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MMM 3M Co News Story

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REG - 3M Company - 3rd Quarter Results <Origin Href="QuoteRef">MMM.N</Origin> - Part 7

- Part 7: For the preceding part double click  ID:nRSB0531Of 

negatively impacted by 0.7 percentage points due to margin dilution related to the
Capital Safety acquisition. 
 
Health Care Business: 
 
                                                                                                                          
                                Three months ended         Nine months ended            
                                September 30,              September 30,                
                                2016                       2015                  2016      2015            
 Sales (millions)               $                   1,361                     $  1,346     $     4,148     $  4,039       
 Sales change analysis:                                                                                                   
 Organic local currency                             1.5    %                     3.7    %        4.2    %     3.3    %    
 Acquisitions                                       -                            0.9             0.3          0.8         
 Translation                                        (0.4)                        (7.8)           (1.8)        (7.5)       
 Total sales change                                 1.1    %                     (3.2)  %        2.7    %     (3.4)  %    
                                                                                                                          
 Operating income (millions)    $                   429                       $  432       $     1,344     $  1,280       
 Percent change                                     (0.6)  %                     0.1    %        5.0    %     (1.0)  %    
 Percent of sales                                   31.5   %                     32.1   %        32.4   %     31.7   %    
 
 
The Health Care segment serves markets that include medical clinics and hospitals, pharmaceuticals, dental and orthodontic
practitioners, health information systems, and food manufacturing and testing. Products and services provided to these and
other markets include medical and surgical supplies, skin health and infection prevention products, inhalation and
transdermal drug delivery systems, oral care solutions (dental and orthodontic products), health information systems, and
food safety products. Effective in the third quarter of 2015, the Company formed the Oral Care Solutions Division, which
combined the former 3M ESPE and 3M Unitek divisions. 
 
Third Quarter 2016 results: 
 
Health Care sales totaled $1.4 billion, an increase of 1.1 percent in U.S. dollars. Organic local-currency sales increased
1.5 percent, and foreign currency translation reduced sales by 0.4 percent. 
 
On an organic local-currency sales basis: 
 
·      Sales growth was below recent trends, and 3M expects soft market conditions to persist in the near term. 
 
·      Sales growth was led by food safety, along with positive contributions from drug delivery systems, critical and
chronic care, and health information systems. 
 
·      Sales in oral care solutions were flat, impacted by soft market conditions in the U.S. 
 
·      On a geographic basis, sales increased 6 percent in Asia Pacific, 3 percent in Latin America/Canada and 2 percent in
EMEA, while sales in the U.S. were flat. 
 
·      In developing markets, Health Care organic local-currency sales grew 3 percent, a slowdown compared to previous
quarters. 
 
Operating income: 
 
·      Operating income decreased 0.6 percent to $429 million. 
 
·      Operating income margins remained strong at 31.5 percent, compared to 32.1 percent in the same period last year. 3M
continued to accelerate growth investments across the business in the third quarter. 
 
In September 2016, 3M acquired all of the outstanding shares of Semfinder AG and Sembrowser AG (collectively, "Semfinder"),
headquartered in Kreuzlingen, Switzerland. Semfinder is a leading developer of precision software that enables efficient
coding of medical procedures in multiple languages. 
 
First Nine Months 2016 results: 
 
Health Care sales totaled $4.1 billion, an increase of 2.7 percent in U.S. dollars. Organic local-currency sales increased
4.2 percent, acquisitions added 0.3 percent, and foreign currency translation reduced sales by 1.8 percent. 
 
On an organic local-currency sales basis: 
 
·      Sales growth was broad-based across the Health Care portfolio, led by food safety, drug delivery systems, and
critical and chronic care. 
 
·      On a geographic basis, sales increased 8 percent in Asia Pacific, 6 percent in Latin America/Canada, 4 percent in
EMEA, and 2 percent in the United States. 
 
·      In developing markets, Health Care organic local-currency sales grew 8 percent. 
 
·      3M continues to increase investments across the businesses to drive efficient growth into the future. 
 
Acquisitions: 
 
·      Acquisition sales growth related to the March 2015 purchase of Ivera Medical Corp, a manufacturer of health care
products that disinfect and protect devices used for access into a patient's bloodstream. 
 
Operating income: 
 
·      Operating income increased 5.0 percent to $1.3 billion. 
 
·      Operating income margins were 32.4 percent, compared to 31.7 percent in the same period last year, driven by the
combination of higher selling prices and lower raw material costs, plus organic volume increases. 
 
·      Acquisitions had a minimal impact on operating income margins. 
 
In September 2015, 3M announced that it would explore strategic alternatives for its Health Information Systems Division
(HIS), which included spinning-off, selling, or retaining the business. In February 2016, following an in-depth exploration
of strategic alternatives, the Company announced its intent to retain and further invest in HIS. 
 
