# NOTE	15.		Management	Stock	Ownership	Program	(MSOP)	and	General	Employees'	Stock	Purchase	Plan	(GESPP)

The	Company	issues	MSOP	options	to	eligible	employees	annually	in	May	using	the	closing	stock	price	on	the	grant	date,	which	is	the	date	of	the	Annual	Stockholders' Meeting.	In	May	2005,	shareholders	approved	36.75	million	shares	for	issuance	under	the	MSOP	in	the	form	of	management	stock	options,	restricted	stock,	restricted stock	units	and	stock	appreciation	rights.	Under	the	plan,	the	Company	has	principally	issued	stock	options	to	management	employees	that	are	granted	at	market	value on	the	date	of	grant.	Prior	to	2005,	under	previous	plans,	these	options	were	generally	exercisable	one	year	after	the	date	of	grant,	with	expiration	10	years	from	the	date of	grant.	Effective	with	the	May	2005	grant,	the	Company	changed	its	vesting	period	from	one	to	three	years	with	the	expiration	date	remaining	at	10	years	from	date	of grant.	In	addition	to	grants	to	management	employees,	the	Company	makes	other	minor	stock	option	grants	to	employees,	for	which	vesting	terms	and	option	lives	are not	substantially	different,	and	also	makes	minor	grants	of	restricted	stock	units	and	other	stock-based	grants.

Outstanding	shares	under	option	include	grants	from	previous	plans.	There	were	approximately	15,400	participants	in	the	plan	with	either	outstanding	options	or restricted	stock	units	at	December	31,	2007.

# Management	Stock	Ownership	Program

|  | Number	of<br>Options | Exercise<br>Price* | Number	of<br>Options | Exercise<br>Price* | Number	of<br>Options | Exercise<br>Price* |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Under\toption\t— |  |  |  |  |  |  |
| January\t1 | 82,867,903 | $67.41 | 80,157,713 | $62.40 | 78,293,754 | $58.70 |
| Granted |  |  |  |  |  |  |
| Annual | 4,434,583 | 84.81 | 11,255,448 | 87.31 | 10,821,092 | 76.81 |
| Progressive\t(Reload) | 461,815 | 87.12 | 652,552 | 80.44 | 751,995 | 81.19 |
| Other | 51,730 | 82.93 | 84,400 | 76.45 | 570,631 | 78.07 |
| Exercised | (12,498,051) | 55.34 | (8,693,946) | 47.71 | (9,027,646) | 48.30 |
| Canceled | (704,929) | 77.36 | (588,264) | 74.72 | (1,252,113) | 75.65 |
| December\t31 | 74,613,051 | $70.50 | 82,867,903 | $67.41 | 80,157,713 | $62.40 |
| Options\texercisable\tDecember\t31 | 58,816,963 | $66.83 | 64,218,738 | $62.85 | 68,714,166 | $60.03 |

# *Weighted	average

For	options	outstanding	at	December	31,	2007,	the	weighted-average	remaining	contractual	life	was	66	months	and	the	aggregate	intrinsic	value	was	$1.070	billion.	For options	exercisable	at	December	31,	2007,	the	weighted-average	remaining	contractual	life	was	57	months	and	the	aggregate	intrinsic	value	was	$1.042	billion.	As	of December	31,	2007,	there	was	$118	million	of	compensation	expense	that	has	yet	to	be	recognized	related	to	non-vested	stock	option-based	awards.	This	expense	is expected	to	be	recognized	over	the	remaining	vesting	period	with	a	weighted-average	life	of	18	months.	The	total	intrinsic	values	of	stock	options	exercised	during	2007, 2006	and	2005,	respectively,	was	$373	million,	$289	million	and	$278	million.	Cash	received	from	options	exercised	during	2007,	2006	and	2005,	respectively,	was $692	million,	$414	million	and	$437	million.

The	Company's	actual	tax	benefits	realized	for	the	tax	deductions	related	to	the	exercise	of	employee	stock	options	for	2007,	2006	and	2005,	respectively,	was	$122 million,	$93	million	and	$95	million.	The	Company	does	not	have	a	specific	policy	to	repurchase	common	shares	to	mitigate	the	dilutive	impact	of	options;	however, the	Company	has	historically	made	adequate	discretionary	purchases,	based	on	cash	availability,	market	trends	and	other	factors,	to	satisfy	stock	option	exercise	activity.

Beginning	in	2007,	the	Company	began	reducing	the	number	of	traditional	stock	options	granted	under	its	long-term	incentive	compensation	plan	by	reducing	the number	of	employees	eligible	to	receive	annual	grants	and	by	shifting	a

portion	of	the	annual	grant	away	from	traditional	stock	options	primarily	to	restricted	stock	units.	These	changes	will	reduce	the	annual	dilution	impact	from	1.5%	of total	outstanding	common	stock	to	about	1%.	However,	associated	with	the	reduction	in	the	number	of	eligible	employees,	the	Company	provided	a	one-time	"buyout" grant	to	the	impacted	employees,	which	resulted	in	increased	stock-based	compensation	expense	in	2007.	The	following	table	summarizes	MSOP	restricted	stock	and restricted	stock	unit	activity	during	the	twelve	months	ended	December	31,	2007:

# Restricted	Stock	and

# Restricted	Stock	Units

|  | Number	of<br>Awards | Grant	Date<br>Fair	Value* |
| :--- | :--- | :--- |
| Nonvested\tbalance\t— |  |  |
| As\tof\tJanuary\t1,\t2007 | 411,562 | $78.11 |
| Granted |  |  |
| Annual | 1,695,592 | 77.88 |
| Other | 22,465 | 50.88 |
| Vested | (90,913) | 77.38 |
| Forfeited | (37,125) | 79.04 |
| As\tof\tDecember\t31,\t2007 | 2,001,581 | $77.63 |

As	of	December	31,	2007,	there	was	$97	million	of	compensation	expense	that	has	yet	to	be	recognized	related	to	non-vested	restricted	stock	and	restricted	stock	units. This	expense	is	expected	to	be	recognized	over	the	remaining	vesting	period	with	a	weighted-average	life	of	39	months.	The	total	fair	value	of	restricted	stock	and restricted	stock	units	that	vested	during	the	twelve-month	periods	ended	December	31,	2007	and	2006	was	$6	million	and	$5	million,	respectively.

