3M 2007 Annual Report Download - page 30

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In 2007, Display and Graphics local-currency sales increased 1.8%, excluding the impact of the Opticom/Canoga
business sale. The Company recorded positive sales growth in all major businesses – commercial graphics, traffic
safety systems and optical systems. Throughout the year, commercial graphics saw strong performance in the vehicle
wrapping market where 3M provides films, inks and other products for this “rolling billboard” industry. The traffic safety
systems business also experienced growth for the year, with faster growth internationally as the 3M reflective
solutions for highway construction projects are a perfect match in developing economies that are adding
infrastructure. In June 2007, 3M completed the sale of its Opticom Priority Control Systems and Canoga Traffic
Detection businesses. 3M received proceeds of $80 million from this transaction and recognized an operating income
gain of $68 million in the Display and Graphics segment in the second quarter of 2007. In addition, Display and
Graphics recorded restructuring and other exit activity expenses of $17 million in 2007. Operating income in 2007 was
$1.174 billion, including this aggregate net operating income benefit of $51 million, which contributed 1.3 percentage
points of the 30.2% operating income margin. Operating income in 2006 (as discussed below) included $39 million in
restructuring expenses. These year-on-year impacts contributed 8.7 percentage points of the reported 12.4%
operating income growth.
Optical systems continues to focus on market segmentation, with strong penetration in handhelds, computer displays and
LCD televisions. 3M continues to experience attachment rate pressure in LCD desktop monitors and LCD TV segments,
although in the fourth quarter of 2007 3M saw a mix-shift back to 1080p LCD TV’s from 720p, which impacts 3M business
as 3M films are used more heavily in the 1080p sets. 3M believes over the long term that 1080p LCD TV’s will gain an
increasing share of the overall LCD TV market. While 3M remains optimistic about the longer-term prospects for the
optical film business, continuing price and attachment rate pressure is expected in 2008. Due to this pressure, 3M
expects Display and Graphics operating income margins in 2008 to decline a few percentage points when compared to
2007 (excluding the net operating income benefit of 1.3 percentage points in 2007 discussed in the preceding
paragraph). 3M’s continued investment in this business has led to a solid stream of new products. 3M’s brightness
enhancement films provide an environmental solution through reduced energy consumption – an increasingly important
requirement from both retail customers and government units. 3M has made significant sustainable factory improvements
by relentlessly reducing costs and by adding needed capacity to secure future growth.
In 2006, the Display and Graphics business posted local-currency sales growth of 6.0%. Optical film sales volumes
increased at double-digit rates in 2006. 3M saw an acceleration in the LCD industry due to strong consumer demand
for LCD TV’s, which drove record sales of 3M’s proprietary optical films, despite ongoing downward pricing pressure
in these consumer electronic applications. Commercial Graphics, a supplier of large-format graphics solutions that cut
across a range of industries, delivered strong double-digit local-currency growth in 2006. Traffic Safety Systems also
posted solid local-currency growth. Operating income declined by 9.0%. Operating income included $39 million in
restructuring expenses, primarily comprised of asset impairments and severance and related benefits, which
negatively impacted operating income growth by 3.4%. These asset impairments relate to decisions the Company
made in the fourth quarter of 2006 to exit certain marginal product lines in the Touch Systems and Optical Systems
businesses. In optical film, selling price declines, the sales mix shift towards larger LCD displays, and operational
challenges related to the Company’s new optical film manufacturing production line penalized operating income in
2006.
Consumer and Office Business (13.9% of consolidated sales):
2007 2006 2005
Sales (millions) $3,403 $3,164 $2,926
Sales change analysis:
Local currency (volume and price) 5.0% 7.4% 6.1%
Translation 2.6 0.7 1.0
Total sales change 7.6% 8.1% 7.1%
Operating income (millions) $ 68
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$ 629 $ 609
Percent change 9.3% 3.4% 9.4%
Percent of sales 20.2% 19.9% 20.8%
The Consumer and Office segment serves markets that include consumer retail, office retail, home improvement, building
maintenance and other markets. Products in this segment include office supply products, stationery products, construction
and home improvement products, home care products, protective material products and consumer health care products.
In 2007, Consumer and Office experienced broad-based local-currency sales growth of 5.0%, led by the construction and
home improvement and home cleaning businesses. In construction and home improvement, products such as Scotch™
Blue Painter’s Tape, Filtrete™ home furnace filters and Command™ mounting and fastening products, helped drive