Agenda. Tuesday, October 9. Wednesday, October 10

Transcription

1 Agenda Tuesday, October 9 1:00-1:45 Patrick D. Campbell, Senior Vice President and Chief Financial Officer 1:45 3:15 George W. Buckley, Chairman of the Board, President and Chief Executive Officer 3:15-3:30 Break 3:30-4:00 Brad T. Sauer, Executive Vice President, Health Care Business 4:00-4:30 Jean Lobey, Executive Vice President, Safety, Security & Protection Services Business 4:30-5:15 Panel Q&A 5:15-9:00 Product and technology displays, 3M Innovation Center tours; food and cocktails After 5:30 p.m., buses will depart every 30 minutes to the St. Paul Hotel 1 Wednesday, October 10 6:30-7:30 Continental breakfast 7:30-8:00 John K. Woodworth, Senior Vice President, Supply Chain Operations 8:00 Depart for pilot plant 8:15-9:15 Film pilot plant tour 9:30 Depart for Hutchinson plant (box lunch/snack provided) 11:00-2:00 Hutchinson plant tour 2:00-3:30 Return trip to airport, St. Paul Hotel and 3M Center

2 3M Innovation Center: Connecting With Customers Opened Sept >35,000 visitors ~1,500 events >700 customer visits 15% of visits from International customers Supports worldwide network of customer technical centers in 26 countries 2 Providing Access to Global 3M Problem Solving Capabilities

3 October 9 & 10, M Investor Conference Forward-Looking Statements These presentations contains forward-looking information (within the meaning of the Private Securities Litigation Reform Act of 1995) about the company s financial results and estimates, business prospects, and products under development that involve substantial risks and uncertainties. You can identify these statements by the use of words such as anticipate, estimate, expect, project, intend, plan, believe, will, and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Among the factors that could cause actual results to differ materially are the following: (1) worldwide economic conditions; (2) competitive conditions and customer preferences; (3) foreign currency exchange rates and fluctuations in those rates; (4) the timing and acceptance of new product offerings; (5) the availability and cost of purchased components, compounds, raw materials and energy (including oil and natural gas and their derivatives) due to shortages, increased demand or supply interruptions (including those caused by natural and other disasters and other events); (6) the impact of acquisitions, strategic alliances, divestitures, and other unusual events resulting from portfolio management actions and other evolving business strategies, and possible organizational restructuring; (7) generating less productivity improvements than estimated; and (8) legal proceedings, including significant developments that could occur in the legal and regulatory proceedings described in the company s Annual Report on Form 10-K for the year ended Dec. 31, 2006 and its subsequent Quarterly Reports on Form 10-Q (the Reports ). Changes in such assumptions or factors could produce significantly different results. A further description of these factors is located in the Reports under Part I, Item 1A (Annual Report) and Part II, Item 1A (Quarterly Report), Risk Factors. The information contained in these presentations is as of the date indicated. The company assumes no obligation to update any forward-looking statements contained in thes presentations as a result of new information or future events or developments. 3

4 Patrick D. Campbell Sr. Vice President and Chief Financial Officer October 9 th, 2007 Working Our Plan

5 Last Year We Asked These Questions. Can we accelerate growth? Are our current margins sustainable? How will our more aggressive growth plans impact ROIC? How will we deploy the balance sheet? Plans To Drive Higher Earnings & P/E 5

6 . And Since Then We Have Delivered These Results* ($Billions) H107 Sales % Growth $20.4 $ % $ % Accelerating growth O.I. % to Sales $ % $ % $ % Maintaining best-of-breed EPS % Growth $3.92 $ % $ % Double-digit gains ROIC 21.9% 21.6% 22.7% Premium asset returns Executing the Plan 6 * Excludes special items and pharma in all periods. See appendix for GAAP reported numbers. Return on Invested Capital is a non-gaap measure; see appendix for a full reconciliation to GAAP results.

