2008 Fourth Quarter Business Review (unaudited) Leading. Through Innovation. 3M 2009 All Rights Reserved.

Transcription

1 2008 Fourth Quarter Business Review (unaudited) Leading Through Innovation 3M 2009 All Rights Reserved.

2 Forward Looking Statements This presentation contains forward-looking information about 3M s financial results and estimates and business prospects 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, target, forecast and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or business plans or prospects. Among the factors that could cause actual results to differ materially are the following: (1) worldwide economic and capital markets 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 fewer 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 December 31, 2007 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 Risk Factors in Part I, Item 1A (Annual Report) and in Part II, Item 1A (Quarterly Report). The information contained in this presentation is as of the date indicated. The company assumes no obligation to update any forward-looking statements contained in this presentation as a result of new information or future events or developments. 2

3 George W. Buckley 3M Chairman, President and CEO 3

4 Actions Reduced over 2,400 permanent positions in Q4; more likely in 2009 One-time net cost of $219M, with 2009 savings of $235M Temporarily furloughed > 1,000 additional factory workers Maintaining only essential contract workers Deferring merit pay increases 2009 savings of $100M Modifying policy on banked vacation $100M savings in both 2009 and 2010 Cutting 2009 cap ex by > 30% Halting stock repurchases until environment improves 4

5 FY08 P&L Highlights: Comparison vs. Last Year ($ in Millions) Except per share amounts Change Net $24,462 $25, % Gross Margin 48.2% 47.5% -0.7 pts SG&A $4,907 $5, % R&D and related exp. $1,372 $1, % Op. Income $5,512 $5, % Op. Income % 22.5% 21.7% -0.8 pts Tax Rate 31.8% 30.9% -0.9 pts Net Income $3,648 $3, % EPS $4.98 $ % 3M ex. Optical 6.5% % 3.4% 9.2% +0.5 pts *Excludes special items. Refer to 3M s January 29 th, 2009 press release for a complete list and explanation of these items. 5

6 Q408 P&L Highlights: Comparison vs. Last Year ($ in Millions) Except per share amounts Q Q Change Net $6,206 $5, % Gross Margin 46.9% 45.1% -1.8 pts SG&A $1,267 $1, % R&D and related exp. $357 $ % Op. Income $1,290 $ % Op. Income % 20.8% 17.7% -3.1 pts Tax Rate 30.7% 27.6% -3.1 pts Net Income $863 $ % EPS $1.19 $ % 3M ex. Optical -8.1% -0.7 pts -6.7% -3.5% -14.2% -1.3 pts *Excludes special items. Refer to 3M s January 29 th, 2009 press release for a complete list and explanation of these items. 6

7 Recap: Q408 vs. Q407 Total Company US Int l WW growth - USD (6.0%) (14.1%) (11.2%) Less: divestiture impact (0.7%) (0.1%) (0.3%) Growth adjusted for divestitures (5.3%) (14.0%) (10.9%) Less: currency impact (7.5%) (4.9%) Total local currency growth (5.3%) (6.5%) (6.0%) Components of Total LC Growth Volume organic (13.1%) (10.1%) (11.0%) Selling price changes 3.1% 1.0% 1.7% Organic local currency growth (10.0%) (9.1%) (9.3%) Volume acquired 4.7% 2.6% 3.3% Ex. Optical WW (8.1%) (0.3%) (7.8%) (5.3%) (2.5%) (8.7%) 2.6% (6.1%) 3.6% 7

8 Balance Sheet & Cash Flow ($ in Millions) Q Q Q Free Cash Flow $1,252(b) $792(a) $662 Net W/C Turns Inventories $2,852 $3,078 $3,013 Slowing factories Receivables-Net $3,362 $3,763 $3,195 Slow Nov/Dec sales Cap-ex $391 $376 $463 Expect to cut by > 30% in 09 Dividends Paid $341 $348 $ per-share increase of 4% Share Repurchases $483 $515 $34 Preserving cash (a) Includes U.S. pension contribution of $200 million in Q (b) Excludes certain special items that impacted cash flow. Refer to 3M's January 29 th, 2009 press release for an explanation of these items. Note: Refer to 3M s January 29 th, 2009 press release for a complete discussion of net working capital turns and free cash flow (non-gaap measures). 8

9 2008 Global Pension & Post Retirement Benefits Status $B Worldwide funded status of 85% U.S. 89% International 75% 2008 actual U.S. plan asset performance of (13.6%) 2009 U.S. plan assumptions Return on assets 8.5% Discount rate 6.14% 2009 estimated worldwide funding of $600M to $850M 2009 estimated EPS headwind of ($0.07) for pension and post-retirement benefits 9

10 Segment Highlights Industrial & Transportation (11.3%) +7.6% Fourth Quarter Q4 07 Q % 14.3% (33.4%) Q4 07 Q4 08 Q4 07 Q4 08 Full Year % 19.7% +2.4% Q4 Highlights Local-currency sales down 6.3% including 3.2% benefit from acquisitions Positive sales growth in automotive aftermarket with especially good growth in autobody abrasives; operating income growth in energy markets Local-currency sales declines in all regions margins of 14.3% Full Year Highlights Local-currency growth of 4.6%, including 3.9% from acquisitions; 8 acquisitions closed including Meguiar s Outstanding sales growth in adhesives and tapes, automotive aftermarket and abrasives businesses Strong market penetration in BRICP Announced new Renewable Energy unit to address global demand for alternative power sources Full-year profit increase of 2.4% with strong operating margins of 19.7% *Excludes special items. Refer to 3M s January 29 th, 2009 press release for a complete list and explanation of these items.

