3M 2007 Annual Report Download - page 19

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In 2007, worldwide total sales increased 6.7%. Local-currency sales growth (which includes volume, selling price and
acquisition impacts, but excludes divestiture and translation impacts) was 7.3%, with organic local-currency growth of
4.9% (including 0.7% benefit from pharmaceuticals supply agreements) and acquisitions adding 2.4%. Divestitures,
primarily the sale of the global branded pharmaceuticals business (Health Care segment), decreased worldwide sales
growth by 3.8%. The sale of the pharmaceuticals business is not presented as a discontinued operation due to the extent
of the projected continuing cash flows from 3M’s contractual supply relationship with the buyers in relation to those of the
business that was sold.
The breadth of 3M’s product lines was evident during 2007 as the Company experienced solid sales growth across
the portfolio. Health Care led all segments with local-currency sales growth of 18.3% (excluding divestitures). This
includes a 4.4% benefit from acquisitions and 4.5% benefit due to the pharmaceuticals supply agreements. The sale of
3M’s global branded pharmaceuticals business reduced Health Care sales growth by 23.7%. Local-currency sales
increased 10.8% in Safety, Security and Protection Services, including 7.4% from numerous acquisitions. Local-
currency sales increased 5.8% in Industrial and Transportation, 5.0% in Consumer and Office, 2.3% in Electro and
Communications, and 1.8% (excluding the impact of the Opticom/Canoga divestiture) in Display and Graphics. While
3M experienced broad-based sales growth, there was softness in certain markets in 2007. Within Display and
Graphics, optical film sales increased slightly year-on-year, but 3M experienced an attachment rate loss in LCD
desktop monitors and LCD TV segments, particularly in the second half of 2007, as competition continued to intensify
in this market. 3M also experienced weakness in its roofing granules business for residential asphalt shingles and in
its electronic solutions business due to softness in certain segments of the consumer electronics market. Refer to the
section entitled Performance by Business Segment for a more detailed discussion of the results of the respective
segments.
Geographically, the European region (which includes Europe, Middle East and Africa) led local-currency sales growth
in 2007, with an increase of 11.7%, 7.4% of which was organic (excluding acquisitions, divestiture and translation
impacts). Sales growth in Europe was led by Safety, Security and Protection Services and Health Care (without
Pharmaceuticals). The combined Latin America and Canada area local-currency sales increased 10.6%, of which
9.6% was organic, with growth led by Industrial and Transportation, Safety, Security and Protection Services and
Health Care (without Pharmaceuticals). Asia Pacific local-currency sales increased 4.9%, of which 4.5% was organic,
with all six business segments contributing to this increase. United States local-currency sales increased 5.7%, of
which 2.6% was organic. Organic volume growth in the U.S. was led by Health Care (without Pharmaceuticals) and
Industrial and Transportation, which was partially offset by softness in the electronic solutions business and weakness
in a few businesses that are impacted by the slowdown in the U.S. housing, road construction and mass retail
markets, primarily the roofing granules, protective materials, traffic safety and office supply businesses. Divestitures,
primarily the sale of the global branded pharmaceuticals business, reduced sales in Europe by 6.6%, in the United
States by 4.2%, in the combined Latin America and Canada area by 2.8%, and in Asia Pacific by 1.3%. Currency
effects increased total international sales by 5.2%, with Europe positively impacted by 8.5%, the combined Latin
America and Canada area by 5.9%, and Asia Pacific by 2.0%, as the U.S. dollar weakened in aggregate against the
multitude of currencies in these geographic areas.
Operating income for 2007 increased 8.7% year-on-year, including a net 2.2 percentage point benefit from the impact of
items discussed in Note A below. Operating income margins were approximately 25% in both 2007 and 2006, with items
in Note A positively impacting these margins in both years by approximately 2.5 percentage points.
3M generated $4.275 billion of operating cash flows in 2007, an increase of $436 million compared to 2006. In 2007,
the Company utilized $4.619 billion of cash to repurchase 3M common stock and pay dividends, compared to $3.727
billion in 2006. In February 2007, 3M’s Board of Directors authorized a two-year share repurchase of up to $7.0 billion
for the period from February 12, 2007 to February 28, 2009. As of December 31, 2007, approximately $4.1 billion
remained available for repurchase. In February 2008, 3M’s Board authorized a dividend increase of 4.2% for 2008,
marking the 50th consecutive year of dividend increases for 3M. 3M’s debt to total capital ratio (total capital defined as
debt plus equity) as of December 31, 2007 was 30%. 3M has an AA credit rating from Standard & Poor’s, with a
stable outlook, and an Aa1 credit rating from Moody’s Investors Service, with a negative outlook. The Company has
sufficient access to capital markets to meet currently anticipated growth and acquisition investment funding needs.
In 2007, the Company experienced cost increases affecting metals, wood pulp and oil-derived raw materials. Costs
for these materials have remained high throughout the year, and 3M would expect this level to carry over into early
2008, with some moderation occurring later in the year. To date the Company is receiving sufficient quantities of all
raw materials to meet its reasonably foreseeable production requirements. It is impossible to predict future shortages
of raw materials or the impact any such shortages would have. 3M has avoided disruption to its manufacturing
operations through careful management of existing raw material inventories and development and qualification of
additional supply sources. 3M manages commodity price risks through negotiated supply contracts, price protection
agreements and forward physical contracts.