7 Driving Sustainable Results Over The Long Haul*. Total LC Growth $6,000 Operating Income & Margins Operating Income Operating Margin % 25% 9.0% 7.5% 6.0% 4.5% 3.0% 1.5% 0.0% -1.5% 8.1% 8.4% 5.3% -1.1% H07 6% CAGR $5,000 $4,000 $3,000 $2,000 $1,000 $ % 15% CAGR +6.3% +14.1% (14.5%) H07 20% 15% 10% 5% 0% $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 EPS (11.0%) 18% CAGR +15.0% 24% +8.7% 20% +17.9% 16% 12% H07 ROIC 21.9% +6.3 Points 22.7% 21.6% 15.3% H07 Maintaining Premium Returns; Accelerating Sustainable LC Growth 7 * Excludes special items and pharma in all periods. See appendix for GAAP reported numbers. Return on Invested Capital is a non-gaap measure; see appendix for a full reconciliation to GAAP results.

8 All Businesses Contributing, But Changing* Total Local Currency OI Margins 21% +27.8% 34% 17% 31% 28% 13% 25% 9% 22% 5% 19% 1% 16% -3% % D&G LC Growth Other Segments LC Growth Total 3M LC Growth D&G OI Margin Other Segment OI Margin Total 3M OI Margin Portfolio Breadth Strengthens Results 8 * Excludes special items and pharma in all periods.

9 Our Journey to a Faster Growth High Return Company Productivity Value Creation Growth Holding Margins While Accelerating Growth 9 Margins* 15.8% LC Growth* % 22.7% 5.3% 22% to 23% ~2X Global IPI * Excludes special items and pharma in all periods.

10 Our Journey to a Faster Growth High Return Company Productivity Restructuring ($ in Millions) Value Creation Indirect Costs Global Sourcing Six Sigma Overhead Leverage Health Care Containment Sales % Growth Operating Income % to Sales EPS $15.4 $ % $1.87 $ % $ % $3.92 Big 3M Upgrade Marketing Skills Brand Building End Mkt Org Structure Service Int l Portfolio Planning Price Leakage % Change ROIC 15.3% 15.0% 21.9% Growth Margins* 15.8% 10 LC Growth* % 22.7% 5.3% 22% to 23% ~2X Global IPI * Excludes special items and pharma in all periods.

11 3M s Iterative Financial Planning Model Double Digit EPS Growth Incremental Tax Rate Improvements Share repurchases offset dilution at minimum Other potential gains FX, pension, asset sales Productivity offsets inflation/pricing; reinvest excess Leverage Total Local Currency Growth 30% to 40% Total Local Currency Sales Growth 2x IPI Delivering Sustainable Long-Term Shareholder Return 11

12 Our Journey to a Faster Growth High Return Company Productivity Restructuring Value Creation Indirect Costs Global Sourcing Six Sigma Overhead Leverage Health Care Containment Big 3M Upgrade Marketing Skills Brand Building End Mkt Org Structure Service Int l Portfolio Planning Price Leakage Growth Margins* 15.8% 12 LC Growth* % 22.7% 5.3% 22% to 23% ~2X Global IPI * Excludes special items and pharma in all periods.

13 General & Administrative Cost Leverage* $2.0 10% $1.5 $1.0 $0.5 ~2.5% of Margin ~1.5% of Margin % 6% 4% 2% Overhead Cost $B % to Sales $ % Via Volume Leverage Technology Int l Localization Lean Principles Blocking/Tackling Drive Out Cost Localize Reinvest in Growth Iterate 13 * Excludes pharma and special items in all periods.

14 Our Journey to a Faster Growth High Return Company Productivity Value Creation Restructuring Indirect Costs Global Sourcing Six Sigma Overhead Leverage Health Care Containment Big 3M Upgrade Marketing Skills Brand Building End Mkt Org Structure Service Int l Portfolio Planning Price Leakage Lean Six Sigma Growth Margins* 15.8% 14 LC Growth* % 22.7% 5.3% 22% to 23% ~2X Global IPI * Excludes special items and pharma in all periods.