Electronics and Energy Business: 
 
                                                                                                                           
                                Three months ended         Nine months ended            
                                September 30,              September 30,                
                                2016                       2015                  2016      2015             
 Sales (millions)               $                   1,293                     $  1,397     $     3,618      $  4,033       
 Sales change analysis:                                                                                                    
 Organic local currency                             (8.1)  %                     (1.7)  %        (9.6)   %     0.2    %    
 Divestitures                                       -                            (0.8)           -             (0.8)       
 Translation                                        0.6                          (4.5)           (0.7)         (4.2)       
 Total sales change                                 (7.5)  %                     (7.0)  %        (10.3)  %     (4.8)  %    
                                                                                                                           
 Operating income (millions)    $                   312                       $  344       $     749        $  907         
 Percent change                                     (9.1)  %                     1.1    %        (17.4)  %     5.1    %    
 Percent of sales                                   24.2   %                     24.6   %        20.7    %     22.5   %    
 
 
The Electronics and Energy segment includes solutions that improve the dependability, cost-effectiveness, and performance
of electronic devices; electrical products, including infrastructure protection; telecommunications networks; and power
generation and distribution. This segment's electronics solutions include optical film solutions for the electronic display
industry; high-performance fluids and abrasives; high-temperature and display tapes; flexible circuits, which use
electronic packaging and interconnection technology; and touch systems products. This segment's energy solutions include
pressure sensitive tapes and resins; electrical insulation; infrastructure products that provide both protection and
detection solutions; a wide array of fiber-optic and copper-based telecommunications systems; and renewable energy
component solutions for the solar and wind power industries. 
 
Third Quarter 2016 results: 
 
Electronics and Energy sales totaled $1.3 billion, down 7.5 percent in U.S. dollars. Organic local-currency sales declined
8.1 percent, and foreign currency translation increased sales by 0.6 percent. 
 
On an organic local-currency sales basis: 
 
·      Sales decreased 8 percent in 3M's electronics-related businesses, with declines in both electronics materials
solutions and display materials and systems. Market challenges persisted across most consumer electronic applications,
which impacted volume growth. Channel inventory levels have improved versus earlier in the year, but further adjustments
occurred in the third quarter. 
 
·      Sales decreased 9 percent in 3M's energy-related businesses, with declines in telecommunications, electrical markets
and renewable energy. 3M exited its renewable energy backsheet business in December 2015, which contributed to the
reduction in energy-related sales. 
 
·      On a geographic basis, sales declined 4 percent in EMEA, 5 percent in the United States, and 6 percent in Latin
America/Canada. Sales declined 10 percent in Asia Pacific, impacted by both electronics and energy market weakness. 
 
Divestitures: 
 
·      3M completed the sale of its static control business in January 2015. 
 
Operating income: 
 
·      Operating income decreased 9.1 percent to $312 million. 
 
·      Operating income margins were 24.2 percent compared to 24.6 percent in the same period last year, as lower organic
volume was only partially offset by lower raw material costs. 
 
First Nine Months 2016 results: 
 
Electronics and Energy sales totaled $3.6 billion, down 10.3 percent in U.S. dollars. Organic local-currency sales declined
9.6 percent, and foreign currency translation reduced sales by 0.7 percent. 
 
On an organic local-currency sales basis: 
 
·      Sales decreased 13 percent in 3M's electronics-related businesses, with declines in both electronics materials
solutions and display materials and systems. 3M continues to be impacted by weak end market demand across most consumer
electronic applications. 
 
·      Sales decreased approximately 4 percent in 3M's energy-related businesses, with declines in telecommunications,
electrical markets, and renewable energy. 3M exited its renewable energy backsheet business in December 2015, which
contributed to the reduction in energy-related sales. 
 
·      On a geographic basis, sales were flat in EMEA, and declined 2 percent in both Latin America/Canada and the United
States. Sales declined 14 percent in Asia Pacific, where 3M's electronics business is concentrated. 
 
Divestitures: 
 
·      3M completed the sale of its static control business in January 2015. 
 
Operating income: 
 
·      Operating income decreased 17.4 percent to $749 million. 
 
·      Operating income margins were 20.7 percent compared to 22.5 percent in the same period last year, as lower organic
volume was only partially offset by lower raw material costs. 
 
·      In addition, as announced in late April 2016, 3M took actions within Electronics and Energy in the second quarter to
better position the business going forward, with the majority of these actions impacting the electronics side of the
business. These actions reduced first nine months 2016 operating income margins. 
 
Consumer Business: 
 
                                                                                                                          
                                Three months ended         Nine months ended            
                                September 30,              September 30,                
                                2016                       2015                  2016      2015            
 Sales (millions)               $                   1,209                     $  1,162     $     3,388     $  3,321       
 Sales change analysis:                                                                                                   
 Organic local currency                             2.9    %                     5.0    %        2.8    %     3.5    %    
 Translation                                        1.1                          (6.2)           (0.8)        (5.7)       
 Total sales change                                 4.0    %                     (1.2)  %        2.0    %     (2.2)  %    
                                                                                                                          
 Operating income (millions)    $                   317                       $  293       $     836       $  792         
 Percent change                                     8.3    %                     7.5    %        5.6    %     6.8    %    
 Percent of sales                                   26.2   %                     25.2   %        24.7   %     23.8   %    
 
 
The Consumer segment serves markets that include consumer retail, office retail, office business to business, home
improvement, drug and pharmacy retail, and other markets. Products in this segment include office supply products,
stationery products, construction and home improvement products (do-it-yourself), home care products, protective material
products, certain consumer retail personal safety products, and consumer health care products. 
 
