REG - 3M Company - 3rd Quarter Results <Origin Href="QuoteRef">MMM.N</Origin> - Part 7
03/11/2014 08:05
- Part 7: For the preceding part double click ID:nRSC9102Vf
247 2.1 10.1
Corporate and Unallocated 3 (63) 3 (88)
Elimination of Dual Credit (153) (34) (138) (30)
Total Company $ 8,137 $ 1,901 $ 7,916 $ 1,739 2.8 % 9.4 %
Sales in the third quarter of 2014 increased 2.8 percent, with sales growth in Health Care at 4.7 percent, Electronics and
Energy at 3.5 percent, Industrial at 3.0 percent, Consumer at 2.1 percent, and Safety and Graphics at 1.3 percent. Total
company organic local-currency sales increased 3.9 percent, acquisitions increased sales by 0.1 percent, and foreign
currency translation reduced sales by 1.2 percent. All five of 3M's business segments achieved operating income margins in
excess of 22 percent. Worldwide operating income margins for the third quarter of 2014 were 23.4 percent, compared to 22.0
percent for the third quarter of 2013.
3M generated $4.443 billion of operating cash flows in the first nine months of 2014, an increase of $619 million when
compared to the first nine months of 2013. Refer to the section entitled "Financial Condition and Liquidity" later in MD&A
for a discussion of items impacting cash flows.
In February 2014, 3M's Board of Directors authorized the repurchase of up to $12 billion of 3M's outstanding common stock,
which replaced the Company's February 2013 repurchase program. This new program has no pre-established end date. In the
first nine months of 2014, the Company purchased $4.373 billion of stock, of which a portion was under the previous
authorization, compared to $3.538 billion of stock purchases in the first nine months of 2013. As of September 30, 2014,
approximately $7.9 billion remained available under the February 2014 authorization. The Company expects to purchase $5.5
billion to $6.0 billion of stock in 2014. In December 2013, 3M's Board of Directors declared a first-quarter 2014 dividend
of $0.855 per share, an increase of 35 percent. This marked the 56th consecutive year of dividend increases for 3M.
3M's debt to total capital ratio (total capital defined as debt plus equity) was 31 percent at September 30, 2014 and 25
percent at December 31, 2013. 3M has an AA- credit rating with a stable outlook from Standard & Poor's and an Aa2 credit
rating with a negative outlook from Moody's Investors Service. In August 2014, Moody's Investor Service reaffirmed 3M's Aa2
credit rating, but changed 3M's outlook from stable to negative. 3M's ongoing transition to a more optimized capital
structure, financed with additional low-cost debt, could impact 3M's credit rating in the future. The Company generates
significant ongoing cash flow and has proven access to capital markets funding throughout business cycles.
3M expects to contribute approximately $200 million of cash to its global pension and postretirement plans in 2014. The
Company does not have a required minimum cash pension contribution obligation for its U.S. plans in 2014. 3M expects
defined benefit pension and postretirement expense in 2014 to decrease by approximately $160 million pre-tax when compared
to 2013. The change in both defined benefit and defined contribution plan expenses would increase earnings in 2014 by
approximately 15 cents per diluted share when compared to 2013. Refer to Note 8 (Pension and Postretirement Benefit Plans)
for additional information concerning 3M's pension and post-retirement plans. In addition, 3M currently expects that its
effective tax rate for 2014 will be approximately 28.5 to 29.0 percent, compared to 28.1 percent for 2013. The 2014
estimate assumes that the U.S. research and development credit will be reinstated for 2014.
As discussed in Note 4, on September 1, 2014, 3M purchased (via Sumitomo 3M Limited) Sumitomo Electric Industries, Ltd.'s
25 percent interest in 3M's consolidated Sumitomo 3M Limited subsidiary for 90 billion Japanese Yen (approximately $865
million at closing date exchange rates). Since this subsidiary was already being fully consolidated in 3M results, this
transaction had no impact on operating income margins. However, since 3M now owns 100 percent of Sumitomo 3M Limited, the
elimination of net income attributable to noncontrolling interest in this subsidiary (25 percent) is no longer required.
This will add approximately $0.08 per diluted share to earnings during the first twelve months following closing (September
2014 through August 2015), of which approximately a $0.01 per diluted share benefit was realized in the third quarter of
2014. In addition, as a result of this transaction, the balance sheet amount for noncontrolling interest equity was reduced
by approximately $460 million when compared to the June 30, 2014 balance.
Forward-looking statements in Part I, Item 2 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 Part I, Item 2 and the risk factors provided in Part II, Item 1A for discussion of these risks and
uncertainties).
RESULTS OF OPERATIONS
Percent change information compares the third quarter of 2014 with the same period last year, unless otherwise indicated.