In	addition,	the	Company	issues	cash	settled	Restricted	Stock	Units	and	Stock	Appreciation	Rights	in	certain	countries.	These	grants	do	not	result	in	the	issuance	of Common	Stock	and	are	considered	immaterial	by	the	Company.

The	remaining	total	MSOP	shares	available	for	grant	under	the	2005	MSOP	Program	are	4,408,083,	13,074,202	and	24,937,892,	respectively,	as	of	December	31,	2007, 2006	and	2005.	Restricted	stock	and	restricted	stock	units,	per	the	2005	MSOP	Program,	shall	be	counted	against	the	total	shares	available	as	2.45	shares	for	every	one share	issued	in	connection	with	that	award.

Effective	with	the	May	2005	grant,	the	Company	no	longer	issues	options	eligible	for	additional	progressive	(reload)	options;	however,	when	a	progressive	option	is issued	upon	the	exercise	of	a	pre-May	2005	non-qualified	stock	option,	the	option	is	revalued	and	additional	stock	compensation	expense	is	incurred.

For	annual	and	progressive	(reload)	options,	the	weighted	average	fair	value	at	the	date	of	grant	was	calculated	using	the	Black-Scholes	option-pricing	model	and	the assumptions	that	follow.

# MSOP	Assumptions

|  |  | Annual |  |  | Progressive	(Reload) |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 |
| Exercise\tprice | $84.79 | $87.23 | $76.87 | $87.12 | $80.44 | $81.19 |
| Risk-free\tinterest\trate | 4.6% | 5.0% | 4.0% | 4.6% | 4.5% | 3.7% |
| Dividend\tyield | 2.1% | 2.0% | 2.0% | 2.1% | 2.0% | 2.0% |
| Volatility | 20.0% | 20.0% | 23.5% | 18.4% | 20.1% | 20.9% |
| Expected\tlife\t(months) | 69 | 69 | 69 | 25 | 39 | 40 |
| Black-Scholes\tfair\tvalue | $18.12 | $19.81 | $18.28 | $13.26 | $12.53 | $13.18 |

In	connection	with	the	adoption	of	SFAS	No.	123R,	in	2005	the	Company	reviewed	and	updated,	among	other	things,	its	volatility	and	expected	term	assumptions. Expected	volatility	is	a	statistical	measure	of	the	amount	by	which	a	stock	price	is	expected	to	fluctuate	during	a	period.	For	the	2007,	2006	and	2005	annual	grant	date, the	Company	estimated	the	expected	volatility	based	upon	the	average	of	the	most	recent	one	year	volatility,	the	median	of	the	term	of	the	expected	life	rolling	volatility, the	median	of	the	most	recent	term	of	the	expected	life	volatility	of	3M	stock,	and	the	implied	volatility	on	the	grant	date.	The	expected	term	assumption	is	based	on	the weighted	average	of	historical	grants	and	assuming	that	options	outstanding	are	exercised	at	the	midpoint	of	the	future	remaining	term.

As	previously	mentioned,	the	Company	expanded	its	utilization	of	restricted	stock	units	in	conjunction	with	the	May	2007	MSOP	Annual	Grant.	The	May	2007	annual restricted	stock	unit	grant	does	not	accrue	dividends	during	the	vesting	period	and	vests	over	three	years.	The	2007	one-time	"buyout"	restricted	stock	unit	grant	vests over	five	years.

# General	Employees'	Stock	Purchase	Plan	(GESPP):

In	May	1997,	shareholders	approved	30	million	shares	for	issuance	under	the	Company's	GESPP.	Substantially	all	employees	are	eligible	to	participate	in	the	plan. Participants	are	granted	options	at	85%	of	market	value	at	the	date	of	grant.	There	are	no	GESPP	shares	under	option	at	the	beginning	or	end	of	each	year	because options	are	granted	on	the	first	business	day	and	exercised	on	the	last	business	day	of	the	same	month.

|  | 2007 |  | 2006 |  | 2005 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Exercise |  | Exercise |  | Exercise |
|  | Shares | Price* | Shares | Price* | Shares | Price* |
| Options\tgranted | 1,507,335 | $69.34 | 1,656,554 | $65.25 | 1,646,521 | $66.11 |
| Options\texercised | (1,507,335) | 69.34 | (1,656,554) | 65.25 | (1,646,521) | 66.11 |
| Shares\tavailable\tfor\tgrant\t—\tDecember\t31 | 8,940,650 |  | 10,447,985 |  | 12,104,539 |  |

The	weighted-average	fair	value	per	option	granted	during	2007,	2006	and	2005	was	$12.24,	$11.51	and	$11.67,	respectively.	The	fair	value	of	GESPP	options	was based	on	the	15%	purchase	price	discount.	The	Company	recognized	compensation	expense	for	GESSP	options	of	$18	million	in	2007,	$19	million	in	2006,	and	$19 million	in	2005.

