3M 2011 Annual Report Download - page 32

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3M’s security systems business led 2010 sales growth, helped by strong organic volume and acquisition growth
(Cogent Inc.) that drove local-currency growth of nearly 50 percent. Corrosion protection products, track and trace
products (helped by acquisition growth related to Attenti Holdings S.A.) and building and commercial services also
were strong contributors to sales growth. Sales of personal protection products increased in 2010, despite negative
year-on-year impacts from H1N1. Industrial minerals sales also increased for the year, helped by a strong fourth
quarter of 2010. Geographically, local-currency sales growth was broad-based, led by Latin America and Asia
Pacific. Europe/Middle East/Africa sales growth was led by Central East Europe and Middle East/Africa.
Operating income for 2010 was $709 million, with a 21.4 percent operating income margin. Operating income
declined 2.6 percent, penalized by year-on-year H1N1-related comparisons, which reduced Safety, Security and
Protection Services sales growth rates by approximately 6 percent year-on-year. In addition, fourth-quarter 2010
acquisition-related costs also penalized operating income. In 2009, this business segment recorded charges of $16
million related to restructuring actions, with this charge comprised of employee-related liabilities for severance and
benefits. This charge was largely offset by a gain of $15 million related to the sale of 3M’s New Jersey roofing
granule facility.
In June 2009, 3M’s Security Systems Division was notified that the UK government decided to award its passport
production to a competitor upon the expiration of 3M’s existing UK passport contract in October 2010. Refer to
“Critical Accounting Estimates” within “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” for additional discussion.
Display and Graphics Business (12.4% of consolidated sales):
2011 2010 2009
Sales (millions) .................................................................... $ 3,674 $ 3,884 $ 3,132
Sales change analysis:
Organic local-currency sales (volume and price) ......... (7.5 )% 23.0% (5.6 )%
Acquisitions .................................................................. 0.1 — 2.8
Local-currency sales .................................................... (7.4 )% 23.0% (2.8 )%
Translation ................................................................... 2.0 1.0 (1.4 )
Total sales change ........................................................... (5.4 )% 24.0% (4.2 )%
Operating income (millions) ................................................ $ 788 $ 946 $ 590
Percent change ................................................................ (16.6 )% 60.3% 1.3 %
Percent of sales ............................................................... 21.5 % 24.4% 18.8 %
The Display and Graphics segment serves markets that include electronic display, traffic safety and commercial
graphics. This segment includes optical film solutions for LCD electronic displays; computer screen filters; reflective
sheeting for transportation safety; commercial graphics sheeting and systems; architectural surface and lighting
solutions; and mobile interactive solutions, including mobile display technology, visual systems products, and
computer privacy filters. The optical film business provides films that serve numerous market segments of the
electronic display industry. 3M provides distinct products for five market segments, including products for: 1) LCD
computer monitors 2) LCD televisions 3) handheld devices such as cellular phones and tablets 4) notebook PCs and
5) automotive displays. The optical business includes a number of different products that are protected by various
patents and groups of patents. These patents provide varying levels of exclusivity to 3M for a number of such
products. As some of 3M’s optical film patents begin to expire in the next few years, 3M will likely see more
competition in these products. 3M continues to innovate in the area of optical films and files patents on its new
technology and products. 3M’s proprietary manufacturing technology and know-how also provide a competitive
advantage to 3M independent of its patents.
Year 2011 results:
Sales in Display and Graphics were $3.7 billion in 2011, a decline of 5.4 percent in U.S. dollars. Sales in local
currency declined 7.4 percent, which was largely organic. Foreign currency impacts increased sales by 2.0 percent.
Optical Systems sales decreased 17 percent due to lower year-on-year LCD TV-related sales over the last three
quarters of 2011. Sales grew in commercial graphics and architectural markets. Traffic safety systems also posted
sales growth, which was all currency related. Sales increased in Latin America/Canada and the U.S., but declined in
Europe. Sales also declined in Asia Pacific, where the decline in optical systems sales was a major factor.
Operating income in 2011 totaled $788 million, down 16.6 percent from 2010. 3M achieved 21.5 percent operating
income margins in this business segment, as productivity improvements helped to partially offset negative impacts