3M 2006 Annual Report Download - page 45


Industrial and Transportation Business (29.5% of consolidated sales):
2006 2005 2004
Sales (millions) $6,754 $6,144 $5,711
Sales change analysis:
Local currency (volume and price) 9.1% 6.5% 7.2%
Translation 0.8 1.1 4.1
Total sales change 9.9% 7.6% 11.3%
  
Operating income (millions) $1,343 $1,211 $1,050
Percent change 10.9% 15.4% 27.6%
Percent of sales 19.9% 19.7% 18.4%
The Industrial and Transportation segment serves a broad range of markets, such as appliance, paper and packaging,
food and beverage, personal care and automotive. Industrial and Transportation products include tapes, a wide variety of
coated and non-woven abrasives, adhesives, specialty materials, supply chain execution software solutions, closures for
disposable diapers, and components and products that are used in the manufacture, repair and maintenance of
automotive, marine, aircraft and specialty vehicles. The August 2005 acquisition of CUNO adds a comprehensive line
of filtration products for the separation, clarification and purification of fluids and gases.
In 2006, local-currency sales grew 9.1%, including 4.6% growth from acquisitions, primarily related to the August 2005
acquisition of CUNO. Since CUNO was acquired in early August 2005 and is thus considered part of organic growth
effective in August 2006, the acquisition benefit reflected in 2006 only reflects the months from January 2006 through
July 2006. The industrial adhesives and tapes business, along with the automotive aftermarket business, which sells
products to body shops for vehicle repairs, led organic sales growth in 2006. 3M also posted good sales growth in its
abrasives business and its energy and advanced materials business. Growth in the automotive OEM business
continues to be impacted by softness in the U.S. domestic automotive industry as new car builds continue to remain
soft. Geographically, local-currency sales growth in dollars was strongest in the Asia Pacific and Europe areas.
Operating income increased 10.9% to $1.343 billion in 2006. Operating income included $15 million in restructuring
expenses, primarily comprised of asset impairments and severance and related benefits, which negatively impacted
operating income growth by 1.2%.
In 2005, Industrial and Transportation local-currency sales grew 6.5%. The August 2005 CUNO acquisition, whose results
are included in Industrial and Transportation, added 3.1% of growth in 2005. In addition, growth was led by the adhesives,
tapes, and abrasives businesses. 3M continued to selectively raise selling prices to offset commodity raw material price
pressures. 3M sales growth also benefited from customer-focused new products and productivity solutions driving results.
2QHRIWKHVHQHZSURGXFWVLV03DLQW5HSODFHPHQW)LOPwhich is an alternative to using paint around car and truck
ZLQGRZV,QWKHDXWRPRWLYHDIWHUPDUNHWDUHDWKH0Paint Preparation System shortens paint changeover and
cleanup time while also reducing the use of solvents for cleaning paint guns. Sales growth in transportation was led by
businesses that serve the automotive OEMs and auto body repair shops, despite challenges in the U.S. OEM Big-3
automotive market along with lower levels of distribution buy-in (due to cash flow trade-offs by customers in the
automotive aftermarket business). The strength of the Industrial and Transportation businesses helped overcome the
sales growth challenges of the personal care business. 3HUVRQDOFDUHZKLFKLV0¶VGLDSHUWDSHEXVLQHVVKDV
experienced significant raw material price increases in some product lines over the past year, and 3M has elected to drive
profits at the expense of volume in this business. Industrial and Transportation continues to demonstrate strong operational
discipline, as operating income grew 15.4% in 2005.
,Q0DUFK0¶VDXWRPRWLYHEXVLQHVVFRPSOHWHGWKHpurchase of 19% of TI&M Beteiligungsgesellschaft mbH
(TI&M), the parent company of I&T Innovation Technology Entwicklungsund Holding Aktiengesellschaft (I&T), a maker
of flat flexible cable and circuitry founded in Austria in 1999. 3M and I&T intended to collaborate to deliver flat flexible
wiring systems for automotive interior applications to the global automotive market. The purchase price of
DSSUR[LPDWHO\PLOOLRQLVUHSRUWHGLQDV³,QYHVWPHQWV´ in the Consolidated BalancH6KHHWDQGDV³3XUFKDVHV
RIPDUNHWDEOHVHFXULWLHVDQGLQYHVWPHQWV´LQWKH&RQVROLGDWHG6WDWHPHQWRI&DVK)ORZs. Due to its distribution
involvement and voting rights, the Company is using equity method accounting for its investment in TI&M. I&T filed a
petition for bankruptcy protection in 2006. As part of its agreement to purchase the shares of TI&M, the Company was
granted a put option, which gave the Company the right to sell back its entire ownership interest in TI&M to the other
investors from whom 3M acquired its 19% interest. The put option became exercisable January 1, 2007. The
Company exercised the put option and has recovered approximately half of its investment from one of the other
investors. The other two TI&M investors have filed a bankruptcy petition in Austria. The Company is in the process of
seeking to collect the balance of its investment.