ST. PAUL, Minn.--(BUSINESS WIRE)--3M (NYSE: MMM) today announced second-quarter sales of $6.7 billion, an increase of 9.7 percent over second quarter of 2007. Net income was $945 million, or $1.33 per share, versus $917 million, or $1.25 per share in the corresponding period last year. Excluding special items in both 2007 and 2008 (a-e), net income in the second quarter of 2008 was $991 million, or $1.39 per share, versus $899 million, or $1.23 per share, in 2007, increases of 10.3 percent and 13 percent, respectively.

“The strength of 3M’s global portfolio was evident in the second quarter,” said George W. Buckley, 3M chairman, president and CEO. “3M’s three largest businesses, Industrial and Transportation, Health Care and Safety, Security and Protection Services, grew at double-digit rates. Our record sales and earnings for the second quarter are a remarkable achievement by 3M employees around the globe, given the tough economic conditions we have seen in the U.S. and the changing dynamics in the optical films industry.”

The company drove outstanding growth across its international operations—3M sales in Latin America increased 32 percent over last year, and Europe achieved 18 percent sales growth, while Canada grew by 14 percent. Sales in Asia Pacific improved by 1 percent, 17 percent excluding optical headwinds. International sales now account for close to two-thirds of 3M’s total.

Buckley continued, “We remain committed to our long-term growth strategy as we continue to innovate and invest in 3M’s core, build upon and extend that core with acquisitions, invest in emerging business opportunities and leverage our world-class international presence. As always, these investments will be balanced with operational excellence to ensure that we continue to deliver on our commitments.”

Executive Summary

• Achieved record sales for the sixth consecutive quarter.
• Revenues of $6.7 billion, up 9.7 percent from 2007, or up 13.7 percent excluding optical.
• Local-currency sales, including the impact of acquisitions, up 4.6 percent from 2007, or up 8.1 percent excluding optical.
• Currency impacts added 5.4 percent to sales in the quarter.
• Operating income increased 8.5 percent, excluding special items in the second quarters of 2007 and 2008 (a-e), to $1.5 billion.
• All six 3M businesses posted operating margins of 20 percent or greater, excluding special items (a-e).
• Earnings per share of $1.39, up 13 percent, excluding special items in the second quarters of 2007 and 2008 (a-e).
• Converted nearly 100 percent of net income to free cash flow in the quarter.
• Returned $923 million to shareholders through cash dividends and share repurchases.

Key Financial Highlights

Second-quarter worldwide sales totaled $6.7 billion, an increase of 9.7 percent over last year. Local-currency sales including acquisitions increased 4.6 percent, and foreign exchange impacts added 5.4 points to growth in the quarter. Local-currency sales including acquisitions increased 25.6 percent in Safety, Security and Protection Services, 8.7 percent in Industrial and Transportation, 7.7 percent in Health Care, 3.5 percent in Consumer and Office and 2.2 percent in Electro and Communications, but declined 18.8 percent in Display and Graphics. Second-quarter net income was $991 million, or $1.39 per share, versus $899 million, or $1.23 per share, in the second quarter of 2007, excluding special items in both periods. Net income and earnings per share increased 10.3 percent and 13 percent respectively, excluding special items (a-e).

Business Segment Discussion

Industrial and Transportation

• Sales increased 15.5 percent to $2.1 billion.
• Sales up 8.7 percent in local currencies, including 4.2 percent from acquisitions.
• Broad-based sales performance with double-digit growth in virtually all product divisions.
• Double-digit sales growth in Europe, Asia Pacific and Latin America.
• Filtrete™ Commercial HVAC Filters installed in Beijing’s National Stadium suites to improve indoor air quality.
• Driving growth with our 3M™ Finishing Systems professional-grade abrasive power tools.
• Exceptional operational performance, with profits up 18.1 percent to $425 million; operating margins of 20.4 percent, excluding special items.

