3M Reports 2005 Fourth-Quarter and Calendar Year Sales and Earnings

3M (NYSE:MMM) today announced its sales and profit results for the fourth-quarter and calendar year 2005.

Fourth-quarter net income before a cumulative effect of accounting change related to FIN 47(a) was $796 million, or $1.04 per share, versus $720 million, or $0.91 per share, in the fourth quarter of 2004. Earnings per-share increased 14.3 percent, excluding the effect of FIN 47(a). Fourth-quarter reported net income was $761 million, or $0.99 per share.

"This was a great quarter for 3M with broad-based contributions from our diverse portfolio and particularly strong results in our industrial and electronics-related businesses," said George W. Buckley, 3M chairman, president and CEO. "This quarter demonstrates the value 3M's innovative products bring to customers and the superb capability of the 3M organization to overcome the headwinds of raw material price inflation. I would like to thank 3M employees worldwide for leveraging the combination of solid sales growth and strong operational performance into another double-digit earnings per share increase in 2005."

Fourth-quarter worldwide sales totaled $5.3 billion, up 4.6 percent compared to the fourth quarter of 2004. Local-currency sales increased 7.3 percent, including 2.1 percent from the acquisition of CUNO Inc. Currency effects decreased sales by 2.7 percent. Local-currency sales increased 18.2 percent in Industrial (including 12.0 percent due to CUNO), 10.9 percent in Electro and Communications, 10.2 percent in Display and Graphics, 9.7 percent in Safety, Security and Protection Services, 3.3 percent in Transportation, 0.5 percent in Consumer and Office, and were unchanged in Health Care.

For the 2005 calendar year, reported net income was $3.2 billion, or $4.12 per share. Net income excluding the effects of FIN 47(a) and the American Jobs Creation Act(b), totaled $3.3 billion or $4.26 per share, up from $3.0 billion or $3.75 per share in 2004, an EPS increase of 13.6 percent.

Calendar year 2005 sales totaled $21.2 billion, a 5.8 percent increase over 2004. Local-currency sales increased 5.1 percent, including 0.9 percent from the acquisition of CUNO. Selling prices increased 0.6 percent, and currency effects increased sales by 0.7 percent. For the calendar year, local-currency sales growth was driven by increases of 9.3 percent in Industrial (including 5.1 percent from CUNO); 6.9 percent in Safety, Security and Protection Services; 5.0 percent in Transportation; and 4.2 percent in Electro and Communications.

"Looking ahead, we will focus on driving profitable growth by investing in our most promising commercialization, geographic and technology opportunities, and part of this investment will come from savings generated through continuous operational improvements," said Buckley. "After long admiring 3M for its unique culture of innovation, decades of success, wealth of technology and outstanding people, I look forward to being part of the team that will make real the tremendous potential of 3M in 2006 and beyond."

3M also provided its full-year 2006 earnings estimates. The company expects 2006 per share earnings to be in the range of $4.45 to $4.60, including an estimated $0.16 per share cost of stock options expensing. 3M has elected to restate prior year earnings to reflect stock options expensing, the details of which will be described in the 2006 first quarter 10-Q. Restated 2005 earnings per share will be $4.12(d), including a $0.14 per share cost from expensing stock options, and excluding the one-time impacts of FIN 47(a) and the Jobs Act(b). Calendar year 2006 organic local-currency growth is expected to be between 4 and 7 percent, with an additional approximately 1.4 percent local currency growth from the CUNO acquisition.

For the first quarter of 2006, the company expects earnings per share to be in the range of $1.10 to $1.14, including an estimated $0.02 per share cost from stock options expensing(c). In the first quarter of 2005, 3M earned $0.97 per share adjusted to reflect stock options expensing of $0.06 per share. The company expects first-quarter, local-currency sales growth of 4 to 7 percent with an additional estimated 2.3 percent from CUNO.

