3M 2005 Annual Report Download - page 41

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15
Metrogel-Vaginal, a women’s health care product, due to a competitive product. 3M now expects that there will be
a generic substitute approved for Metrogel-Vaginal, which accounts for approximately 2% of total Health Care
sales, in mid 2006. Health Care sales for 3M’s Aldara™ (imiquimod) pharmaceutical product for the actinic
keratosis (a pre-cancerous skin condition) indication has and is expected to continue to fall short of expectations
3M had at the time of FDA approval and 3M is currently reassessing Aldara’s total market potential. In Display and
Graphics, 3M expects the continued negative impact from the CRT rear projection lens business to continue into
the first half of 2006, with sales in the second half of 2006 expected to be comparable to the second half of 2005.
However, in Display and Graphics, 3M expects this decline in CRT rear projection lens sales to be more than
offset by strong sales growth in display enhancement films used in flat-panel devices, such as LCD televisions.
The preceding forward-looking statements involve risks and uncertainties that could cause results to differ
materially from those projected (refer to the forward-looking statements section in Item 7 and the risk factors
provided in Item 1A for discussion of these risks and uncertainties).
INDEX TO MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Item 7 Reference (pages)
Results of operations 15-18
Performance by business segment 18-23
Performance by geographic area 23-24
Critical accounting estimates 24-26
New accounting pronouncements 26-27
Financial condition and liquidity 27-31
Financial instruments 31-32
Forward-looking statements 32
Item 7A
Quantitative and qualitative disclosures about market risk 32
RESULTS OF OPERATIONS
Net Sales:
2005 2004
Worldwide U.S. International Worldwide U.S. International
Net sales (millions) $21,167 $8,267 $12,900 $20,011 $7,878 $12,133
Components of
net sales change:
Volume – core 3.5% 1.0% 5.1% 6.2% 3.2% 8.2%
Volume – acquisitions 1.0 1.4 0.7 0.5 0.8 0.3
Volume – total 4.5 2.4 5.8 6.7 4.0 8.5
Price 0.6 2.5 (0.7) (0.7) (0.1) (1.1)
Local currency 5.1 4.9 5.1 6.0 3.9 7.4
Translation 0.7 – 1.2 3.8 – 6.5
Total 5.8% 4.9% 6.3% 9.8% 3.9% 13.9%
In 2005, local-currency sales growth was broad based, with selling prices increasing 0.6%. Along with the benefits
provided by 3M’s sourcing initiative, 3M’s pricing strategy has been key to maintaining margins in the face of
significant raw material price pressure. 3M’s pricing strategy resulted in U.S. price growth of 2.5% in 2005.
Internationally, selling prices declined 0.7% in 2005. Adjusting for the price decreases in consumer electronics related
businesses (LCD films and flex circuits), international pricing would have increased 0.3% in 2005. Acquisitions
increased 2005 sales by 1.0%, driven by the 2005 acquisition of CUNO. Refer to both the “Performance by Business
Segment” and “Performance by Geographic Area” sections for additional discussion of sales change.