11 Segment Highlights Health Care 11 (2.1%) +4.5% Q4 07 Q4 08 Q4 07 Q % Fourth Quarter Full Year Q4 07 Q % 28.9% % 28.7% +13.0% Q4 Highlights Local-currency sales growth of 4.5% including 2.2% from acquisitions Solid growth in core infection prevention and skin & wound care products Entered licensing contract in drug delivery to collaborate on dry powder inhalation technology growth led by the US and Asia Pacific Excellent operating margin of 28.9% with operating income up 4.5% Full Year Highlights 6.8% local-currency sales growth including 1.7% from 4 closed acquisitions in 2008, including TOP-Service, Imtec and Solumed Double-digit growth in medical, dental and orthodontic businesses growth in all geographic regions, led by double-digit growth in Asia Pacific and Latin America and solid growth in Europe and the U.S. Drove outstanding full-year operating margin of 28.7% with profits up 13% *Excludes special items. Refer to 3M s January 29 th, 2009 press release for a complete list and explanation of these items.

12 Segment Highlights Safety, Security & Protection Svcs +2.9% +18.6% Fourth Quarter Q4 07 Q % 16.7% (3.5%) Q4 07 Q4 08 Q4 07 Q4 08 Full Year % 21.3% +20.9% Q4 Highlights Local-currency growth of 13.2% including 15.7% from acquisitions, primarily Aearo Technologies Growth led by the personal protection equipment business Track and trace business leads profit growth with new product solutions for libraries Positive sales growth in the US and Asia Pacific income of $128 million with margins of 16.7% Full Year Highlights Local-currency growth of 18.3%, including 14.1% from acquisitions, primarily Aearo Technologies Completed divestiture of HighJump Software Robust demand continued in personal protection, building and commercial services and RFID solutions Double-digit sales growth in every geographic region; good market penetration in developing countries, especially BRICP countries Strong operating income increase of 20.9% with full-year operating margins of 21.3% 12 *Excludes special items. Refer to 3M s January 29 th, 2009 press release for a complete list and explanation of these items.

13 Segment Highlights Consumer & Office (11.2%) +1.1% Fourth Quarter Q4 07 Q % 15.5% (24.1%) Q4 07 Q4 08 Q4 07 Q4 08 Full Year % 19.8% (1.5%) Q4 Highlights Local-currency sales down 6.5% including 0.2% benefit from acquisitions Weakness across all businesses and in every geographic region, with home care and do-it-yourself businesses posting the positive local-currency sales growth Good performance by Nexcare first-aid skincare and bandages, Scotch-Brite scouring products and Filtrete air filtration solutions margins of 15.5% Full Year Highlights Local-currency sales down 0.3% for 2008, including 0.4% benefit from acquisitions Full-year sales growth in home care, consumer health care and do-it-yourself businesses Double-digit full-year sales and operating income growth in Asia Pacific and Latin America, with solid single-digit growth in Europe Difficult US office markets and residential housing construction markets persist margins of nearly 20% 13 *Excludes special items. Refer to 3M s January 29 th, 2009 press release for a complete list and explanation of these items.

14 Segment Highlights Display & Graphics 14 (28.4%) (16.6%) Fourth Quarter Q4 07 Q % 10.2% (71.6%) Q4 07 Q4 08 Q4 07 Q4 08 Full Year % 19.1% (44.1%) *Excludes special items. Refer to 3M s January 29 th, 2009 press release for a complete list and explanation of these items. Q4 Highlights Local-currency decline of 25.8%; sales down 7.7% excluding Optical Systems Optical Systems sales and profits down 48% and 94%, respectively due to rapid contraction of LCD market Local-currency sales in traffic safety systems up nearly 3% including 2.3% from acquisitions Media and advertising slowdown negatively impacts commercial graphics Strong local-currency growth in Latin America margins of 10.2% Full Year Highlights Local-currency sales down 17.9% for 2008 Aggressively addressing cost structure to offset weak top-line growth, particularly in optical film business 2-lamp energy saving story in LCD monitors continues to gain traction MPRO, 3M s first handheld digital projector, featured by Popular Science and covered extensively at CES by national media Full-year operating income margins of 19.1%

15 Segment Highlights Electro & Communications (15.3%) +1.0% Fourth Quarter Q4 07 Q % 14.5% (30.6%) Q4 07 Q4 08 Q4 07 Q4 08 Full Year % 19.3% +1.1% Q4 Highlights Local-currency sales down 12.3%, including 0.3% benefit from acquisitions Electronic solutions and electronic markets materials saw orders cancelled due to economic conditions Electrical markets won another contract from a major utility for its ACCR overhead power cable solution margins of 14.5% Full Year Highlights in local currency down 1.7% for 2008, including 0.4% benefit from acquisitions growth led by international performance particularly Asia Pacific and Latin America Electrical markets and electronics markets materials drove solid growth Soft telecommunications infrastructure market worldwide Continued strong operational discipline with operating margins of 19.3% 15 *Excludes special items. Refer to 3M s January 29 th, 2009 press release for a complete list and explanation of these items.

16 2009 Planning Framework Organic volume -5% to -9% Foreign currency -6% to -7% Earnings-per-share -9% to -17%, or $4.30 to $4.70 Free cash flow will approximate net income, however pension and severance funding will be a wild card 16 *Excludes special items.

17 17 Q & A

18 2008 Fourth Quarter Business Review Leading Through Innovation 3M All Rights Reserved.