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 (February 6, 1997)/FOOLWIRE/ --- 3M released fourth quarter and fiscal 1996 results on January 28th. The strong momentum in 3M's financial performance continued into the fourth quarter. Sales excluding currency impact rose 12% from the same quarter last year. Per share earnings on a comparable basis rose 20% and excluding currency effect, that earnings increase was about 25%. Sales rose about 10% to $3.6 billion. Volume increased 12% while selling prices were basically unchanged from the year-earlier quarter. Currency exchange rates reduced sales growth by a little more than 2%. Internationally, where they do more than half of their business, sales exceeded $1.9 billion, an all-time high. Volume growth increased 14% while selling price declined slightly. The strong US dollar, particularly against the Japanese yen reduced international sales by close to 5%.

INTERNATIONAL PERFORMANCE. Their two sectors, industrial/consumer and life sciences, both posted double-digit in local currency sales increases abroad. In both sectors, international volume gains were strong across the major businesses. International volume growth geographically increased in double-digits in all major areas.

EUROPE. In Europe, which accounts for nearly half of their total business ex-US, unit sales increased 15%. European sales set a new record for any quarter. Their companies in Italy, Spain, and the developing economies of central and Eastern Europe showed excellent volume gains. Volume growth in the UK and France was also very good, but Germany remains soft.

ASIA/PACIFIC. In the Asia/Pacific area, which accounts for about 1/3 of their international sales, unit sales were up 13%. Unit sales in Japan, home of their largest international company, rose about 11% continuing an excellent performance there. Propelling this growth in Japan were 3M businesses serving electronics, healthcare, and commercial graphics markets. They are also pleased with the growth of the Japanese industrial markets, helped by a market-centered approach to customers. Elsewhere in Asia, volume rose nearly 35%. They posted strong volume again throughout the regions where they operate companies. Only in Australia and New Zealand did unit sales decline slightly.

LATIN AMERICA. In Latin America, unit sales increased more than 20% continuing a record of strong gains. They posted healthy increases throughout Latin America with particularly strong increases in Brazil and Mexico.

CANADA. In Canada, volume increased 7%, well above the rate of economic growth there. Overall, their international volume growth was the strongest in 7 quarters and international sales were the highest of any quarter in their history.

THE UNITED STATES. In the US, sales increased 11% to nearly $1.7 billion. Volume rose 10% while selling prices were up a little less than 1%. Looking more closely at US sales for the quarter, they saw strong gains in both of their business sectors. In industrial/consumer, US sales increased 11% and volume was up 10%. Within the sector, they saw excellent US sales in the specialty chemicals and in products for the electronics and communications markets. Growth was also good across the sectors of the major businesses which includes tapes, abrasives, consumer, and office products. In the life science sector, US sales rose about 9% with almost all of this growth coming from volume gains. Within life sciences 3M healthcare business posted double-digit volume growth. The major businesses in this sector, including commercial graphic and products for transportation safety, also registered solid sales gains. Volume growth in the US and internationally was the strongest in many quarters.

COST OF GOODS/MARGINS. Cost of goods sold grew by more than 2% from the same quarter last year. Last year, their cost of goods sold was elevated by several factors including big increases in raw material costs and cutbacks in 3M production to adjust inventory levels. Even so, the performance in cost of goods sold this quarter was very good. Gross margin improved by 0.3% from the first nine months of the year. Gross margin benefitted from solid volume and productivity gains, raw materials also helped, but this benefit was basically offset by negative currency effects. The stronger dollar increased cost of goods sold by 0.5%. This currency factor relates to the prices their international companies make from the United States. They expect the cost of raw materials to be down in 1997, producing a small benefit to cost of goods sold.

SG7A EXPENSES. SG&A expenses were 25.9% of sales, higher than in recent quarters. The spending was a little elevated by special advertising and promotion related to new products and by some additional overhead from the spin-off of Imation. Toward the end of the quarter, approximately 1,000 employees (roughly 800 in the US and 200 in Europe) left 3M through separation programs related to their 1996 restructuring activities. More than half of these employees were in corporate service functions, part of SG&A. An additional 500 people in Europe will depart 3M under similar programs in the first half of 1997. This employee reduction will have a positive effect on spending, particularly in the second half of the year. Longer term their SG&A spending target is below 25%.

PROFITS. They took a one-time pre-tax restructuring charge of $79 million in continuing operations in the fourth quarter of 1995. The comparisons given exclude this amount. Operating income was 17.4% of sales, up 1.5 percentage points from the fourth quarter last year. Operating income rose about 20% even thought currency effect reduced profit by about $20 million or about 5%. In the United States, operating income was 17.1% of sales, an increase of more than 3 percentage points from the fourth quarter 1995. US profits rose more than 35%. Internationally, operating income was 17.6% of sales, up slightly from the year-ago quarter and profit rose 17% in local currencies and about 9% in dollars. Worldwide the profit gains and margin improvements were based in their industrial and consumer business. Profit rose in their life science sector, but margins there declined slightly.

