This summary is based on the first quarter fiscal 2007 earnings call conducted by 3M Co (MMM: chart) on April 26, 2007.

Chairman, President and Chief Executive Officer: George W. Buckley

Senior Vice President and Chief Financial Officer: Patrick D. Campbell

Director of Financial Planning and Analysis: Matt Ginter

Key Investors Issues

- Earnings per share were $1.85 compared to $1.17 in prior year.
- The revenue for the US grew 6.2% in terms of local currency.
- 3M paid dividend of $350 million in the first quarter.

First Quarter Fiscal 2007 Financial Highlights

The first-quarter net income was $1.4 billion, or $1.85 per share, versus $899 million, or $1.17 per share, in the first quarter of 2006.

Net income and earnings per share increased 52.2% and 58.1%, respectively. The divested pharmaceuticals business contributed 5 cents per share in the comparable quarter last year.

Included in this result are three special items.
- In January of 2007, the firm completed the sale of its branded pharmaceutical business in Europe, which resulted in an after-tax gain of $506 million or 68 cents per share.
- The firm has to take some business-specific restriction actions that included head count reduction, asset write-downs and other cost pertaining to the sale of the pharma business in Europe. In total these items reduced net income by $9 million or a penny per share.
- The greatest environmental regulatory developments occurred during the first quarter of this year, including increased regulatory activity in Minnesota and the receipt of a permit to begin work addressing for perfluoronated compounds in the soil and groundwater at the firm’s manufacturing facility in the Decatur, Alabama. During the quarter, the firm completed a comprehensive review with its environment consultants regarding all of its environmental liabilities. These includes the estimated cost of addressing trace compounds or perfluoronated compounds in drinking water sources in the city Oakdale and Lake Elmo in Minnesota as well as the presence in the soil and groundwater at manufacturing facilities in Decatur, Alabama and Cottage Grove, Minnesota and a several former disposal sites in the state of Minnesota. As a result of these regulatory developments and comprehensive review, the firm increased its true liabilities by $121 million in the first quarter of 2007 to address these plan remediation activities. The company expects that most of the spending will occur over the next three to seven years after adjusting for these items earnings for the first quarter are $1.28 per share.

The first quarter worldwide sales increased almost 10% prior to the negative impact of 3.8% due to the divestiture of the global branded pharmaceutical business.

Worldwide local currency sales increased 7.4% versus last year’s first quarter, including 2.6% from acquisitions and global selling price declines of 80 basis points. Translation increased reported sales by 2.5 percentage points in the quarter.

In the United States, local currency sales improved 6.2% equally split between organic and acquired growth. Selling prices were up 80 basis points for the quarter. The divestiture of the pharma business reduced the sales growth by 4.2%, therefore reported sales growth was closer to 2%.

In international operations, local currency sales were up 8.2% including 5.8% organic and 2.4% from acquisitions. Selling prices declined 1.8% versus last year largely due to the firm’s businesses that served the consumer electronics industry where price down is a way of life but where there are high volume growth and profit opportunities. The sale of branded pharmaceutical business decreased the reported growth in international by 3.5%. The impact of an overall weaker US dollar reduced the sales by 4% in the quarter.

Europe delivered local currency growth of 13.3%. Safety, security and protection, healthcare, and the industrial transportation businesses were the strongest contributors to this growth. US local currency result includes 5.4% of growth from recent acquisitions primarily Security Printing Systems Limited and Biotrace International. The pharma divestiture negatively impacted local currency growth in Europe by 7% while currency translation increased sales by 8.7%.

Latin America and Canada combined posted local currency growth of 9.1% including a point from acquisitions led by industrial transportation, healthcare, and safety and security and protection businesses. The pharma divestiture reduced growth in this region by 2.5% and currency impacts were negligible.

Local currency growth in Asia Pacific was 3.9% with Japan flat and the rest of the region up 6%. Solid sales growth in industrial and transportation and consumer and office businesses were offset by declines in flexible circuits and optical films. Again, the pharma divestiture had a 1.2 percentage point drag on sales growth and currency translation added about 1 point.

Generally Accepted Accounting Principles prevent the firm from classifying the pharmaceutical business as a discontinued operation.

Therefore it creates a year-on-year comparability issue. The first quarter 2006 revenue for the pharma business were $193 million and operating income was $60 million or 5 cents per share. Adjusting for pharma in 2006 space, earnings per share increased 14.3% year-on-year.

The 3M team rose to the challenge in the first quarter and delivered truly outstanding results.