# MSOP	/	GESPP	Stock-based	Compensation	Expense:

The	impact	of	stock-based	compensation	on	net	income	and	earnings	per	share	provided	below	for	the	year	ended	December	31,	2005,	was	recognized	over	the	nominal vesting	period,	whereby	if	an	employee	retired	before	the	end	of	the	vesting	period,	the	Company	would	recognize	any	remaining	unrecognized	compensation	cost	at	the date	of	retirement.	SFAS	No.	123R	requires	recognition	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	beginning	at	age	55	and	after	having	completed	five	years	of	service. Approximately	25%	of	the	number	of	stock-based	compensation	awards	are	made	to	this	population.	The	Company	changed	to	the	non-substantive	vesting	period approach	for	new	stock	compensation	grants	made	after	the	Company's	adoption	of	SFAS	No.	123R	on	January	1,	2006.	Therefore,	primarily	beginning	in	May	2006 with	the	annual	MSOP	grant,	immediate	expensing	of	those	stock-based	compensation	awards	granted	to	employees	eligible	to	retire	resulted	in	higher	compensation expense	than	historically	recognized	in	comparable	prior	periods.	Capitalized	stock-based	compensation	amounts	were	not	material	for	2007,	2006	and	2005.	The income	tax	benefits	can	fluctuate	by	period	due	to	the	amount	of	Incentive	Stock	Options	(ISO)	exercised	since	the	Company	receives	the	ISO	tax	benefit	upon	exercise. The	Company	last	granted	ISO's	in	2002.	Amounts	recognized	in	the	financial	statements	with	respect	to	both	the	MSOP	and	GESPP	are	as	follows:

# MSOP	/	GESPP	STOCK-BASED

# COMPENSATION	EXPENSE

| (Millions,	except	per	share	amounts) | 2007 | 2006 | 2005 |
| :--- | :--- | :--- | :--- |
| Cost\tof\tsales | $47 | $42 | $27 |
| Selling,\tgeneral\tand\tadministrative\texpenses | 137 | 119 | 96 |
| Research,\tdevelopment\tand\trelated\texpenses | 44 | 39 | 32 |
| Operating\tIncome\t(Loss) | $(228) | $(200) | $(155) |
| Income\ttax\tbenefits | $93 | $72 | $67 |

| Net	Income	(Loss) | $(135) | $(128) | $(88) |
| :--- | :--- | :--- | :--- |
| Earnings\tper\tshare\timpact\t—\tdiluted | $(0.18) | $(0.17) | $(0.14) |
| Earnings\tper\tshare\t—\tdiluted | $5.60 | $5.06 | $3.98 |

The	following	table	adjusts	the	revised	diluted	earnings	per	share	for	2005	from	the	preceding	table	to	reflect	the	approximate	impact	of	using	the	non-substantive vesting	period	approach	for	these	periods.

| Stock-Based	Compensation |  |
| :--- | :--- |
| Pro\tForma\tEarnings\tPer\tShare\t—\tDiluted | 2005 |
| Earnings\tper\tshare\t—\tdiluted | $3.98 |
| Impact\tof\tretirement-eligible\temployees | $(0.02) |
| Pro\tforma\t(adjusted\tto\treflect\tnon-substantive\tvesting\tperiod\tapproach) | $3.96 |

# NOTE	16.		Business	Segments

Effective	in	the	first	quarter	of	2007,	3M	made	certain	changes	to	its	business	segments	in	its	continuing	effort	to	drive	growth	by	aligning	businesses	around	markets and	customers.	The	most	significant	of	these	changes	are	summarized	as	follows:

·																		3M's	new	emerging	business	opportunity	in	its	Track	and	Trace	initiative	resulted	in	the	merging	of	a	number	of	formerly	separate	efforts	into	one	concerted effort	for	future	growth.	Track	and	Trace	has	a	growing	array	of	applications	—	from	tracking	packages	to	managing	medical	and	legal	records.	The establishment	of	this	new	initiative	within	3M's	Safety,	Security	and	Protection	Services	segment	resulted	in	the	transfer	of	certain	businesses	to	this	segment from	other	segments,	including	the	transfer	of	HighJump	Software	Inc.,	a	3M	U.S.-based	subsidiary	that	provides	supply	chain	execution	software	and solutions	(Industrial	and	Transportation	segment)	and	the	transfer	of	certain	Track	and	Trace	products	from	the	Electro	and	Communications	segment.

·																		3M's	Visual	Systems	business	(Consumer	and	Office	segment),	which	offers	analog	overhead	and	electronic	projectors	and	film,	was	transferred	to	the	Electro and	Communications	segment.	This	transfer	is	intended	to	leverage	common	markets,	customers,	suppliers	and	technologies.

·																		3M's	Industrial	and	Transportation	segment	(Energy	and	Advanced	Materials	business)	transferred	the	3M™	Aluminum	Conductor	Composite	Reinforced (ACCR)	electrical	power	cable	to	the	Electro	and	Communications	segment	(Electrical	Markets	business).	With	an	aluminum-based	metal	matrix	at	its	core, the	ACCR	product	increases	transmission	capacity	for	existing	power	lines.	The	Electrical	Markets	business	sells	insulating,	testing	and	connecting	products	to various	markets,	including	the	electric	utility	markets.

·																		Certain	adhesives	and	tapes	in	the	Industrial	and	Transportation	segment	(Industrial	Adhesives	and	Tapes	business)	were	transferred	to	the	Consumer	and Office	segment	(primarily	related	to	the	Construction	and	Home	Improvement	business	and	the	Stationery	Products	business)	and	to	the	Electro	and Communications	segment	(Electronics	Markets	Materials	business).	Certain	maintenance-free	respirator	products	for	the	consumer	market	in	3M's	Safety, Security	and	Protection	Services	segment	were	transferred	to	the	Consumer	and	Office	segment	(Construction	and	Home	Improvement	business).

