Ladies and gentlemen, thank you for standing by. And welcome to the 3M Second Quarter 2008 Earnings Conference Call. During the presentation, all participants will be placed in a listen-only mode. After which, you'll be invited to participate in a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, July 24th, 2008. We would now like to turn the call over to 3M.

Thanks. Good morning, everyone. This is Matt Ginter, Head of Investor Relations for 3M. I'd like to extend a sincere welcome to all investors and analysts for our second quarter 2008 business review. You will find this morning's presentation on our Investor Relations' website at 3m.com, and these slides will remain on the site along with an audio replay of today's call for an extended period of time. Please take a moment to read the forward-looking statements on slide number two. During today's conference call, we will make certain predictive statements that reflect our current views and estimates about our future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Item 1A of our most recent Form 10-K lists some of the most important risk factors that could cause actual results to differ from our predictions. Also allow me to put in a brief plug for our upcoming investor meeting in St. Paul on September 9th. You should have received an e-mail last week with a link to our registration site. If you've received the invite, please take a moment to reply as to whether or not you plan to attend. And if for some reason you did not receive an invitation, either drop us a note or give us a phone call and we'll give one out to you ASAP. Registration will close on August 29th. As for usual, today is a busy day and there are many companies are reporting earnings, we will do our best to keep the call to one hour. Again, you could help during the Q&A by limiting yourself to one question and one follow-up, so that all questions can be fully answered. George Buckley, our CEO and Pat Campbell, our CFO will both make some formal comments today, and then we will get to your questions. So, now please go to slide number three, and I would like to turn the program over to George.

Thanks, Matt, and thank you everyone for joining us this morning. Today I will make some brief opening comments, and Pat will then take you through the detail of the quarter. And then I will return to address some of the key issues including the state of our optical film business and our outlook going forward. After that, we're happy to address your questions and comments. So, to get started, our second quarter is perhaps best characterized as a repeat of the first quarter, a good quarter especially when you look at the core of the company. Whether it was any negative color, it was mostly provided by the secular change taking place in optical films. But, on balance, it was a quarter, which we fought our way to a good overall results. Over the past two and a half years, we spent most of our time investing in and strengthening the core businesses of 3M, driving international growth and fixing our supply chains. 3M has owned and operated these core businesses for many years, in fact one of them, abrasives, we won for over a 100 years. It's primarily this recent strategy of reinvestment in our core and in international that has made the current results possible. Despite all the headwinds at Optical, Commodities, and the U.S. economy through with us, the fact is that we still met our numbers and delivered the beacon. I'm also pleased to report that at the operational level 3M is performing superbly with our largest three businesses posting double-digit increases of sales in the last quarter. So, after that brief introduction, let me turn it over to Pat for an in-depth discussion of our strong second quarter. Patrick?

Thanks, George, and good morning, everyone. Please turn to slide number four. Indeed this was a very good quarter for 3M and the positives far outweighed our challenges. We posted record sales for the sixth consecutive quarter, and five of our six businesses achieved strong growth in sales and profits, including double-digit profit growth in three of our largest businesses. We are pleased that margins were 20% or better across the board. We converted nearly 100% of net income to free cash flow in the quarter, which enabled us to return nearly $1 billion to our shareholders via combination of dividends and share repurchases. On the other side, the challenges we face will now surprise you. The U.S. economy remained difficult, particularly in those areas that touch the consumer. George will update you on Optical Systems later. And finally, commodity input prices continue to rise which pressured our raw materials somewhat, but we have a good pricing story here, which I will address here in a few minutes. Please turn to slide number five. All information that I will present today will exclude special items. So, allow me to summarize the special items quickly to get them out of the way. Last year's second quarter results included a net gain of $0.02 per share from special items. The second quarter of 2008 reported earnings per share of $1.33, included a net charge of $0.06 per share related to a loss on the divestiture of HighJump Software along with charges for asset activities at an industrial and transportation manufacturing facility in the UK. Excluding these special items, Q2 2008 earnings per share were $1.39 as compared to $1.23 per share in last year's second quarter. Please refer to the attachment in today's press release for a more in-depth discussion on special…

