01—Abstract
Summary
Summary of the 10-K filed February 16, 2012. Cited figures are marked; the original filing is the authoritative source.
3M's fiscal 2011 10-K shows a company that grew sales 11.1% to $29.6 billiona, with net income attributable to 3M rising 4.8% to $4.283 billion and diluted EPS up 5.8% to $5.96.
Growth was led by Industrial and Transportation (+19.5%b), Safety, Security and Protection Services (+15.2%) and Health Care (+11.5%), while Display and Graphics fell 5.4% on weak LCD TV optical film demand. Organic local-currency growth was 8.0% including acquisitions, and currency added 3.1 points. Operating margin slipped to 20.9% from 22.2% in 2010, largely because of higher cost of sales, pension expense and SG&A.
Operating cash flow was $5.3 billionc and free cash flow was $3.9 billion, after capital spending of $1.4 billion. The company returned cash through $2.7 billion of buybacks and $1.555 billion of dividends, and it raised the 2012 dividend 7.3%, the 54th consecutive annual increase. The balance sheet remains strong, with $4.6 billion of cash and marketable securities against $5.2 billion of debt, a 25% debt-to-capital ratio, and AA-/Aa2 credit ratings.
Pension funding is a notable pressure point: the plans were 82% funded at year-end after a 1.08-point drop in the U.S. discount rate, which added about $2.4 billiond to long-term liabilities and reduced equity by about $1.6 billion. Management expects $800 million to $1 billion of 2012 pension contributions and a roughly 9-cent per-share headwind from higher pension expense, plus a higher expected 2012 tax rate of about 29.5%. Management also announced CEO succession, with Inge Thulin set to replace George Buckley effective February 24, 2012, and a pending $550 million acquisition of Avery Dennison's Office and Consumer Products business.
02—Key points
Key Highlights
- Net sales rose 11.1% to $29.6 billion, with organic volume up 3.7% and acquisitions adding 3.3 points
- Diluted EPS of $5.96 increased 5.8% from $5.63, and net income attributable to 3M reached $4.283 billion
- Operating margin declined to 20.9% from 22.2%, driven by higher cost of sales, pension expense and SG&A growth
- Display and Graphics sales fell 5.4% and operating income dropped 16.6% due to weak LCD TV optical film demand
- Operating cash flow of $5.3 billion and free cash flow of $3.9 billion, with $2.7 billion in share repurchases and $1.6 billion in dividends
- Pension plans were 82% funded at year-end 2011 after a discount rate decline, with 2012 contributions of $800 million to $1 billion expected
- Dividend increased 7.3% for 2012, marking the 54th consecutive annual increase
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, 3M Co kept $0.14.
- Revenue$29.61B100.0%
- Cost of revenue−$15.69B53.0%
- Gross profit$13.92B47.0%
- Operating costs−$7.74B26.1%
- Operating income$6.18B20.9%
- Interest, other & tax−$1.90B6.4%
- Net income$4.28B14.5%
Where FY2011 revenue went
$29.61B- Cost of revenue: $15.69B, 53% of revenue
- SG&A: $6.17B, 21% of revenue
- Net income: $4.28B, 14% of revenue
- R&D: $1.04B, 3.5% of revenue
- Other operating costs: $534.0M, 1.8% of revenue
- Interest, other & tax: $1.90B, 6.4% of revenue
Kept 14% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 16, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $29.61B$26.66B | +11.1% |
| Cost of Revenue | $15.69B$13.83B | +13.5% |
| Gross Profit | $13.92B$12.83B | +8.5% |
| R&D Expenses | $1.04B$919.00M | +12.7% |
| SG&A Expenses | $6.17B$5.48B | +12.6% |
| Operating Expenses | $23.43B$20.74B | +13.0% |
| Operating Income | $6.18B$5.92B | +4.4% |
| Net Income | $4.28B$4.08B | +4.8% |
| EPS (Basic) | $6.05$5.72 | +5.8% |
| EPS (Diluted) | $5.96$5.63 | +5.9% |
| Shares Outstanding (Basic) | 708.50M713.70M | −0.7% |
| Shares Outstanding (Diluted) | 719.00M725.50M | −0.9% |
05—Questions
Frequently Asked Questions
How did 3M perform financially in 2011?
3M grew net sales 11.1% to $29.6 billion and net income attributable to the company to $4.283 billion, or $5.96 per diluted share. Growth came mainly from Industrial and Transportation, Safety, Security and Protection Services, and Health Care, partly offset by a decline in Display and Graphics. Operating margin fell to 20.9% from 22.2% due to higher cost of sales, pension costs and SG&A spending.
What are the main risks or headwinds for 3M's earnings in 2012?
Management flagged several 2012 headwinds: pension and postretirement expense is expected to rise about $89 million pre-tax (roughly 9 cents per diluted share), the effective tax rate is expected to increase to about 29.5% from 27.8%, and currency effects are expected to be negative. The expiration of the R&D tax credit could also weigh on the tax rate if it is not extended. Continued weakness in LCD TV optical films and European demand are additional pressures noted in the filing.
How strong is 3M's balance sheet and how is it returning cash to shareholders?
At year-end 2011 3M had $4.6 billion of cash and marketable securities against $5.2 billion of total debt, a 25% debt-to-total-capital ratio, and AA-/Aa2 credit ratings. It generated $5.3 billion of operating cash flow, repurchased $2.7 billion of stock under a $7.0 billion authorization with about $4.6 billion remaining, and paid $1.6 billion in dividends. It also raised its quarterly dividend 7.3% to 59 cents per share for 2012.
What major acquisitions and leadership changes did 3M announce?
In 2011 3M completed nine business combinations for about $649 million net of cash acquired, including Winterthur Technologie AG and the GPI Group's do-it-yourself business. In December 2011 it agreed to buy Avery Dennison's Office and Consumer Products business for about $550 million, with closing expected in the second half of 2012. Inge G. Thulin was set to become President and CEO effective February 24, 2012, succeeding George W. Buckley, who planned to retire June 1, 2012.
How significant is 3M's pension obligation to investors?
Pension and postretirement exposure became a larger issue in 2011. A 1.08-percentage-point drop in the U.S. discount rate to 4.15% increased long-term liabilities by about $2.4 billion and reduced stockholders' equity by about $1.6 billion. Pension and postretirement expense rose to $555 million from $322 million, and management expects it to increase further in 2012. Investors should watch future funded status and the level of discretionary contributions, which management says will depend on market conditions and the plans' funded status.
06—Continue