3M 2005 Annual Report Download - page 50

24
While 3M manages its businesses globally and believes its business segment results are the most relevant measure
of performance, the Company also utilizes geographic area data as a secondary performance measure. Export sales
are reported within the geographic area where the final sales to 3M customers are made. A portion of the products or
components sold by 3M’s operations to its customers are exported by these customers to different geographic areas.
As customers move their operations from one geographic area to another, 3M’s results will follow. Thus, net sales in a
particular geography is not indicative of end-user consumption in that geography.
U.S. sales revenue increased 4.9%, with growth led by Industrial; Consumer and Office; and Safety, Security and
Protection Services. Asia Pacific local-currency sales (which exclude translation impacts) increased 10.6%. All
seven business segments contributed to this increase in the Asia Pacific area, with optical film being the largest
growth component. Japan sales totaled approximately $2.1 billion, with local-currency sales up 3.6% from 2004.
European local-currency sales increased 0.9%, with good growth in Industrial; Safety, Security and Protection
Services; and Transportation. In the combined Latin America and Canada area, local-currency sales increases of 1.3%
were led by Consumer and Office; Industrial; Safety, Security and Protection Services; and Transportation. Growth in
Latin America was impacted by the continued decline of 3M’s CRT rear projection lens business in Mexico and the
move of a flex circuits customer from Puerto Rico to Singapore. Foreign currency translation positively impacted the
combined Latin America and Canada area sales by 7.4%, and the Asia Pacific area sales by 0.5%, as the U.S.
dollar weakened against these currencies. Foreign currency translation had a minimal impact on European sales.
For 2005, international operations represented approximately 61% of 3M’s sales.
Geographic Area Supplemental Information
(Millions, except Employees as of Capital Property, Plant and
employees) December 31, 2005 Spending Equipment – net
2005 2004 2003 2005 2004 2003 2005 2004 2003
United States 33,033 32,648 33,329 $532 $565 $425 $3,291 $3,290 $3,342
Europe, Middle East
and Africa 16,722 16,574 16,669 120 143 112 1,076 1,288 1,235
Asia Pacific 11,574 10,439 9,916 228 182 102 865 810 724
Latin America and Canada 7,986 7,410 7,158 63 47 38 361 323 308
Total Company 69,315 67,071 67,072 $943 $937 $677 $5,593 $5,711 $5,609
Employment:
Employment increased by 2,244 people since year-end 2004. The CUNO acquisition in August 2005 added
approximately 2,300 employees. The Company continues to increase headcount in faster-growing areas of the world,
such as Asia Pacific, primarily to support increasing local sales. Excluding the impact of CUNO, employment has
been decreasing in the United States and combined Europe, Middle East and Africa area. Sales per employee in
local currencies increased approximately 4% in 2005, approximately 7% in 2004 and 8.5% in 2003.
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 61% 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.
The 2005 decrease in net property, plant and equipment in the Europe, Middle East and Africa area was primarily
due to currency translation (due to the stronger U.S dollar at December 31, 2005 when compared to December 31,
2004). Capital spending in Asia has more than doubled since 2003 as we continue to grow our presence in this region.
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.