·																		3M	transferred	Film	Manufacturing	and	Supply	Chain	Operations,	a	resource	for	the	manufacturing	and	development	of	films	and	materials,	to	the	Display	and Graphics	Business	from	Corporate	and	Unallocated.

The	financial	information	presented	herein	reflects	the	impact	of	all	of	the	preceding	changes	for	all	periods	presented.

3M's	businesses	are	organized,	managed	and	internally	grouped	into	segments	based	on	differences	in	products,	technologies	and	services.	3M	continues	to	manage	its operations	in	six	operating	business	segments:	Industrial	and	Transportation	segment,	Health	Care	segment,	Display	and	Graphics	segment,	Consumer	and	Office segment,	Safety,	Security	and	Protection	Services	segment	and	Electro	and	Communications	segment.	3M's	six	business	segments	bring	together	common	or	related 3M	technologies,	enhancing	the	development	of	innovative	products	and	services	and	providing	for	efficient	sharing	of	business	resources.	These	segments	have worldwide	responsibility	for	virtually	all	3M	product	lines.	3M	is	not	dependent	on	any	single	product	or	market.	Certain	small	businesses	and	lab-sponsored	products, as	well	as	various	corporate	assets	and	expenses,	are	not	allocated	to	the	business	segments.

Transactions	among	reportable	segments	are	recorded	at	cost.	3M	is	an	integrated	enterprise	characterized	by	substantial	intersegment	cooperation,	cost	allocations	and inventory	transfers.	Therefore,	management	does	not	represent	that	these	segments,	if	operated	independently,	would	report	the	operating	income	and	other	financial information	shown.	The	allocations	resulting	from	the	shared	utilization	of	assets	are	not	necessarily	indicative	of	the	underlying	activity	for	segment	assets,	depreciation and	amortization,	and	capital	expenditures.

# Business	Segment	Products

# Business	Segment	Information

|  |  | Net	Sales |  |  | Operating	Income |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (Millions) | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 |
| Industrial\tand\tTransportation | $7,274 | $6,640 | $6,047 | $1,501 | $1,342 | $1,210 |
| Health\tCare | 3,968 | 4,011 | 3,760 | 1,882 | 1,845 | 1,114 |
| Display\tand\tGraphics | 3,892 | 3,770 | 3,547 | 1,174 | 1,044 | 1,148 |
| Consumer\tand\tOffice | 3,403 | 3,164 | 2,926 | 688 | 629 | 609 |
| Safety,\tSecurity\tand\tProtection\tServices | 3,070 | 2,663 | 2,320 | 611 | 549 | 513 |
| Electro\tand\tCommunications | 2,775 | 2,631 | 2,509 | 481 | 411 | 422 |
| Corporate\tand\tUnallocated | 80 | 44 | 58 | (144) | (124) | (162) |
| Total\tCompany | $24,462 | $22,923 | $21,167 | $6,193 | $5,696 | $4,854 |

|  |  | Assets |  | Depreciation	&amp;	Amortization | Depreciation	&amp;	Amortization | Depreciation	&amp;	Amortization |  | Capital	Expenditures |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (Millions) | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 |
| Industrial\tand\tTransportation | $5,872 | $5,180 | $5,013 | $294 | $287 | $282 | $396 | $284 | $263 |
| Health\tCare | 2,909 | 2,477 | 2,166 | 138 | 162 | 131 | 213 | 159 | 138 |
| Display\tand\tGraphics | 3,199 | 3,035 | 2,775 | 222 | 232 | 189 | 341 | 323 | 237 |
| Consumer\tand\tOffice | 1,720 | 1,577 | 1,476 | 82 | 77 | 83 | 101 | 103 | 79 |
| Safety,\tSecurity\tand\tProtection |  |  |  |  |  |  |  |  |  |
| Services | 2,344 | 2,061 | 1,429 | 161 | 120 | 121 | 205 | 151 | 100 |
| Electro\tand\tCommunications | 2,063 | 2,003 | 1,877 | 146 | 173 | 155 | 136 | 117 | 113 |
| Corporate\tand\tUnallocated | 6,587 | 4,961 | 5,805 | 29 | 28 | 25 | 30 | 31 | 13 |
| Total\tCompany | $24,694 | $21,294 | $20,541 | $1,072 | $1,079 | $986 | $1,422 | $1,168 | $943 |

Segment	assets	for	the	operating	business	segments	(excluding	Corporate	and	Unallocated)	primarily	include	accounts	receivable;	inventory;	property,	plant	and equipment	—	net;	goodwill	and	intangible	assets;	and	other	miscellaneous	assets.	Assets	included	in	Corporate	and	Unallocated	principally	are	cash,	cash	equivalents and	marketable	securities;	insurance	receivables;	deferred	income	taxes;	certain	investments	and	other	assets,	including	prepaid	pension	assets;	and	certain	unallocated property,	plant	and	equipment.	Corporate	and	unallocated	assets	can	change	from	year	to	year	due	to	changes	in	cash,	cash	equivalents	and	marketable	securities, changes	in	prepaid	pension	and	postretirement	benefits,	and	changes	in	other	unallocated	asset	categories.	For	management	reporting	purposes,	corporate	goodwill (which	at	December	31,	2007,	totaled	approximately	$400	million)	is	not	allocated	to	the	six	operating	business	segments.	In	Note	3,	corporate	goodwill	has	been allocated	to	the	respective	market	segments	as	required	by	SFAS	No.	142	for	impairment	testing.

