3M 2007 Annual Report Download - page 18

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide
a reader of 3M’s financial statements with a narrative from the perspective of management. 3M’s MD&A is presented in
nine sections:
Reference (pages)
• Overview 12
• Results of Operations 15
• Performance by Business Segment 18
• Performance by Geographic Area 27
• Critical Accounting Estimates 28
• New Accounting Pronouncements 30
• Financial Condition and Liquidity 30
• Financial Instruments 35
• Forward-Looking Statements 35
OVERVIEW
3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products. 3M manages its
operations in six operating business segments: Industrial and Transportation; Health Care; Display and Graphics;
Consumer and Office; Safety, Security and Protection Services; and Electro and Communications.
3M’s strategy continues to emphasize a commitment to grow at a faster pace, using a four-pronged approach, which
includes reinvesting in its core businesses, developing adjacent emerging business opportunities, expanding on the
Company’s already world-class capabilities internationally, and acquiring companies in complementary faster-growing
industries. The Company will continue to invest in research and development and plant start-ups in 2008, including
investments in emerging markets around the world. Research, development and related expenses totaled $1.368
billion in 2007. Capital expenditures totaled $1.422 billion in 2007, up $254 million compared with 2006. The Company
expects capital expenditures to total approximately $1.3 billion to $1.4 billion in 2008, providing the capacity to meet
expected growth.
In December 2006 and January 2007, 3M completed the sale of its branded pharmaceuticals business, resulting in gains
in the fourth quarter of 2006 and first quarter of 2007. In addition, 3M recorded a gain related to the sale of its Opticom
Priority Control Systems and Canoga Traffic Detection businesses in the second quarter of 2007. In both 2007 and
2006, these gains on sale of businesses and a gain on sale of real estate were partially offset by restructuring and other
items. Refer to Note A at the end of this overview section for additional details. Including these items, in 2007, 3M
reported record net sales of $24.462 billion and record net income of $4.096 billion, or $5.60 per diluted share,
compared with net sales of $22.923 billion and net income of $3.851 billion, or $5.06 per diluted share, in 2006. Excluding
the items in Note A in both years, the Company still achieved strong underlying operating performance, helped by a 6.7%
increase in net sales, which included the divestiture impacts discussed above that reduced sales growth by 3.8%.
The following table contains sales and operating income results by business segment for the years ended December 31,
2007 and 2006. Refer to the Performance by Business Segment section for discussion of the gain on sale of businesses,
restructuring and other items that impacted reported operating income results.
2007 vs. 2006
2007 2006 % change
(Dollars in millions) Net % of Oper. Net % of Oper. Net Oper.
Sales Total Income Sales Total Income Sales Income
Business Segments
Industrial and Transportation $ 7,274 29.7% $1,501 $ 6,640 29.0% $1,342 9.6% 11.8%
Health Care 3,968 16.2% 1,882 4,011 17.5% 1,845 (1.1)% 2.0%
Display and Graphics 3,892 15.9% 1,174 3,770 16.4% 1,044 3.2% 12.4%
Consumer and Office 3,403 13.9% 688 3,164 13.8% 629 7.6% 9.3%
Safety, Security and
Protection Services 3,070 12.6% 611 2,663 11.6% 549 15.3% 11.3%
Electro and Communications 2,775 11.3% 481 2,631 11.5% 411 5.5% 17.0%
Corporate and
Unallocated 80 0.4% (144) 44 0.2% (124)
Total Company $24,462 100% $6,193 $22,923 100% $5,696 6.7% 8.7%