This summary is based on the fourth quarter fiscal 2006 earnings call conducted by 3M Co. (MMM: chart) on January 30, 2007.
Key Investors Issues:

- Sales were up 8.6% from the prior year to $5.8 million.
- Earnings rose 58% to $1.2 billion or $1.57 a share.
- The firm adopted an aggressive acquisition program to improve capacity.

Full Year Highlights:

- The firm realized earnings of $3.9 billion or $5.06 per share from $3.1 billion or $3.98 a share in the prior year as a result of disposal of some business lines.
- Sales were $22.9 billion, up 8% from the prior year.
- The firm accelerated the pace of acquisitions in 2006, and once these deals are integrated and begin meaningfully contributing to growth, are expected to show positive impacts sooner rather than later.
- The company also invested $1.4 billion in research and development in 2006, an increase of over 6%, versus the prior year.

Fourth Quarter Highlights:

Sales were a record $5.8 billion up 8.6% though gross margins were impacted by higher raw material costs, slightly lower selling prices, and higher costs associated with scaling up additional manufacturing capacity.

- Worldwide sales increased 8.6% while volumes increased 6.8%, with organic volumes up 4.9% and the acquisitions kicking in an additional 2 percentage points of growth.
- The firm posted strong growth in international operations, which now represents 63% of global sales and are continuing to grow.
- Sales were up 12% in US dollar terms, with growth in local currencies increasing 7.4%, led by Europe at 10.5, and Latin America at 10.2.

Earnings were $1.2 billion or $1.57 a share, up from $746 million or 97 cents a share in 2005 despite weaker margins impacted by higher raw material cost and a weaker US dollar selling price.

- The firm also had some inefficiencies as many of the supply chains that were capacity constrained during the year.
- China and India also posted solid local currency growth with rates in excess of 20%.
- In the United States, sales expanded by 3.3%, including 1.8% growth the year acquisitions as growth was held back due to significant slowing in both the housing and automotive industries.

Investments in finance sales and marketing programs continue to increase above bottom-line of sales, while administrative cost as a percent of sales continued to decline.

- Net interest expense increased to $22 million from $12 million in 2005, driven by increased debt levels resulting from a stepped up share repurchase activity in the second half of the year.
- Capital expenditures totaled $405 million, an increase of $122 million year-on-year as the firm invested in a number of growing and highly profitable businesses such as medical, respiratory protection, glue masking tape, Filtrete Air Filters, LCD films and others.
- Dividend payments to shareholders were $339 million, up 6.6% from the prior year, and the company repurchased $330 million of its own stock.

Business Segment Results:

- In displaying graphics local currency sales growth was 3.6% and profits declined 7.7% to $264 million.
- Top-line growth was led by the commercial graphic division, a leading global supplier of large format graphic solutions that cut across a broad range of industry.

- Optical film delivered strong sales as unit volumes increased at double-digit rates driven by continued exploring consumer demand for LCD TVs.
- Selling price declines were in line with expectation and margin were similar to recent quarters margin though.

- Consumer and Office sales were $824 million, a 5.6% increase in low currency terms.
- Holiday seasonal demand for power brand such as Scotch Tape, Post-it Note and lens business were strong in the mass retail and wholesale channels.
- The more notable change in sales trajectory Consumer and Office occurred in the construction and all home improvement division, which sells a broad range of consumer products into the retail DIY channel.

- In Safety, Security and Protection Services sales were $655 million, up 12.2% local currencies, with 10 basis points due to the acquisition of Security Printing And Systems Limited.

- In Electro and Communications local currency growth was 2.6% versus last year including 2.2% from acquisitions.
- The firm generated good top-line growth in the electrical market division, which sells a number of insulating, testing and connecting products as solutions to both power utilities and manufacturing OEMs.

Recent Acquisitions:

- Global Beverage Group Incorporated, a provider of delivery management software solutions for the consumer packaged goods industry, was acquired.
- The firm also acquired NorthStar Chemicals, which will strengthen the core adhesive platform.
- Healthcare is also busy on the acquisition front closing 3-D in addition to Brontes Technology, as well as acquiring Biotrace International Plc a UK based manufacturing supplier of industrial microbiology products using food processing safety healthcare industrial hygiene and defense applications.
- In December, the company acquired SoftMed Systems Incorporated, a provider of health information system software and services that improved the workflow and efficiencies for healthcare organization.
- Free cash flow was $2.7 billion down $600 million from the prior year due to higher capital expenditures and the drive towards accelerated top-line growth along with higher tax payments.

Addressing Capacity Constraints: