3M 2012 Annual Report Download - page 21
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declined 0.8 percent in Electro and Communications and 2.4 percent in Display and Graphics. From a geographic area
perspective, 2012 organic local-currency sales growth was 10.9 percent in Latin America/Canada, 4.2 percent in the
United States, and 0.1 percent in Asia Pacific. Asia Pacific was impacted by a soft global consumer electronics industry.
EMEA organic local-currency sales declined 0.6 percent, impacted by a weak economy in Western Europe.
3.8 percent in Consumer and Office, and 2.2 percent in Safety, Security and Protection Services. Local-currency sales
Operating income in 2012 was 21.7 percent of sales, compared to 20.9 percent of sales in 2011, an improvement of 0.8
percentage points. The primary benefit (as discussed in the Results of Operations section) related to the combination of
selling price increases and raw material cost decreases. Currency effects reduced diluted earnings per share by an
estimated 15 cents. Net insurance recoveries in 2012 related to the 2011 earthquake and tsunami in Japan increased
earnings by approximately 4 cents per diluted share. In 2011, the impact of natural disasters, net of insurance recoveries,
reduced earnings by approximately 6 cents per diluted share (discussed further below). Early retirement/restructuring
costs for 2012 totaled approximately 8 cents per diluted share, which included the first quarter 2012 charge of
approximately 3 cents per diluted share related to a voluntary early retirement program in the United States.
The most significant non-operating items that impacted earnings were diluted shares outstanding and income taxes.
Average diluted shares outstanding declined 2.2 percent to 703.3 million, which increased earnings per diluted share by
approximately 14 cents. The income tax rate for 2012 was 29.0 percent compared to 27.8 percent in 2011, which
decreased earnings per diluted share by approximately 11 cents.
Fourth-quarter 2011 sales totaled $7.1 billion, an increase of 5.7 percent from the fourth quarter of 2010. Net income
attributable to 3M was $954 million, or $1.35 per diluted share, in the fourth quarter of 2011, compared to $928 million, or
$1.28 per diluted share, in the fourth quarter of 2010. 3M’s sales growth was led by its industrial-oriented businesses,
along with steady growth in consumer and health care. The business environment remained challenging, impacted by
deteriorating demand in Western Europe and slower consumer electronics activity. While sales grew across much of the
portfolio, sales of optical films for LCD TVs remained weak and momentum also slowed in other parts of electronics. Four
of the Company’s six business segments showed growth in sales, led by Industrial and Transportation at 14.3 percent,
Safety, Security and Protection Services at 9.4 percent, Consumer and Office at 6.1 percent, and Health Care at 5.4
percent. A slowdown in electronics-related businesses negatively impacted both the Electro and Communications and
Display and Graphics business segments. Electro and Communications sales decreased 2.7 percent and Display and
Graphics sales declined 8.8 percent. Sales declined 17 percent in optical systems, which is part of Display and Graphics,
impacted by end-market weakness and lower attachment rates in LCD TVs.
Fourth-quarter 2011 sales increased in every major geographic region, with Latin America/Canada up 9.7 percent, the
U.S. up 7.4 percent, EMEA up 4.4 percent, and Asia Pacific up 2.8 percent. Excluding optical systems, Asia Pacific sales
increased 7.6 percent. Of the 5.7 percent worldwide sales growth, 3.3 points was from the combined impact of higher
organic volume of 1.3 points and selling price growth of 2.0 points, 2.3 points was from acquisitions, and 0.1 points was
from favorable currency effects. Organic volume growth of 1.3 percent reflected slower growth in Asia Pacific, partially due
to weakness across the electronics market and slower growth in China, in addition to weakness in Western Europe.
For total year 2011, sales increased 11.1 percent to $29.6 billion, led by Industrial and Transportation, Safety, Security
and Protection Services, and Health Care. All major geographic regions showed improvement, led by Latin
America/Canada. The increase in global sales reflected improved market penetration and new product flow along with
significant growth in important end-markets such as general industrial and personal safety. Net income attributable to 3M
was $4.283 billion, or $5.96 per diluted share in 2011, compared to $4.085 billion, or $5.63 per diluted share, in 2010
(including the first-quarter 2010 special item discussed below).
During 2011, 3M was impacted by the first-quarter earthquake and tsunami in Japan and by the fourth-quarter flooding in
Thailand. Automobile and electronic manufacturers were most impacted; thus, 3M’s automotive OEM and electronics-
related businesses were most affected. 3M estimates that combined direct and indirect business disruption resulting from
the 2011 Japan natural disaster, net of the benefit from sales of 3M products used in the reconstruction efforts and initial
insurance recoveries, plus the impact of Thailand flooding, reduced 2011 sales growth by an estimated 0.8 percentage
points and earnings by approximately 6 cents per diluted share, with most of this impact in the first half of 2011. In the
fourth quarter of 2011, the flooding in Thailand reduced sales growth by an estimated $35 million and operating income by
$20 million, with this operating income effect offset by $23 million in insurance recoveries related to the earthquake and
tsunami in Japan. Japan represented approximately 9 percent of total 3M sales for total year 2011. Related to these
natural disasters, no material asset or investment impairments were recorded. In addition, 3M did not have any significant
issues related to these natural disasters concerning inventories, customer receivables, lease terminations, environmental
exposures, guarantees, indemnifications, debt covenant compliance, or significant tax issues. 3M does have certain