Net Sales:
Three months ended September 30, 2014
UnitedStates AsiaPacific Europe,Middle East& Africa Latin America/ Canada Other Unallocated Worldwide
Net sales (millions) $ 3,075 $ 2,438 $ 1,725 $ 900 $ (1) $ 8,137
% of worldwide sales 37.8 % 30.0 % 21.2 % 11.0 % - 100.0 %
Components of net sales change:
Volume - organic 5.8 % 4.9 % (0.2) % (2.8) % - 3.2 %
Price 0.2 - 1.0 3.2 - 0.7
Organic local-currency sales 6.0 4.9 0.8 0.4 - 3.9
Acquisitions 0.2 - - - - 0.1
Translation - (0.8) (2.1) (4.3) - (1.2)
Total sales change 6.2 % 4.1 % (1.3) % (3.9) % - 2.8 %
Sales in the third quarter of 2014 increased 2.8 percent when compared to the third quarter of 2013. Organic local-currency
sales grew 3.9 percent, with increases of 6.0 percent in the United States, 4.9 percent in Asia Pacific, 0.8 percent in
Europe, Middle East and Africa (EMEA), and 0.4 percent in Latin America/Canada. Organic local-currency sales growth was 3.7
percent across all developing markets, and 4.0 percent in developed markets. Currency impacts reduced third quarter 2014
worldwide sales by 1.2 percent, with Latin American/Canada sales reduced by 4.3 percent, EMEA sales reduced by 2.1 percent,
and Asia Pacific sales reduced by 0.8 percent.
Worldwide selling prices rose 0.7 percent in the third quarter of 2014. Selling prices continue to be supported by
technology innovation, which is a key fundamental strength of the Company, helping to drive unique customer solutions and
an increasing flow of new products. 3M also began raising selling prices in mid-2013 to help offset currency weakness in
select developing countries. This will result in 3M's price performance moderating in the second half of 2014, as reflected
in third quarter results.
Nine months ended September 30, 2014
UnitedStates AsiaPacific Europe,Middle East& Africa Latin America/ Canada Other Unallocated Worldwide
Net sales (millions) $ 8,782 $ 7,170 $ 5,516 $ 2,641 $ (7) $ 24,102
% of worldwide sales 36.4 % 29.7 % 22.9 % 11.0 % - 100.0 %
Components of net sales change:
Volume - organic 3.9 % 5.9 % 2.1 % (1.6) % - 3.5 %
Price 0.5 0.2 1.0 4.8 - 1.0
Organic local-currency sales 4.4 6.1 3.1 3.2 - 4.5
Acquisitions 0.1 - - - - -
Divestitures (0.1) - - - - -
Translation - (1.7) 1.2 (7.1) - (1.1)
Total sales change 4.4 % 4.4 % 4.3 % (3.9) % - 3.4 %
Sales in the first nine months of 2014 increased 3.4 percent when compared to the first nine months of 2013. Organic
local-currency sales grew 4.5 percent, with increases of 6.1 percent in Asia Pacific, 4.4 percent in the United States, 3.2
percent in Latin America/Canada, and 3.1 percent in EMEA. Organic local-currency sales growth was 5.0 percent across all
developing markets, and 4.1 percent in developed markets. Currency impacts reduced first nine months 2014 worldwide sales
growth by 1.1 percent.
Worldwide selling prices rose 1.0 percent in the first nine months of 2014, as 3M continues to experience positive selling
price changes across most of its businesses. As discussed in third-quarter results above, 3M also began raising selling
prices in mid-2013 to help offset currency weakness in select developing countries.
Operating Expenses:
Three months ended Nine months ended
September 30, September 30,
(Percent of net sales) 2014 2013 Change 2014 2013 Change
Cost of sales 51.7 % 52.4 % (0.7) % 51.6 % 52.1 % (0.5) %
Selling, general and administrative 19.6 20.3 (0.7) 20.2 20.6 (0.4)
expenses
Research, development and related 5.3 5.3 - 5.5 5.5 -
expenses
Operating income 23.4 % 22.0 % 1.4 % 22.7 % 21.8 % 0.9 %
As discussed in the overview section, 3M expects defined benefit pension and postretirement expense for total year 2014 to
decrease by approximately $160 million pre-tax when compared to 2013, which impacts cost of sales; selling, general and
administrative expenses (SG&A); and research, development and related expenses (R&D). Refer to the 3M's Current Report on
Form 8-K dated May 15, 2014 (MD&A section entitled Critical Accounting Estimates - Pension and Postretirement Obligations)
for background concerning this reduction. The year-on-year decrease in defined benefit pension and postretirement expense
for the third quarter and first nine months was $42 million and $121 million, respectively.
Cost of Sales:
Cost of sales includes manufacturing, engineering and freight costs. Cost of sales as a percent of net sales was 51.7
percent in the third quarter and 51.6 percent for the first nine months of 2014, down 0.7 and 0.5 percentage points,
respectively, from the same periods last year. 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 0.7 percent and 1.0 percent in the third
quarter and first nine months, respectively. Raw material cost deflation was approximately 1.5 percent favorable
year-on-year for both the third quarter and first nine months. In addition, lower pension and postretirement costs (of
which a portion impacts cost of sales), along with organic volume leverage, decreased cost of sales as a percent of sales.
Selling, General and Administrative Expenses:
SG&A in dollars decreased 0.7 percent and increased 1.4 percent in the third quarter and first nine months of 2014,
respectively, when compared to the same periods last year. Third quarter and first nine months 2014 SG&A included strategic
investments in business transformation and 3M's global enterprise resource planning (ERP) implementation, while lower
pension and postretirement expense benefitted SG&A. SG&A, measured as a percent of sales, was 19.6 percent of sales in the
third quarter of 2014 and 20.2 percent of sales in the first nine months of 2014, compared to 20.3 percent and 20.6 percent
in the same periods last year, respectively.
