3M 2004 Annual Report Download - page 54

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Geographic Area Supplemental Information
(Millions, except Employees as of Capital Property, Plant and
employees) December 31 Spending Equipment – net
2004 2003 2002 2004 2003 2002 2004 2003 2002
United States 32,648 33,329 35,024 $565 $425 $422 $3,290 $3,342 $3,523
Europe and Middle East 16,250 16,354 16,852 143 111 209 1,284 1,231 1,136
Asia Pacific 10,439 9,916 9,556 182 102 76 810 724 676
Latin America, Africa
and Canada 7,734 7,473 7,342 47 39 56 327 312 286
Total Company 67,071 67,072 68,774 $937 $677 $763 $5,711 $5,609 $5,621
Employment:
Employment was virtually unchanged from year-end 2003. Since March 31, 2001, employment has declined by
nearly 10,600 people, with 6,900 of the decline related to the 2001/2002 corporate restructuring plan, and additional
declines due to the integration of acquisitions, additional employment reduction actions and attrition. The Corning
Precision Lens, Inc. acquisition in the fourth quarter of 2002 added approximately 1,500 employees. The Company
continues to increase headcount in faster-growing areas of the world, such as Asia Pacific, primarily to support
increasing local sales. Sales per employee in local currencies increased approximately 7% in 2004, 8.5% in 2003 and
approximately 9% in 2002.
Capital Spending/Net Property, Plant and Equipment:
The bulk of 3M capital spending historically has been in the United States, resulting in higher net property, plant and
equipment balances in the U.S. The Company is striving to more closely align its manufacturing and sourcing with
geographic market sales, and because approximately 60% of sales are outside the United States, this would increase
production outside the United States, helping to improve customer service and reduce working capital requirements.
For 2005, the Company expects to spend approximately $950 million on purchases of property, plant and equipment.
CRITICAL ACCOUNTING ESTIMATES
Information regarding significant accounting policies is included in Note 1 to the Consolidated Financial Statements.
As stated in Note 1, the preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. Management bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The Company believes its most critical accounting estimates relate to legal proceedings, the Company’s pension and
postretirement obligations, and potential asset impairment issues. Senior management has discussed the
development, selection and disclosure of its critical accounting estimates with the Audit Committee of 3M’s Board of
Directors.
Legal Proceedings:
Please refer to the section entitled “Accrued Liabilities and Insurance Receivables Related to Legal Proceedings”
(contained in Part I, Item 3, Legal Proceedings, of this Annual Report on Form 10-K) for a description of the process
the Company follows for the accrual and disclosure of loss contingencies, the categories of claims for which the
Company has been able to estimate its probable liability and for the estimate of its related insurance receivables, and
factors affecting such estimates.
Pension and Postretirement Obligations:
3M has various company-sponsored retirement plans covering substantially all U.S. employees and many
employees outside the United States. The Company accounts for its defined benefit pension plans in accordance
with SFAS No. 87, “Employers’ Accounting for Pensions”, which requires that amounts recognized in financial
statements be determined on an actuarial basis. Pension benefits associated with these plans are generally based
primarily on each participant’s years of service, compensation, and age at retirement or termination. See Note 11
to the Consolidated Financial Statements for additional discussion of actuarial assumptions used in determining
pension liability and expense.