15 Lean Six Sigma John Houle, Staff Vice President, Supply Chain and Manufacturing and Lean Six Sigma Driving Growth and Operational Excellence

16 Lean + Six Sigma = Strength in Processes Lean Lean processes tell us Don t perpetuate a process that does not add value for the CUSTOMER! Six Sigma Six Sigma processes advise Once we identify value-added processes, let s absolutely minimize the variability and get them in control. VA X VA VA Don t waste your efforts employing Six Sigma principles to something that does not add value for the Customer. 16

17 Lean Six Sigma Continuous Evolution, Strong Foundation Lean Six Sigma is aligned to our businesses enabling growth, productivity, and operational excellence Excellent deployment of Lean Six Sigma globally >55,000 employees trained >49,000 projects in-process or closed >700 full-time employees dedicated globally >760 customer projects either in-process or closed Contributed More Than $4.5B in Savings Since

18 Lean Six Sigma Example 3M Perth, Ontario, Canada - Tape Manufacturing MANITOBA ONTARIO 18

19 3M Perth, Ontario Products Scotch Filament Tape 893 Filament Tapes Scotch Filament Tape Scotch Filament Tape 899 Tartan Filament Tape 8934

20 3M Perth, Ontario Business situation: Needed improved linkage between planning, production and shipping Needed clear priorities established Manual printing of priority lists Lean tools applied Visual controls scheduling and status boards 20

21 Visual Scheduling Benefits Quick assessment schedule to plan Quick visibility of order status Resource prioritization Overtime requirements planning Visibility for material delivery 21

22 3M Perth, Ontario On-time Improvement 19%

23 Lean Six Sigma Example 3M Ames, Iowa Abrasive Manufacturing Roloc TM Disc Roll Sheets Hookit TM 23

24 3M Ames, Iowa Business situation: Cyclical customer demand, resulting in: Poor service levels Increased cost of goods sold Lean tools applied Changeover wheels Pull systems Level schedule loading 24

25 3M Ames, Iowa Total Backorder Reduction -77%

26 3M Ames, Iowa Lines on Time /Product Availability - 6% Improvement

27 Lean Six Sigma Example 3M Irvine, CA Dental Product Manufacturing 27

28 3M Irvine, CA Products RelyX ARC Filtek Z250 Filtek Supreme Sof-Lex Paradigm MZ100 Crowns 28 Imprint II Garant Adper Scotchbond Z100

29 3M Irvine, CA Business situation Capacity and lead time negatively impacting service Lean tools applied 5S, visual management: production status boards Value stream maps current & future Plan for every part / material delivery system Operator balance / standard work / cell design for flow Changeover reduction 29

30 3M Irvine, CA Transforming the Shop Floor Before After 30

31 3M Irvine, CA Lead Time Reduction from 105 days 55 days US Lines On-time delivery from 74% 89% Int l Lines On-time delivery from 71% 84% US International

32 Lean Six Sigma Strong foundation built on Six Sigma Aligned to our business objectives Transforming how we execute and energizing our workforce Driving growth through customer success A Key Tool To Achieve Growth And Productivity 32

33 Our Journey to a Faster Growth High Return Company Productivity Value Creation Restructuring Indirect Costs Global Sourcing Six Sigma Overhead Leverage Health Care Containment Big 3M Upgrade Marketing Skills Brand Building End Mkt Org Structure Service Int l Portfolio Planning Price Leakage Lean Six Sigma Supply Chain Service Cost Working Capital Taxes Growth Margins* 15.8% 33 LC Growth* % 22.7% 5.3% 22% to 23% ~2X Global IPI * Excludes special items and pharma in all periods.