Research, Development and Related Expenses:
R&D in dollars increased 3.3 percent in the third quarter and 4.5 percent in the first nine months of 2014 when compared to
the same periods last year. 3M continued to invest in its key growth initiatives, including more R&D aimed at disruptive
innovation, which refers to innovation that helps create a new market and which eventually disrupts an existing market.
These increases were partially offset by lower pension and postretirement expense. R&D, measured as a percent of sales, was
5.5 percent of sales in both the first nine months of 2014 and 2013.
Operating Income:
Operating income margins were 23.4 percent in the third quarter of 2014 compared to 22.0 in the third quarter of 2013, an
increase of 1.4 percentage points. These results included a 0.8 percentage point benefit from the combination of higher
selling prices and lower raw material costs. Underlying selling prices remained firm across many of 3M's businesses,
supported by technology innovation and strong new product flow. In addition, lower year-on-year pension and postretirement
benefit costs provided a 0.5 percentage point benefit and profit leverage on organic volume growth added 0.2 percentage
points. Productivity and other items provided a 0.5 percentage point benefit. Items that reduced operating income margins
included a 0.4 percentage point impact from strategic investments. Strategic investments included incremental increases in
new disruptive R&D programs, business transformation and ERP costs, the establishment of a new manufacturing, supply chain
and distribution center of expertise in Europe, plus selective restructuring, all of which are expected to strengthen 3M
for the future. Foreign exchange impacts reduced operating income margins by 0.1 percentage points and the Treo acquisition
also reduced margins by 0.1 percentage points as 3M integrates that business.
Operating income margins were 22.7 percent in the first nine months of 2014 compared to 21.8 in the first nine months of
2013, an increase of 0.9 percentage points. These results included a 1.1 percentage point benefit from the combination of
higher selling prices and lower raw material costs. In addition, lower year-on-year pension and postretirement benefit
costs provided a 0.5 percentage point benefit and profit leverage on organic volume growth added 0.3 percentage points.
Items that reduced operating income margins included a 0.6 percentage point impact from strategic investments, which
included disruptive R&D, business transformation and ERP costs, the center of expertise in Europe, and selective
restructuring. Foreign exchange impacts reduced operating income margins by 0.4 percentage points.
Interest Expense and Income:
Three months ended Nine months ended
September 30, September 30,
(Millions) 2014 2013 2014 2013
Interest expense $ 28 $ 33 $ 110 $ 113
Interest income (7) (10) (25) (30)
Total $ 21 $ 23 $ 85 $ 83
Interest expense was lower in the third quarter and first nine months of 2014 compared to the same periods last year,
primarily due to lower U.S. borrowing costs as debt maturities were replaced with lower cost financing from commercial
paper and lower interest rates on new debt issuances. Capitalized interest related to property, plant and equipment
construction in progress is recorded as a reduction to interest expense. The amounts shown in the table above for interest
expense are net of capitalized interest amounts of $4 million, $7 million, $14 million, and $19 million, in the third
quarter of 2014 and 2013, and for the nine months ended September 30, 2014 and 2013, respectively. Interest income in the
third quarter and first nine months of 2014 was lower when compared to the same periods last year due to lower cash
balances.
Provision for Income Taxes:
Three months ended Nine months ended
September 30, September 30,
(Percent of pre-tax income) 2014 2013 2014 2013
Effective tax rate 30.3 % 27.4 % 29.1 % 28.0 %
The effective tax rate for the third quarter of 2014 was 30.3 percent, compared to 27.4 percent in the third quarter of
2013, an increase of 2.9 percentage points. Factors that increased the Company's effective tax rate on a combined basis by
3.3 percentage points year-on-year included a one-time international tax impact related to the establishment of the
distribution center of expertise in Europe, increased domestic manufacturer's deduction in 2013, the 2013 restoration of
tax basis on certain assets for which depreciation was previously limited, lapse of the U.S. research and development
credit as of January 1, 2014, adjustments to the Company's income tax reserves, and other items. Factors that decreased the
Company's effective tax rate on a combined basis by 0.4 percentage points year-on-year included international taxes as a
result of changes to the geographic mix of income before taxes.
The effective tax rate for the first nine months of 2014 was 29.1 percent, compared to 28.0 percent in the first nine
months of 2013, an increase of 1.1 percentage points. Factors which increased the Company's effective tax rate by 1.7
percentage points for the first nine months of 2014 when compared to the same period for 2013 included the lapse of the
U.S. research and development credit as of January 1, 2014, adjustments to the Company's income tax reserves, increased
domestic manufacturer's deduction in 2013, the 2013 restoration of tax basis on certain assets for which depreciation was
previously limited, a one-time international tax impact related to the establishment of the distribution center of
expertise in Europe, and other items. This increase was partially offset by a 0.6 percentage point decrease in
international taxes as a result of changes to the geographic mix of income before taxes. Refer to Note 5 for further
discussion of income taxes.
During 2014, the Company established a new manufacturing, supply chain, and distribution center of expertise in Europe. As
a result of this establishment, the Company incurred jurisdictional tax charges related to the transfer of certain
functions to the center of expertise.