George W. Buckley, and Patrick D. Campbell, senior vice president and chief financial officer, will conduct an investor teleconference at 10 a.m. Eastern Time (9 a.m. Central Time) today. Investors can access a webcast of this conference, along with related charts and materials, at http://investor.3M.com.

(a) In March 2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations -- an interpretation of FASB Statement No.143" ("FIN 47"). In adopting FIN 47 in the fourth quarter, 3M recorded a noncash charge of $35 million after-tax as a cumulative effect of change in accounting principle in the accompanying Consolidated Statement of Income. This charge represents conditional retirement obligations associated with 3M long-lived assets.

(b) During the quarter ended June 30, 2005, the company completed its evaluation of the repatriation provision of the American Jobs Creation Act of 2004 (Jobs Act) and recognized $75 million, net of available foreign tax credits, of related tax liability. The company reinvested approximately $1.8 billion of foreign earnings in the United States pursuant to the provisions of the Jobs Act in 2005.

(c) For calendar year 2006, 3M expects an estimated $0.16 earnings per share cost from stock options expensing, with an estimated $0.02 per share cost in the first quarter, an estimated $0.08 per share cost in the second quarter, and estimated $0.03 per share costs in each of the third and fourth quarters. 3M expects a higher expense when the company's annual grant is made in the second quarter, due to a requirement under FAS 123R to immediately expense stock options granted to retirement-eligible employees.

(d) Reported 2005 earnings per share will be $3.98, including the restatement for stock options expensing and the one-time impacts of FIN 47(a) and the Jobs Act(b).

Forward-Looking Statements

This news release 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," 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 the outcome of and information derived from pending Congressional action concerning asbestos-related litigation and other significant developments that could occur in the legal proceedings described in the company's Annual Report on Form 10-K for the year-ended Dec. 31, 2004 and the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005, June 30, 2005, and Sept. 30, 2005 (the "Reports"). Changes in such assumptions or factors could produce significantly different results. A further description of these factors is located in the reports. The information contained in this news release is as of the date indicated. The company assumes no obligation to update any forward-looking statements contained in this release as a result of new information or future events or developments.

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 Scotch, Post-it, Scotchgard, Thinsulate, Scotch-Brite, Filtrete, Command and Vikuiti. Serving customers in more than 200 countries around the world, the company's 69,000 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 OF INCOME
(Millions, except per-share amounts)
(Unaudited)
         
   

Three-months ended

 

Twelve-months ended

   

December 31

 

December 31

    2005   2004   2005   2004
Net sales   $5,325     $5,091     $21,167     $20,011  
Operating expenses                
Cost of sales   2,618     2,613     10,381     9,958  
Selling, general and                
administrative expenses (e)   1,178     1,084     4,535     4,281  
Research, development and                
related expenses (e)   317     302     1,242     1,194  
Total   4,113     3,999     16,158     15,433  
Operating income   1,212     1,092     5,009     4,578  
Interest expense and income                
Interest expense   23     17     82     69  
Interest income   (11 )   (14 )   (56 )   (46 )
Total   12     3     26     23  
Income before income taxes,                
minority interest and                
cumulative effect of                
accounting change   1,200     1,089     4,983     4,555  
 
Provision for income taxes   389     359     1,694     1,503  
Minority interest   15     10     55     62  
Income before cumulative effect                
of accounting change   796     720     3,234     2,990  
Cumulative effect of accounting                
change   (35 )   -     (35 )   -  
Net income   $761     $720     $3,199     $2,990  
 
 
 
Weighted average common shares                
outstanding - basic   757.6     776.2     764.9     780.5  
Earnings per share - basic                
Income before cumulative                
effect of accounting change   $1.05     $0.93     $4.23     $3.83  
Cumulative effect of                
accounting change   (0.05 )   -     (0.05 )   -  
Net Income   $1.00     $0.93     $4.18     $3.83  
 
