3M 2009 Annual Report Download - page 36

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systems for semiconductor manufacturing, a new line of voltage terminations and splices and new closures and
cross-connect blocks for telecom appliances.
Fourth quarter and year 2008 results:
This business serves a number of end-markets, the most important being consumer electronics and
telecommunications, along with the global power utility industry. In the fourth quarter of 2008, the weak holiday
season experienced by the consumer electronics retailers had a large and negative impact on sales in this business.
Likewise the global telecommunications sector continued to cut capital spending on new capacity and on upgrades of
existing equipment. 3M had a large number of equipment orders cancelled during the fourth quarter of 2008. As a
result of this end-market contraction, sales in Electro and Communications declined by 15 percent in the fourth
quarter. Sales in local currency decreased about 12 percent, and currency impacts hurt sales by about 3 percentage
points. Operating income declined 38 percent, which included $7 million in restructuring expenses.
For the full-year 2008, sales in Electro and Communications increased 1 percent to $2.8 billion, while operating
income increased 8 percent to $540 million. Operating margins were at 19 percent. The Electrical Markets and
Electronic Markets Materials businesses drove growth. The Communications Markets and Electronics Solutions
businesses remained soft. 3M also continued to experience declines in the flexible circuits business where a number
of product solutions were going end-of-life. Operating income in 2008 was impacted by $7 million in restructuring
expenses, while 2007 included $18 million in restructuring expenses, primarily for asset impairment charges related
to the Company’s decision to close a facility in Wisconsin, and $23 million for employee reductions and fixed asset
impairments related to the consolidation of certain flexible circuit manufacturing operations. In aggregate, these items
contributed 6.7 percentage points of the reported 7.9 percent operating income growth when comparing 2008 to the
2007.
PERFORMANCE BY GEOGRAPHIC AREA
While 3M manages its businesses globally and believes its business segment results are the most relevant measure
of performance, the Company also utilizes geographic area data as a secondary performance measure. Export sales
are generally reported within the geographic area where the final sales to 3M customers are made. A portion of the
products or components sold by 3M’s operations to its customers are exported by these customers to different
geographic areas. As customers move their operations from one geographic area to another, 3M’s results will follow.
Thus, net sales in a particular geographic area are not indicative of end-user consumption in that geographic area.
Financial information related to 3M operations in various geographic areas is provided in Note 18. Operating income
results by geographic area were significantly impacted by restructuring and other items. In 2009, restructuring
actions, partially offset by a gain on sales of real estate, decreased worldwide operating income by $194 million, with
the largest impact in Europe, Asia Pacific and the United States. In 2008, restructuring actions, exit activities and a
loss on sale of businesses, which were partially offset by a gain on sale of real estate, decreased worldwide
operating income by $269 million, with the largest impact in the United States and Europe. In 2007, the gain on sale
of businesses and a gain on sale of real estate, net of restructuring and other items, increased worldwide operating
income by $681 million, with the largest impact in Europe.