The Company currently expects that its effective tax rate for total year 2014 will be approximately 28.5 to 29.0 percent,
with the high end of the range assuming the lapse of the U.S. research and development credit. The rate can vary from
quarter to quarter due to discrete items, such as the settlement of income tax audits and changes in tax laws, as well as
recurring factors, such as geographic mix of income before taxes.
Net Income Attributable to Noncontrolling Interest:
Three months ended Nine months ended
September 30, September 30,
(Millions) 2014 2013 2014 2013
Net income attributable to noncontrolling interest $ 8 $ 15 $ 42 $ 49
Net income attributable to noncontrolling interest represents the elimination of the income or loss attributable to non-3M
ownership interests in 3M consolidated entities. The changes in noncontrolling interest amounts have largely related to
Sumitomo 3M Limited (Japan), which was 3M's most significant consolidated entity with non-3M ownership interests. As
discussed in Note 4, on September 1, 2014, 3M purchased the remaining 25 percent ownership in Sumitomo 3M Limited, bringing
3M's ownership to 100 percent. Thus, effective September 1, 2014, net income attributable to noncontrolling interest will
be significantly reduced. The primary remaining noncontrolling interest relates to 3M India Limited, of which 3M's
effective ownership is 75 percent.
Currency Effects:
3M estimates that year-on-year currency effects, including hedging impacts, decreased net income attributable to 3M by
approximately $10 million for the three months ended September 30, 2014 and decreased net income attributable to 3M by
approximately $64 million for the nine months ended September 30, 2014. This estimate includes the effect of translating
profits from local currencies into U.S. dollars and the impact of currency fluctuations on the transfer of goods between 3M
operations in the United States and abroad. This estimate also includes year-on-year currency effects from transaction
gains and losses, including both derivative instruments designed to reduce foreign currency exchange rate risks and the
negative impact of converting Venezuelan bolivars into Euros and U.S. dollars, which 3M estimates on a combined basis
increased net income attributable to 3M by approximately $7 million for three months ended September 30, 2014 and decreased
net income attributable to 3M by approximately $18 million for the nine months ended September 30, 2014. Refer to Note 9 in
the Consolidated Financial Statements for additional information concerning 3M's hedging activities.
Significant Accounting Policies:
Information regarding new accounting standards is included in Note 1 to the Consolidated Financial Statements.
PERFORMANCE BY BUSINESS SEGMENT
Disclosures related to 3M's business segments are provided in Note 13. The reportable segments are Industrial; Safety and
Graphics; Electronics and Energy; Health Care; and Consumer.
Corporate and Unallocated:
In addition to these five operating business segments, 3M assigns certain costs to "Corporate and Unallocated", which is
presented separately in the preceding business segments table and in Note 13. Corporate and Unallocated includes a variety
of miscellaneous items, such as corporate investment gains and losses, certain derivative gains and losses, certain
insurance-related gains and losses, certain litigation and environmental expenses, corporate restructuring charges and
certain under- or over-absorbed costs (e.g. pension, stock-based compensation) that the Company may choose not to allocate
directly to its business segments. Because this category includes a variety of miscellaneous items, it is subject to
fluctuation on a quarterly and annual basis.
Corporate and Unallocated operating expenses improved by $25 million and $65 million in the third quarter and first nine
months of 2014, respectively, when compared to the same periods last year. A majority of this decrease was due to lower
pension and postretirement benefit expenses, which declined year-on-year by $42 million and $121 million, respectively,
when compared to the same periods last year. Of this reduction, $29 million and $87 million, respectively, was allocated to
Corporate and Unallocated. In addition, the sale of certain real estate benefited the second and third quarter of 2014.
Operating Business Segments:
Each of 3M's five business segments is absorbing incremental investments in 2014 related to business transformation and
global ERP implementation. This resulted in a 0.30 percentage point year-on-year reduction in operating income margins for
each of the five business segments in both the third-quarter and first nine months of 2014 when compared to the same
periods last year.
Information related to 3M's business segments for the third quarter and first nine months of both 2014 and 2013 is
presented in the tables that follow. Organic local-currency sales include both organic volume impacts plus selling price
impacts. Acquisition impacts, if any, are measured separately for the first twelve months of the acquisition. The
divestiture impacts, if any, foreign currency translation impacts and total sales change are also provided for each
business segment. Any references to EMEA relate to Europe, Middle East and Africa on a combined basis.
Industrial Business:
Three months ended Nine months ended
September 30, September 30,
2014 2013 2014 2013
Sales (millions) $ 2,772 $ 2,692 $ 8,363 $ 8,068
Sales change analysis:
Organic local currency 4.2 % 6.2 % 4.6 % 4.1 %
Acquisitions - 4.1 - 4.1
Translation (1.2) (1.7) (0.9) (1.6)
Total sales change 3.0 % 8.6 % 3.7 % 6.6 %
Operating income (millions) $ 616 $ 571 $ 1,851 $ 1,753
Percent change 7.9 % 0.2 % 5.6 % (0.2) %
Percent of sales 22.2 % 21.2 % 22.1 % 21.7 %
The Industrial segment serves a broad range of markets, such as automotive original equipment manufacturer (OEM) and
automotive aftermarket (auto body shops and retail), electronics, appliance, paper and printing, packaging, food and
beverage, and construction. Industrial products include tapes, a wide variety of coated, non-woven and bonded abrasives,
adhesives, advanced ceramics, sealants, specialty materials, 3M Purification Inc. (filtration products), closure systems
for personal hygiene products, acoustic systems products, and components and products that are used in the manufacture,
repair and maintenance of automotive, marine, aircraft and specialty vehicles.
