2014



Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

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,