3M 2006 Annual Report Download - page 38

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 3M closed on 19 acquisitions in 2006, all contributing to growth in different ways. Acquisitions were made to
add products and gap-fillers, to expand our offerings and become more important to our customers, to add
capacity, to get access to local markets via local brands, and to augment our existing technology base.
With a continued focus on these strategies into 2007, 3M believes it can transform itself into a faster-growing
company.
The Company expects to increase both research and development (excluding the pharmaceuticals business, acquired
in-process research and development charge and restructuring-related items) and capital expenditures in 2007, with
investments in growth programs around the world. Research, development and related expenses totaled
$1.522 billion in 2006. This included a $95 million in-process research and development charge (discussed in Note 2)
and approximately $75 million in restructuring-related items (discussed in Note 4). Adjusted for these items, research,
development and related expenses still increased by over 6%. Total capital expenditures for 2006 totaled
$1.168 billion, up $225 million compared with 2005. The Company expects capital expenditures to total approximately
$1.4 billion to $1.5 billion in 2007, providing the capacity to meet expected growth.
3M announced in April 2006 that it would explore strategic alternatives for its global branded pharmaceuticals business.
requires broad pipelines of new drugs, significant investments, and a longer-term risk-reward model than applies to most
other 3M businesses. In December 2006 and January 2007, 3M completed the sale of its branded pharmaceuticals
business. As discussed in Note 2, the January 2007 transaction will be recorded in the first quarter of 2007. As previously
disclosed, 3M had indicated that it would likely incur some restructuring-related costs associated with selling the business.
As a result of the above, in the fourth quarter of 2006, 3M recorded a gain on sale, which was partially offset by
restructuring and other items. Including these items, in 2006, 3M reported record net sales of $22.923 billion and record
net income of $3.851 billion, or $5.06 per diluted share, compared with net sales of $21.167 billion and net income of
$3.111 billion, or $3.98 per diluted share. Excluding these items, the Company still achieved strong underlying operating
performance, helped by the combination of an 8.3% increase in net sales, including core local-currency sales growth of
5.6% (which excludes the impact of businesses acquired in the last 12 months).
In 2006, the gain on sale, net of restructuring and other items, increased operating income by $523 million and net
income by $438 million, or $0.57 per diluted share. 2006 included net benefits from gains related to the sale of certain
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income tax adjustments ($149 million), which were partially offset by restructuring actions ($403 million pre-tax,
$257 million after-tax), acquired in-process research and development expenses ($95 million pre-tax and after-tax),
settlement costs of a previously disclosed antitrust class action ($40 million pre-tax, $25 million after-tax), and
environmental obligations related to the pharmaceuticals business ($13 million pre-tax, $8 million after-tax). These items
are discussed in more detail in Note 2 (Acquisitions and Divestitures), Note 4 (2006 Restructuring Actions), Note 8
(Income Taxes), and Note 13 (Commitments and Contingencies).
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pursuant to the provisions of the American Jobs Creation Act of 2004 (refer to Note 1 and Note 8 for more detail).
Combined, these two items reduced net income by $110 million in 2005.
The following table contains sales and operating income results by business segment for the years ended December 31,
2006 and 2005. Refer to the Performance by Business Segment section for discussion of the net impact of the gain on
sale, restructuring and other items that increased Health Care operating income, but which reduced most of the other
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0EHOLHYHVWKDWLQWRGD\¶VYHU\FRmpetitive pharmaceuticals marketplace, continued success in branded pharmaceuticals