Health Care

• Sales rose 13.1 percent to $1.1 billion.
• Local-currency sales growth of 7.7 percent including 1.1 percent from acquisitions.
• Outstanding sales growth in the core, including 20 percent-plus growth in oral care and 15 percent-plus growth in medical.
• Positive sales growth in all major geographies, including double-digit growth in Europe, Asia Pacific and Latin America.
• Generated first sales of the 3M digital oral scanner for the oral care professional.
• Awarded first prize for contributions to food safety technology by International Association for Food Protection.
• Operating income increased 11.6 percent to $310 million, with margins approaching 28 percent, excluding special items.

Safety, Security and Protection Services

• Sales of $1 billion, up 30.2 percent.
• Sales growth in local currency of 25.6 percent, including 19.8 percent from acquisitions, primarily Aearo Technologies, Inc. in 2008.
• Broad-based sales growth led by personal protection, protective window films, cleaning solutions for commercial buildings and corrosion protection products.
• Double-digit sales growth in all geographic regions.
• Launched a highly-durable, visible and flame resistant 3M™ Scotchlite™ trim designed for the oil and gas industry.
• 3M™ Dynatel™ launched a more accurate, specially-designed underground pipe locator.
• Product development team for 3M™ Speedglas™ auto-darkening filters and helmet awarded Business Week gold IDEA award for design excellence.
• Profits up 30 percent to $220 million, with operating margins of 21.2 percent, excluding special items.

Consumer and Office

• Sales up 7.8 percent to $899 million.
• Local-currency sales increased 3.5 percent, including 0.7 percent from acquisitions.
• Positive sales growth in all businesses led by do-it-yourself and home care businesses.
• Positive sales growth across all major geographic regions, led by Europe and Asia Pacific.
• Launched Scotch™ Fur Fighter™ pet hair remover and received Good Housekeeping seal of approval.
• Introduced Nexcare™ cold sore treatment that leverages 3M’s skin wellness expertise.
• Profits of $179 million, with operating margins of 20 percent.

Display and Graphics

• Sales declined 15.9 percent to $846 million, with local-currency sales down 18.8 percent.
• Sales rose 5.3 percent, excluding Optical and divestitures.
• Positive sales growth in Commercial Graphics and Traffic Safety Systems; double-digit growth in both Europe and Latin America.
• Commercial Graphics’ products widely used in conjunction with Beijing Olympics.
• Optical sales down 36 percent with profits down 54 percent.
• Traffic Safety Systems awarded first prize for environmental protection and mitigation by American Road & Transportation Builders Association.
• Operating profits were $184 million, with a 21.7 percent margin.

Electro and Communications

• Sales increased 7.9 percent to $748 million.
• Local-currency growth of 2.2 percent, including 0.4 points from acquisitions.
• Sales growth led by double-digit gains in Asia Pacific and Europe.
• Double-digit sales growth in three businesses: Electrical Markets, Electronics Markets Materials and Communication Markets.
• 3M™ Aluminum Conductor Composite Reinforced (ACCR), which carries more than twice the current of conventional steel-core conductors, announced two additional major installs in British Columbia, Canada and Silicon Valley, California.
• Operating profits up 11.4 percent to $151 million, with margins exceeding 20 percent.

Outlook

3M again reiterated its 2008 earnings expectations. The company continues to expect full-year 2008 earnings to increase a minimum of 10 percent over 2007 earnings per share of $4.98, which excludes special items. 3M also expects operating margins of 22.5 to 23.5 percent and a tax rate of 31.5 to 32 percent for the year. Annual capital expenditures for 2008 are expected to be in the range of $1.3 to $1.4 billion.

George W. Buckley and 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 Time) 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 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 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 Dec. 31, 2007 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (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 release 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.

About 3M

A recognized leader in research and development, 3M produces thousands of innovative products for dozens of diverse markets. 3M’s core strength is applying its more than 40 distinct technology platforms – often in combination – to a wide array of customer needs. With $24 billion in sales, 3M employs 79,000 people worldwide and has operations in more than 60 countries. For more information, visit www.3M.com.

