Unique Strengths, Ingenious Solutions
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2005 Annual Report unique strengths, ingenious solutions 2005: Another Year of Record Results Net sales: $21.2 billion, up 5.8% Operating income: $5.0 billion, up 9.4% Net income: $3.2 billion, up 7.0% Earnings per share: $4.12, up 9.9% Dividends per share: $1.68, up 16.7% A Global, Diversified Technology Company Table of Contents 3M is fundamentally a science-based company. We produce 2 Letter to Shareholders thousands of imaginative products, and we’re a leader in scores 5 Ingenious Solutions of markets – from health care and highway safety to office 6 Adhesive Technology products and optical films for LCD displays. Our success begins 8 Advanced Materials Technology with our ability to apply our technologies – often in combination 10 Light Management Technology – to an endless array of real-world customer needs. Of course, 12 Microreplication Technology all of this is made possible by the people of 3M and their 14 Nonwoven Materials Technology singular commitment to make life easier and better for people 16 3M in the Community around the world. 18 3M at a Glance 22 Board of Directors/ Corporate Officers/Executives 24 Financial Summary IBC Shareholder Information unique strengths... 1 2 3 4 Bi Rf Advanced Reclosable Adhesives Materials Biotech Fasteners 5 6 7 8 9 Ab Dd Mr Pe Rp Predictive Engineering Radiation Abrasives Drug Delivery Microreplication & Modeling Processing 10 11 12 13 14 15 Ac Dm Nt Nm Pm Sm Display Nano- Nonwoven Polymer Melt Specialty Acoustics Materials technology Materials Processing Materials 16 17 18 19 20 21 22 23 24 25 As Do Fi Fs Ir Md Mi Pc Po Su Dental & Filtration, Immune Microbial Porous Application Orthodontic Separation, Response Medical Data Detection Precision Materials & Surface Software Materials Films & Purification Modifiers Management & Control Coating Membranes Modification 26 27 28 29 30 31 32 33 34 35 Ce Ep Fl Im Is Me Mo Pd Pr Wo Particle & Process Electronic Integrated Metal Matrix Dispersion Design Wound Ceramics Packaging Fluoromaterials Imaging Systems Design Composites Molding Processing & Control Management 36 37 38 39 40 41 42 Cp Fc Fo Ip Lm Pp Vp Flexible Chemical Converting Inks & Light Precision Vacuum Power Sources & Packaging Fiber Optics Pigments Management Processing Processing What do Scotch-Brite® Sponges, 3M™ Respirators, Filtrete® Filters and Thinsulate™ Insulation have in common? They, along with dozens of other 3M products, draw on nonwoven materials technology – one of more than 40 3M technology platforms. These technology platforms are the thread that weaves together our diverse businesses. It is the strength offered by their interlocking and sometimes overlapping nature that sets us apart from other companies and constantly unlocks new opportunities for growth. What’s remarkable is not just the breadth of our technologies, but our ability to combine them in unique ways. In countless combinations, 3M technologies – from adhesives and advanced materials to light manage- ment and microreplication – come together to create a steady stream of groundbreaking products for the world’s ever-changing marketplace. to our shareholders When I joined 3M in December of last year, I knew I was becoming part of one of the world’s finest companies. Everything I have observed and experienced here has served to confirm that initial view. In fact, I am more convinced than ever that 3M is indeed an excellent company, but more importantly, a very strong company with the potential to become truly great in all aspects, and especially in delivering sustainable and superior returns to our shareholders. 3M’s 2005 solid performance demonstrates the company’s broad strength while auguring the promise of 3M’s future. For the year, sales reached $21.2 billion, an increase of 5.8 percent over 2004. We generated $3.2 billion of net income, or $4.12 per share – an EPS increase of 9.9 percent. Operating profit margins grew nearly one percentage point to 23.7 percent. I am pleased that our local-currency sales growth was broad based, driven by increases of 9.3 percent in Industrial, 6.9 percent in Safety, Security and Protection Services, 5.0 percent in Transportation, and 4.2 percent in Electro and Communications. I expect these figures to gather upward momentum in the coming years as we focus on the next element of our evolution as a company – growth. All in all, I consider 2005 to have been a solid year for 3M. That said, our efforts going forward will be focused on increasing 3M’s growth momentum via several paths, including: • A renewed focus on innovation and new products. • Continued international expansion and penetration with greater emphasis on localization. We already generate more than 60 percent of our sales from outside the United States, with more than 20 percent coming from emerging markets. • Increased focus on serving our customers better. • Thoughtful building of the 3M brand, while using complementary George W. Buckley brands to grow market share, especially internationally. Chairman of the Board, President and Chief Executive Officer • A clear acquisition strategy driven by a determination to quickly add value. We will pursue these avenues while maintaining the strong operating discipline exhibited by 3Mers over recent years. 