34 A Huge Prize Remains for Supply Chain Improvements Accelerated Growth Service, higher fill rates Cost reduction Labor, logistics, shrinkage Lower Inventory WIP, FG, local sourcing 2012 Opportunity +1 point minimum, adds ~$100M OI plus +80 to 100 bps gross margin, adds ~$300M to $400M OI/year plus Minimum +1 turn, adds ~$700M to FCF equals $1 Billion-Plus Opportunity Accelerate Growth Drive Productivity Reinvest 34

35 Global Sales vs. Net PP&E Footprint 2006 Sales 2006 PP&E - Net 61% International 39% U.S Sales 43% International 57% U.S PP&E - Net ~65% International ~35% U.S. U.S. ~45% ~55% U.S. International Moving Assets to Low Tax Growth Markets 35

36 Geographic Imbalance Stresses Inventory Performance Total Sales Growth Inventory Change Inventory Turns Change $3.3B ($0.4B) 3.5 to $2.9B $0.7B 5.3 to Turns improved, but service levels declined not sustainable Renewed focus on service, driving fundamental supply chain changes for permanent turns improvement Minimum 1 Turn Improvement = $700MM In

37 New Plant Construction Timeline $2,500 2 plants Ultimate Capacity $2,000 $1,500 $1,000 4 plants 4 plants 1 plant 3 plants 1 plant $500 $0 4 plants Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Plan Is On Track 37

38 Tax Rate Vs. Peers T ax R ate % 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Peer Ave = 27% 3M ITW DHR UTX HON DD JNJ 2007e 2006 Rates Why Are We Higher Than Our Peers? Manufacturing and IP predominantly in the US, Western Europe and Japan All business operations headquartered in US Significant Opportunity To Create Sustainable Shareholder Value 38

39 Tax Reduction: A Benefit Of Our Supply Chain Strategy Manufacturing Asset Locations Today Heavily weighted to US, Western Europe, Japan Future Locate capacity in low-tax locations with common shipping locations to growth markets Technical Resources Heavily weighted to US, Western Europe, Japan Technical capability will continue to expand faster in international growth markets Business Unit Operations Internal Financial Measurements All US-based (~50% of divisions have int l sales >60%) Pre-tax Business unit operations will migrate to international markets After-tax Target Tax Rate 30.5% by 2012; Reduction of ~2.5% 39

40 Our Journey to a Faster Growth High Return Company Value Creation Productivity Restructuring Indirect Costs Global Sourcing Six Sigma Overhead Leverage Health Care Containment Big 3M Upgrade Marketing Skills Brand Building End Mkt Org Structure Service Int l Portfolio Planning Price Leakage Selective Restructuring Lean Six Sigma Supply Chain Service Cost Working Capital Taxes Growth Margins* 15.8% 40 LC Growth* % 22.7% 5.3% 22% to 23% ~2X Global IPI * Excludes special items and pharma in all periods.

41 Not Only Building, But Also Rationalizing Old and Acquired Facilities Actively Managing Excess Facilities to Improve Productivity and Inventories

42 Capital Allocation 07 to 08

43 Financial Policy First priority: fund available growth Capital expenditures: drive 20%+ ROIC via organic growth Supplement organic with accretive, growth-enhancing acquisitions Increase annual dividend Maintain competitive yield and payout ratio Offset inflation at a minimum, with the maximum dependent on other growthgenerating uses at that time Opportunistic share buyback Economic dynamics and alternative cash uses will drive repurchase levels Ready to support the stock when warranted For the right growth investments, lever up as required Managing With AA Operating Discipline; Will Consider A For The Right Strategic Cash-Generating Opportunity 43

44 Capital Allocation Model 07 to 08 Cash Flow From Operations ~$9 to $10B Asset + Sales = ~$400M to $500M Cash Available ~$9.5 to $10.5B 44 Maintaining Balance While Increasing Growth Investments Growth Employees/Retirees Shareholders Cap Ex ~$2.8 to $3B Aligned to higher growth M&A $1B to $2B Aligned with strategic intent Pension ~$0.3 to $0.7B Fully-funded status Dividends ~$2.8B Continue historical track record Net Share Repurchase ~$2.5 to $3.5B Opportunistically pursue additional shares