Third quarter of 2014:
Sales in Industrial totaled $2.8 billion, up 3.0 percent in U.S. dollars. Organic local-currency sales increased 4.2
percent, and foreign currency translation reduced sales by 1.2 percent. On an organic local-currency basis, sales growth
was led by aerospace and commercial transportation, 3M Purification Inc., automotive OEM, advanced materials, and
industrial adhesives and tapes. Organic local-currency sales also grew in abrasive systems and automotive aftermarket.
Organic local-currency sales declined in personal care.
Geographically, organic local-currency sales increased 8 percent in the United States. U.S. growth was broad based, with
strong performances in automotive aftermarket, abrasives, and industrial adhesives and tapes, along with aerospace and
commercial transportation, and automotive OEM. Organic local-currency growth was 4 percent in Asia Pacific and 1 percent in
EMEA, while Latin America/Canada declined 1 percent.
Operating income was $616 million in the third quarter of 2014, an increase of 7.9 percent. Operating income margins
increased by 1.0 percentage point to 22.2 percent. Operating income margins improved due to sales volume leverage, plus the
combination of selling price increases and raw material costs decreases, partially offset by incremental investments. As
indicated in the preceding Operating Business Segments section, each of 3M's five business segments is absorbing
incremental investments in 2014 related to business transformation and global ERP implementation. This reduced margins in
each of the businesses by approximately 0.3 percentage points year-on-year.
First nine months of 2014:
Sales in Industrial totaled $8.4 billion, up 3.7 percent in U.S. dollars. Organic local-currency sales increased 4.6
percent, and foreign currency translation reduced sales by 0.9 percent. On an organic local-currency basis, sales growth
was led by 3M Purification Inc., aerospace and commercial transportation, automotive OEM, advanced materials, and abrasive
systems. Organic local-currency sales also grew in industrial adhesives and tapes, and automotive aftermarket. Organic
local-currency sales declined in personal care.
Geographically, organic local-currency sales increased 5 percent in both the United States and Asia Pacific, 4 percent in
EMEA, and 2 percent in Latin America/Canada.
Operating income was $1.9 billion in the first nine months of 2014, an increase of 5.6 percent. Operating income margins
increased by 0.4 percentage points to 22.1 percent. Operating income margins improved due to sales volume leverage, plus
the combination of selling price increases and raw material cost decreases, partially offset by incremental investments as
discussed in third quarter results.
Safety and Graphics Business:
Three months ended Nine months ended
September 30, September 30,
2014 2013 2014 2013
Sales (millions) $ 1,448 $ 1,429 $ 4,365 $ 4,262
Sales change analysis:
Organic local currency 3.1 % 8.0 % 4.1 % 3.9 %
Acquisitions - 0.9 - 1.7
Translation (1.8) (2.3) (1.7) (2.0)
Total sales change 1.3 % 6.6 % 2.4 % 3.6 %
Operating income (millions) $ 340 $ 313 $ 1,011 $ 973
Percent change 8.8 % 7.0 % 3.9 % (1.7) %
Percent of sales 23.5 % 21.9 % 23.2 % 22.8 %
The Safety and Graphics segment serves a broad range of markets that increase the safety, security and productivity of
people, facilities and systems. Major product offerings include personal protection products; traffic safety and security
products, including border and civil security solutions; commercial solutions, including commercial graphics sheeting and
systems, architectural surface and lighting solutions, and cleaning and protection products for commercial establishments;
and roofing granules for asphalt shingles.
Third quarter of 2014:
Sales in Safety and Graphics totaled $1.4 billion, up 1.3 percent in U.S. dollars. Organic local-currency sales increased
3.1 percent, and foreign currency translation reduced sales by 1.8 percent. On an organic local-currency basis, sales
growth was led by personal safety, and traffic safety and security systems. Organic local-currency sales also grew in the
commercial solutions business. Sales in the roofing granules business declined year-on-year.
Organic local-currency sales increased 7 percent in the United States, 3 percent in Europe, were flat in Latin
America/Canada, and declined 1 percent in Asia Pacific.
Operating income in the third quarter of 2014 totaled $340 million, up 8.8 percent. Operating income margins were 23.5
percent of sales, compared to 21.9 percent in the third quarter of 2013. Operating income margins benefited from organic
volume leverage plus selling price increases, partially offset by incremental investments related to business
transformation and global ERP implementation, plus selective restructuring.
First nine months of 2014:
Sales in Safety and Graphics totaled $4.4 billion, up 2.4 percent in U.S. dollars. Organic local-currency sales increased
4.1 percent, and foreign currency translation reduced sales by 1.7 percent. On an organic local-currency basis, sales
growth was led by personal safety. 3M also saw positive organic local-currency sales growth in commercial solutions, and
traffic safety and security systems. Sales in the roofing granules business declined year-on-year.
Organic local-currency sales increased 5 percent in both the United States and Europe, and 3 percent in both Asia Pacific
and Latin America/Canada.