Thank you very much, Pat. I'd like first to give you another update on the transition of our Optical Film business. There are still many investors who don't know the background to the challenges of this business, so let me give you a quick phrasing. First, of the four Optical Film segments that we serve, three of them plus the polarized films are relatively stable and strong for us. The issue is of course in the supply of films to LCD TVs. Fundamentally, the rapid rise of video as a club brand was the catalyst for this secular change. Beginning about two years ago, they rose from eighth place to first place in the U.S. market in less than nine months. They were able to do what they did by reducing brightness and all-time reviewing standards, because they are driving out of the costs to hit... keep price points and getting a great distribution channel. As new and lower price points were hit, the consequence explosion of the volume in the market at the bottom of the pyramid surprised us all. As the market commoditized, it rattled the large branded set manufacturers. They responded by following video e-content example and work to compete better. The net result was the buying lower specifications, TV manufacturers were able to design out a lot of the high performance films, and 3M did not have the product at the bottom of the market for sale. We had needed that lower cost film products free or even four years ago. So, for 3M, the impact was that we suffered loss of volume from de-contenting, as well as huge pricing pressure leading ultimately to the results in financial transitions that we're experiencing today. You'll recall that on our April call, we said that we expected the…

[Operator Instructions]. Our first question comes from Deane Dray from Goldman Sachs. Sir?

Good morning.

Good morning, Dray.

Yes. I'm not sure if you gave us data point, but it would be helpful on the Optical Film businesses, how... what was the impact on price and volume in the quarter?

Well, price was down 12%, and I think total volume... total volume... was 36%, I think volume was 24%.

Okay. And that down 12% is still within the band of what has been the recent transfer, or was it like that worse, and is that correct?

That's correct.

And then just... if we would re-calibrate, where these LCD TVs now fit in terms of the Optical Film sales that used to be in that 30% range? Where does it stand today? What is it on a run rate basis that will contribute?

Well, as George mentioned, Deane, it is a kind of a declining piece of the business. It's probably more in the... probably 20%... about 25% of the business on a current basis.

Okay. And then just a quick last question, if I could. How much should pension contribute in the quarter and what we're seeing in the unallocated portion there?

Yes, Deane, that number will stay the same throughout the year, and it's about $100 million for the year, so it's $25 million to $30 million for the quarter.

Terrific. Thank you.

Thanks, Dean.

Our next question comes from Scott Davis from Morgan Stanley. Sir, please continue with your question.

Hi, Guys.

Good morning, Scott.

Good morning, Scott.

I was positively surprised on the margins given some of the raw material prices that we've seen just most notably on the Dow Chemical. I guess my question really is, it looks like your mostly FIFO accounting is the impact of the big nature in price increases is not quite fund through to your margins yet or are the big price increases out there, that... are going to offset this? Just a little bit of color on that please.

Yes, Scott, you're correct. We're primarily a FIFO-based company, but don't be worried about a huge increase coming through the system here. What we saw in the second quarter was a 3% to 4%, we don't see a significant change on the... for the Q3, so don't anticipate a drop off here.

Does that mean the price increases in the upper or does it mean that... in the materials a little bit less of cost of goods sold than what I have in my models?

Yes, raw materials will probably go up sequentially a little bit, but we also have further price increases going in effect in the third quarter as well.

Okay, fair enough. The last question really relates to inventory at the customer level, Consumer and Office came in stronger than we expected, and doesn't totally match up, I guess with results we've seen from other companies like Avery Dennison, for example. Do you have a sense for inventories at your customer levels? Are the customers buying ahead of some of these price increases or anything that could be teamed as unusual?

