3M Reports Record Second-Quarter Sales and Earnings; Company Raises Earnings Estimate for 2004

3M (NYSE:MMM) today announced its second quarter 2004 sales and earnings results.

Net income for the quarter was $773 million, or $0.97 per share, versus $619 million, or $0.78 per share, in the second quarter of 2003. Second quarter net income increased nearly 25 percent, and per-share earnings increased more than 24 percent.

"Solid sales growth and continued operational efficiency produced another outstanding earnings result," said W. James McNerney, Jr., 3M chairman and CEO. "Our employees continued to drive growth through strong connections with customers, leveraging our corporate initiatives and diverse technology base while maintaining good cost discipline."

Worldwide sales in the second quarter totaled $5.01 billion, 9.5 percent higher than in the year-earlier quarter. Global sales volumes increased 7.7 percent, which is the fourth consecutive quarter of volume growth above 7 percent. Local-currency sales (which excludes the impact of currency translation on sales) increased 18.2 percent in Display and Graphics, 10.4 percent in Industrial, 4.8 percent in Electro and Communications, 4.3 percent in Transportation, 4.2 percent in Consumer and Office, 3.4 percent in Safety, Security and Protection Services, and .3 percent in Health Care. Currency effects increased sales by 2.8 percent while selling prices declined 1.0 percent.

Sales outside the United States totaled $3.04 billion, an increase of 14.4 percent versus the second quarter of last year. Volumes increased 10.9 percent, while selling prices declined 1.3 percent. Currency translation effects increased international sales by 4.8 percent. Local-currency sales increased 18.5 percent in Asia Pacific, 13.8 percent in the combined Latin America, Africa and Canada region and 0.5 percent in Europe.

In the United States, sales totaled $1.97 billion, up 2.7 percent from the same quarter of 2003. Volumes increased 3.1 percent, and selling prices declined by 0.4 percent.

"Our broad-based growth in the second quarter reflects the fundamental strength of the 3M business model. Organic growth remains our focus, enabled by the 3M Acceleration initiative and the market focused organization structure we established in 2003," McNerney said. "Although continued geopolitical uncertainty causes us to maintain a conservative economic outlook, we are confident in our ability to deliver solid results."

3M also increased its earnings outlook for 2004. The company now expects reported earnings will be within a range of $3.72 to $3.75 per share for the year, versus a previous expectation of $3.60 to $3.70 per share. 3M expects third-quarter earnings per share to match the company's record second quarter performance of .97 per share.

Patrick D. Campbell, senior vice president and chief financial officer, will conduct an investor teleconference at 9 a.m. Eastern Time (8 a.m. Central) today. Investors can access a webcast of this conference, along with related charts and materials, at http://investor.3M.com.

Forward-Looking Statements

This news release contains forward-looking statements that reflect current views and estimates of 3M's management of future economic circumstances, industry conditions, company performance and financial results. The statements are based on many assumptions and factors including: (1) worldwide economic conditions; (2) foreign currency exchange rates and fluctuations in those rates; (3) the timing and acceptance of new product offerings; (4) purchased components and materials, including shortages and increases in the costs of such components and materials; (5) 3M's ability to successfully manage acquisitions, divestitures and strategic alliances; and (6) legal proceedings. Changes in such assumptions or factors, including without limitation the outcome of and information derived from pending Congressional action concerning asbestos-related litigation, could produce significantly different results.

About 3M -- A Global, Diversified Technology Company

Every day, 3M people find new ways to make amazing things happen. Wherever they are, whatever they do, the company's customers know they can rely on 3M to help make their lives better. 3M's brands include icons such as Scotch, Post-it, Scotchgard, Thinsulate, Scotch-Brite, Filtrete, Command and Vikuiti. Serving customers in more than 200 countries around the world, the company's 67,000 people use their expertise, technologies and global strength to lead in major markets including consumer and office; display and graphics; electronics and telecommunications; safety, security and protection services; health care; industrial and transportation. For more information, including the latest product and technology news, visit www.3M.com.

Scotch, Post-it, Scotchgard, Thinsulate, Scotch-Brite, Filtrete, Command and Vikuiti are trademarks of 3M.

