FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

3M (Minnesota Mining & Mfg.) <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %>
3M Center
St. Paul, MN 55144-1000
(612) 733-1110
http://www.3m.com/index.html

UNION CITY, Ca., October 21, 1996/FOOLWIRE/ --- 3M released their third quarter 1996 results on Friday. Sales and profits set records for any quarter, despite the significant and negative impact from the stronger US dollar. Their sales grew nearly 8% to $3.6 billion. Earnings were $0.95 per share, an increase of more than 17% from the same quarter last year. Currency fluctuations reduced sales by 3% and earnings per share by about 6%. So, excluding currency, sales rose about 11% and earnings per share increased 23%.

Driving these record results were double-digit volume growth, solid productivity gains, and other factors.

SALES. Their volume rose about 10% and selling prices were up slightly, about 1%. Internationally, where they do over half their business, volume increased 12% and selling prices were up 1%. The stronger US dollar, particularly versus the Japanese yen, reduced international sales by about 6%. International sales totalled nearly $1.9 billion.

SALES BY SECTOR. Their two sectors, industrial & consumer and life science, both posted double-digit local currency sales gain and growth. In the Industrial & Consumer sector, international growth was particularly strong in their electronics, construction, consumer stationery, visual systems, and automotive. In Life Science, international growth was well balanced between the sector's two major business areas -- first, health and personal care; second, transportation safety, occupational safety, and commercial graphics.

SALES BY GEOGRAPHY. ASIA/PACIFIC. Looking at international volume on a geographical basis, they saw solid gains in all major areas. In the Asia/Pacific area, unit sales increase 14%. In Japan, which is the home of their largest international company, unit sales rose more than 15%, continuing an excellent performance there. Propelling this growth in Japan were 3M businesses serving the electronics, commercial graphics, and healthcare markets. Their people in Japan also significantly outpaced the growth of industrial markets helped by a market-centered approach to customers. In Asia outside of Japan, where they have companies in a dozen countries, volume was up about 18%. They posted strong volume gains through most of Asia. Their sales in Asia this year excluding Japan total about $900 million, up from $300 million 5 years ago. In Australia and New Zealand, also part of the Asia/Pacific area, sales were down slightly from the current quarter last year.

LATIN AMERICA. In Latin America, unit sales increased nearly 30%, continuing a pattern of strong growth there. The gains were particularly strong in Brazil, home of their largest company in this area. Their business in Mexico also continued to rebound nicely. In Latin America they are benefitting from freer trade which has enabled them to significantly broaden their product offering.

EUROPE. In Europe, volume increased more than 7%, an acceleration of the growth they showed there in the first half of the year. While they are again experiencing some softness in Germany, they saw a pickup in sales in France, Italy, and the UK. They also posted strong revenue gains in developing countries like Poland and the Czech republic.

CANADA. Volume in Canada increased about 11%, a strong performance relative to the rate of economic growth there.

UNITED STATES. Here in the US, sales increased 8% to more than $1.7 billion. Volume rose more than 7%, well above the rate of US economy growth. US selling prices were up a little less than 1%, mainly reflecting the carryover of price increases implemented over the past few quarters. They saw a strong increase, more than 11%, in their largest sector (Industrial & Consumer). Volume there was up nearly 10%, well above the growth of the Industrial and Consumer markets. Selling prices add about another 1.5 points to US sales with the IC sector.

THE IC SECTOR. The growth in the Industrial & Consumer sector was broadly based with gains particularly strong in automotive and electrocommunications markets. The IC sector is outpacing the growth of its markets through innovative, high-impact products and through a market-focused approach to customers. Among the high-impact and new products contributing to the growth over the IC sector during the quarter were flexible circuits used in inkjet printers and other electronic products.

THE LIFE SCIENCES SECTOR. In the Life Science sector, US sales increased about 2%, all due to volume. Within Life Sciences they saw good revenue growth in commercial graphic, dental products, and drug delivery systems. Life Sciences overall US growth was affected by the divestiture of two businesses, hearing aids and infusion therapy, which didn't fit with the sector's strategic plans. These two businesses accounted for about 2% of the sector's US sales. Life Science US sales growth also was tempered by consolidation in the healthcare industry and by a difficult comparison in their safety and security business. Going forward, Life Science US growth will benefit from a number of initiatives including new products, an emphasis on faster growing segments of the healthcare industry, and selective acquisitions including two smaller ones that they recently announced in the healthcare area. One of these acquisitions expands their leadership in sterlization assurance. The other strengthens their position in the ob/gyn market as they prepare to launch an important new treatment for genital warts. The two acquisitions will make up for the sales loss that results from the divestitures.

COSTS. Costs of goods sold was at 57.1% of sales, down 0.5% from the same quarter last year. Cost of goods sold benefitted from volume, pricing, raw materials, and from productivity. These benefits were partially offset by the stronger US dollar. Currency changes reduced gross margin by about 0.7%. SG&A was 25.3%, down slightly from the same quarter last year and among the lowest levels in many quarters. Given these improvements in cost of goods sold and SG&A, operating income was 17.6% of sales, up more than 0.5% from the third quarter last year. Operating profit rose 11% from the same quarter last year despite a sizeable currency hit. Currency reduced operating income by $14 million or about 7%.