Operating income in the first nine months of 2014 totaled $1.0 billion, up 3.9 percent. Operating income margins were 23.2
percent of sales, compared to 22.8 percent in the first nine months of 2013. Operating income margins were impacted by the
same factors discussed in third quarter results.
Electronics and Energy Business:
Three months ended Nine months ended
September 30, September 30,
2014 2013 2014 2013
Sales (millions) $ 1,500 $ 1,449 $ 4,233 $ 4,066
Sales change analysis:
Organic local currency 4.3 % 3.8 % 4.9 % - %
Translation (0.8) (1.3) (0.8) (1.2)
Total sales change 3.5 % 2.5 % 4.1 % (1.2) %
Operating income (millions) $ 338 $ 300 $ 858 $ 733
Percent change 12.5 % 3.2 % 17.0 % (9.2) %
Percent of sales 22.5 % 20.7 % 20.3 % 18.0 %
The Electronics and Energy segment serves customers in electronics and energy markets, including solutions that improve the
dependability, cost-effectiveness, and performance of electronic devices; electrical products, including infrastructure
protection; telecommunications networks; and power generation and distribution. This segment's electronics solutions
include optical film solutions for the electronic display industry; packaging and interconnection devices; high-performance
fluids and abrasives; high-temperature and display tapes; 3M Flexible Circuits, which use electronic packaging and
interconnection technology; and touch systems products, which include touch screens, touch monitors, and touch sensor
components. This segment's energy solutions include pressure sensitive tapes and resins; electrical insulation;
infrastructure products that provide both protection and detection solutions; a wide array of fiber-optic and copper-based
telecommunications systems; and renewable energy component solutions for the solar and wind power industries.
Third quarter of 2014:
Electronics and Energy sales totaled $1.5 billion, up 3.5 percent in U.S. dollars. Organic local-currency sales increased
4.3 percent, and foreign currency translation reduced sales by 0.8 percent.
Organic local-currency sales increased approximately 8 percent in 3M's electronics-related businesses, with strong growth
in both display materials and systems and in electronics materials solutions. In 3M's energy-related businesses, organic
local-currency sales declined approximately 2 percent. Organic local-currency sales in the electrical markets business was
flat, while telecommunications and renewable energy both declined year-on-year.
On a geographic basis, organic local-currency sales increased 7 percent in Asia Pacific, 3 percent in the United States,
and were flat in Latin America/Canada. Organic local-currency sales declined 6 percent in EMEA.
Operating income increased 12.5 percent to $338 million in the third quarter of 2014. Operating income margins were 22.5
percent compared to 20.7 percent in the third quarter of 2013, helped by sales volume leverage.
First nine months of 2014:
Electronics and Energy sales totaled $4.2 billion, up 4.1 percent in U.S. dollars. Organic local-currency sales increased
4.9 percent, and foreign currency translation reduced sales by 0.8 percent.
Organic local-currency sales increased approximately 8 percent in 3M's electronics-related businesses, with strong growth
in display materials and systems. In 3M's energy-related businesses, organic local-currency sales increased approximately 1
percent, led by telecommunications. Organic local-currency sales growth was flat in the electrical markets business, while
renewable energy declined.
On a geographic basis, organic local-currency sales increased 7 percent in Asia Pacific, 6 percent in Latin America/Canada,
and were flat in both the United States and EMEA.
Operating income increased 17.0 percent to $858 million in the first nine months of 2014. Operating income margins were
20.3 percent compared to 18.0 percent in the first nine months of 2013, helped by sales volume leverage and actions taken
to improve the portfolio over the last two years.
Health Care Business:
Three months ended Nine months ended
September 30, September 30,
2014 2013 2014 2013
Sales (millions) $ 1,390 $ 1,328 $ 4,180 $ 3,975
Sales change analysis:
Organic local currency 5.4 % 6.8 % 5.6 % 5.5 %
Acquisitions 0.5 - 0.3 0.1
Translation (1.2) (1.3) (0.7) (1.3)
Total sales change 4.7 % 5.5 % 5.2 % 4.3 %
Operating income (millions) $ 432 $ 426 $ 1,293 $ 1,247
Percent change 1.4 % 6.7 % 3.7 % 2.9 %
Percent of sales 31.0 % 32.1 % 30.9 % 31.4 %
The Health Care segment serves markets that include medical clinics and hospitals, pharmaceuticals, dental and orthodontic
practitioners, health information systems, and food manufacturing and testing. Products and services provided to these and
other markets include medical and surgical supplies, skin health and infection prevention products, inhalation and
transdermal drug delivery systems, dental and orthodontic products (oral care), health information systems, and food safety
products.
Third quarter of 2014:
Health Care sales totaled $1.4 billion, an increase of 4.7 percent in U.S. dollars. Organic local-currency sales increased
5.4 percent, acquisitions added 0.5 percent, and foreign currency translation reduced sales by 1.2 percent. Organic
local-currency sales grew in all businesses, with the strongest growth in drug delivery systems and health information
systems.
Acquisition sales growth related to the April 2014 purchase of Treo Solutions LLC, headquartered in Troy, New York. Treo
Solutions LLC is a provider of data analytics and business intelligence to healthcare payers and providers.
On a geographic basis, organic local-currency sales increased 9 percent in Asia Pacific, 6 percent in both Latin
America/Canada and the United States, and 3 percent in EMEA. Health Care organic local-currency sales grew 11 percent in
developing markets.