Third Quarter 2016 results: 
 
Consumer sales totaled $1.2 billion, up 4.0 percent in U.S. dollars. Organic local-currency sales increased 2.9 percent,
and foreign currency translation increased sales by 1.1 percent. 
 
On an organic local-currency sales basis: 
 
·      Sales grew across all businesses, led by home improvement and home care. 
 
·      Within home improvement, mounting products, painter's tape, and filters (used for furnaces and air conditioners),
all posted strong growth. 
 
·      On a geographic basis, sales increased 6 percent in Asia Pacific, 4 percent in the United States, 2 percent in Latin
America/Canada, and declined 5 percent in EMEA. 
 
Operating income: 
 
·      Operating income was $317 million, up 8.3 percent from the same period last year. 
 
·      Operating income margins were 26.2 percent, up from 25.2 percent in the same period last year, benefiting from the
combination of higher selling prices and lower raw material costs. In addition, broad-based organic sales growth,
prioritization of investments, and productivity efforts contributed to strong operating income margin performance. 
 
First Nine Months 2016 results: 
 
Consumer sales totaled $3.4 billion, up 2.0 percent in U.S. dollars. Organic local-currency sales increased 2.8 percent,
and foreign currency translation reduced sales by 0.8 percent. 
 
On an organic local-currency sales basis: 
 
·      Sales growth was led by home improvement, in addition to consumer health care. 
 
·      On a geographic basis, sales increased 6 percent in Asia Pacific, and 4 percent in the United States, were flat in
Latin America/Canada, and declined 4 percent in EMEA. 
 
Operating income: 
 
·      Operating income was $836 million, up 5.6 percent from the same period last year. 
 
·      Operating income margins were 24.7 percent, up from 23.8 percent in the same period last year, benefiting from the
combination of higher selling prices and lower raw material costs, in addition to broad-based organic sales growth and
ongoing productivity efforts. 
 
FINANCIAL CONDITION AND LIQUIDITY 
 
3M continues its transition to a better-optimized capital structure and is adding leverage at a measured pace. The strength
and stability of 3M's business model and strong free cash flow capability, together with proven capital markets access,
enable the Company to implement this strategy. Investing in 3M's businesses to drive organic growth remains the first
priority for capital deployment, including research and development, capital expenditures, and commercialization
capability. Investment in organic growth will be supplemented by complementary acquisitions. 3M will also continue to
return cash to shareholders through dividends and share repurchases. Sources for cash availability in the United States,
such as ongoing cash flow from operations and access to capital markets, have historically been sufficient to fund dividend
payments to shareholders and share repurchases, as well as funding U.S. acquisitions and other items as needed. For those
international earnings considered to be reinvested indefinitely, the Company currently has no plans or intentions to
repatriate these funds for U.S. operations. However, if these international funds are needed for operations in the U.S., 3M
would be required to accrue and pay U.S. taxes to repatriate them. See Note 8 in 3M's Current Report on Form 8-K dated May
17, 2016, for further information on earnings considered to be reinvested indefinitely. 
 
3M's primary short-term liquidity needs are met through cash on hand and U.S. commercial paper issuances. 3M believes it
will have continuous access to the commercial paper market. 3M's commercial paper program permits the Company to have a
maximum of $5 billion outstanding with a maximum maturity of 397 days from date of issuance. Effective July 15, 2016, this
program was increased to a maximum of $5 billion outstanding from a previous program size of $3 billion. 
 
Total debt: 
 
The strength of 3M's capital structure and significant ongoing cash flows provide 3M proven access to capital markets.
Additionally, the Company's maturity profile is staggered to help ensure refinancing needs in any given year are reasonable
in proportion to the total portfolio. 3M currently has an AA- credit rating with a stable outlook from Standard & Poor's
and has an A1 credit rating with a stable outlook from Moody's Investors Service. 
 
The Company has a "well-known seasoned issuer" (WKSI) shelf registration statement, effective May 16, 2014, which registers
an indeterminate amount of debt and equity securities for future sales. In May 2016, in connection with the WKSI shelf, 3M
entered into an amended and restated distribution agreement relating to the future issuance and sale (from time to time) of
the Company's medium-term notes program (Series F), up to the aggregate principal amount of $18 billion, which was an
increase from the previous aggregate principal amount up to $9 billion of the same Series. 
 
