3M 2007 Annual Report Download - page 28

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operating income gain related to this sale, which is included in Health Care, totaled $1.074 billion. In addition, as discussed
in Note 4, the Health Care segment for the year 2006 included $293 million in restructuring costs, primarily employee-
related severance and benefit costs. Of the $293 million, $166 million was related to the pharmaceuticals business
and $15 million related to Health Care severance and other costs. In addition, $112 million of severance and benefit
costs were recorded in the fourth quarter of 2006 related to worldwide staff overhead reduction actions taken to
streamline the Company's cost structure in response to the sale of 3M’s branded pharmaceuticals business. Health
Care also included $95 million of expensed in-process research and development costs related to the Brontes
acquisition and $13 million in environmental reserves related to the pharmaceuticals business.
3M believes the following disaggregated information for 3M Health Care’s remaining businesses (without pharmaceuticals)
and for pharmaceuticals on a stand-alone basis provides useful information.
Health Care Business without Pharmaceuticals:
2007 2006 2005
Sales (millions) $3,968 $3,237 $2,963
Sales change analysis:
Local currency (volume and price) 18.3% 8.5% 5.3%
Translation 4.3 0.7 0.4
Total sales change 22.6% 9.2% 5.7%
Operating income (millions) $1,08
6
$ 806 $ 888
Percent change 34.6% (9.1)% 14.0%
Percent of sales 27.4% 24.9% 30.0%
The following discussion provides information on 3M Health Care’s remaining businesses (without pharmaceuticals).
In 2007, sales growth was broad-based across all platforms, led by infection prevention solutions and skin and wound
care therapy products in medical, HFA-based components (non-CFC) for drug inhalers in drug delivery, and healthcare
funding and performance management solutions for the hospital market in health information systems. Geographically,
Health Care (without pharmaceuticals) achieved strong growth rates in all major regions, led by Europe, the United
States, and the combined Latin America and Canada area. Local-currency sales increased 18.3%, with acquisitions
contributing 4.4 percentage points of this growth. Much of the acquisition growth came from two deals that closed in late
2006 – Biotrace International, PLC, a U.K.-based provider of microbiology products, and SoftMed, a Maryland-based
provider of health information software solutions. Health Care also closed five complementary acquisitions in 2007 to
strengthen the portfolio and accelerate growth into the future in the medical, oral care and health information systems
businesses. Sales growth also included 4.5 percentage points of growth due to supply agreements related to the sale of
the global branded pharmaceuticals business. Operating income increased 34.6%, with an operating income margin of
27.4%. Operating income for 2007 included $5 million in restructuring expenses, primarily severance and related
benefits.
In 2006, sales were $3.237 billion. Organic local-currency growth was 7.4%, with acquisitions adding an additional
1.1% of growth. Local-currency growth was led by the medical supplies and dental businesses. Geographically, local-
currency sales growth was strongest in the United States, Europe and Asia Pacific areas. Operating income for 2006
included $95 million of expensed in-process research and development costs related to the Brontes acquisition and
also included business-specific restructuring actions that totaled $15 million, primarily comprised of severance and
related benefits plus asset impairments. Including this combined operating income penalty of $110 million, or 12.4
percentage point negative impact on operating income growth, 2006 operating income decreased 9.1%.