45 Business and Real Estate Divestitures Businesses Real Estate Cergy, France 3M Pharmaceuticals St. Paul, MN San Felice, Italy Suwon, Korea 3M Opticom Priority Control Systems 45 Divesting Non-Strategic Businesses; Actively Monetizing 8-10 Real Estate Properties at Present

46 Capital Expenditures & Depreciation $1,600 Cap Ex Depreciation $1,200 $800 $400 $ e 2008e Depreciation % to sales 5.4% 5.5% 6.2% 5.6% 5.1% 4.8% 4.4% 4.3% 4.0% 4.0% 46 Investing in Growth; Manageable Impact on D&A

47 M&A Strategy Strategic Intent Will fit tightly defined strategic needs in the core or in near adjacencies Majority will be bolt-on acquisitions placed in markets we understand Channels of distribution will be familiar The acquisition may bring technology, market access or scale Acquisitions will have an ethical fit Some acquisitions will be international, aimed at gaining market access While top brands are preferred, some will be appropriately chosen secondary brands Economics Margin dilutive acquisitions will always contribute to net positive shareholder value through higher growth Price will always be a factor Tail liabilities will be scrutinized Will be EPS accretive or neutral end of year 1 excluding purchase accounting Majority of acquisitions will be Economic Profit accretive by the end of year 3 M&A Remains A Key Component Of Our Growth Strategy 47

48 Expanding Our Business Portfolio Via Acquisitions Acquisition Activity Purchase price $1.1B Price/sales 1.4x Price/EBITDA 8.4x Impact on Growth ~3% Business # of Acq s Growth Impact Safety, Sec & Prot 7 7.5% Ind l & Transp 7 3.6% Health Care % Consumer & Office 3 1.0% Electro & Comm 4 0.8% Display & Graphics 1 0.2% Current M&A Environment Favoring Strategic Buyers 48 Amounts exclude Brontes, a pre-revenue technology acquisition in the dental business; price multiples reflect 12-month forward sales and EBITDA amounts

49 Stepped Up Pace of Acquisitions Electro & Communications Healthcare Safety, Security, & Protection Svcs Display & Graphics Industrial & Transportation Consumer & Office 49 Accelerating Growth In All Businesses

50 Global Pension & Post-Employment Liabilities 100% 99% 95% 94% Funded Status (%) 90% 85% 80% 83% 80% 88% 87% 75% 75% 70% e Good Progress, Nearly Fully Funded 50

51 Dividend Trends S&P 500 Dividend-Paying Companies Dividend Yield 1 S&P 500 Dividend-Paying Companies Payout Ratio 2 4% 50% 3% 40% 35.9% 3M 38.7% 32.8% 33.7% Mean: 34.1% Dividend Yield 2% 2.4% 1.9% 3M 2.3% 1.7% Mean: 2.1% 1.8% Dividend Payout 30% 20% 24.0% 1% 10% 0% < 5% 5% and < 10% and < 15% 10% 15% Revenue Growth # Companies # Paying Div % Paying Div. 82% 83% 71% 43% 0% < 5% 5% and < 10% and < 15% 10% 15% Revenue Growth # Companies # Paying Div % Paying Div. 82% 83% 71% 43% 51 Source: FactSet. Based on data as of September 28,2007 Note: Revenue growth calculated as CY E CAGR. 1. Calculated as annualized dividends per share / average 2007 YTD share price. 2. Calculated as LTM dividends per share / LTM EPS from operations. 3. Excludes 1 company with dividend-payout ratio greater than 200% and 7 companies for which 2008E IBES projected revenues were not available. 10/9/2007 1:14 PM

