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21
Due to the significant impact of the economic downturn in the fourth-quarter of 2008 on sales and operating income
results, the following discusses both fourth-quarter 2008 and total year 2008 results for each business segment.
Industrial and Transportation Business (30.9% of consolidated sales):
2008 2007 2006
Sales (millions)....................................... $ 7,818 $ 7,266 $ 6,632
Sales change analysis:
Local currency (volume and price).. 4.6% 5.8 % 9.0 %
Translation ...................................... 3.0 3.8 0.8
Total sales change.............................. 7.6 % 9.6 % 9.8 %
Operating income (millions) ................... $ 1,477 $ 1,497 $ 1,338
Percent change................................... (1.4 )% 11.9 % 11.0 %
Percent of sales .................................. 18.9 % 20.6 % 20.2 %
The Industrial and Transportation segment serves a broad range of markets, such as appliance, paper and
packaging, food and beverage, electronics, automotive original equipment manufacturer (OEM) and automotive
aftermarket (auto body shops and retail). Industrial and Transportation products include tapes, a wide variety of
coated and non-woven abrasives, adhesives, specialty materials, filtration products, closure systems for personal
hygiene products, and components and products that are used in the manufacture, repair and maintenance of
automotive, marine, aircraft and specialty vehicles.
2008 can be characterized as a tale of two distinct chapters for Industrial and Transportation. The first was
January through October, characterized by outstanding top-and bottom-line growth across most of the portfolio; the
second chapter was the combined months of November and December, when many large customers slowed their
operations. 3M expects that the strength of its new products, supply chain improvements and expansion into areas
like energy, aerospace, filtration and now renewable energy, will help carry it through some very challenging times.
Among 3M’s business segments, Industrial and Transportation has been among those most affected by recent
economic contractions, particularly in big industries such as automotive and electronics. With worldwide industrial
production in decline, 3M’s Industrial and Transportation business had fourth quarter 2008 sales of $1.7 billion, an
11.3 percent decline compared to 2007. Local-currency sales were down 6.3 percent, including a positive 3.2 percent
impact from acquisitions. Not all divisions within Industrial were impacted equally in the fourth quarter. Those that are
heavily linked to automotive manufacturing, namely automotive OEM and 3M Dyneon, saw declines of more than 20
percent, as did businesses selling to the electronics industry, such as high-tech tapes and adhesives. Most other
divisions experienced local-currency sales contractions of less than 10 percent in the fourth quarter. The most
significant bright spot in the quarter was the automotive aftermarket business, which contributed solid local-currency
growth. Geographically, fourth quarter 2008 local-currency sales were down in all regions, with the largest declines in
the U.S. and Asia Pacific, followed by Europe. Local-currency sales were flat in Latin America. Operating income in
the fourth quarter declined 42 percent to $203 million, which included net charges of $36 million for restructuring
actions and exit activities.
Full-year 2008 sales looked far more positive, with sales up 7.6 percent to $7.8 billion. Local-currency growth rates
were strongest in the automotive aftermarket business. 3M also drove strong sales growth in two of its largest
divisions, namely abrasives and industrial tapes and adhesives. Closure systems for personal hygiene products also
showed good growth. Geographically, all major regions drove positive local-currency sales growth. Strong market
penetration continued in emerging economies, especially the high growth BRICP countries (Brazil, Russia, India,
China and Poland), where the business drove strong organic local-currency growth. Operating income declined, but
increased after adjusting for $66 million in restructuring actions and exit activities (discussed further below). Strong
operational discipline was the key to protecting the bottom line as full-year operating margins totaled 18.9 percent,
with operating income margins at 19.7 percent after adjusting for restructuring and exit activities.
Industrial and Transportation restructuring and exit activities totaled $66 million for total year 2008. During the fourth
quarter of 2008, restructuring actions totaling $40 million (partially offset by a $4 million reduction in previously
accrued exit activity charges) were comprised of severance and related benefits totaling $33 million and asset
impairments of $7 million. Net exit activity charges of $26 million in 2008 largely related to employee reductions at an
Industrial and Transportation manufacturing facility located in the United Kingdom, which totaled $19 million. This
compared to restructuring actions and exit activities of $9 million in 2007.