Corporate	and	Unallocated	operating	income	principally	includes	corporate	investment	gains	and	losses,	certain	derivative	gains	and	losses,	insurance-related	gains	and losses,	certain	litigation	expenses,	corporate	restructuring	program	charges	and	other	miscellaneous	items.	Because	this	category	includes	a	variety	of	miscellaneous items,	it	is	subject	to	fluctuation	on	a	quarterly	and	annual	basis.

Refer	to	Note	2	and	Note	4	for	discussion	of	items	that	significantly	impact	business	segment	reported	results.	The	most	significant	items	impacting	both	2007	and	2006 results	are	the	net	gain	on	sale	of	the	pharmaceuticals	business	(within	the	Health	Care	segment)	and	restructuring	and	other	actions.

# NOTE	17.		Geographic	Areas

Geographic	area	information	is	used	by	the	Company	as	a	secondary	performance	measure	to	manage	its	businesses.	Export	sales	and	certain	income	and	expense	items are	reported	within	the	geographic	area	where	the	final	sales	to	3M	customers	are	made.

|  |  |  |  |  |  |  |  | Property,	plant	and |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Net\tsales\tto\tcustomers |  |  | Operating\tIncome |  |  | equipment,\tnet |  |
| (Millions) | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 |
| United\tStates | $8,987 | $8,853 | $8,267 | $1,692 | $1,908 | $1,200 | $3,668 | $3,382 | $3,291 |
| Asia\tPacific | 6,601 | 6,251 | 5,744 | 2,136 | 2,097 | 2,085 | 1,116 | 959 | 865 |
| Europe,\tMiddle\tEast\tand\tAfrica | 6,503 | 5,726 | 5,219 | 1,705 | 1,092 | 1,057 | 1,308 | 1,162 | 1,076 |
| Latin\tAmerica\tand\tCanada | 2,365 | 2,080 | 1,881 | 665 | 629 | 512 | 490 | 404 | 361 |
| Other\tUnallocated | 6 | 13 | 56 | (5) | (30) | — | — | — | — |
| Total\tCompany | $24,462 | $22,923 | $21,167 | $6,193 | $5,696 | $4,854 | $6,582 | $5,907 | $5,593 |

Both	2007	and	2006	operating	income	results	by	geographic	area	were	significantly	impacted	by	the	sale	of	businesses	and	restructuring	and	other	exit	activities.	Refer	to Note	2	and	Note	4	for	discussion	of	these	items.

# NOTE	18.		Quarterly	Data	(Unaudited)

|  | $5,595 | $5,688 | $5,858 | $5,782 | $22,923 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Cost\tof\tsales | 2,721 | 2,840 | 2,990 | 3,162 | 11,713 |
| Net\tincome | 899 | 882 | 894 | 1,176 | 3,851 |
| Earnings\tper\tshare\t—\tbasic | 1.19 | 1.17 | 1.20 | 1.60 | 5.15 |
| Earnings\tper\tshare\t—\tdiluted | 1.17 | 1.15 | 1.18 | 1.57 | 5.06 |

Gross	profit	is	calculated	as	net	sales	minus	cost	of	sales.	In	2007,	gains	on	sales	of	businesses	and	real	estate,	net	of	restructuring	and	other	items,	increased	net	income by	$448	million,	or	$0.62	per	diluted	share,	with	$422	million,	or	$0.57	per	diluted	share	recorded	in	the	first	quarter	of	2007.	2007	included	net	benefits	from	gains related	to	the	sale	of	businesses	and	a	gain	on	sale	of	real	estate,	which	were	partially	offset	by	increases	in	environmental	liabilities,	restructuring	actions,	and	other	exit activities.	In	2006,	a	gain	on	sale,	net	of	restructuring	and	other	items,	increased	net	income	by	$438	million,	or	$0.57	per	diluted	share,	with	$354	million,	or	$0.47	per diluted	share,	recorded	in	the	fourth	quarter	of	2006.	2006	included	net	benefits	from	gains	related	to	the	sale	of	certain	portions	of	3M's	branded	pharmaceuticals business	and	favorable	income	tax	adjustments,	which	were	partially	offset	by	restructuring	actions,	acquired	in-process	research	and	development	expenses,	settlement costs	of	a	previously	disclosed	antitrust	class	action,	and	environmental	obligations	related	to	the	pharmaceuticals	business.

# Item	9.	Changes	in	and	Disagreements	With	Accountants	on	Accounting	and	Financial	Disclosure.

# Item	9A.	Controls	and	Procedures.

a.	The	Company	carried	out	an	evaluation,	under	the	supervision	and	with	the	participation	of	its	management,	including	the	Chief	Executive	Officer	and	Chief Financial	Officer,	of	the	effectiveness	of	the	design	and	operation	of	the	Company's	"disclosure	controls	and	procedures"	(as	defined	in	the	Exchange	Act	Rule	13a- 15(e))	as	of	the	end	of	the	period	covered	by	this	report.	Based	upon	that	evaluation,	the	Chief	Executive	Officer	and	Chief	Financial	Officer	concluded	that	the Company's	disclosure	controls	and	procedures	are	effective.

