3M 2008 Annual Report Download - page 31

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25
Safety, Security and Protection Services Business (14.4% of consolidated sales):
2008 2007 2006
Sales (millions)...................................... $ 3,642 $ 3,070 $ 2,663
Sales change analysis:
Local currency (volume and price). 18.3 % 10.8 % 13.7 %
Divestitures .................................... (1.7 ) — —
Translation ..................................... 2.0 4.5 1.1
Total sales change............................. 18.6 % 15.3 % 14.8 %
Operating income (millions) .................. $ 736 $ 611 $ 549
Percent change.................................. 20.4 % 11.3 % 7.1 %
Percent of sales ................................. 20.2 % 19.9 % 20.6 %
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 (including border and civil security solutions), energy control products,
cleaning and protection products for commercial establishments, track and trace solutions, and roofing granules for
asphalt shingles. In the second quarter of 2008, 3M completed the sale of its HighJump Software business which
provided supply chain execution software solutions. 3M’s Track and Trace Solutions utilizes radio frequency
identification (RFID) technology to provide a growing array of solutions — from library patron self-checkout systems
to tracking packages.
In the fourth quarter of 2008, sales in this business rose 2.9 percent to $769 million. Local-currency sales increased
13 percent, driven by 3M’s 2008 acquisition of Aearo Technologies. Acquisitions contributed approximately 16
percentage points of growth in the fourth quarter. On a geographic basis, sales for the quarter were strongest in the
United States, followed by the Asia Pacific region. Operating income in the fourth quarter declined 12.8 percent,
which included $12 million in restructuring expenses.
Full-year 2008 sales increased 18.6 percent. In local-currency terms, sales rose approximately 18 percent,
comprised of 14 points from acquisitions and 2 points each from organic volumes and selling price increases. Sales
growth was led by acquisitions, primarily Aearo, along with organic growth in personal protection solutions, protective
window films, and cleaning solutions for commercial buildings, and RFID solutions (Track and Trace). Aearo,
acquired in April 2008, manufactures and sells personal protection and energy absorbing products. Aearo expanded
3M’s platform by adding hearing protection as well as eyewear and fall protection product lines to 3M’s existing line
of respiratory products. In July 2008, 3M acquired Quest Technologies Inc., a manufacturer of environmental
monitoring equipment, including noise, heat stress and vibration monitors. The sale of HighJump Software
(discussed below) resulted in a 1.7 percentage point penalty to full-year sales. Worldwide operating income was up
20.4 percent to $736 million.
In 2008, 3M announced and completed the sale of its HighJump Software business and recognized a pre-tax loss of
$23 million in the second quarter of 2008. In addition, 3M recorded restructuring charges and exit activities that
totaled $15 million in 2008. Including the preceding 2008 items, operating income margins were in excess of 20
percent for 2008. In the second quarter of 2007, 3M recorded a restructuring charge of $29 million related to the
phaseout of operations at its New Jersey roofing granule facility. This included fixed asset impairments and
employee-related restructuring liabilities.
In 2007, local-currency sales in the Safety, Security and Protection Services segment were up 10.8 percent.
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. 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 percent. 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 phaseout 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 percent for total year 2007. In 2006, operating income includes $10 million in
restructuring expenses, primarily severance and related benefits.