Scott, if I was to kind of characterize the consumer business, just, kind of overall. We started to see a kind of a slowing tail in the last year and definitely in the first quarter. We think second quarter reflects a little more of a quarter... business, business as usual approach. We're keeping a close eye on inventories above the... the big retailers... Staples, Office Depot, the like, but of course we also have the back-to-school season here in September as well. But we do keep a very close eye on that. And as one, we have to be just a little careful on any given month, any given quarter within the consumer business because we do fall a little bit out of sink with especially the retailers. Yet, I'd also say that I think versus the lot of the other suppliers into the consumer business, our team has continued to do marvelous job of new products and penetration programs across the board. So, we continue to gain business every quarter.

You would hear, Scott, you heard Pat mentioned earlier that in the Filtrete business, sales are up 75% and what a lot of our customers have been doing is expanding their presence of 3M products, dispersing in some cases other products, so, we would be very successful in gaining share here. And it's really been the innovation taking those best technologies and innovating into new products that pull that kind of a thing off. And this has been pretty consistent across the vast majority of our retail customers. So, we have done well, simply a better, should I say simply because we would be penetrating with new products and it's the innovation, the differentiation that again it's getting that kind of edge over the competition and the power of 3M brands.

Fair enough. Thanks, guys.

Thanks, Scott.

Our next question comes from David Begleiter from Deutsche Bank. Sir?

Good morning, Dave.

Good morning, hi. Comment on what you are seeing in Europe, any signs of slowing?

Dave, Pat here, good question. I would say that our... the large Western European markets have performed similarly for both the first quarter and second quarter. No, no noticeably... no noticeable change. You, definitely worse in the Spain, Italy, part of Western Europe and probably the UK. The continent has remained low single-digits for us. So, that piece of the business has remained solid for us. Central Asia remains very, very strong us. We haven't seen any impact there at all or the Mid-East... no noticeable difference between Q1 and Q2.

Okay. And just on Health Care margins in Q2. They were down versus Q1. What drove the decline?

First of all, I wouldn't worry about it. If I look at the year-on-year results strong double-digit growth both top and bottom line, that business will operate in the 28% to 29% margin range, Dave, in any given quarter. We happen to invest a little more in marketing activities in the second quarter versus the first quarter, which is gone but a normal pattern for us.

So, there is nothing for you to be worried about, Dave, there is a great business, seems to be growing well, continuing innovation, especially in dental, very, very strong in dental and the orthodontics, sort of subcomponents of that, just doing extraordinarily well. So, nothing for you to be worried about.

Hey, Dave, the other thing, and I guess in for everybody just to remind you that in the second quarter, we have a larger impact of stock option expensing sequentially, Q1 to Q2 because our brand, Dave, is in the second quarter. So, a retirement eligible, where we have the both retiree eligible people is just a kind of peaks in the second quarter. So, all of our businesses sequentially, Q1 and Q2, have a little bit of a hit, I think on a company basis, its worth about half a point of margin.

Okay. Thank you very much.

Thanks, David.

Our next question comes from Jeff Sprague from Citi Investment.

Good morning, Jeff.

Good morning, everyone.

Good morning, Jeff.

Hi, just a quick follow-up on the corporate for I guess my questions are... Pat I thought the swing from negative $15 million last year in Q1 that was slight positive incorporate in Q1 this year with pension, but we've taken another step up to a bigger positive incorporate. Is there something else going on there?

It includes the pension, it also reflects some of the cost efforts we have for some of the staff activities here. As of course we anticipated where the economy was going, we have started to streamline even more of our overhead costs here in the center. And part of that flows through that corporate and unallocated piece as well.

Could that be falling through as a negative not a positive?

No. It was a positive... it's a positive, where we'll take costs out, Okay, it obviously is a positive from the income standpoint.

And so, it's the reflection of actions you have already taken. Not a new action?

Right. Yes. We fixed, we've sort of the fixed the amount we charge to the businesses, and if there is an over absorbable, to put it in corporate.