OPERATING PROFITS. Here in the US, operating profit was 18.5% of sales, up nearly a full point from the same quarter last year. It was up 2.5 points from the first half of this year. They leveraged the gain in US sales very well, with domestic profits increasing more than 13% from the third quarter last year. Internationally, operating income was 16.7% of sales, up slightly from the same quarter last year. Profits abroad rose nearly 10% in dollars and 23% in local currency. This international profit increase, while good, were tempered by the obstruction of some overhead related to the spin-off of their data storage and imaging business on July 1st. These extra costs will soon be eliminated through departure already committed to and accrued for under the separation program.

LOOKING AT PROFIT LEVELS BY BUSINESS SECTOR, margins in their Industrial & Consumer sector rose sharply, 2.5% from the third quarter last year. Life Science margins were essentially unchanged from the third quarter last year. At over 21%, the margins in Life Science continue to be very good. Productivity gains played a significant role in their overall profit performance. Sales per employee in local currency increased about 12% from the third quarter last year.

NON-OPERATING EXPENSES. Continuing down the P&L, non-operating expenses declined by about $15 million from the same quarter last year. This improvement reflected the positive swing on currency transactions as well as increased investment income through the higher balances of cash and securities. Their tax rate declined due to the continued efforts to make the most of their international tax credits.

INCOME AND EARNINGS. Income for the quarter totalled nearly $400 million, an increase of 17.4% from the comparable quarter and income was 11% of sales. Earnings per share were $0.95 per share, up $0.14 per share from the same quarter last year. Operating factors including volume, pricing, and productivity increased per share earnings by about $0.18 per share, an increase of more than 20%.

BALANCE SHEET HIGHLIGHTS. Inventories and receivables remain in good shape. While their inventory index was down 7% from the third quarter last year, it was up just slightly from this year's second quarter. Days sales outstanding at 61 days worldwide improved by 3 days from the third quarter last year and by 2 days sequentially. Their total debt was at 24% of total capital, in line with their financial strategy.

CAPITAL EXPENDITURES AND R&D INVESTMENTS. Capital expenditures totalled $272 million this quarter bringing the spending for the first nine months of 1996 to about $760 million. For the year as a whole, capital spending will total more than $1 billion, roughly the same as last year. They are investing capital to support important growth initiatives. These are new products that create a new base of competition, offer large sales potential, produce high returns on invested capital, and serve a fast-growing industries. Programs they are making major capital investments in include CFC replacement chemicals, optical films, reflective sheeting, and electronic products. These and more than 20 other programs will make major contributions to 3M's growth going forward.

OUTLOOK FOR THE FOURTH QUARTER. They are optimistic for several reasons. First, the economic growth worldwide remains at reasonable levels. While major European economies are dealing with a number of challenges, it appears that growth there is accelerating. Second, their growth will continue to benefit from new products and their market-focused approach to customers. Their growth so far in October has been quite good. Third, they have been successful in securing favorable prices for key 3M raw materials. Despite higher prices for crude oil, they expect to lower raw material costs in the fourth quarter. They also expect raw material costs to be down slightly in 1997. Strong emphasis on productivity improvement also will continue to aid their results.

DEBT AND CURRENCY FLUCTUATIONS GOING FORWARD. On the non-operating side, they continue to manage their debt portfolio and currency exposure on a global basis, helping them to optimize this element of their financial results. They also continue to adjust their international capital structure to realize opportunities to minimize taxes. The stronger US dollar, particularly against the yen, will continue to impact them. Given current exchange rates, currency effects in the fourth quarter will reduce earnings by an estimated $0.04 per share, similar to the hit they experienced in this quarter. Given all of these elements, analyst consensus earnings estimates of $3.60 per share for the year appears reasonable at this time. This would represent an earnings increase of more than 11% with a negative impact from currency of about $0.15 per share, or nearly 5% which means a performance of 16%+.

LONG-TERM GROWTH EXPECTATIONS AND GOALS. During the period 1997 to 1999, they expect to increase sales about 10% per year, about 12% internationally and 7.5% in the US. They aim to grow earnings per share by about 14-15% per year and they aim to increase economic profit by more than 15% per year. In setting these targets they are assuming moderate levels of world economic growth, similar to what they experienced this year. They are also assuming stability in currency exchange rates. They are confident they can further step up their growth because several important initiatives are already starting to pay off and will really help them beginning in 1997. They have what they believe is the strongest technology base and new product portfolio in the history of 3M. They are connecting better than ever with customers and they continue to increase productivity and their competitiveness. Their overriding objective is to build value for shareholders. They recently introduced the economic profit as a managment and measuring tool. Economic profit gives their businesses a clearer picture of the shareholder value they are creating.

RETURN ON INVESTED CAPITAL. Their return on invested capital this year will be about 17%, about 6.5 points in excess of their current cost of capital which is 10.5%. This year their businesses will generate economic profit of about $600 million which is a 20% increase over 1995. Thanks to many initiatives underway at 3M they have the potential to reach a 20% return on invested capital by 1999 and that is an exciting target.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.