b.	The	Company's	management	is	responsible	for	establishing	and	maintaining	an	adequate	system	of	internal	control	over	financial	reporting,	as	defined	in	the Exchange	Act	Rule	13a-15(f).	The	management	conducted	an	assessment	of	the	Company's	internal	control	over	financial	reporting	based	on	the	framework	established by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	in	Internal	Control	—	Integrated	Framework.	Based	on	the	assessment,	the	management concluded	that,	as	of	December	31,	2007,	the	Company's	internal	control	over	financial	reporting	is	effective.	The	Company's	internal	control	over	financial	reporting	as of	December	31,	2007	has	been	audited	by	PricewaterhouseCoopers	LLP,	an	independent	registered	public	accounting	firm,	as	stated	in	their	report	which	is	included herein,	which	expresses	an	unqualified	opinion	on	the	effectiveness	of	the	Company's	internal	control	over	financial	reporting	as	of	December	31,	2007.

c.	There	was	no	change	in	the	Company's	internal	control	over	financial	reporting	that	occurred	during	the	Company's	most	recently	completed	fiscal	quarter	that	has materially	affected,	or	is	reasonably	likely	to	materially	affect,	the	Company's	internal	control	over	financial	reporting.

# Item	9B.	Other	Information.

Effective	March	31,	2007,	3M	voluntarily	delisted	from	NYSE	Arca	Inc.,	formerly	the	Pacific	Exchange,	to	eliminate	duplicative	administrative	requirements	and	costs inherent	with	dual	listings	as	a	result	of	the	NYSE	Group's	recent	merger	with	Archipelago	Holdings,	the	parent	company	of	NYSE	Arca.	3M	does	not	believe	that withdrawing	its	listing	from	NYSE	Arca	Inc.	will	have	any	impact	on	the	liquidity	of	its	stock.	NYSE	Arca	will	continue	to	trade	3M	stock	on	an	unlisted	trading privilege	basis.	3M's	common	stock	will	continue	to	be	listed	on	the	New	York	Stock	Exchange,	the	company's	principal	listing	exchange.

# PART	III

In	response	to	Part	III,	Items	10,	11,	12,	13	and	14,	parts	of	the	Company's	definitive	proxy	statement	(to	be	filed	pursuant	to	Regulation	14A	within	120	days	after Registrant's	fiscal	year-end	of	December	31,	2007)	for	its	annual	meeting	to	be	held	on	May	13,	2008,	are	incorporated	by	reference	in	this	Form	10-K.

Item	10.	Directors,	Executive	Officers	and	Corporate	Governance.	The	information	relating	to	directors	and	nominees	of	3M	is	set	forth	under	the	caption	"Proposal No.	1	—	Election	of	Directors"	in	3M's	proxy	statement	for	its	2007	annual	meeting	of	stockholders	("3M	Proxy	Statement")	and	is	incorporated	by	reference	herein. Information	about	executive	officers	is	included	in	Item	1	of	this	Annual	Report	on	Form	10-K.	The	information	required	by	Items	407(c)(3),	(d)(4)	and	(d)(5)	of Regulation	S-K	is	contained	under	the	captions	"Governance	of	the	Company	—	Director	Nomination	Process",	"Board	and	Committee	Membership	—	Audit Committee"	of	the	3M	Proxy	Statement	and	such	information	is	incorporated	by	reference	herein.

Code	of	Ethics.	All	of	our	employees,	including	our	Chief	Executive	Officer	and	Chief	Financial	Officer	are	required	to	abide	by	3M's	long-standing	business	conduct policies	to	ensure	that	our	business	is	conducted	in	a	consistently	legal	and	ethical	manner.	3M	has	posted	the	text	of	such	code	of	ethics	on	its	website (http://www.3M.com/businessconduct).	At	the	same	website,	any	future	amendments	to	the	code	of	ethics	will	also	be	posted.	Any	person	may	request	a	copy	of	the code	of	ethics,	at	no	cost,	by	writing	to	us	at	the	following	address:

Attention:	Director,	Business	Conduct	and	Compliance

Item	11.	Executive	Compensation.	The	information	required	by	Item	402	of	Regulation	S-K	is	contained	under	the	captions	"Executive	Compensation"	(excluding	the information	under	the	caption	"—	Compensation	Committee	Report")	and	"Director	Compensation	and	Stock	Ownership	Guidelines"	of	the	3M	Proxy	Statement.	Such information	is	incorporated	by	reference.

The	information	required	by	Items	407(e)(4)	and	(e)(5)	of	Regulation	S-K	is	contained	under	the	captions	"Compensation	Committee	Interlocks	and	Insider Participation"	and	"Executive	Compensation	—	Compensation	Committee	Report"	of	the	3M	Proxy	Statement.	Such	information	(other	than	the	Compensation Committee	Report,	which	shall	not	be	deemed	to	be	"filed")	is	incorporated	by	reference.

Item	12.	Security	Ownership	of	Certain	Beneficial	Owners	and	Management	and	Related	Stockholder	Matters.	The	information	relating	to	security	ownership	of certain	beneficial	owners	and	management	is	set	forth	under	the	designation	"Beneficial	Ownership	Table"	and	"Security	Ownership	of	More	Than	5	Percent Stockholders"	in	the	3M	Proxy	Statement	and	such	information	is	incorporated	by	reference	herein.