Okay. And George just a little strategically, actually around HighJump, I don't remember that was your deal or not, but it wasn't very long ago that it was bought, But, whether you were at the helm for that one or not, I kind of thought conceptionally and strategically you had been thinking about kind of a software and electronics type overlay, where you could across the businesses, is that still the case? And if so what was it above this particular asset that just didn't hit the mould?

That was...

Let me try to handle the historical piece of this, okay, and I'll let George kind of deal with, kind of the future. George was not here when we bought HighJump, I was... it was a 2004 acquisition that we made in our Industrial business. And as we're trying to get out a space where a lot of our customers had some significant warehouse management type issues, we thought we could incorporate it into our many of our industrial offerings and that we basically dealt with almost all industrial customers. And actually it started off reasonably well, But, as you got into it, it became very obvious that there were some a lot bigger players in that space that we just could not compete... we didn't have the scale to compete head-on-head with the likes of SAP, Oracle and like as they decide to enter that space as well. It was a, we thought it's worth a shot. We, eventually it didn't pan out in the Industrial business, we moved it over to the Safety and Security business as part of our Track and Trace efforts to see, if we could get some traction there, and realistically it didn't fit kind of our long-term... long-term strategy there and there is enough interest in the market that we're able to find a buyer for it, albeit at a loss. So, I'll let George kind of handle the future piece.

On the strategy, Jeff, it's true, we have aspirations to move towards some more having trying to content in many of our products with where it's appropriate. But, I think it's a sort of secondary strategy. We clearly have those upfront in central, invest in the core, invest in International as the big lead dogs in our strategy. So, all that... as we invest in our electronic things, it will only be at the margin. So you shouldn't see this as any great strategic piece, Jeff, and certainly as Pat has outlined and explained, I had nothing to do with HighJump.

And then, can you give us an update on what you're kind of expecting for restructuring over the balance of the year, kind of in the context of the $0.02 that you called out here in the quarter. And I guess, as part of that, it's becoming quite normal for companies, just to kind of absorb that in the pace as you go and continue to march, just what's your philosophy on that going forward?

Well, we will continue to assess the business, the business needs. We talked specifically about the Optical, the Optical one, we will continue to assess really in a couple of different areas as we look at our supply chain strategies over time. We may have some needs to do some restructuring, but don't think a massive destruction, again it's more of a kind of what one-off situation. But we will continue to assess our kind of our resource levels. We're currently doing that here in the U.S. to see if we'd have a need to do to do something. So, we will continue to look at this on the kind of a quarter-by-quarter basis. Looking at our long-term needs, as well as kind of what the short-term opportunities are, but don't expect anything large scale, we will take a charge here in the third quarter for the Optical correction and that will both be people, as well as around a few facilities that we have. We will more than likely have some offsetting asset transactions going the other direction. So, in the third quarter, we will have a few things probably going both directions probably some asset disposals, as well as some further restructuring charges.

That's the policy we follow, Jeff. We've tried for the menu, you can't over synchronize these things. It is whenever we've done these restructurings to the extent that we can, and to the extent it makes sense, we've tried to synchronize them. So, you had an offsetting gain to cover the loss. And it's just in all companies, it's just an outgoing tweaking assessment of efficiency and productivity, assessment to market conditions and taking appropriate action as you go forward. But, generally speaking if you, for the most part see, compensating offsets in the round.

Thanks a lot.

Thanks a lot, Jeff.

Our next question comes from Shannon O'Callaghan from Lehman Bro. Shannon O’Callaghan - Lehman Brothers: So, on operating margins, can you just talk through some of the businesses in the second half? What do you expect to get better sort of second half versus year-over-year. I mean you had margin declines 1Q, 2Q, there has been a mix in that to get to flat up 100 basis points, we have to you know start showing improvement in second half, of what businesses do you expect to drive that?

