3M 2006 Annual Report Download - page 41

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
The $45 million increase in stock option expense in 2006, compared with 2005, is primarily due to two reasons. First,
effective January 1, 2006, accounting rules required the acceleration of stock-based compensation expense
recognition to when an employee is eligible to retire, instead of over the entire vesting period for these retirement-
eligible employees, resulting in recognition of approximately 25 percent of the expense in the month of grant (second
TXDUWHUIRU0¶VDQQXDOVWRFNRSWLRQJUDQW6HFRQG0Fhanged its vesting period from one to three years starting
with the May 2005 grant. The third and fourth quarters of 2006 include expense from both the 2005 and 2006 stock
option grants, while the third and fourth quarters of 2005 only include expense from the 2005 stock option grant. The
decrease in the 2005 expense, compared with 2004, is primDULO\GXHWRWKHFKDQJHLQ0¶VRSWLRQYHVWLQJSHULRG
,1'(;720$1$*(0(17¶6',6&866,21$1'$1$/<6,6
2)),1$1&,$/&21',7,21$1'5(68/762)23(5$7,216
Item 7 5HIHUHQFHSDJHV
Results of operations 15
Performance by business segment 18
Performance by geographic area 25
Critical accounting estimates 26
New accounting pronouncements 27
Financial condition and liquidity 28
Financial instruments 32
Forward-looking statements 33
Item 7A
Quantitative and qualitative disclosures about market risk 33
5(68/762)23(5$7,216
Net Sales:
2006 2005
Worldwide 86 International :RUOGZLGH 86 ,QWHUQDWLRQDO
 1HWVDOHVPLOOLRQV $22,923 $8,853 $14,070 $21,167 $8,267 $12,900
Components of
net sales change:
 9ROXPH±FRUH    3.5% 1.0% 5.1%
 9ROXPH±DFTXLVLWLRQV     1.0 1.4 0.7
 9ROXPH±WRWDO     4.5 2.4 5.8
Price        
Local currency     5.1 4.9 5.1
Translation  ± 0.7 ± 1.2
Total    5.8% 4.9% 6.3%
,QORFDOFXUUHQF\VDOHVJURZWKRIZDVEURDGEDVed. All business segments made positive contributions to
local-currency sales growth and have done so for three consecutive years. Acquisitions increased 2006 sales by 2.1%,
driven by the August 2005 acquisition of CUNO and the AXJXVWDFTXLVLWLRQRI6HFXULW\3ULQWLQJDQG6\VWHPV
/LPLWHG5HIHUWRERWKWKH³3HUIRUPDQFHE\%XVLQHVV6HJPHQW´DQG³3HUIRUPDQFHE\*HRJUDSKLF$UHD´VHFWLRQVIRU
additional discussion of sales change.
Operating Expenses:
 
 3HUFHQWRIQHWVDOHV 2006 2005
versus versus
2006 2005 2004 2005 2004
Cost of sales      
 6HOOLQJJHQHUDODQGDGPLQLVWUDWLYHH[SHQVHV      
Research, development and related expenses      
 *DLQRQVDOHRISKDUPDFHXWLFDOVEXVLQHVV  ±±
  ±
Operating income  22.9% 21.6% 1.9% 1.3%