The Company's total debt was $1.564 billion higher at September 30, 2016 when compared to December 31, 2015, with the
increase primarily due to May 2016 and September 2016 debt issuances, partially offset by the September 2016 repayment of
$1 billion aggregate principal amount of medium-term notes. In May 2016, 3M issued 500 million Euro aggregate principal
amount of 5.75-year fixed rate medium-term notes due February 2022 with a coupon rate of 0.375% and 500 million Euro
aggregate principal amount of 15-year fixed rate medium-term notes due 2031 with a coupon rate of 1.50%. In September 2016,
3M issued $600 million aggregate principal amount of five-year fixed rate medium-term notes due 2021 with a coupon rate of
1.625%, $650 million aggregate principal amount of 10-year fixed rate medium-term notes due 2026 with a coupon rate of
2.250%, and $500 million aggregate principal amount of 30-year fixed rate medium-term notes due 2046 with a coupon rate of
3.125%. All of these 2016 issuances were under the medium-term notes program (Series F). As of September 30, 2016, the
total amount of debt issued as part of the medium-term notes program (Series F), inclusive of debt issued in 2011, 2012,
2014, 2015 and the 2016 debt referenced above, is approximately $11.1 billion (utilizing the foreign exchange rates
applicable at the time of issuance for the Euro denominated debt). 
 
In March 2016, 3M amended and restated its existing $2.25 billion five-year revolving credit facility expiring in August
2019 to a $3.75 billion five-year revolving credit facility expiring in March 2021. This credit agreement includes a
provision under which 3M may request an increase of up to $1.25 billion (at lenders' discretion), bringing the total
facility up to $5.0 billion. This revolving credit facility is undrawn at September 30, 2016. Under the $3.75 billion
credit agreement, the Company 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 September 30,
2016, this ratio was approximately 48 to 1. Debt covenants do not restrict the payment of dividends. Apart from the
committed facilities, $273 million in stand-alone letters of credit and $32 million in bank guarantees were also issued and
outstanding at September 30, 2016. These lines of credit are utilized in connection with normal business activities. 
 
Cash, cash equivalents and marketable securities: 
 
At September 30, 2016, 3M had $2.7 billion of cash, cash equivalents and marketable securities, of which approximately $1.9
billion was held by the Company's foreign subsidiaries and approximately $780 million was held by the United States. These
balances are invested in bank instruments and other high-quality fixed income securities. Specifics concerning marketable
securities investments are provided in Note 7. At December 31, 2015, cash, cash equivalents and marketable securities held
by the Company's foreign subsidiaries and by the United States totaled approximately $1.7 billion and $200 million,
respectively. 
 
Net Debt (non-GAAP measure): 
 
Net debt is not defined under U.S. GAAP and may not be computed the same as similarly titled measures used by other
companies. The Company defines net debt as total debt less the total of cash, cash equivalents and current and long-term
marketable securities. 3M believes net debt is meaningful to investors as 3M considers net debt and its components to be an
important indicator of liquidity and a guiding measure of capital structure strategy. The following table provides net debt
as of September 30, 2016, and December 31, 2015. 
 
                                                                                                                
                                                              September 30,          December 31,     
 (Millions)                                                   2016                   2015             
                                                                                                                
 Total Debt                                                   $              12,361                $  10,797    
 Less: Cash and cash equivalents and marketable securities                   2,680                    1,925     
 Net Debt (non-GAAP measure)                                  $              9,681                 $  8,872     
 
 
In the first nine months of 2016, net debt increased by $809 million to a net debt balance of $9.7 billion, impacted by the
May 2016 and September 2016 debt issuances. This increase was partially offset by the September 2016 repayment of $1
billion aggregate principal amount of medium-term notes. 
 
Balance Sheet: 
 
3M's strong balance sheet and liquidity provide the Company with significant flexibility to take advantage of future
investment opportunities. The Company will continue to invest in its operations to drive both organic growth and
acquisition opportunities. 
 
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
$5.779 billion at September 30, 2016, compared with $3.868 billion at December 31, 2015, an increase of $1.911 billion.
Current asset balance changes increased working capital by $1.193 billion, impacted by higher accounts receivable balances,
which are discussed further below, in addition to higher cash, cash equivalents, and marketable securities balances.
Current liability balance changes increased working capital by $718 million, driven by lower short-term debt balances. 
 
The Company uses working capital measures that place emphasis and focus on certain working capital assets. 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. These measures include accounts receivable turns (defined as quarterly net sales
multiplied by 4 divided by ending accounts receivable - net) and inventory turns (defined as quarterly manufacturing cost
multiplied by 4 divided by ending inventory). For inventory turns calculation purposes, manufacturing cost is defined as
cost of sales less freight and engineering costs. Freight and engineering cost totaled $164 million for the third quarter
of 2016 and $159 million for both the fourth quarter of 2015 and the third quarter of 2015. 
 