Shannon, I wouldn't' t read too much into we're running what 22.8% year-to-date. We've kind of said 22.5% to 23.5%, I don't see that as being a kind of a significant change. So, second quarter as I mentioned we had a little bit, we have a kind of an unusual, about half a point move because of the recognition of our retiree stock option, obligation. Well, other than that, I don't really see a significant change of Q3 has a tendency to maybe be a little bit better, and then Q4 has a tendency to be a little bit down, okay, and somewhere in the Industrial related businesses. But I don't see any [inaudible] going to be unusual, unusual this year. Shannon O’Callaghan - Lehman Brothers: And, Pat you mentioned that, 28% to 29% for Health Care, I mean first quarter, it was kind of, I guess, an outlier, I'm not sure what drove an unusually high end result there, but is that kind of the right range we should think about Health Care?

Yes. I would say in that, the 28% to 29% range, I think is a legitimate range. In any given quarter, it even may be a point or you know a point higher or lower depending upon, what we do. As I mentioned the second quarter happens to be that we have a larger portion of some more discretionary marketing programs going on, sales may or may not exactly fall in that quarter. So it's probably a normal range. Shannon O’Callaghan - Lehman Brothers: And just on Display, I mean you mentioned the Optical sequential margin improvement. Can you guys feel more confident that... since you had a little bit up sequentially here in D&G that even though the... maybe the market dynamics haven't bottom your margins have?

I would not go as far to say that the margins have necessarily bottomed in D&G. We feel good. We're fighting this battle that we had, kind of a stable margin for quarter-on-quarter. But, I'm not ready to say that that is going to stay there, okay, for rest of the year. That obviously won the businesses that possibly could see a kind of a margin drop here of another point or two at the end of the year. Shannon O’Callaghan - Lehman Brothers: Okay. And just... last one from me is, given the movement in this corporate line. I mean, can we get a guidance number for that line, it's been a little tough to model where that's supposed to come out this year?

Right, I think you can take, my simple model would be, maybe take, Q1, Q2 average them and use that for Q3, Q4. Shannon O’Callaghan - Lehman Brothers: Okay. Thanks guys.

Thanks, Shannon.

Our next question comes from Steve Tusa from JPMorgan.

Good morning, Steve.

Good morning, Steve. Stephen Tusa - JPMorgan Chase & Co.: How dilutive was Aearo in the quarter? Was there some dilution there?

Well, actually we are very pleasantly pleased with the start-up here of Aearo. Originally, we said that would be about $0.02 dilutive on an all-line basis with product closer to $0.01 dilutive. We said we have $20 million of one-time charges in the second quarter but actually has superb operating results both top and bottom line for the whole quarter. So really nothing, to of a significance at the corporate level. I mentioned that the sector of the segment level are probably impacted, their operating margins by about two points in the quarter. But we... kind of... all that into the company that... it's going to get... just obviously muted at that point in time. So, I wouldn't say that that was a big impact. Stephen Tusa - JPMorgan Chase & Co.: Okay, and then as far as the plants that you're starting up around the world, are those going according to plan and are they still operating at losses, are you loading them? I mean, just give us an update on the various plants around the world of how that's going.

Steve, they're mostly finished down. We're right at the back end of that construction. The vast majority of them went absolutely perfectly. There were a few that got permitting delays in the locations where it's a little more challenging in China and Russia for example, but nothing of very... of a material nature. And the [inaudible]. The ones that we completed really like the one in Korea doing extraordinarily well, and we're probably at a point where we will see a sort of a tipping point soon in terms of contribution in the next quarter too. So seems to have gone, they seems to have gone, I won't say without the hit because that's... as always abating, tempting providence. But it's an operational execution piece of 3M, it's just flipping superb frankly speaking to watch. So, no costs are concerned, everything is running into plan, and an over time those things will load up over time those things will load up and begin to make a bigger contribution to 3M both on sales growth and operating income. Stephen Tusa - JPMorgan Chase & Co.: And then there are no problems with regards to external factors like demand, where you're having trouble filling these things up and getting them started to appropriate volumes?