 
3M Company and Subsidiaries
CONSOLIDATED STATEMENT OFINCOME

(Millions, except per-share amounts)

(Unaudited)
                         
      Three-months ended     Six-months ended
      June 30     June 30
      2004     2003     2004     2003
Net sales     $ 5,012       $ 4,580       $ 9,951       $ 8,898  
Operating expenses                        
Cost of sales       2,452         2,323         4,888         4,534  
Selling, general and                        
administrative expenses       1,084         1,021         2,188         1,984  
Research, development and                        
related expenses       290         276         572         546  
Other expense       -         -         -         93  
Total       3,826         3,620         7,648         7,157  
Operating income       1,186         960         2,303         1,741  
Interest expense and income                        
Interest expense       16         24         35         47  
Interest income       (10 )       (5 )       (20 )       (11 )
Total       6         19         15         36  
Income before income taxes                        
and minority interest       1,180         941         2,288         1,705  
Provision for income taxes       389         310         755         558  
Minority interest       18         12         38         26  
Net income     $ 773       $ 619       $ 1,495       $ 1,121  
Weighted average common shares                        
outstanding - basic       782.5         781.8         782.7         780.9  
Earnings per share - basic     $ 0.99       $ 0.79       $ 1.91       $ 1.44  
Weighted average common shares                        
outstanding - diluted       799.7         792.3         799.6         791.4  
Earnings per share - diluted     $ 0.97       $ 0.78       $ 1.87       $ 1.42  
Cash dividends paid per common                        
share     $ 0.36       $ 0.33       $ 0.72       $ 0.66  
                         
 
 
3M Company and Subsidiaries
SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME INFORMATION
(Millions, except per-share amounts)
(Unaudited)
                                     
      Six-months ended     Six-months ended
      June 30, 2004     June 30, 2003
      Excluding                 Excluding            
      special     Special     Reported     special     Special     Reported
      items     items     total     items (a)     items (a)     total
Net sales     $ 9,951       $ -     $ 9,951       $ 8,898       $ -       $ 8,898  
Operating                                    
expenses                                    
Cost of                                    
sales       4,888         -       4,888         4,534         -         4,534  
Selling,                                    
general and                                    
admini-                                    
strative                                    
expenses       2,188         -       2,188         1,984         -         1,984  
Research,                                    
development                                    
and related                                    
expenses       572         -       572         546         -         546  
Other                                    
expense       -         -       -         -         93         93  
Total       7,648         -       7,648         7,064         93         7,157  
Operating                                    
income (loss)       2,303         -       2,303         1,834         (93 )       1,741  
                                     
Interest                                    
expense and                                    
(income), net       15         -       15         36         -         36  
Income (loss)                                    
before income                                    
taxes and                                    
minority                                    
interest       2,288         -       2,288         1,798         (93 )       1,705  
                                     
Provision                                    
(benefit) for                                    
income taxes       755         -       755         593         (35 )       558  
Effective tax                                    
rate       33.0 %       -       33.0 %       33.0 %       -         32.8 %
                                     
Minority                                    
interest       38         -       38         26         -         26  
Net income                                    
(loss)     $ 1,495       $ -     $ 1,495       $ 1,179       $ (58 )     $ 1,121  
Weighted                                    
average                                    
diluted                                    
shares       799.6         -       799.6         791.4         791.4         791.4  
Net income                                    
per diluted                                    
share     $ 1.87       $ -     $ 1.87       $ 1.49       $ (0.07 )     $ 1.42  
                                     
 

(a) In addition to disclosing results that are determined in accordance with U.S. generally accepted accounting principles (GAAP), the company also discloses non-GAAP results that exclude special items. Special items represent significant charges or credits that are important to an understanding of the company's ongoing operations. The company provides reconciliations of its non-GAAP financial reporting to the most comparable GAAP reporting. The company believes that discussion of results excluding special items provides a useful analysis of ongoing operating trends. Earnings per share and other amounts before special items are not measures recognized under GAAP. The determination of special items may not be comparable to similarly titled measures used by other companies. During the first quarter of 2003, 3M recorded pretax charges of $93 million ($58 million after-tax) related to an adverse court ruling in a lawsuit filed against 3M in 1997 by LePage's Inc.