NON-OPERATING EXPENSES. Non-operating expenses were roughly the same as in the year-ago quarter. Their tax rate was at 35% of pre-tax income bringing their rate for the full year to 35.8%, slightly better than last year. They don't anticipate a significant change in their tax rate in 1997.

INCOME. Income totalled $375 million, up 18% from the year-ago quarter. Earnings for the quarter were $0.90 per share, up $0.15 or 20% from the fourth quarter last year. Operating factors increased per share revenues by about $0.20 or about 25%. Currency affected revenues by an estimated $0.04 per share or 5%. The healthy trend in their financial performance continued in the fourth quarter.

BALANCE SHEET. They continued to do a good job of controlling working capital. Their inventory index and days sales outstanding both improved from 1995. During 1996, their inventory index was about 9% below the average for 1995 and they further reduced their receivables days outstanding by 3 days. Capital expenditure totalled $350 million in the quarter, bringing the total spending for 1996 to $1.1 billion, up 2% from 1995. For 1997 they expect capital spending to increase to around $1.3 billion. They are investing capital to support important growth initiatives. Shares outstanding at year end totalled 460.8 million, a net reduction of about 2 million shares from the end of 1995. In 1997 they expect a greater reduction in shares, about 4 million or so. Debt at year end remained at less than 25% of total capital. The balance sheet remains exceptionally strong, even with a lot of one-time items related to their 1996 spin-off and other organizational changes.

RECAP OF 1996. 1996 volume rose 8%. Selling prices were up about 1%. Currency reduced sales by 3%. In the US, sales increased 7% with a good sequential acceleration in growth. After increasing 3% in the first quarter, US sales rose 7% in Q2, 8% in Q3, and 11% in Q4. In dollars, the US was 7% higher than in the first half. Internationally, volume increased about 10% and selling prices were up nearly 1%, so the stronger US dollar reduced international sales by almost 6%. In Europe, they increased volume about 7%, a good performance considering the lower rate of economic growth there. In Asia/Pacific, volume rose 12% with growth strong both in Japan and in the other Asian nations. In Latin America volume was up about 20% and 3M growth was strong throughout this area. Worldwide they leveraged growth in sales very well. Earnings per share increased 12.4%. Excluding currency effect per share earnings increased 17%. This increase excludes the 1995 restructuring charges. Very solid productivity gains played an important role in their 1996 results. During the year, sales per employee in local currencies increased about 10%. This came on top of gains of 8% in 1995 and 9% in 1994.

ECONOMIC PROFIT. They recently adopted economic profit as a management and measurement tool. 3M had $620 million of economic profit for the company in 1996. Their internal invested capital in 1996 was 17.1%, about 6.5 points in excess of 3M's current corporate capital, an increase of 0.5 point from 1995. All in all their 1996 performance was right in line with the expectations they communicated at the beginning of the year.

INITIATIVES. Driving 3M's results were a strong flow of new products and an increasingly sharp focus on customer satisfaction, good and continued success internationally, and some good productivity gains.

OUTLOOK FOR 1997. 3M expects good results again this year, even though the dollar has continued to strengthen during the last several months. One reason they are confident about this year is that the world economic environment remains reasonably good. In Western Europe, it appears that economic conditions are improving. 1997 isn't going to be anything to cheer about, but economic growth should be somewhat better than in 1996. In the developing countries of Eastern Europe and the Middle East, 3M increased sales by more than 25% in 1996 and they expect that kind of momentum to continue in 1997. In Japan, the economy is softening a little bit, but they do expect and they did very well this year relative to a soft economy and they expect to continue to do well, a lot of it because of an unusually strong flow of new products with an emphasis on some fast growing segments. Elsewhere in Asia, the economies continue to be healthy, although maybe a somewhat slower pace than they have seen. Consensus is that Hong Kong is making a relatively smooth transition to Chinese control and that Hong Kong will remain an important hub for trading and finance. That bodes well for 1998 and beyond. They just returned from Latin America where they reviewed their major companies. It looks like 1997 is going to be another satisfying year in Latin America with growth at least in the mid-teens. Mexico's economy appears to be poised for continued growth. Argentina looks stable. Venezuela is turning a corner out of a very deep hole they've gotten themselves into. Brazil, the largest part of 3M's business, continues to look very strong. In the US, most economists expect moderate growth again in 1997.