Accounts receivable increased $589 million, or approximately 14%, compared with December 31, 2015, as higher September 2016
sales compared to December 2015 sales contributed to this increase. Accounts receivable increased $133 million compared to
the same quarter last year. Accounts receivable turns were 6.50 at September 30, 2016, compared to 7.03 at December 31,
2015 and 6.69 at September 30, 2015. Inventories increased $93 million, or approximately 3.0 percent, compared with
December 31, 2015, and decreased $98 million when compared to September 30, 2015. Inventory turns were 4.08 at September
30, 2016, down from 4.17 at December 31, 2015, but an improvement from 4.01 at September 30, 2015. 
 
Cash Flows: 
 
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 on
cash and cash equivalents, which are presented as separate line items within the statement of 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. 
 
As discussed in Note 1, 3M adopted ASU No. 2016-09 effective January 1, 2016, on a prospective basis. The new guidance
impacts classifications within the statement of cash flows by no longer requiring inclusion of excess tax benefits as both
a hypothetical cash outflow within cash flows from operating activities and hypothetical cash inflow within cash flows from
financing activities. Instead, excess tax benefits would be classified in operating activities in the same manner as other
cash flows related to income taxes. 
 
Cash Flows from Operating Activities: 
 
                                                                                                  
                                                      Nine months ended         
                                                      September 30,             
 (Millions)                                           2016                      2015     
                                                                                                  
 Net income including noncontrolling interest         $                  3,902        $  3,802    
 Depreciation and amortization                                           1,090           1,038    
 Company pension contributions                                           (320)           (213)    
 Company postretirement contributions                                    (3)             (3)      
 Company pension expense                                                 144             319      
 Company postretirement expense                                          36              99       
 Stock-based compensation expense                                        244             233      
 Income taxes (deferred and accrued income taxes)                        55              (195)    
 Excess tax benefits from stock-based compensation                       -               (137)    
 Accounts receivable                                                     (469)           (478)    
 Inventories                                                             (15)            (139)    
 Accounts payable                                                        (107)           (112)    
 Other - net                                                             (104)           (132)    
 Net cash provided by operating activities            $                  4,453        $  4,082    
 
 
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 the first nine months of 2016, cash flows provided by operating activities increased $371 million compared to the same
period last year, with this increase primarily due to lower year-on-year cash taxes and lower pension expense, a
year-on-year improvement in inventory, plus an improvement in net income. These items were partially offset by higher
Company pension contributions. The combination of accounts receivable, inventories and accounts payable increased working
capital by $591 million in the first nine months of 2016, compared to working capital increases of $729 million in the
first nine months of 2015. Additional discussion on working capital changes is provided earlier in the "Financial Condition
and Liquidity" section. Information concerning pension and postretirement contributions and expense is provided in Note 9,
with additional discussion in the preceding Results of Operations section. Other-net in the preceding table reflects a
reduction in cash flows from operating activities, partially due to a $40 million divestiture gain in 2016 (discussed in
Note 2), as cash divestiture activity is presented as proceeds from sale of businesses within investing activities, not
operating activities. 
 
Cash Flows from Investing Activities: 
 
                                                                                                                                                  
                                                                                                  Nine months ended           
                                                                                                  September 30,               
 (Millions)                                                                                       2016                        2015     
                                                                                                                                                  
 Purchases of property, plant and equipment (PP&E)                                                $                  (984)          $  (1,015)    
 Proceeds from sale of PP&E and other assets                                                                         18                17         
 Acquisitions, net of cash acquired                                                                                  (17)              (2,910)    
 Purchases and proceeds from maturities and sale of marketable securities and investments, net                       (242)             1,256      
 Proceeds from sale of businesses                                                                                    56                19         
 Other investing activities                                                                                          (4)               22         
 Net cash used in investing activities                                                            $                  (1,173)        $  (2,611)    
 
 
Capital spending was $984 million in the first nine months of 2016, compared to $1.015 billion in the first nine months of
2015. The Company expects 2016 capital spending to be in the range of $1.4 billion to $1.5 billion. 
 
Investments in property, plant and equipment enable growth across many diverse markets, helping to meet product demand and
increasing manufacturing efficiency. 3M invests in renewal and maintenance programs, which pertain to cost reduction, cycle
time, maintaining and renewing current capacity, pollution reduction, and compliance. Costs related to maintenance,
ordinary repairs, and certain other items are expensed. 3M also invests in new growth capacity, both through expansion of
current facilities and by building new facilities. 3M also invests in corporate laboratory facilities and information
technology (IT). 
 
Refer to Note 2 for information on acquisitions and divestitures. The Company is actively considering additional
acquisitions, investments and strategic alliances, and from time to time may also divest certain businesses. Proceeds from
sale of businesses in the first nine months of 2016 related to the divestiture of the assets of the pressurized
polyurethane foam adhesives business (formerly known as Polyfoam) business within the Industrial business segment and the
completion of the divestiture of the Library business within the Safety and Graphics business segment. 
 
