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20
Operating Expenses:
2013 Versus
2012
2012 Versus
2011
(Percent of net sales)
2013 2012 2011
Cost of sales
52.1
%
52.4 %
53.0
%
(0.3)%
(0.6)
%
Selling, general and administrative
20.7
20.4 20.8
0.3
(0.4)
expenses
Research, development and related 5.6
5.5 5.3
0.1 0.2
expenses
Operating income
21.6
%
21.7 %
20.9
%
(0.1) %
0.8
%
Pension and postretirement expense decreased $97 million in 2013 compared to 2012, compared to an increase of $95
million for 2012 compared to 2011. 2012 includes a $26 million charge related to the first-quarter 2012 voluntary early
retirement incentive program (discussed in Note 10). Pension and postretirement expense is recorded in cost of sales;
selling, general and administrative expenses (SG&A); and research, development and related expenses (R&D). Refer to
Note 10 (Pension and Postretirement Plans) for components of net periodic benefit cost and the assumptions used to
determine net cost.
Cost of Sales:
Cost of sales includes manufacturing, engineering and freight costs.
Cost of sales, measured as a percent of net sales, was 52.1 percent in 2013, a decrease of 0.3 percentage points from
2012. Cost of sales as a percent of sales decreased due to the combination of selling price increases and raw material
cost decreases, as selling prices rose 0.9 percent and raw material cost deflation was approximately 2 percent favorable
year-on-year. In addition, lower pension and postretirement costs (of which a portion impacts cost of sales), in addition to
organic volume increases, decreased cost of sales as a percent of sales. These benefits were partially offset by the
impact of 2012 acquisitions and lower factory utilization.
Cost of sales, measured as a percent of net sales, was 52.4 percent in 2012, a decrease of 0.6 percentage points from
2011. The net impact of selling price/raw material cost changes was the primary factor that decreased cost of sales as a
percent of sales, as selling prices increased 1.4 percent and raw material costs decreased approximately 2 percent. This
benefit was partially offset by higher pension and postretirement costs.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses (SG&A) increased $282 million, or 4.6 percent, in 2013 when compared to
2012. In 2013, SG&A included strategic investments in business transformation, enabled by 3M’s global enterprise
resource planning (ERP) implementation, in addition to increases from acquired businesses that were largely not in 3M’s
2012 spending (Ceradyne, Inc. and Federal Signal Technologies), which were partially offset by lower pension and
postretirement expense. SG&A, measured as a percent of sales, increased 0.3 percentage points to 20.7 percent in 2013,
compared to 20.4 percent in 2012.
SG&A decreased $68 million, or 1.1 percent, in 2012 when compared to 2011. In addition to cost-control and other
productivity efforts, 3M experienced some savings from its first-quarter 2012 voluntary early retirement incentive program
and other restructuring actions. These benefits more than offset increases related to acquisitions, higher year-on-year
pension and postretirement expense, and restructuring expenses. SG&A in 2012 included increases from acquired
businesses which were not in 3M’s full-year 2011 base spending, primarily related to the 2011 acquisitions of Winterthur
Technologie AG and the do-it-yourself and professional business of GPI Group, in addition to SG&A spending related to
the 2012 acquisitions of Ceradyne, Inc., Federal Signal Technologies Group, and CodeRyte, Inc. SG&A, measured as a
percent of sales, was 20.4 percent in 2012, a decrease of 0.4 percentage points when compared to 2011.
Research, Development and Related Expenses:
Research, development and related expenses (R&D) increased 4.9 percent in 2013 compared to 2012 and increased 4.1
percent in 2012 compared to 2011, as 3M continued to support its key growth initiatives, including more R&D aimed at
disruptive innovation. In 2013, increases from acquired businesses that were largely not in 3M’s 2012 spending (primarily
Ceradyne, Inc. and Federal Signal Technologies) were partially offset by lower pension and postretirement expense. In
2012, investments to support key growth initiatives, along with higher pension and postretirement expense, were partially