3M 2012 Annual Report Download - page 20
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide
a reader of 3M’s financial statements with a narrative from the perspective of management. 3M’s MD&A is presented in
eight sections:
Overview
Results of Operations
Performance by Business Segment
Performance by Geographic Area
Critical Accounting Estimates
New Accounting Pronouncements
Financial Condition and Liquidity
Financial Instruments
OVERVIEW
3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products. In 2012, 3M
managed its operations in six operating business segments: Industrial and Transportation; Health Care; Consumer and
Office; Safety, Security and Protection Services; Display and Graphics; and Electro and Communications.
Consistent with 3M’s strategy of building relevance and presence in the marketplace, the Company announced in October
2012 that it was immediately beginning to align resources and management toward a new structure comprised of five
business groups: Consumer; Industrial; Health Care; Safety and Graphics; and Electronics and Energy. The company’s
operating results were managed on the basis of its existing segment structure through 2012, with the intention that results
be managed under the new alignment once it is fully effective in the first quarter of 2013.
Fourth-quarter 2012 net income attributable to 3M was $991 million, or $1.41 per diluted share, compared to $954 million,
or $1.35 per diluted share, in the fourth quarter of 2011. Fourth-quarter 2012 sales totaled $7.4 billion, an increase of 4.2
percent from the fourth quarter of 2011. Organic local-currency sales (which include organic volume and selling price
impacts) grew 4.3 percent, acquisitions added 0.9 percent to sales, and currency effects reduced sales by 1.0 percent
year-on-year. From a business segment perspective, Consumer and Office led with organic local-currency sales growth of
8.7 percent, driven by consumer health care, construction and home improvement markets, and stationery and office
supplies. Display and Graphics organic local-currency sales growth was 8.3 percent, led by optical systems, with sales
also increasing in architectural markets, traffic safety systems and commercial graphics. Health Care organic local-
currency sales grew 5.9 percent, with sales growth in all businesses, led by food safety, health information systems, skin
and wound care, and oral care. Industrial and Transportation organic local-currency sales grew 3.9 percent, led by liquid
filtration, aerospace, industrial adhesives and tapes, abrasives and automotive OEM. Both the advanced materials and
renewable energy businesses declined year-on-year. Electro and Communications organic local-currency sales growth
was 1.8 percent, with sales increases in electrical and telecommunication markets partially offset by a decline in
consumer electronics-related businesses. Organic local-currency sales declined 1.7 percent in Safety, Security and
Protection Services, as sales growth in infrastructure protection, personal safety and roofing granules was more than
offset by a year-on-year decline in security systems.
From a geographic area perspective, fourth-quarter 2012 organic local-currency sales growth was 9.7 percent in Latin
America/Canada, 5.8 percent in Asia Pacific, and 5.2 percent in the United States. Europe, Middle East and Africa
(EMEA) organic local-currency sales declined 1.0 percent, impacted by a weak economy in Western Europe. Latin
America/Canada sales growth was broad-based, with all six of our business segments generating positive organic local-
currency sales growth, led by Health Care; Safety, Security and Protection Services; Consumer and Office; and Electro
and Communications. Organic local-currency sales growth increased 11 percent in Brazil, in the face of a still-recovering
economy, and Mexico grew nearly 10 percent. In Asia Pacific, Japan declined year-on-year, reflecting continued
challenging economic conditions. Organic local-currency sales in the rest of Asia Pacific grew nearly 10 percent, with
China up over 16 percent. Organic local-currency sales growth in the United States was led by Consumer and Office.
For total year 2012, net income attributable to 3M was $4.444 billion, or $6.32 per diluted share, compared to $4.283
billion, or $5.96 per diluted share, in 2011, an increase of 6.0 percent on a per diluted share basis. Sales totaled $29.9
billion, an increase of 1.0 percent from 2011. Organic local-currency sales grew 2.6 percent, acquisitions added 0.8
percent to sales and currency effects reduced sales by 2.4 percent year-on-year. From a business segment perspective,
organic local-currency sales growth was 4.7 percent in Health Care, 4.5 percent in Industrial and Transportation,