52 Dividend Trends S&P 500 Dividend-Paying Companies Dividend Yield 1 S&P 500 Dividend-Paying Companies Payout Ratio 2 4% 50% 3% 40% 35.9% 3M 38.7% 32.8% 33.7% Mean: 34.1% Dividend Yield 2% 2.4% 1.9% 3M 2.3% 1.7% Mean: 2.1% 1.8% Dividend Payout 30% 20% 24.0% 1% 10% 0% < 5% 5% and < 10% and < 15% 10% 15% Revenue Growth # Companies # Paying Div % Paying Div. 82% 83% 71% 43% 0% < 5% 5% and < 10% and < 15% 10% 15% Revenue Growth # Companies # Paying Div % Paying Div. 82% 83% 71% 43% 52 Highly Competitive Yield Above Peers & S&P500 Source: FactSet. Based on data as of September 28,2007 Note: Revenue growth calculated as CY E CAGR. 1. Calculated as annualized dividends per share / average 2007 YTD share price. 2. Calculated as LTM dividends per share / LTM EPS from operations. 3. Excludes 1 company with dividend-payout ratio greater than 200% and 7 companies for which 2008E IBES projected revenues were not available. 10/9/2007 1:14 PM

53 Share Repurchase Borrowing Costs Credit Availability Economic Environment P/E (2007 EPS Consensus) Early 2007 Rates low, tight spreads, stable markets Highly Liquid Relatively Stable 7% Premium Today Spreads wider, yield curve steeper, markets uncertain Tighter Less Stable 17% Premium Near-Term Economics Less Compelling; More Importantly, Maintaining Flexibility for Growth 53

54 Cash Back to Shareholders $2,500 Stock Repurchases in Millions $2,000 $1,500 $1,000 $500 $ H07 $1,600 Dividends in Millions $1,200 $800 $400 For The Period H07: $11.7 billion in share repurchases $7.4 billion in dividends paid Dividend CAGR of ~8% No equity dilution policy Returned ~109% of Reported Net Income Via Dividends and Share Repurchases 54 $ H07

55 Summary

56 We ve Talked About Our Journey And Productivity Value Creation Productivity Restructuring Indirect Costs Global Sourcing Six Sigma Overhead Leverage Health Care Containment Big 3M Upgrade Marketing Skills Brand Building End Mkt Org Structure Service Int l Portfolio Planning Price Leakage Selective Restructuring Lean Six Sigma Supply Chain Service Cost Working Capital Taxes Growth 56 LC Growth* Margins* 15.8% 22.7% 22% to 23% -1.1% 5.3% ~2X Global IPI * Excludes special items and pharma in all periods.

57 Now Let s Focus On Growth Value Creation Productivity Restructuring Indirect Costs Global Sourcing Six Sigma Overhead Leverage Health Care Containment Big 3M Upgrade Marketing Skills Brand Building End Mkt Org Structure Service Int l Portfolio Planning Price Leakage Selective Restructuring Enduring Franchises Lean Six Sigma EBOs Capital Supply Investments Chain Service Rebuilding R&DCost Emerging Markets Working Capital Supply Chain Re-engineering Entrepreneurial Taxes Localization Culture M&A Growth 57 LC Growth* Margins* 15.8% 22.7% 22% to 23% -1.1% 5.3% ~2X Global IPI * Excludes special items and pharma in all periods.