SECULAR GROWTH ON AN ONGOING BASIS (1996-2000). They would like to see themselves as having the ability to grow in volume and pricing terms approaching 10%. They think 10% is a number they can meet in this time period. They were close to that in 1996 and think they will do a little better in 1997. They think that their margin can gradually improve so they are looking at operating income growth a little better than that, maybe in the 12% range. They think there is a possibility of a share contraction (share buybacks) maybe up to 1% per year or so. So they are talking about earnings per share another point or two above that. On a reported basis they would expect some economic slowdown at some point which would have to be figured in. With their business so disbursed around the world, with the US being the biggest portion and determining the numbers, the US economy is important but a lot of the things they are doing right now are designed to help them disconnect more from economic fluctuations in general.

GROWTH INITIATIVES. 3M feels positive about 1997 because of their own programs and initiatives. Their technology base and their new product portfolio are the strongest in their history. They are developing better relationships with their customers. They are further extending their very strong global presence and they are continually paying attention to productivity issues and competitive issues. They are focusing on 3 interdependent initiatives. The first has to do with innovation which, in a real sense is the soul of 3M. In 1996 30% of 3M's sales came from products introduced in the last 4 years. That is up from 27% in 1995 and 26% in 1994. Another good sign, they continued a pace of 500 patents issued in the US for 3M. They are accelerating the development of high impact new products, not only from a size point of view but that are unique enough to make a difference and to cause a change in the basis of competition. In 1996 their existing identified programs generated about $400 million in sales and that's basically all new business. They expect these programs to produce sales of $800 million in 1997. They have about 30 programs currently identified and underway and expectations for them, by the end of the decade, is into several billion dollars.

NEW TECHNOLOGY. It is exciting to see the potential that the emerging technologies add to 3M's outlook. Microreplication is a good example because it is at the point now where it is really blossoming and it is the basis for a whole array of new products such as microabrasives, reflective sheeting, brightness enhancing products for LCDs, light management, mechanical closures for diapers, computer mousepads, security film, etc. Within 5 years, 3M thinks that 25% of their sales will likely come from products that have some microreplication component in them. That is up from a little less than 5% last year.

CUSTOMER SATISFACTION. The second initiative they are pursuing centers on customer satisfaction. Customers rely on 3M for innovative and high quality products and their customer loyalty initiative is an extension of their historical emphasis on quality. Customers who are very satisfied are 5 times more likely to recommend a product than customers who are just satisfied. They are also more likely to become long-term customers and long-term customers are more profitable to 3M than any other category of customers. So, their objective is to increase the percentage of their customer base that falls into the "very satisfied" customer category. Making the best product in the marketplace is only one aspect of inspiring or earning loyalty. Just as important are things like being easy to do business with, on-time delivery, efficient order processing, etc. They are addressing those issues on a very wide front.

PRODUCTIVITY/EFFICIENCY/COMPETITIVENESS. Another area that needs constant attention is the area of productivity, efficiency, and competitiveness. Their 1996 productivity gain was 10%. They think that is very good and they have been at an 8% rate for the last several years, and that is their target. So, their third initiative is called supply-chain excellence and it addresses productivity and competitiveness while at the same time paying attention to increasing their customer satisfaction index. It focuses on the fundamentals of continuous improvement in speed, accuracy, and lower cost while helping their sales growth by improving customer service.

GROWTH INTERNATIONALLY. These 3 strategic initiatives extend worldwide. Their internal goal is to have their international sales grow at around 1.5 times the rate of their US sales growth. 3M is well established internationally. They have experienced organizations all around the globe and operate companies in more than 60 countries outside the US and that provided the means to sell 3M products in about 200 countries worldwide. With 3M's core strengths and these initiatives they believe they can increase volume growth maybe a little more than they did in 1996. Through continued productivity improvement, they can leverage this sales growth. Currency will have a larger impact than it would've had several months ago.

JOINT VENTURE WITH HOECHST. This quarter they started to consolidate their joint venture with Hoechst in the chemical business. They have more operating profit and more minority interest so at the bottom line there is no change. They own 54% and control the company entirely and deduct the 46% of the profit at the bottom line. Sales that they will add in 1997 at the topline will be in the range of $140 million.

WHY THEY BELIEVE 3M STOCK SHOULD BE A CORE HOLDING. 3M consists of leading businesses serving a broad array of markets from automotive and healthcare to office and electronic markets. They are leaders in all their markets, usually #1 in market share. Their unique technological strength positions them for sustainable success and growth. They have tremendous international experience and capability and strengths that bolsters their ability to take advantage of growth outside the US as well. Each one of their businesses earns a good return, well in excess of its cost of capital. They have an exceptionally strong financial position. Finally, they feel pretty good about their ability to deliver solid sales and earnings growth in 1997 and beyond.

* 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.