Purchases of marketable securities and investments and proceeds from maturities and sale of marketable securities and
investments are primarily attributable to asset-backed securities, certificates of deposit/time deposits, commercial paper,
and other securities, which are classified as available-for-sale. Net proceeds from maturities and sale of marketable
securities in the first nine months of 2015 were used to help fund the August 2015 acquisitions of Capital Safety and
Membrana. Refer to Note 7 for more details about 3M's diversified marketable securities portfolio. Purchases of investments
include additional survivor benefit insurance, plus cost method and equity investments. 
 
Cash Flows from Financing Activities: 
 
                                                                                                                                         
                                                                                         Nine months ended           
                                                                                         September 30,               
 (Millions)                                                                              2016                        2015     
                                                                                                                                         
 Change in short-term debt - net                                                         $                  (498)          $  1,160      
 Repayment of debt (maturities greater than 90 days)                                                        (992)             (793)      
 Proceeds from debt (maturities greater than 90 days)                                                       2,832             3,420      
 Total cash change in debt                                                               $                  1,342          $  3,787      
 Purchases of treasury stock                                                                                (2,829)           (4,104)    
 Proceeds from issuances of treasury stock pursuant to stock option and benefit plans                       741               518        
 Dividends paid to shareholders                                                                             (2,014)           (1,933)    
 Excess tax benefits from stock-based compensation                                                          -                 137        
 Other - net                                                                                                (20)              (99)       
 Net cash used in financing activities                                                   $                  (2,780)        $  (1,694)    
 
 
2016 Debt Activity (first nine months): 
 
Total debt at September 30, 2016 was $12.4 billion, up from $10.8 billion at year-end 2015, with the increase primarily due
to May 2016 debt issuances (approximately $1.1 billion at issue date exchange rates) and September 2016 debt issuances of
approximately $1.75 billion. This increase was partially offset by the repayment of $1 billion aggregate principal amount
of medium-term notes due September 2016 along with the net impact of repayments and borrowings by international
subsidiaries, which is reflected in "Change in short-term debt-net" in the preceding table. Total debt was 51 percent of
total capital (total capital is defined as debt plus equity) at September 30, 2016, compared to 48 percent of total capital
at year-end 2015. 
 
Proceeds from debt for the nine-months ended September 30, 2016, primarily related to the May 2016 issuance of 500 million
Euros aggregate principal amount of 5.75-year fixed rate medium-term notes due February 2022, and 500 million Euros
aggregate principal amount of 15-year fixed rate medium-term notes due 2031 along with the September 2016 issuances of $600
million aggregate principal amount of five-year fixed rate medium-term notes due 2021, $650 million aggregate principal
amount of 10-year fixed rate medium-term notes due 2026, and $500 million aggregate principal amount of 30-year fixed rate
medium-term notes due 2046 (refer to Note 8 for more detail). 
 
2015 Debt Activity (first nine months): 
 
Changes in short-term debt for the nine months ended September 30, 2015 primarily related to commercial paper issuances
($800 million), but also included bank borrowings by international subsidiaries. Repayment of debt primarily related to
debt assumed (and paid off) as part of the Capital Safety acquisition. 
 
Proceeds from debt for the nine-months ended September 30, 2015, primarily related to the May 2015 issuance of 650 million
Euros aggregate principal amount of five-year floating rate medium-term notes due 2020, 600 million Euros aggregate
principal amount of eight-year fixed rate medium-term notes due 2023, and 500 million Euros aggregate principal amount of
fifteen-year fixed rate medium-term notes due 2030, which in the aggregate totaled approximately $1.9 billion at issue date
exchange rates. In addition, August 2015 issuances included $450 million aggregate principal amount of three-year fixed
rate medium-term notes due 2018, $500 million aggregate principal amount of five-year fixed rate medium-term notes due
2020, and $550 million aggregate principal amount of 10-year fixed rate medium-term notes due 2025, which in aggregate
total $1.5 billion. 
 
Repurchases of Common Stock: 
 
Repurchases of common stock are made to support the Company's stock-based employee compensation plans and for other
corporate purposes. In February 2016, 3M's Board of Directors authorized the repurchase of up to $10 billion of 3M's
outstanding common stock, with no pre-established end date. In the first nine months of 2016, the Company purchased $2.829
billion of its own stock, compared to $4.104 billion in the first nine months of 2015. The Company expects full-year 2016
gross share repurchases will be in the range of $3.5 billion to $4.5 billion. For more information, refer to the table
titled "Issuer Purchases of Equity Securities" in Part II, Item 2. The Company does not utilize derivative instruments
linked to the Company's stock. 
 
Dividends Paid to Shareholders: 
 
Cash dividends paid to shareholders totaled $2.014 billion in the first nine months of 2016, compared to $1.933 billion in
the first nine months of 2015. 3M has paid dividends each year since 1916. In February 2016, 3M's Board of Directors
declared a first quarter 2016 dividend of $1.11 per share, an increase of 8 percent. This is equivalent to an annual
dividend of $4.44 per share and marked the 58th consecutive year of dividend increases for 3M. In May 2016, 3M's Board of
Directors declared a second quarter 2016 dividend of $1.11 per share, and in August 2016 declared a third quarter 2016
dividend of $1.11 per share. 
 