 
3M Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(Unaudited)
                   
      Jun. 30,     Jun. 30,     Dec. 31,
ASSETS     2004     2003     2003
Current assets    

 

   

 

   

 

Cash and cash equivalents     $ 2,314     $ 974     $ 1,836
Accounts receivable - net       2,913       2,771       2,714
Inventories       1,940       1,990       1,816
Other current assets       1,460       1,302       1,354
Total current assets       8,627       7,037       7,720
Investments       211       233       218
Property, plant and equipment - net       5,456       5,555       5,609
Goodwill, intangible assets and other                  
assets       4,068       3,741       4,053
Total assets     $ 18,362     $ 16,566     $ 17,600
LIABILITIES AND STOCKHOLDERS' EQUITY                  
Current liabilities                  
Short-term borrowings and current                  
portion of long-term debt     $ 1,358     $ 1,059     $ 1,202
Accounts payable       1,108       972       1,087
Accrued payroll       487       438       436
Accrued income taxes       1,094       813       880
Other current liabilities       1,547       1,545       1,477
Total current liabilities       5,594       4,827       5,082
Long-term debt       1,303       1,962       1,735
Other liabilities       3,008       2,822       2,898
Total liabilities       9,905       9,611       9,715
Total stockholders' equity - net       8,457       6,955       7,885
Shares outstanding                  
June 30, 2004: 782,703,301 shares                  
June 30, 2003: 783,006,860 shares                  
December 31, 2003: 784,117,360 shares                  
Total liabilities and stockholders'                  
equity     $ 18,362     $ 16,566     $ 17,600
                   
 
 
3M Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(Unaudited)
             
      Six-months ended
      June 30
      2004     2003
SUMMARY OF CASH FLOW:            
             
NET CASH PROVIDED BY OPERATING ACTIVITIES     $ 2,237       $ 1,890  
Cash flows from investing activities:            
Purchases of property, plant and equipment       (378 )       (264 )
Acquisitions, net of cash acquired       (86 )       (424 )
Other investing activities       29         74  
NET CASH USED IN INVESTING ACTIVITIES       (435 )       (614 )
Cash flows from financing activities:            
Change in debt       (286 )       (349 )
Purchases of treasury stock       (792 )       (280 )
Reissuances of treasury stock       352         270  
Dividends paid to stockholders       (564 )       (515 )
Other financing activities       (23 )       (23 )
NET CASH USED IN FINANCING ACTIVITIES       (1,313 )       (897 )
Effect of exchange rate changes on cash       (11 )       (23 )
Net increase in cash and cash equivalents       478         356  
Cash and cash equivalents at beginning of            
period       1,836         618  
Cash and cash equivalents at end of period     $ 2,314       $ 974  
                     
 
 

3M Company and Subsidiaries

SUPPLEMENTAL CASH FLOW AND
NET WORKING CAPITAL TURNS INFORMATION
(Dollars in millions)
(Unaudited)
             
      Six-months ended
      June 30
      2004     2003
FREE CASH FLOW (Non-GAAP measure):            
Net cash provided by operating activities     $ 2,237       $ 1,890  
Purchases of property, plant and equipment       (378 )       (264 )
Free Cash Flow (a)     $ 1,859       $ 1,626  
             
NET WORKING CAPITAL TURNS (Non-GAAP measure):            
             
Net Working Capital Turns (b)       5.4         4.8  
             
 

(a) Free cash flow is not defined under GAAP. Therefore, it is considered a non-GAAP measure. Non-GAAP measures should not be considered a substitute for income or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. The company defines free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. The company believes free cash flow is a useful measure of performance and uses this measure as an indication of the strength of the company and its ability to generate cash.

(b) The company also uses non-GAAP measures that place emphasis and focus on certain working capital assets and liabilities. 3M's net working capital index is defined as quarterly net sales multiplied by four, divided by ending net accounts receivable plus inventory less accounts payable. This measure is not recognized under U.S. generally accepted accounting principles and may not be comparable to similarly titled measures used by other companies.