Operating income increased 1.4 percent to $432 million. Operating income margins were 31.0 percent in the third quarter of
2014, compared to 32.1 percent in the third quarter of 2013, with acquisition impacts reducing operating income margins by
0.4 percentage points. The third quarter of 2013 included a gain from the sale of a non-strategic equity method investment,
which benefited third-quarter 2013 operating income margins by 1.4 percentage points.
First nine months of 2014:
Health Care sales totaled $4.2 billion, an increase of 5.2 percent in U.S. dollars. Organic local-currency sales increased
5.6 percent, acquisitions added 0.3 percent, and foreign currency translation reduced sales by 0.7 percent. Organic
local-currency sales grew in all businesses, with the strongest growth in drug delivery systems, health information
systems, and critical and chronic care.
On a geographic basis, organic local-currency sales increased 8 percent in both Asia Pacific and Latin America/Canada, 6
percent in the United States, and 2 percent in EMEA. Health Care organic local-currency sales grew 11 percent in developing
markets.
Operating income increased 3.7 percent to $1.3 billion. Operating income margins were 30.9 percent in the first nine months
of 2014, compared to 31.4 percent in the first nine months of 2013, with acquisition impacts reducing operating income
margins by 0.3 percentage points. As discussed in the third quarter results above, the gain from the sale of a
non-strategic equity method investment benefited first nine months 2013 operating income margins by 0.5 percentage points.
Consumer Business:
Three months ended Nine months ended
September 30, September 30,
2014 2013 2014 2013
Sales (millions) $ 1,177 $ 1,153 $ 3,395 $ 3,332
Sales change analysis:
Organic local currency 3.1 % 4.2 % 3.3 % 3.6 %
Divestitures - (0.2) (0.2) (0.1)
Translation (1.0) (1.9) (1.2) (1.7)
Total sales change 2.1 % 2.1 % 1.9 % 1.8 %
Operating income (millions) $ 272 $ 247 $ 741 $ 719
Percent change 10.1 % 0.6 % 3.1 % 1.3 %
Percent of sales 23.2 % 21.5 % 21.8 % 21.6 %
The Consumer segment serves markets that include consumer retail, office retail, home improvement, building maintenance and
other markets. Products in this segment include office supply products, stationery products, construction and home
improvement products (do-it-yourself), home care products, protective material products, certain consumer retail personal
safety products, and consumer health care products.
Third quarter of 2014:
Sales in Consumer totaled $1.2 billion, up 2.1 percent in U.S. dollars. Organic local-currency sales increased 3.1 percent,
and foreign currency translation reduced sales by 1.0 percent. On an organic local-currency basis, sales growth was led by
construction and home improvement. 3M also posted positive sales growth in its consumer health care and home care
businesses. Sales in the stationery and office supplies business were down slightly year-on-year.
On a geographic basis, organic local-currency sales increased 5 percent in Asia Pacific and 4 percent in the United States.
Back-to-school sales were strong in the U.S. mass retail channel. Organic local-currency sales were flat in EMEA, and
declined 2 percent in Latin America/Canada. Organic local-currency growth was 5 percent in developing markets.
Consumer operating income was $272 million, up 10.1 percent from the third quarter last year. Operating income margins were
23.2 percent, compared to 21.5 percent in the same period last year, helped by strong sales in the construction and home
improvement business.
First nine months of 2014:
Sales in Consumer totaled $3.4 billion, up 1.9 percent in U.S. dollars. Organic local-currency sales increased 3.3 percent,
divestitures reduced sales by 0.2 percent, and foreign currency translation reduced sales by 1.2 percent. On an organic
local-currency basis, sales growth was led by construction and home improvement. 3M also posted positive growth in its
consumer health care and home care businesses. Sales in the stationery and office supplies business were down slightly.
On a geographic basis, organic local-currency sales increased 6 percent in Asia Pacific, 3 percent in the United States,
and 1 percent in both EMEA and Latin America/Canada. Organic local-currency growth was 7 percent in developing markets.
Consumer operating income was $741 million, up 3.1 percent from the first nine months last year. Operating income margins
were 21.8 percent, up slightly from 21.6 percent in the same period last year.
FINANCIAL CONDITION AND LIQUIDITY
3M continues to manage towards a more optimized capital structure, financed with additional low-cost debt. The strength and
stability of 3M's business model and strong free cash flow capability, together with proven capital markets access, enables
3M to implement this strategy while continuing to invest in its businesses. Organic growth remains the first priority, thus
3M will continue to invest in research and development, capital expenditures, and commercialization capability. In 2013, as
a first step towards increasing capital deployment, 3M drew down its U.S. cash position to a minimum level and also
reactivated its $3 billion commercial paper program. In 2014, 3M filed a new 'well-known seasoned issuer" shelf
registration statement, and recommenced the Series F medium term notes program for future debt issuances.
3M considers net debt to be an important measure of liquidity and of its ability to meet ongoing obligations. This measure
is not defined under U.S. generally accepted accounting principles and may not be computed the same as similarly titled
measures used by other companies. The Company defines net debt as total debt less the total of cash, cash equivalents and
current and long-term marketable securities. The following table provides net debt as of September 30, 2014 and December
31, 2013.
