3M 2009 Annual Report Download - page 28

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Fourth quarter and year 2008 results:
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.
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
11.2 percent decline compared to 2007. Local-currency sales were down 6.4 percent, including a positive 3.1 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 Dyneon LLC, 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, with the
exception of the automotive aftermarket business, which posted positive local-currency sales 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 $214 million, which included net charges of $36 million for restructuring actions and exit
activities.
Full-year 2008 sales were up 7 percent to $8.2 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 countries of 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.
Industrial and Transportation continued to invest in innovative new products along with complementary gap-fill
acquisitions, evidenced by the closing of eight acquisitions in 2008, with some of the larger acquisitions summarized
as follows. In July 2008, 3M acquired K&H Surface Technologies Pty. Ltd., an Australian-based manufacturing
company specializing in a range of repair products for the professional do-it-yourself automotive refinish markets. In
August 2008, 3M acquired Polyfoam Products Inc., a structural adhesives company specializing in foam adhesives
for tile roofing and other adhesive products for the building industry. In October 2008, 3M completed its acquisition of
EMFI S.A. and SAPO S.A.S., manufacturers of polyurethane-based structural adhesives and sealants headquartered
in Haguenau, France. In October 2008, 3M also completed its acquisition of Meguiar’s Inc., a 100-year-old business
that manufactures the leading Meguiar’s brand of car care products for cleaning and protecting automotive surfaces,
which is headquartered in Irvine, California.
Investment:
In March 2005, 3M’s automotive business completed the purchase of 19 percent of TI&M Beteiligungsgesellschaft
mbH (TI&M) for approximately $55 million. TI&M is the parent company of I&T Innovation Technology
Entwicklungsund Holding Aktiengesellschaft (I&T), an Austrian maker of flat flexible cable and circuitry. Pursuant to a
Shareholders Agreement, 3M marketed the firm’s flat flexible wiring systems for automotive interior applications to
the global automotive market. I&T filed a petition for bankruptcy protection in August 2006. As part of its agreement
to purchase the shares of TI&M, the Company was granted a put option, which gave the Company the right to sell
back its entire ownership interest in TI&M to the other investors from whom 3M acquired its 19 percent interest. The
put option became exercisable January 1, 2007. The Company exercised the put option and recovered
approximately $25 million of its investment from one of the investors based in Belgium in February 2007. The other
two TI&M investors have filed a bankruptcy petition in Austria. The Company is pursuing recovery of the balance of