Weighted average common shares                
outstanding - diluted   768.2     790.4     776.9     796.5  
Earnings per share - diluted                
Income before cumulative                
effect of accounting change   $1.04     $0.91     $4.16     $3.75  
Cumulative effect of                
accounting change   (0.05 )   -     (0.04 )   -  
Net income   $0.99     $0.91     $4.12     $3.75  
 
Cash dividends paid                
per common share   $0.42     $0.36     $1.68     $1.44  
                         
(e) Certain amounts in the prior periods' consolidated financial
statements have been reclassified to conform to the current period
presentation. Internally developed patent costs have been reclassified
to "Research, development and related expenses" from "Selling, general
and administrative expenses". Costs of internally developed patents
include costs and fees incurred to prepare, file, secure and maintain
patents.
 
 
3M Company and Subsidiaries
SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME INFORMATION
(Millions, except per-share amounts)
(Unaudited)

 

    Twelve-months ended
    December 31, 2005
    Excluding        
    special   Special   Reported
    items (f)   items (f)   total
Net sales   $21,167     $-     $21,167  
Operating expenses            
Cost of sales   10,381     -     10,381  
Selling, general and            
administrative expenses   4,535     -     4,535  
Research, development and related            
expenses   1,242     -     1,242  
Total   16,158     -     16,158  
Operating income   5,009     -     5,009  
 
Interest expense and (income), net   26     -     26  
 
Income before income taxes,            
minority interest and cumulative            
effect of accounting change   4,983     -     4,983  
 
Provision for income taxes   1,619     75     1,694  
Effective tax rate   32.5 %   -     34.0 %
 
Minority interest   55     -     55  
Income before cumulative effect of            
accounting change   3,309     (75 )   3,234  
Cumulative effect of accounting            
change   -     (35 )   (35 )
Net income (loss)   3,309     (110 )   3,199  
 
Weighted average diluted shares   776.9     776.9     776.9  
Income before cumulative effect            
of accounting change   $4.26     $(0.10 )   $4.16  
Cumulative effect of accounting            
change   -     (0.04 )   (0.04 )
Net income (loss) per diluted            
shares   $4.26     $(0.14 )   $4.12  
                   
(f) 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 quarter ended June
30, 2005, the Company completed its evaluation of the repatriation
provision of the American Jobs Creation Act of 2004 (Jobs Act) and
recognized $75 million, net of available foreign tax credits, of
related tax liability. The Company reinvested approximately $1.8
billion of foreign earnings in the United States pursuant to the
provisions of the Jobs Act in 2005. In March 2005, the FASB issued
Interpretation No. 47, "Accounting for Conditional Asset Retirement
Obligations--an interpretation of FASB Statement No.143" ("FIN 47").
In adopting FIN 47 in the fourth quarter of 2005, 3M recorded a
non-cash charge of $35 million after-tax as a cumulative effect of
change in accounting principle. This charge represents conditional
retirement obligations associated with 3M long-lived assets.
 
 
3M Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(Unaudited)
 
   

Dec. 31,

 

Dec. 31,

ASSETS

 

2005

 

2004

Current assets            
Cash and cash equivalents   $1,072     $2,757  
Accounts receivable - net   2,838     2,792  
Inventories   2,162     1,897  
Other current assets   1,043     1,274  
Total current assets   7,115     8,720  
Investments   272     227  
Property, plant and equipment - net   5,593     5,711  
Prepaid pension and postretirement benefits   2,951     2,591  
Goodwill, intangible assets and other assets (g)   4,582     3,459  
Total assets

 

$20,513

 

 

$20,708

 
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities            
Short-term borrowings and current portion of long-            
term debt   $1,072     $2,094  
Accounts payable   1,256     1,168  
Accrued payroll   469     487  
Accrued income taxes   989     867  
Other current liabilities   1,452     1,455  
Total current liabilities   5,238     6,071  
Long-term debt   1,309     727  
Other liabilities   3,866     3,532  
Total liabilities   10,413     10,330  
Total stockholders' equity - net   10,100     10,378  
Shares outstanding            
December 31, 2005: 754,538,387 shares            
December 31, 2004: 773,518,281 shares            
Total liabilities and stockholders' equity

 

$20,513

 

 

$20,708

 
             
(g) The acquisition of CUNO in the third quarter of 2005 increased the
"Goodwill, intangible assets and other assets" balance by
approximately $1.3 billion.
 
