3M 2014 Annual Report Download - page 22

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16
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
Forward-looking statements in Item 7 may involve risks and uncertainties that could cause results to differ materially from
those projected (refer to the section entitled “Cautionary Note Concerning Factors That May Affect Future Results” in
Item 1 and the risk factors provided in Item 1A for discussion of these risks and uncertainties).
OVERVIEW
3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products and services. As
described in Note 15 to the Consolidated Financial Statements, effective in the first quarter of 2014, 3M transferred a
product line between divisions within business segments, and in the first, second and fourth quarters of 2014 also made
certain changes within business segments in its continuing effort to improve the alignment of its businesses around
markets and customers. Segment information presented herein reflects the impact of these changes for all periods
presented. 3M manages its operations in five operating business segments: Industrial; Safety and Graphics; Electronics
and Energy; Health Care; and Consumer. From a geographic perspective, any references to EMEA refer to Europe,
Middle East and Africa on a combined basis.
Financial goals:
As a result of 3M’s performance in 2014, the Company believes it remains on track to deliver its 2013-2017 financial
goals:
• Grow diluted earnings per share 9-11 percent per year, on average (11.5 percent in 2014)
• Grow organic local-currency sales 4-6 percent per year, on average (4.9 percent in 2014)
• Achieve return on invested capital of approximately 20 percent (22 percent in 2014)
• Convert approximately 100 percent of net income to free cash flow (104 percent in 2014)
These results are discussed further in the following MD&A discussion, with return on invested capital and free cash flow
conversion (non-GAAP measures) discussed more fully in the Financial Condition and Liquidity section.
Fourth quarter of 2014 results:
Fourth-quarter 2014 net income attributable to 3M was $1.179 billion, or $1.81 per diluted share, compared to $1.103
billion, or $1.62 per diluted share, in the fourth quarter of 2013. Fourth-quarter 2014 sales totaled $7.7 billion, an increase
of 2.0 percent from the fourth quarter of 2013. 3M achieved organic local-currency sales growth (which includes organic
volume and selling price impacts) in all five of its business segments, led by Safety and Graphics. Organic local-currency
sales increased 9.2 percent in Safety and Graphics, led by personal safety and commercial solutions, partially offset by
declines in roofing granules, and traffic safety and security. Organic local-currency sales grew 6.4 percent in the Health
Care business segment, with every business posting positive growth, led by health information systems, food safety,
infection prevention, and critical and chronic care. Electronics and Energy organic local-currency sales growth was 6.2
percent, with increases in electronic-related sales in both electronics materials solutions, and display materials and
systems. Energy-related sales growth was led by electrical markets, partially offset by declines in renewable energy and
communications markets. Industrial organic local-currency sales increased 5.9 percent, led by advanced materials,
aerospace and commercial transportation, industrial adhesives and tapes, automotive aftermarket, and automotive OEM.
Organic local-currency sales increased 5.8 percent in the Consumer business segment, with positive growth in all
businesses, led by the construction and home improvement business (do-it-yourself), and consumer health care. For the
Company in total, organic-local currency sales grew 6.3 percent, with higher organic volumes contributing 5.6 percent and