Other cash flows from financing activities may include various other items, such as distributions to or sales of
noncontrolling interests, changes in cash overdraft balances, and principal payments for capital leases. 
 
Free Cash Flow (non-GAAP measure): 
 
Free cash flow and free cash flow conversion are not defined under U.S. generally accepted accounting principles (GAAP).
Therefore, they should not be considered a substitute for income or cash flow data prepared in accordance with U.S. GAAP
and may not be comparable to similarly titled measures used by other companies. The Company defines free cash flow as net
cash provided by operating activities less purchases of property, plant and equipment. It should not be inferred that the
entire free cash flow amount is available for discretionary expenditures. The Company defines free cash flow conversion as
free cash flow divided by net income attributable to 3M. The Company believes free cash flow and free cash flow conversion
are meaningful to investors as they function as useful measures of performance and the Company uses these measures as an
indication of the strength of the company and its ability to generate cash. The first quarter of each year is typically
3M's seasonal low for free cash flow and free cash flow conversion. Below find a recap of operating, investing and
financing cash flows along with free cash flow details for the nine months ended September 30, 2016 and 2015. 
 
                                                                                                             
                                                            Nine months ended           
                                                            September 30,               
 (Millions)                                                 2016                        2015     
                                                                                                             
 Major GAAP Cash Flow Categories                                                                             
 Net cash provided by operating activities                  $                  4,453          $  4,082       
 Net cash used in investing activities                                         (1,173)           (2,611)     
 Net cash used in financing activities                                         (2,780)           (1,694)     
                                                                                                             
 Free Cash Flow (non-GAAP measure)                                                                           
 Net cash provided by operating activities                  $                  4,453          $  4,082       
 Purchases of property, plant and equipment (PP&E)                             (984)             (1,015)     
 Free cash flow                                             $                  3,469          $  3,067       
 Net income attributable to 3M                              $                  3,895          $  3,795       
 Free cash flow conversion                                                     89       %        81       %  
 
 
CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS 
 
This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Part I, Item 2, 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 shareholders 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," "forecast" and other words and terms of similar meaning, typically identify such
forward-looking statements. In particular, these include, among others, statements relating to: 
 
·      the Company's strategy for growth, future revenues, earnings, cash flow, uses of cash and other measures of
financial performance, and market position, 
 
·      worldwide economic, political, and capital markets conditions, such as interest rates, foreign currency exchange
rates, financial conditions of our suppliers and customers, and natural and other disasters or climate change affecting the
operations of the Company or its suppliers and customers, 
 
·      new business opportunities, product development, and future performance or results of current or anticipated
products, 
 
·      the scope, nature or impact of acquisitions, strategic alliances and divestitures, 
 
·      the outcome of contingencies, such as legal and regulatory proceedings, 
 
·      future levels of indebtedness, common stock repurchases and capital spending, 
 
·      future availability of and access to credit markets, 
 
·      pension and postretirement obligation assumptions and future contributions, 
 
·      asset impairments, 
 
·      tax liabilities, 
 
·      information technology security, and 
 
·      the effects of changes in tax, environmental and other laws and regulations in the United States and other countries
in which we operate. 
 
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. Important information as to these
factors can be found in this document, including, among others, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" under the headings of "Overview," "Financial Condition and Liquidity" and annually in
"Critical Accounting Estimates." Discussion of these factors is incorporated by reference from Part II, Item 1A, "Risk
Factors," of this document, and should be considered an integral part of Part I, Item 2, "Management's Discussion and
Analysis of Financial Condition and Results of Operations." For additional information concerning factors that may cause
actual results to vary materially from those stated in the forward-looking statements, see our reports on Form 10-K, 10-Q
and 8-K filed with the SEC from time to time. 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 
 
In the context of Item 3, 3M is exposed to market risk due to the risk of loss arising from adverse changes in foreign
currency exchange rates, interest rates and commodity prices. Changes in those factors could impact the Company's results
of operations and financial condition. For a discussion of sensitivity analysis related to these types of market risks,
refer to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in 3M's Current Report on Form 8-K
dated May 17, 2016 (which updated 3M's 2015 Annual Report on Form 10-K). There have been no material changes in information
that would have been provided in the context of Item 3 from the end of the preceding year until September 30, 2016.
However, the Company does provide risk management discussion in various places in this Quarterly Report on Form 10-Q,
primarily in the Derivatives note. 
 
Item 4. 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. 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. 
 
The Company is implementing an enterprise resource planning ("ERP") system on a worldwide basis, which is expected to
improve the efficiency of certain financial and related transaction processes. The gradual implementation is expected to
occur in phases over the next several years. The implementation of a worldwide ERP system will likely affect the processes
that constitute our internal control over financial reporting and will require testing for effectiveness. 
 
