3M 2004 Annual Report Download - page 44

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18
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW
3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products. 3M
manages its operations in seven operating business segments: Health Care; Industrial; Display and Graphics;
Consumer and Office; Safety, Security and Protection Services; Electro and Communications; and Transportation.
3M’s performance in 2004 was broad-based, with strong performance and growth in Display and Graphics, but 3M
also had success in established businesses like Industrial; Safety, Security and Protection Services; and Consumer
and Office. All seven business segments contributed to sales growth in 2004. In 2004, 3M reported record net sales
of $20.011 billion and record net income of $2.990 billion, or $3.75 per diluted share, compared with net sales of
$18.232 billion and net income of $2.403 billion, or $3.02 per diluted share, in 2003. The combination of a 9.8%
increase in net sales, including core volume sales growth of 6.2% (which excludes the impact of businesses
acquired in the last 12 months), and declining operating expenses as a percent of sales, resulted in a 22.9%
operating income profit margin. The following table contains sales and operating income results by business segment
for the years ended December 31.
2004 vs. 2003
2004 2003 % change
(Dollars in millions) Net
Sales
% of
Total
Oper.
Income
Net
Sales
% of
Total
Oper.
Income
Net
Sales
Oper.
Income
Business Segments
Health Care $ 4,230 21.1% $1,123 $ 3,995 21.9% $1,027 5.9% 9.3%
Industrial 3,792 19.0% 661 3,354 18.4% 458 13.1% 44.5%
Display and Graphics 3,406 17.0% 1,131 2,962 16.2% 885 15.0% 27.8%
Consumer and Office 2,861 14.3% 542 2,607 14.3% 460 9.7% 17.9%
Safety, Security and
Protection Services 2,125 10.6% 491 1,928 10.6% 437 10.2% 12.3%
Electro and Communications 1,876 9.4% 291 1,818 10.0% 255 3.2% 14.1%
Transportation 1,683 8.4% 428 1,538 8.4% 389 9.4% 10.1%
Corporate and
Unallocated 38 0.2% (89) 30 0.2% (198)
Total Company $20,011 100% $4,578 $18,232 100% $3,713 9.8% 23.3%
Sales growth in 2004 was strongest in the Display and Graphics segment, driven by sales of display enhancement
films used in flat-panel devices, and the Industrial segment, led by broad-based sales across Industrial businesses and
geographies. Sales growth in the Safety, Security and Protection Services segment was driven by continued demand
for personal protection products along with strong demand for cleaning and protection products. Sales growth in the
Consumer and Office segment was broad-based, with the Transportation segment led by both the automotive OEM
and repair markets. The Health Care segment experienced tough year-on-year comparisons through the first three
quarters of the year, with improvement in the fourth quarter of 2004. For the Electro and Communications segment,
this was the first year of positive sales growth since 2000. Refer to the Performance by Business Segment section
for a more detailed discussion of the results of the respective segments.
Asia Pacific local-currency sales (which excludes translation impacts) increased 13.6%, with the strongest growth
in China, Korea and Taiwan. All seven business segments contributed to this increase. U.S. sales revenue
increased 3.9%, with growth led by Consumer and Office; Safety, Security and Protection Services; and the
Industrial businesses. European local-currency sales increased 0.8%, with growth in Safety, Security and Protection
Services; Transportation; Industrial; and Health Care. In the combined Latin America, Africa and Canada area, six of
seven businesses had local-currency sales increases, led by Electro and Communications; Transportation; Industrial;
and Health Care. Foreign currency translation positively impacted European sales by 8.9%, Asia Pacific sales by
5.6%, and the combined Latin America, Africa and Canada area by 2.4%, as the U.S. dollar weakened against
these currencies. Refer to the Performance by Geographic Area section for a more detailed discussion of the
results for the respective areas.