Equity	compensation	plans	information	follows:

Equity	Compensation	Plans	Information	(1)

|  | A | B | C |
| :--- | :--- | :--- | :--- |
|  | Number\tof | Weighted- | Number\tof\tsecurities |
|  | securities\tto\tbe | average | remaining\tavailable\tfor |
|  | issued\tupon | exercise | future\tissuance\tunder |
|  | exercise\tof | price\tof | equity\tcompensation |
|  | outstanding | outstanding | plans\t(excluding |
|  | options,\twarrants | options,\twarrants | securities\treflected\tin |
| Plan\tCategory | and\trights | and\trights | column\t(A) |
| Equity\tcompensation\tplans\tapproved\tby\tsecurity\tholders |  |  |  |
| MSOP\t—\tOptions | 74,613,051 | $70.50 | — |
| MSOP\t—\tRSU's | 2,001,581 | — | — |
| MSOP\t—\tTotal | 76,614,632 | $70.50 | 4,408,083 |
| GESPP | — | — | 8,940,650 |
| Non-employee\tdirectors | — | — | 504,893 |
| Subtotal | 76,614,632 | $70.50 | 13,853,626 |
| Equity\tcompensation\tplans\tnot\tapproved\tby\tsecurity\tholders | — | — | — |
| Total | 76,614,632 | $70.50 | 13,853,626 |

(1)	The	weighted-average	exercise	price	in	column	B	is	only	applicable	to	options	issued	under	the	MSOP.	The	number	of	securities	remaining	available	for	future issuance	in	column	C	is	approved	for	the	MSOP	program	in	total	and	not	individually	with	respect	to	MSOP-Options	and	MSOP-RSU's.

# Item	13.	Certain	Relationships	and	Related	Transactions,	and	Director	Independence.

With	respect	to	certain	relationships	and	related	transactions	as	set	forth	in	Item	404	of	Regulation	S-K,	no	matters	require	disclosure.	The	information	required	by	Item 407(a)	of	Regulation	S-K	is	contained	under	the	caption	"Governance	of	the	Company	—	Director	Independence"	of	the	3M	Proxy	Statement	and	such	information	is incorporated	by	reference	herein.

Item	14.	Principal	Accounting	Fees	and	Services.	The	information	relating	to	principal	accounting	fees	and	services	is	set	forth	under	the	designation	"Fees	of	the Independent	Registered	Public	Accounting	Firm"	in	the	3M	Proxy	Statement	and	such	information	is	incorporated	by	reference	herein.

# PART	IV

# Item	15.	Exhibits	and	Financial	Statement	Schedules.

(a)	(1)	Financial	Statements.	The	consolidated	financial	statements	filed	as	part	of	this	report	are	listed	in	the	index	to	financial	statements	on	page	37	as	follows:

|  | Page	Number |
| :--- | :--- |
| Report\tof\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 39 |
| Consolidated\tStatement\tof\tIncome\tfor\tthe\tyears\tended\tDecember\t31,\t2007,\t2006\nand\t2005 | 40 |
| Consolidated\tBalance\tSheet\tat\tDecember\t31,\t2007\tand\t2006 | 41 |
| Consolidated\tStatement\tof\tChanges\tin\tStockholders'\tEquity\tand\tComprehensive\nIncome\tfor\tthe\tyears\tended\tDecember\t31,\t2007,\t2006\tand\t2005 | 42 |
| Consolidated\tStatement\tof\tCash\tFlows\tfor\tthe\tyears\tended\tDecember\t31,\t2007,\n2006\tand\t2005 | 43 |
| Notes\tto\tConsolidated\tFinancial\tStatements | 44-87 |

(a)	(2)	Financial	Statement	Schedules.	Financial	statement	schedules	are	omitted	because	of	the	absence	of	the	conditions	under	which	they	are	required	or	because	the required	information	is	included	in	the	Consolidated	Financial	Statements	or	the	notes	thereto.	The	financial	statements	of	unconsolidated	subsidiaries	are	omitted because,	considered	in	the	aggregate,	they	would	not	constitute	a	significant	subsidiary.

(a)	(3)	Exhibits.	The	exhibits	are	either	filed	with	this	report	or	incorporated	by	reference	into	this	report.	Exhibit	numbers	10.1	through	10.24	are	management	contracts or	compensatory	plans	or	arrangements.	See	(b)	Exhibits,	which	follow.

(b)	Exhibits.

# Index	to	Exhibits:

(3)	Articles	of	Incorporation	and	bylaws

(3.1)	Certificate	of	incorporation,	as	amended	as	of	May	11,	2007,	is	incorporated	by	reference	from	our	Form	8-K	dated	May	14,	2007.

(4)		Instruments	defining	the	rights	of	security	holders,	including	indentures:

Notes	zero	coupon	senior	debt	securities,	is	incorporated	by	reference	from	our	8-K	dated	November	17,	2005.

																								(4.4)	Except	as	set	forth	in	the	preceding	Exhibits	4.1,	4.2	and	4.3,	the	instruments	defining	the	rights	of	holders	of	long-term	debt	securities	of	3M	have been	omitted.	We	agree	to	furnish	to	the	SEC,	upon	request,	a	copy	of	such	instruments	with	respect	to	issuances	of	long-term	debt	of	3M.

(10)		Material	contracts	and	management	compensation	plans	and	arrangements:

(10.1)													3M	2005	Management	Stock	Ownership	Program	is	incorporated	by	reference	from	our	Proxy	Statement	for	the	2005	Annual	Meeting	of	Stockholders.

(10.3)																			3M	1997	Management	Stock	Ownership	Program	is	incorporated	by	reference	from	our	Proxy	Statement	for	the	1997	Annual	Meeting	of	Stockholders. (10.4)																			3M	1992	Management	Stock	Ownership	Program	is	incorporated	by	reference	from	our	Proxy	Statement	for	the	1992	Annual	Meeting	of	Stockholders.

(10.5) Form	of	award	agreement	for	non-qualified	stock	options	granted	under	the	2005	Management	Stock	Ownership	Program,	is	incorporated	by	reference from	our	Form	8-K	dated	May	16,	2005.

