01—Abstract
Summary
Summary of the 10-K filed February 16, 2011. Cited figures are marked; the original filing is the authoritative source.
3M's fiscal 2010 10-K shows a strong rebound year: record net sales of $26.7 billiona (up 15.3% from $23.1 billion in 2009), with local-currency growth of 14.4% led by Electro and Communications, Display and Graphics, and Industrial and Transportation.
Diluted EPS rose 24.6% to $5.63b, and operating margin expanded to 22.2% from 20.8%. Growth was broad-based, with organic volume up 13.7% and all six business segments posting positive organic volume growth, though part of the 2009 comparison was depressed by restructuring charges (about $194 million pre-tax) that did not recur in 2010. Cash generation and balance sheet strength remained solid.
Operating cash flow was $5.2 billionc and free cash flow was $4.1 billion, against dividends of $1.5 billion. Net debt fell to $434 million from $1.1 billion, and the debt-to-total-capital ratio dropped to 25% from 30%. Management signaled continued investment, with about $1.8 billion spent on acquisitions (including Arizant, Cogent and Attenti in Q4), a 4.8% dividend increase to $2.20 annualized, and a new $7.0 billion share repurchase authorization.
Guidance for 2011 calls for sales growth of 10% or more, with a higher expected tax rate (about 29.5%) and pension expense rising by roughly 22 cents per share. Key risks flagged in the filing include a two-thirds international revenue mix exposed to currency swings, ongoing respirator mask/asbestos and PFC environmental litigation, a Department of Justice and SEC investigation into the Turkish subsidiary, and a pending Meda AB claim of at least $200 milliond. Investors should weigh the strong 2010 earnings momentum against these contingent liabilities and the pressure from rising pension and tax costs in 2011.
02—Key points
Key Highlights
- Record 2010 net sales of $26.7B, up 15.3%, with 13.7% organic volume growth and all six segments posting positive organic volume growth
- Diluted EPS of $5.63, up 24.6% year over year; operating margin improved to 22.2% from 20.8%
- Operating cash flow of $5.2B and free cash flow of $4.1B; net debt reduced to $434M from $1.1B in 2009
- Debt-to-total-capital ratio fell to 25% from 30%, with AA-/Aa2 credit ratings maintained with stable outlooks
- Shareholder returns: $1.5B in dividends, 4.8% dividend increase to $2.20 annualized (53rd consecutive annual increase), and a new $7.0B share repurchase authorization
- 2011 outlook: sales growth of 10% or more, with headwinds from pension expense (about $0.22/share), a higher effective tax rate (~29.5%), and the non-recurrence of a banked vacation benefit
- Material legal and regulatory exposures: respirator mask/asbestos reserves, PFC environmental litigation (including a Minnesota state suit), a DOJ/SEC investigation into the Turkish subsidiary, and a Meda AB claim of at least $200M
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, 3M Co kept $0.15.
- Revenue$26.66B100.0%
- Cost of revenue−$13.83B51.9%
- Gross profit$12.83B48.1%
- Operating costs−$6.91B25.9%
- Operating income$5.92B22.2%
- Interest, other & tax−$1.83B6.9%
- Net income$4.08B15.3%
Where FY2010 revenue went
$26.66B- Cost of revenue: $13.83B, 52% of revenue
- SG&A: $5.48B, 21% of revenue
- Net income: $4.08B, 15% of revenue
- R&D: $919.0M, 3.4% of revenue
- Other operating costs: $515.0M, 1.9% of revenue
- Interest, other & tax: $1.83B, 6.9% of revenue
Kept 15% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 16, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $26.66B$23.12B | +15.3% |
| Cost of Revenue | $13.83B$12.11B | +14.2% |
| Gross Profit | $12.83B$11.01B | +16.5% |
| R&D Expenses | $919.00M$838.00M | +9.7% |
| SG&A Expenses | $5.48B$4.91B | +11.7% |
| Operating Expenses | $20.74B$18.31B | +13.3% |
| Operating Income | $5.92B$4.81B | +22.9% |
| Net Income | $4.08B$3.19B | +27.9% |
| EPS (Basic) | $5.72$4.56 | +25.4% |
| EPS (Diluted) | $5.63$4.52 | +24.6% |
| Shares Outstanding (Basic) | 713.70M700.50M | +1.9% |
| Shares Outstanding (Diluted) | 725.50M706.70M | +2.7% |
05—Questions
Frequently Asked Questions
How did 3M perform financially in 2010 compared with 2009?
Net sales rose 15.3% to $26.7 billion, and net income attributable to 3M reached $4.085 billion, or $5.63 per diluted share, up from $4.52 in 2009. Operating income rose 22.9% to $5.9 billion, and the margin improved to 22.2%. Part of the improvement reflects the absence of 2009 restructuring charges, which reduced operating income by $194 million that year.
What is 3M's outlook for 2011?
Management expects 2011 sales growth of 10% or more, including 5.5–7.5% organic volume growth, 1–2% currency benefit, and 4–6% from acquisitions. Offsetting headwinds include roughly $0.22 per diluted share from higher pension and postretirement expense, the end of an 8-cent banked vacation benefit, and an expected effective tax rate of about 29.5% versus 27.7% in 2010.
How is 3M returning cash to shareholders?
3M paid $1.5 billion in dividends in 2010 ($2.10 per share) and repurchased $854 million of stock. In February 2011, the board raised the quarterly dividend 4.8% to $0.55 per share and approved a new $7.0 billion repurchase program with no end date, replacing the prior program.
What are the most significant legal and regulatory risks disclosed?
The main exposures are respirator mask/asbestos litigation, with about $126 million in liabilities against $122 million of insurance receivables; environmental litigation over perfluorinated compounds, including a Minnesota state lawsuit and Passaic River cleanup claims; a DOJ and SEC investigation into bribery and bid-rigging allegations at the Turkish subsidiary; and a Meda AB lawsuit seeking at least $200 million. The company has not recorded liabilities for several of these matters because it does not consider losses probable and estimable.
Did 3M make significant acquisitions in 2010?
Yes. The company completed ten business combinations in 2010, spending about $1.8 billion net of cash acquired. The largest deals closed in Q4: Arizant (patient warming, Health Care), Cogent (biometrics, Safety and Security), and Attenti (remote monitoring). It also agreed to acquire Winterthur Technologies (about $450 million) in early 2011.
06—Continue