58 Appendix

59 Non-GAAP Financial Measures 3M Company and Subsidiaries SUPPLEMENTAL CONSOLIDATED INFORMATION NON-GAAP FINANCIAL MEASURES (Millions, except per-share amounts) (Unaudited) In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (GAAP), the Company also discusses non-gaap measures that exclude special items. Sales, operating income and diluted earnings per share measures that exclude special items and that exclude the impact of Pharmaceuticals are not in accordance with, nor are they a substitute for, GAAP measures. Special items represent significant charges or credits that are important to an understanding of the Company s ongoing operations. The company uses these non-gaap measures to evaluate and manage the Company s operations. The company believes that discussion of results excluding special items provides a useful analysis of ongoing operating trends. The determination of special items may not be comparable to similarly titled measures used by other companies. Special items for the six months ended June 30, 2007 and prior periods presented have been previously provided (See Note 1). In addition, the Company believes that providing financial results excluding the impact of Pharmaceuticals provides useful information (See Note 2). The reconciliations provided below reconcile the non-gaap financial measures with the most directly comparable GAAP financial measures for the periods indicated. Year Year Year First Six (Millions, except per-share amounts) Months 2007 Sales Dollars: Reported GAAP $ 16,054 $ 21,167 $ 22,923 $ 12,079 Pharmaceutical $ (699) $ (797) $ (774) $ - Adjusted Non-GAAP $ 15,355 $ 20,370 $ 22,149 $ 12,079 Operating Income Dollars: Reported GAAP $ 2,075 $ 4,854 $ 5,696 $ 3,498 Special Items $ 504 $ (523) $ (675) Pharmaceutical $ (157) $ (226) $ (256) $ - Adjusted Non-GAAP $ 2,422 $ 4,628 $ 4,917 $ 2,823 Diluted Earnings per Share: Reported GAAP $ 1.60 $ 3.98 $ 5.06 $ 3.10 Special Items $ 0.39 $ 0.14 $ (0.57) $ (0.60) Pharmaceutical $ (0.12) $ (0.20) $ (0.23) $ - Adjusted Non-GAAP $ 1.87 $ 3.92 $ 4.26 $ 2.50 The Company uses local-currency sales growth, which excludes the impact of translation or currency exchange rates, as an indication of its economic sales growth. The Company has provided the components of local-currency sales growth below, including the impact of translation. The Company has provided local-currency sales growth that excludes the historical impacts of the Pharmaceuticals business to portray what it believes are more meaningful sales growth trends. 3M believes this non-gaap sales growth information excluding Pharmaceuticals provides useful information (See Note 2). These measures are not in accordance with, nor are they a substitute for, GAAP measures. Year Year Year First Six Months 2007 Sales Change Percents: Total Reported Sales Change -3.9% 5.8% 8.3% 7.1% Less: Translation Impact -3.3% 0.7% 0.6% 2.5% Total Reported Local-Currency Sales Change -0.6% 5.1% 7.7% 4.6% Local Currency Sales Change ex- Pharmaceuticals -1.1% 5.3% 8.1% 8.4% The Company uses non-gaap measures to focus on shareholder value creation. 3M uses Return on Invested Capital, defined as after-tax operating income divided by average operating capital. This measure excludes special items and the historical impacts of the Pharmaceuticals business (see Notes 1 and 2). These measures are not recognized under U.S. generally accepted accounting principles and may not be comparable to similarly titled measures used by other companies. Year Year Year First Six Months 2007 Return on Invested Capital 12.8% 22.1% 25.3% 28.0% Return on Invested Capital - excluding Pharmaceuticals and Special Items 15.3% 21.9% 21.6% 22.7% (1) Special items for the periods presented have been discussed in Form 8-K s that were furnished to the U.S. Securities and Exchange Commission on July 26, 2007 and January 30, 2007 and in 3M s 2001 Form 10-K filed March 11, (2) In December 2006 and January 2007, 3M completed the sale of its global branded Pharmaceuticals business. In connection with these transactions, 3M s Drug Delivery Systems Division became a source of supply to the acquiring companies. Because of the extent of 3M cash flows from these agreements in relation to the disposed businesses, the operations of the branded Pharmaceuticals business were not classified as discontinued operations. The sale of the branded Pharmaceuticals business impacted both sales and operating income growth in 2007, as significant Pharmaceuticals sales and income are in the reported base 2006 period and also in prior periods. Where indicated, to provide more meaningful trend information, portions of this presentation exclude the impact of 2006 and prior Pharmaceutical financial results, as this business was sold in December 2006 and January