     
3M Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(Unaudited)
     
   

Twelve-months ended

   

 December 31

   

2005

 

 2004

SUMMARY OF CASH FLOW:

           
             
NET CASH PROVIDED BY OPERATING ACTIVITIES   $4,258     $4,282  
Cash flows from investing activities:        
Purchases of property, plant and equipment   (943 )   (937 )
Acquisitions, net of cash acquired   (1,293 )   (73 )
Other investing activities   (5 )   72  
NET CASH USED IN INVESTING ACTIVITIES   (2,241 )   (938 )
Cash flows from financing activities:        
Change in debt   (485 )   (111 )
Purchases of treasury stock   (2,377 )   (1,791 )
Reissuances of treasury stock   545     508  
Dividends paid to stockholders   (1,286 )   (1,125 )
Other financing activities   (76 )   (15 )
NET CASH USED IN FINANCING ACTIVITIES   (3,679 )   (2,534 )
Effect of exchange rate changes on cash   (23 )   111  
Net increase (decrease) in cash and cash        
equivalents   (1,685 )   921  
Cash and cash equivalents at beginning of period   2,757     1,836  
Cash and cash equivalents at end of period   $1,072     $2,757  
 
 
3M Company and Subsidiaries
SUPPLEMENTAL CASH FLOW AND
OTHER SUPPLEMENTAL FINANCIAL INFORMATION
(Dollars in millions)
(Unaudited)
     
    Twelve-months ended
    December 31
   

2005

 

2004

NON-GAAP MEASURES            
             
Free Cash Flow:            
Net cash provided by operating activities   $4,258     $4,282  
Purchases of property, plant and equipment   (943 )   (937 )
Free Cash Flow (h)   $3,315     $3,345  
 
OTHER NON-GAAP MEASURES:            
Net Working Capital Turns (i)   5.7     5.8  
 

Reported (before cumulative effect of accounting change):

Economic Profit (j)   $1,882     $1,758  
Return on Invested Capital (j)   23.2 %   23.4 %
 
Excluding Special Items in 2005:            
Economic Profit (j)   $1,957     $1,758  
Return on Invested Capital (j)   23.7 %   23.4 %
             
(h) Free cash flow is not defined under U.S. generally accepted
accounting principles (GAAP). Therefore, it 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.
 
(i) The company uses various working capital 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.
 
(j) The company uses non-GAAP measures to focus on shareholder value
creation. 3M's Economic Profit is defined as after-tax operating
income less a charge for operating capital. 3M also uses Return on
Invested Capital, defined as after-tax operating income divided by
average operating capital. This measure is presented as reported and
also excluding 2005 special items. 3M's reported economic profit
calculation also excludes the impact of the adoption of FIN 47.
Special items were previously defined within the Supplemental
Consolidated Statement of Income Information section of this document.
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.
 
 
3M Company and Subsidiaries
SALES CHANGE ANALYSIS
(Unaudited)
     
   

 Three-Months Ended Dec. 31, 2005

                   

Sales Change Analysis

 

United

 

Inter-

     

By Geographic Area

 

States

 

national

 

Worldwide

Volume - organic   (1.4 )%   9.4 %   5.1 %

 

Volume - acquisitions   3.2     1.3     2.1  
Volume - total   1.8     10.7     7.2  
 