2 unique strengths ingenious solutions Organic growth through technology. Of all our approaches to growth, the greatest of these is organic growth through innovation – 3M’s primary and defining strategy. There is no question that 3M’s technological and scientific capability is not only world class, but world leading. 3M’s pre-eminence in such technologies as adhesives, materials science, light management, microreplication and nonwoven materials is well documented and well known. Less well known is 3M’s magnificent process capability – the ability to not only develop unique products, but Net Sales (billions) also to manufacture them efficiently and consistently around the world. $16.1 $16.3 $18.2 $20.0 $21.2 These two elements – 3M’s technology portfolio and process capability – are at the core of 3M’s unique business model and will shape our growth for the foreseeable future. The challenge is to unlock and unleash 3M’s technological creativity and prowess, and transform ideas into products and ultimately into sustainable growth and profits streams. Albert Einstein said that “imagination is more important than knowledge.” While we will invest increased energy 01 02 03 04 05 and resources in commercialization, marketing and new product launches, we will not forget what makes 3M great – imagination. Confidence in the 3M team. My optimism about 3M is rooted in my confidence in the people of 3M. Since joining the company, I have been Earnings Per Share (dollars) deeply impressed with the professionalism and passion of 3Mers around $1.79 $2.50 $3.02 $3.75 $4.12 the world. It is really quite amazing to see the depth of it. In every function and in every country, I see a renewed commitment to growth through innovation and a renewed commitment to helping our customers succeed. Those things are vital for our success. Our people realize that growth is more a result of passion and creativity than purely of process. And they are eagerly and enthusiastically getting on with the business of growing the company and increasing shareholder value. 01 02 03 04 05 Speed and simplicity. Everyone at 3M recognizes that we live in an era where speed and simplicity trump bureaucracy and complexity. Certain facets of 3M are necessarily complex, but I know we have ample opportunity to improve both speed and efficiency. We are moving Dividends Per Share (dollars) forward with a conscious focus on streamlining and supercharging both $1.20 $1.24 $1.32 $1.44 $1.68 our decision making and our operations. 01 02 03 04 05 Similarly, I am a strong advocate of clear, short lines of sight to all of our constituencies, and especially to customers. All of our businesses will benefit from a close examination of the way we go to market and the way we service our customers. The company can, over time, realize significant gains from improvement in these key areas. Ethics and integrity. 3M is a dynamic and changing enterprise in many ways. Among the elements that will not change, however, is 3M’s commitment to achieving results ethically, with honor and with integrity. The trust of our customers, employees and shareholders is of paramount importance to me and to the entire leadership of 3M. We will continue to dedicate ourselves to operating in the right way, and any behaviors that blemish our brand or tarnish 3M’s hard-earned reputation will not be tolerated. Vigilance is always required in this area. Creating the future. At the top of the list of reasons that I left a wonderful company to join 3M is the tremendous promise of 3M’s future. Many would take the path of least resistance and wait for 3M’s promising future to arrive. But I am a believer instead in the George Bernard Shaw principle that “the people (companies) who get on in this world are those people (companies) who look for the kind of circumstances they want, and, if they can’t find them, go out and create them.” So, I am excited to be part of a team committed to creating that future – not in the “long term,” but committed to making the promise of the future a reality as soon as we can. I am convinced that through the imagination of our people, combined with the dedication and hard work for which 3Mers are known, we can drive the company to new levels of success. That is my commitment and the commitment of all 3Mers. In closing, I would like to thank 3M Board member Bob Morrison, who served as interim chairman of the board and chief executive officer, for his outstanding leadership over the six months leading up to my appointment.