The Company completed implementation with respect to elements of certain processes/sub-processes in limited
subsidiaries/locations and will continue to roll out the ERP system over the next several years. As with any new
information technology application we implement, this application, along with the internal controls over financial
reporting included in this process, was appropriately considered within the testing for effectiveness with respect to the
implementation in these instances. We concluded, as part of its evaluation described in the above paragraphs, that the
implementation of the ERP system in these circumstances has not materially affected our internal control over financial
reporting. 
 
3M COMPANY 
 
FORM 10-Q 
 
For the Quarterly Period Ended September 30, 2016 
 
PART II.  Other Information 
 
Item 1. Legal Proceedings. 
 
Discussion of legal matters is incorporated by reference from Part I, Item 1, Note 12, "Commitments and Contingencies" of
this document, and should be considered an integral part of Part II, Item 1, "Legal Proceedings." 
 
Item 1A. Risk Factors. 
 
Provided below is a cautionary discussion of what we believe to be the most important risk factors applicable to the
Company. Discussion of these factors is incorporated by reference into and considered an integral part of Part I, Item 2,
"Management's Discussion and Analysis of Financial Conditions and Results of Operations." 
 
* Results are impacted by the effects of, and changes in, worldwide economic, political, and capital markets conditions.
The Company operates in more than 70 countries and derives approximately 60 percent of its revenues from outside the United
States. The Company's business is subject to global competition and geopolitical risks and may be adversely affected by
factors in the United States and other countries that are beyond its control, such as slower economic growth, disruptions
in financial markets, economic downturns in the form of either contained or widespread recessionary conditions, inflation,
elevated unemployment levels, sluggish or uneven recovery, government deficit reduction and other austerity measures in
specific countries or regions, or in the various industries in which the Company operates; social, political or labor
conditions in specific countries or regions; natural and other disasters or climate change affecting the operations of the
Company or its customers and suppliers; or adverse changes in the availability and cost of capital, interest rates, tax
rates, tax laws, or exchange control, ability to expatriate earnings and other regulations in the jurisdictions in which
the Company operates. 
 
* Change in the Company's credit ratings could increase cost of funding. The Company's credit ratings are important to 3M's
cost of capital. The major rating agencies routinely evaluate the Company's credit profile and assign debt ratings to 3M.
This evaluation is based on a number of factors, which include financial strength, business and financial risk, as well as
transparency with rating agencies and timeliness of financial reporting. 3M currently has an AA- credit rating with a
stable outlook from Standard & Poor's and has an A1 credit rating with a stable outlook from Moody's Investors Service. In
March 2016, Moody's downgraded 3M's rating from Aa3 to A1, revised 3M's outlook from negative to stable, and affirmed the
Company's short-term rating of P-1. This ratings action followed 3M's announcement of its new five-year plan for the period
2016 through 2020 in which the Company communicated its intent to further increase financial leverage. The Company's credit
ratings have served to lower 3M's borrowing costs and facilitate access to a variety of lenders. The Company's ongoing
transition to a better-optimized capital structure, financed with additional low-cost debt, could impact 3M's credit rating
in the future. Failure to maintain strong investment grade ratings would adversely affect the Company's cost of funding and
could adversely affect liquidity and access to capital markets. 
 
* 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's financial statements are denominated in U.S. dollars and
approximately 60 percent of the Company's revenues are derived from outside the United States, the Company's results of
operations and 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, and engages in ongoing global business transformation. Business
transformation is defined as changes in processes and internal/external service delivery across 3M to move to more
efficient business models to improve operational efficiency and productivity, while allowing 3M to serve customers with
greater speed and efficiency. This is enabled by the ongoing multi-year phased implementation of an enterprise resource
planning (ERP) system on a worldwide basis. There can be no assurance that all of the projected productivity improvements
will be realized. 
 
* The Company employs information technology systems to support its business, including ongoing phased implementation of an
ERP system as part of business transformation on a worldwide basis over the next several years. Security breaches and other
disruptions to the Company's information technology infrastructure could interfere with the Company's operations,
compromise information belonging to the Company and its customers, suppliers, and employees, exposing the Company to
liability which could adversely impact the Company's business and reputation. In the ordinary course of business, the
Company relies on information technology networks and systems, some of which are managed by third parties, to process,
transmit and store electronic information, and to manage or support a variety of business processes and activities.
Additionally, the Company collects and stores certain data, including proprietary business information, and may have access
to confidential or personal information in certain of our businesses that is subject to privacy and security laws,
regulations and customer-imposed controls. Despite our cybersecurity measures (including employee and third-party training,
monitoring of networks and systems, and maintenance of backup and protective systems) which are continuously reviewed and
upgraded, the Company's information technology networks and infrastructure may still be vulnerable to damage, disruptions
or shutdowns due to attack by hackers or breaches, employee error or malfeasance, power outages, computer viruses,
telecommunication or utility failures, systems failures, service providers including cloud services, natural disasters or
other catastrophic events. It is 

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