Price   3.2     (1.9 )   0.1  
Total local-currency sales   5.0     8.8     7.3  
 
Translation   -     (4.5 )   (2.7 )
Total sales change   5.0 %   4.3 %   4.6 %
 
 
Worldwide   Local-       Total
Sales Change Analysis   currency   Trans-   Sales
By Business Segment   Sales   lation   Change
Health Care   0.0 %   (3.6 )%   (3.6 )%
 
Industrial (k)   18.2     (2.6 )   15.6  
 
Display and Graphics   10.2     (2.1 )   8.1  
 
Consumer and Office   0.5     (1.7 )   (1.2 )
 
Electro and Communications   10.9     (3.3 )   7.6  
 
Safety, Security and Protection            
Services   9.7     (2.6 )   7.1  
 
Transportation   3.3     (3.7 )   (0.4 )
                   

(k) Industrial includes a 12.0% benefit due to the CUNO acquisition.

 

3M Company and Subsidiaries

SALES CHANGE ANALYSIS
(Unaudited)
 
    Twelve-Months Ended Dec. 31, 2005
 
 
Sales Change Analysis   United   Inter-    
By Geographic Area   States   national   Worldwide
Volume - organic   1.0 %   5.1 %   3.5 %
 
Volume - acquisitions   1.4     0.7     1.0  
Volume - total   2.4     5.8     4.5  
 
Price   2.5     (0.7 )   0.6  
Total local-currency sales   4.9     5.1     5.1  
 
Translation   -     1.2     0.7  
Total sales change   4.9 %   6.3 %   5.8 %
 
 
Sales Change Analysis   Local-       Total
By International   currency   Trans-   Sales
Geographic Area   Sales   lation   Change
Europe, Middle East and Africa   0.9 %   (0.2 )%   0.7 %
 
Asia Pacific   10.6     0.5     11.1  
 
Latin America and Canada   1.3     7.4     8.7  
 
 
Worldwide   Local-       Total
Sales Change Analysis   currency   Trans-   Sales
By Business Segment   Sales   lation   Change
Health Care   2.9 %   0.5 %   3.4 %
 
Industrial (l)   9.3     1.2     10.5  
 
Display and Graphics   4.0     0.2     4.2  
 
Consumer and Office   3.4     1.0     4.4  
 
Electro and Communications   4.2     0.7     4.9  
 
Safety, Security and Protection            
Services   6.9     1.0     7.9  
 
Transportation   5.0     0.8     5.8  
             

(l) Industrial includes a 5.1% benefit due to the CUNO acquisition.

 
 

3M Company and Subsidiaries

BUSINESS SEGMENTS
(Dollars in millions)
(Unaudited)
 
BUSINESS                
SEGMENT   Three-months ended   Twelve-months ended
INFORMATION   Dec. 31   Dec. 31
(Millions)   2005   2004   2005   2004
NET SALES                
Health Care   $1,074     $1,115     $4,373     $4,230  
Industrial   1,004     869     3,806     3,444  
Display and Graphics   912     844     3,558     3,416  
Consumer and Office   754     763     2,986     2,861  
Electro and Communications   585     544     2,333     2,224  
Safety, Security and Protection                
Services   563     526     2,292     2,125  
Transportation   420     421     1,772     1,674  
Corporate and Unallocated   13     9     47     37  
Total Company   $5,325     $5,091     $21,167     $20,011  
 
OPERATING INCOME                
Health Care   $304     $310     $1,215     $1,123  
Industrial   188     141     735     610  
Display and Graphics   281     240     1,159     1,133  
Consumer and Office   143     147     576     542  
Electro and Communications   115     84     463     342  
Safety, Security and Protection                
Services   130     107     553     491  
Transportation   100     98     461     426  
Corporate and Unallocated   (49 )   (35 )   (153 )   (89 )
Total Company   $1,212     $1,092     $5,009     $4,578  
 

 

3M, St. PaulInvestor Contacts:Mark Colin, 651-733-8206orBruce Jermeland, 651-733-1807orMedia Contact:Jacqueline Berry, 651-733-3611

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