3M 2007 Annual Report Download - page 31

25
results. Geographically, international growth is gaining traction, while a slowdown in the United States was driven by soft
overall U.S. retail sales and a soft residential housing environment. Approximately 60% of global sales for this segment are
in the United States. Operating income increased 9.3% and now exceeds 20% of sales.
In 2006, Consumer and Office local-currency sales growth of 7.4% was broad-based across the portfolio, led by the
construction and home improvement division, which serves the do-it-yourself retail channel. 3M also posted very good
sales growth in the mass retail channel and continued to penetrate large key accounts, primarily in the United States,
with an array of unique, highly functional products featuring customer-inspired designs. Operating income was
$629 million, up 3.4% year on year. 3M experienced slower sales growth in the construction and home improvement
market in the fourth quarter of 2006, impacted by a housing slowdown in the United States.
Safety, Security and Protection Services Business (12.6% of consolidated sales):
2007 2006 2005
Sales (millions) $3,070 $2,663 $2,320
Sales change analysis:
Local currency (volume and price) 10.8% 13.7% 6.8%
Translation 4.5 1.1 1.0
Total sales change 15.3% 14.8% 7.8%
Operating income (millions) $ 611 $ 549 $ 513
Percent change 11.3% 7.1% 14.3%
Percent of sales 19.9% 20.6% 22.1%
The Safety, Security and Protection Services segment serves a broad range of markets that increase the safety, security
and productivity of workers, facilities and systems. Major product offerings include personal protection products, safety and
security products, energy control products, cleaning and protection products for commercial establishments, roofing
granules for asphalt shingles, and supply chain execution software solutions. In August 2006, 3M completed the
acquisition of Security Printing and Systems Limited, a producer of finished, personalized passports and secure cards,
which expands the 3M product line related to border and civil security solutions. 3M’s new emerging business
opportunity in its Track and Trace initiative within 3M’s Safety, Security and Protection Services segment resulted in the
merging of a number of formerly separate efforts into one concerted effort for future growth. Track and Trace has a growing
array of applications – from tracking packages to managing medical and legal records.
In 2007, local-currency sales in the Safety, Security and Protection Services segment were up 10.8%. Acquisitions
contributed 7.4 percentage points of this growth, including a carry-over benefit from the August 2006 acquisition of Security
Printing and Systems Limited. In addition, during 2007 3M closed two small, but strategic, gap-filling acquisitions. These
included E. Wood, a U.K.-based provider of corrosion protection products and Rochford Thompson, a manufacturer of
optical character recognition passport readers used by airlines and immigration authorities. Sales growth was led by
the respiratory protection business, followed by the security systems, corrosion protection and building and commercial
services businesses. 2007 sales growth was held back by market softness in the U.S. residential construction market,
which negatively impacted the roofing granules business. The decline in the roofing granules business reduced Safety,
Security and Protection Services 2007 sales growth by approximately 1.5%. Geographically, sales growth was led by
Europe and the combined Latin America and Canada area. This segment recorded a restructuring charge of $29 million in
the second quarter of 2007 related to the phase-out of operations at its New Jersey roofing granule facility. This
included fixed asset impairments and employee-related restructuring liabilities. Including this charge, operating income
margins were approximately 20% for total year 2007.
In 2006, local-currency sales in the Safety, Security and Protection Services business were up 13.7%. Growth in the
business was driven by strong global demand for personal safety products, especially respiratory protection.
Acquisitions contributed 4.1% of growth, primarily due to the Security Printing and Systems Limited acquisition in
August 2006. 3M continued to invest in additional respirator capacity, such as a new respirator manufacturing facility
in Korea, which will serve the Asia Pacific region. 3M also posted outstanding growth in corrosion protection, a smaller
but growing business, which supplies coatings for all types of commercial and industrial applications in a variety of
industries. 3M’s roofing granules business experienced a challenging fourth quarter, with a sales decline of nearly
50%, resulting in sales in this business declining nearly 10% when comparing total year 2006 with 2005.
Geographically, local-currency growth was positive across all regions of the world, led by Europe and the United States.
Operating income increased 7.1% to $549 million in 2006. Operating income includes $10 million in restructuring
expenses, primarily severance and related benefits, which negatively impacted operating income growth by 1.9%.