(10.6) Form	of	award	agreement	for	non-qualified	stock	options	granted	under	the	2002	Management	Stock	Ownership	Program,	is	incorporated	by	reference from	our	Form	10-K	for	the	year	ended	December	31,	2004.

(10.7) 3M	1997	General	Employees'	Stock	Purchase	Plan,	as	amended	through	November	8,	2004,	is	incorporated	by	reference	from	our	Form	10-K	for	the year	ended	December	31,	2004.

(10.8) 3M	VIP	(Voluntary	Investment	Plan)	Plus	is	incorporated	by	reference	from	Registration	Statement	No.	333-73192	on	Form	S-8,	filed	on	November	13, 2001.

(10.9) 3M	Deferred	Compensation	Plan,	as	amended	through	February	2008,	is	incorporated	by	reference	from	our	8-K	dated	February	14,	2008.

(10.10) 3M	Executive	Annual	Incentive	Plan	is	incorporated	by	reference	from	our	Form	8-K	dated	May	14,	2007.

(10.12) Description	of	changes	to	Non-Employee	Director	Compensation	and	Stock	Ownership	Guidelines	dated	as	of	August	13,	2007	is	incorporated	by reference	from	our	Form	10-Q	for	the	quarter	ended	September	30,	2007.

(10.13) Description	of	changes	to	3M	Compensation	Plan	for	Non-Employee	Directors	is	incorporated	by	reference	from	our	Form	8-K	dated	August	8,	2005. (10.14) 3M	Compensation	Plan	for	Non-Employee	Directors,	as	amended,	through	November	8,	2004,	is	incorporated	by	reference	from	our	Form	10-K	for	the year	ended	December	31,	2004.

(10.15) 3M	1992	Directors	Stock	Ownership	Program,	as	amended	through	November	8,	2004,	is	incorporated	by	reference	from	our	Form	10-K	for	the	year ended	December	31,	2004.

(10.16) 3M	Executive	Life	Insurance	Plan,	as	amended,	is	incorporated	by	reference	from	our	Form	10-K	for	the	year	ended	December	31,	2003.

(10.17) Summary	of	Personal	Financial	Planning	Services	for	3M	Executives	is	incorporated	by	reference	from	our	Form	10-K	for	the	year	ended	December	31, 2003.

(10.18) 3M	policy	on	reimbursement	of	incentive	payments	is	incorporated	by	reference	from	our	Form	10-K	for	the	year	ended	December	31,	2006.

(10.19) Employment	agreement	dated	as	of	December	6,	2005,	between	3M	and	George	W.	Buckley	is	incorporated	by	reference	from	our	Form	8-K	dated December	9,	2005.

(10.20) Amendment,	dated	August	14,	2006,	to	employment	agreement	between	3M	and	George	W.	Buckley	is	incorporated	by	reference	from	our	Form	10-Q for	the	quarter	ended	September	30,	2006.

(10.21) Description	of	compensation	plan	for	Robert	S.	Morrison	is	incorporated	by	reference	from	our	Form	8-K	dated	August	8,	2005.

(10.22) Employment	agreement	dated	as	of	January	23,	2002,	between	3M	and	Patrick	D.	Campbell	is	incorporated	by	reference	from	our	Form	10-K	for	the year	ended	December	31,	2001.

(10.23) Employment	agreement	dated	as	of	November	19,	2002,	between	3M	and	Richard	F.	Ziegler	is	incorporated	by	reference	from	our	Form	10-K	for	the year	ended	December	31,	2002.

(10.24) Letter	agreement	dated	as	of	March	14,	2007,	between	3M	and	Richard	F.	Ziegler	is	incorporated	by	reference	from	our	8-K	dated	March	19,	2007.

Filed	electronically	herewith:

(12) Calculation	of	ratio	of	earnings	to	fixed	charges.

(21) Subsidiaries	of	the	Registrant.

(23) Consent	of	Independent	Registered	Public	Accounting	Firm.

(24) Power	of	attorney.

(31.1) Certification	of	the	Chief	Executive	Officer	pursuant	to	Section	302	of	the	Sarbanes-Oxley	Act	of	2002,	18	U.S.C.	Section	1350.

(31.2) Certification	of	the	Chief	Financial	Officer	pursuant	to	Section	302	of	the	Sarbanes-Oxley	Act	of	2002,	18	U.S.C.	Section	1350.

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	Registrant	has	duly	caused	this	report	to	be	signed	on	its	behalf	by	the undersigned,	thereunto	duly	authorized.

By /s/	Patrick	D.	Campbell

Patrick	D.	Campbell,

Senior	Vice	President	and	Chief	Financial	Officer

(Principal	Financial	and	Accounting	Officer)

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below	by	the	following	persons	on	behalf	of	the	Registrant	and	in	the capacities	indicated	on	February	15,	2008.

Edward	M.	Liddy

Director

Robert	S.	Morrison

Aulana	L.	Peters

Rozanne	L.	Ridgway Director

Patrick	D.	Campbell,	by	signing	his	name	hereto,	does	hereby	sign	this	document	pursuant	to	powers	of	attorney	duly	executed	by	the	other	persons	named,	filed	with the	Securities	and	Exchange	Commission	on	behalf	of	such	other	persons,	all	in	the	capacities	and	on	the	date	stated,	such	persons	constituting	a	majority	of	the	directors of	the	Company.

Patrick	D.	Campbell,	Attorney-in-Fact


in 2006 what was the percent of the recognized a pre-tax gain to the proceeds of the sale of its global branded pharmaceuticals businesses
gain_on_sale = 1.074
proceeds = 1.209
answer = gain_on_sale / proceeds * 100