No. In fact, in some cases, Steve, and the ones [inaudible] and the ones on the respirators , we would have been a real pick had we not had that capacity, it's a counter. I mean, the only one way you could point some criticism at is the optical factory obviously there is a consequence of the transition that we saw. They've not been loaded unless we have these but, all in all, it seems it worked out to be a pretty good strategy. Stephen Tusa - JPMorgan Chase & Co.: Great, thanks.

Thanks, Steve.

Our next question comes from John Roberts from Buckingham Research.

Hi, guys.

Hey, John.

Could you discuss the sequential performance in Optical? I know TVs have a seasonality because, but it seemed that seasonality is kind of a secondary factor right now. So, have you seen the bottom in profitability even though you haven't... the bottom revenues and would you expect some sequential performance as we go through the rest of the year for improvement?

Yes. If you look at sequentially, John, most of the top-line reduction, Q1 and Q2, was in the TV.... is in the TV segment. The other businesses seem to perform about at the same level from the top-line. Bottom line, I think you could probably... you've seen the kind of a further reduction in Optical profitability, Q1 and Q2. That's still a... fall-off a little bit here further in Q3 and Q4, but we are a lot closer to the of it right now.

You heard me, John, say earlier that sales have fallen by about... in that segment... in that LCD TV segment have fallen by about 66% of what they were a year ago and profits have fallen by about 80%. So you can sense that, even if we lost all of the TV segment, which I think is unlikely, that we are relatively close to the bottom year, I think, it's an educated guess in some sense, but I think that there'll always be a portion, this is what we see, there will always be a portion of that market, well, we won high-performance televisions. That will give you something of the order, 5% to 7%, maybe 5% to 9% attachment rates. So, I think the bottom is with inside. I'm not making any predictions here, but there is gaining momentum in the interest in energy, and of course one of the way that you can use our films is to take a TV or monitor or even for that matter a notebook and takeout lamps and use the films to brighten them. So you end up using less energy, and that factor is now gaining a lot more interest from the set manufacturers than it once did. So, all I'd say is there's a bit more to go would be my... my estimate, a bit more to go, but we're getting close to the end, and I'm hoping that by the end of '08, we're going to be past all or most all of this, and if there is any bleed-over into '09, I think the bleed-over should be relatively small.

That is my follow-up question, but can you point to any low-end TV products in the U.S. that advertises lower energy consumption, but in some place you can point out to show that the TV customers... but if your TV customers would think that this is an important consumer-marketing factor?

At this point time, I don't... I can think of one. John, we... they are in the notebook space, okay? But not in the TV market.

Right. Could that be... plug in?

Yes.

Okay. Thank you.

But it is in an emerging issue, John, it may not be there today, but I do think this will get more visibility as time goes on.

John, just it won't keep you on the phone call long here. But there is technology that we have today that will cut the energy usage in a television by 50 in a big set even by as much as 70%. It's here today, you can have it today, at some point the market is going to get interested in that and at relatively little or no premium, I think the forces are aligned over the coming months for that to get some momentum, we'll have to see.

Are there any government movement to put energy ratings on TVs like you have on refrigerators and air conditioners?

Yes, the EPA has this energy star rate when they put on TVs, whether the EPA or anybody else in the State of California or perhaps the European Union will take any action remains yet to be seen. But, of course if they were to choose, if they chose to get involved, that would be a real catalyst for some growth in films. And actually, in the end, due to more environmentally friendly televisions.

You know, just as surprising we've actually seen it in the places like China, okay. China is taking an initiative to, especially within the government procurement offices of mandating buying energy efficient electronics and the like so. There is a momentum there.

That concludes the question-and-answer portion of our conference. At this time, we will turn the call back over to 3M for some closing comments.

Yes. This is Pat. Thanks for joining us this morning. We look forward to seeing you all in our September 9th Investor Event and have a good rest of the day.

Thanks a lot, everyone. Thank you.