 
3M Company and Subsidiaries
SALES CHANGE ANALYSIS
(Unaudited)
                   
Three-Months Ended June 30, 2004
                   
Sales Change Analysis     United     Inter-      
By Geographic Area     States     national     Worldwide
Volume - core     2.3 %     10.6 %     7.2 %
                   
Volume - acquisitions     0.8       0.3       0.5  
Volume - total     3.1       10.9       7.7  
                   
Price     (0.4 )     (1.3 )     (1.0 )
Total local-currency sales     2.7       9.6       6.7  
                   
Translation     -       4.8       2.8  
Total sales change     2.7 %     14.4 %     9.5 %
                   
                   
      Local-           Total
Sales Change Analysis     currency     Trans-     Sales
By Business Segment     Sales     lation     Change
Health Care     0.3 %     2.8 %     3.1 %
                   
Industrial     10.4       2.8       13.2  
                   
Display and Graphics     18.2       4.3       22.5  
                   
Consumer and Office     4.2       1.7       5.9  
                   
Safety, Security and Protection                  
Services     3.4       2.2       5.6  
                   
Electro and Communications     4.8       2.0       6.8  
                   
Transportation     4.3       3.1       7.4  
                         
 
 
3M Company and Subsidiaries
SALES CHANGE ANALYSIS
(Unaudited)
                   
Six-Months Ended June 30, 2004
                   
Sales Change Analysis     United     Inter-      
By Geographic Area     States     national     Worldwide
Volume - core     2.8 %     11.2 %     7.7 %
                   
Volume - acquisitions     0.7       0.2       0.4  
Volume - total     3.5       11.4       8.1  
                   
Price     (0.1 )     (1.0 )     (0.7 )
Total local-currency sales     3.4       10.4       7.4  
                   
Translation     -       7.5       4.4  
Total sales change     3.4 %     17.9 %     11.8 %
                   
                   
      Local-           Total
Sales Change Analysis     currency     Trans-     Sales
By Business Segment     Sales     lation     Change
Health Care     1.3 %     4.7 %     6.0 %
                   
Industrial     9.5       4.5       14.0  
                   
Display and Graphics     19.2       5.6       24.8  
                   
Consumer and Office     5.7       3.2       8.9  
                   
Safety, Security and Protection                  
Services     6.0       4.0       10.0  
                   
Electro and Communications     3.6       3.3       6.9  
                   
Transportation     6.2       5.0       11.2  
                         
 
 

3M Company and Subsidiaries

BUSINESS SEGMENTS
(Dollars in millions)
(Unaudited)
                         
BUSINESS                        
SEGMENT     Three-months ended     Six-months ended
INFORMATION     June 30     June 30
(Millions)     2004     2003     2004     2003
NET SALES                        
Health Care     $ 1,049       $ 1,017       $ 2,080       $ 1,963  
Industrial       949         838         1,892         1,659  
Display and Graphics       881         719         1,723         1,380  
Consumer and Office       675         637         1,361         1,249  
Safety, Security and Protection                        
Services       547         518         1,074         976  
Electro and Communications       489         458         954         892  
Transportation       411         383         849         764  
Corporate and Unallocated       11         10         18         15  
Total Company     $ 5,012       $ 4,580       $ 9,951       $ 8,898  
                         
OPERATING INCOME                        
Health Care     $ 274       $ 263       $ 536       $ 501  
Industrial       167         102         333         234  
Display and Graphics       311         209         605         391  
Consumer and Office       123         108         245         218  
Safety, Security and Protection                        
Services       136         131         261         236  
Electro and Communications       79         71         144         118  
Transportation       106         95         225         195  
Corporate and Unallocated       (10 )       (19 )       (46 )       (152 )
Total Company     $ 1,186       $ 960       $ 2,303       $ 1,741  
                                         
 

The following 2004 and 2003 charges were recorded in Corporate and Unallocated for the six-months ended June 30, 2004 and 2003. First quarter 2004 includes $16 million in expense related to a reduction in breast implant receivables following an arbitration panel ruling in the first quarter that rejected the company's claims for recovery under certain of its claims-made policies. During the first quarter of 2003, 3M recorded pretax charges of $93 million related to an adverse court ruling in a lawsuit filed against 3M in 1997 by LePage's Inc. First quarter 2003 also includes certain acquisition-related costs and respirator mask/asbestos litigation expenses.

 

3M, St. PaulInvestor Contacts:Mark Colin, 651-733-8206orBruce Jermeland, 651-733-1807orMedia Contact:John Cornwell, 651-733-7698

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