3M Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(Millions, except per-share amounts)
(Unaudited)
		Three-months ended								Six-months ended
		June 30								June 30
		2008				2007				2008				2007
Net sales		$	6,739			$	6,142			$	13,202			$	12,079
Operating expenses
Cost of sales			3,510				3,175				6,846				6,197
Selling, general and administrative expenses
			1,394				1,286				2,669				2,567
Research, development and related expenses
			363				352				714				671
(Gain) loss on sale of businesses (a, c)			23				(68	)			23				(854	)
Total			5,290				4,745				10,252				8,581
Operating income			1,449				1,397				2,950				3,498
Interest expense and income
Interest expense			51				48				106				86
Interest income			(18	)			(29	)			(48	)			(57	)
Total			33				19				58				29
Income before income taxes and minority interest
			1,416				1,378				2,892				3,469
Provision for income taxes			453				445				923				1,153
Minority interest			18				16				36				31
Net income		$	945			$	917			$	1,933			$	2,285
Weighted average common shares outstanding - basic
			702.1				718.4				704.3				723.9
Earnings per share - basic		$1.35				$1.28				$2.74				$3.16
Weighted average common shares outstanding - diluted
			712.0				731.7				714.6				736.5
Earnings per share - diluted		$1.33				$1.25				$2.70				$3.10
Cash dividends paid per common share
		$0.50				$0.48				$1.00				$0.96

3M Company and Subsidiaries SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME INFORMATION RECONCILIATION OF GAAP TO 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. Operating income, net income, and diluted earnings per share measures that exclude special items 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.   The reconciliation provided below reconciles the non-GAAP financial measures with the most directly comparable GAAP financial measures for the three months and six months ended June 30, 2008.
		Three-months ended						Six-months ended
		June 30, 2008						June 30, 2008
						Diluted						Diluted
						earnings						earnings
		Operating		Net		per		Operating		Net		per
		income		income		share		income		income		share
Reported GAAP measure		$1,449		$945		$1.33		$2,950		$1,933		$2.70
Special items:
Loss on sale of businesses (a)		23		32		0.04		23		32		0.05
Exit activities (b)		19		14		0.02		19		14		0.02
Adjusted Non-GAAP measure		$1,491		$991		$1.39		$2,992		$1,979		$2.77

(a)

In June 2008, 3M completed the sale of HighJump Software, a 3M company, to Battery Ventures, a technology venture capital and private equity firm. 3M received proceeds of $85 million for this transaction and recognized, net of assets sold, transaction and other costs, a pre-tax loss of $23 million in the second quarter of 2008 (recorded in the Safety, Security and Protection Services segment). This pre-tax loss was reported on a separate line of the Consolidated Statement of Income. 3M's tax basis in HighJump Software was significantly lower than its book value, primarily related to the treatment of acquired goodwill. This resulted in a gain for tax purposes, which increased the provision for income taxes by $9 million.

(b)		In the second quarter of 2008, the Company recorded pre-tax charges of $19 million related to exit activities. These charges related to employee reductions at an Industrial and Transportation manufacturing facility located in the United Kingdom. These charges were recorded in cost of sales.

The reconciliation provided below reconciles the non-GAAP operating income measure by business segment with the most directly comparable GAAP financial measure for the three-months and six-months ended June 30, 2008.
		Three-months ended									Six-months ended
		June 30, 2008									June 30, 2008
OPERATING		Reported						Adjusted			Reported						Adjusted
INCOME BY		GAAP			Special			Non-GAAP			GAAP			Special			Non-GAAP
BUSINESS SEGMENT		measure			items			measure			measure			items			measure
Industrial and Transportation		$	406		$	19		$	425		$	878		$	19		$	897
Health Care			310			-			310			631			-			631
Display and Graphics			184			-			184			371			-			371
Consumer and Office			179			-			179			345			-			345
Safety, Security and Protection Services
			197			23			220			401			23			424
Electro and Communications			151			-			151			297			-			297
Corporate and Unallocated			22			-			22			27			-			27
Total Operating Income		$	1,449		$	42		$	1,491		$	2,950		$	42		$	2,992

The reconciliation provided below reconciles the non-GAAP financial measures with the most directly comparable GAAP financial measures for the three months and six months ended June 30, 2007.

Three-months ended

Six-months ended

June 30, 2007

June 30, 2007

Diluted

Diluted

earnings

earnings

Operating

Net

per

Operating

Net

per

income