September 30, December 31,
(Millions) 2014 2013
Total Debt $ 7,344 $ 6,009
Less: Cash and cash equivalents and marketable securities 3,801 4,790
Net Debt $ 3,543 $ 1,219
In the first nine months of 2014, 3M continued to make progress towards better optimizing its capital structure through
higher debt levels and increased capital deployment. Net debt increased $2.3 billion at September 30, 2014 when compared to
December 31, 2013. Actions taken in the first nine months of 2014 that contributed to the net debt increase included the
June 2014 issuance of $625 million of five-year notes due 2019 and $325 million of thirty-year notes due 2044 under the
Series F medium term notes program, along with lower cash balances in the U.S. and international. In addition, 3M's
outstanding commercial paper balance was $1.905 billion at September 30, 2014, compared to zero at December 31, 2013. In
July 2014, 3M repaid 1.025 billion Euros of maturing Eurobond notes. 3M will continue to implement changes to its capital
structure over time. For 2014 in particular, 3M expects to add leverage of $2 billion to $4 billion when compared to
December 31, 2013, and as of September 30, 2014, 3M is tracking to the mid-point of that range.
3M's primary short-term liquidity needs are met through cash on hand and U.S. commercial paper issuances. 3M resumed
commercial paper funding in July 2013 for the first time since late 2008. 3M expects to maintain a consistent presence in
the market and believes it will have continuous access to the commercial paper market. 3M's commercial paper program
permits the Company to have a maximum of $3 billion outstanding with a maximum maturity of 397 days from date of issuance.
The Company has significant liquidity and generates ongoing cash flow, which have been used, in part, to repurchase shares
and to pay dividends on 3M common stock.In addition, 3M's liquidity and cash flow enable it to meet currently anticipated
growth plans, including funds for research and development, capital expenditures, working capital investments and
acquisitions.
At September 30, 2014, 3M had $3.8 billion of cash, cash equivalents and marketable securities, of which approximately $3.7
billion was held by the Company's foreign subsidiaries and approximately $100 million was held by the United States. Of the
$3.7 billion, U.S. dollar-based cash, cash equivalents and marketable securities totaled $2.3 billion, or 62 percent, which
was invested in money market funds, asset-backed securities, agency securities, corporate medium-term note securities and
other investment-grade fixed income securities. At December 31, 2013, cash, cash equivalents and marketable securities held
by the Company's foreign subsidiaries and in the United States totaled approximately $4.3 billion and $0.5 billion,
respectively. The Company's total balance of cash, cash equivalents and marketable securities was $1.0 billion lower at
September 30, 2014 when compared to December 31, 2013. 3M is able to manage the business with lower cash levels,
particularly in the U.S., due to significant ongoing cash flow generation and proven access to capital markets funding
throughout business cycles.
At September 30, 2014, 3M had $7.3 billion of debt, which included $5.2 billion of long-term debt and $2.1 billion related
to the current portion of long-term debt and other borrowings. Other borrowings included $1.9 billion of commercial paper.
In August 2013, 3M repaid $850 million (principal amount) of medium-term notes. In November 2013, 3M issued an eight-year
Eurobond for an amount of 600 million Euros (approximately $815 million carrying value at December 31, 2013). In June 2014,
3M issued $625 million aggregate principal amount of five-year fixed rate medium-term notes due 2019 and also issued $325
million aggregate principal amount of thirty-year fixed rate medium-term notes due 2044. In July 2014, 3M repaid 1.025
billion Euros of maturing Eurobond notes. The strength of 3M's capital structure and significant ongoing cash flows provide
3M proven access to capital markets. Additionally, the Company's maturity profile is staggered to help ensure refinancing
needs in any given year are reasonable in proportion to the total portfolio. The Company has an AA- credit rating, with a
stable outlook, from Standard & Poor's and an Aa2 credit rating, with a negative outlook, from Moody's Investors Service.
In August 2014, Moody's Investor Service reaffirmed 3M's Aa2 credit rating, but changed 3M's outlook from stable to
negative. The Company's ongoingtransition to a more optimized capital structure, financed with additional low-cost debt,
could impact 3M's credit rating in the future.
In August 2014, 3M amended and extended the existing $1.5 billion five-year multi-currency revolving credit agreement to a
$2.25 billion five-year multi-currency revolving credit agreement, with an expiration date of August 2019. This credit
agreement includes a provision under which 3M may request an increase of up to $2.25 billion, bringing the total facility
up to $4.5 billion (at the lenders' discretion). This facility was undrawn at September 30, 2014. In December 2012, 3M
entered into a three-year 66 million British Pound (approximately $106 million based on agreement date exchange rates)
committed credit agreement, which was fully drawn as of December 31, 2012. 3M repaid 36 million British Pounds in the first
quarter of 2014, leaving a remaining balance due of 30 million British Pounds as of September 30, 2014. Apart from the
committed facilities, an
- More to follow, for following part double click ID:nRSC9102VhRecent news on 3M Co
See all newsREG - Stock Exch Notice - Admission to ISM - 30/11/2023
AnnouncementRCS - 3M Company - StageZero Announces COC Protocol in Europe
AnnouncementREG - Official List - Removal: 3M Company
AnnouncementREG - Stock Exch Notice - Cancellation - 3M Company
AnnouncementREG - 3M Company - 3rd Quarter Results
Announcement