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20
well as the abrasives businesses. 3M continues to selectively raise selling prices to offset commodity raw material price
pressures. Industrial continues to demonstrate strong operational discipline, as operating income grew 20.5% in 2005.
In 2004, Industrial local-currency sales growth of 8.2% for the year was broad-based across major geographic
areas and Industrial businesses. Acquisitions increased sales by 1.4%, driven by the February 2004 acquisition of
HighJump Software, Inc., a provider of supply chain execution software. Strong local-currency sales growth
helped leverage operating income growth. Operating income increased 43.7% to $610 million in 2004.
Display and Graphics Business (16.8% of consolidated sales):
2005 2004 2003
Sales (millions) $3,558 $3,416 $2,970
Sales change analysis:
Local currency (volume and price) 4.0% 10.5% 26.7%
Translation 0.2 4.5 6.0
Total sales change 4.2% 15.0% 32.7%
Operating income (millions) $1,159 $1,133 $ 886
Percent change 2.3% 27.9% 65.4%
Percent of sales 32.6% 33.2% 29.8%
The Display and Graphics segment serves markets that include electronic display, touch screen, traffic safety and
commercial graphics. This segment includes optical film and lens solutions for electronic displays; touch screens and
touch monitors; reflective sheeting for transportation safety; and commercial graphics systems. The optical film
business provides films that serve numerous market segments of the display lighting industry. 3M provides distinct
products for five market segments, including products for: 1) LCD computer monitors 2) LCD televisions 3)
handheld devices such as cellular phones 4) notebook PCs and 5) automotive displays. The optical business
includes a number of different products that are protected by various patents and groups of patents. The
remaining lifetimes of such patents, as well as patents protecting future products, range from less than a few years
to greater than 15 years. These patents provide varying measures of exclusivity to 3M for a number of such
products. 3M’s proprietary manufacturing technology and know-how also provide a competitive advantage to 3M
independent of such patents.
In 2005, Display and Graphics local-currency sales grew 4.0%, impacted by many factors. The first half of 2005 was
tempered by tough year-on-year optical film comparisons, while 3M’s traffic safety systems business awaited a new
highway funding bill in the U.S. and the sluggish economies in Western Europe and Japan held back growth in the
commercial graphics business. Growth rebounded in the second half of 2005 as a new U.S. highway funding bill was
passed in July, the economies in Western Europe and Japan started to experience some moderate growth and, as
expected, 3M saw acceleration in demand for consumer electronics, especially flat-panel LCD televisions and a more
normal LCD component inventory situation. This growth in the second half of 2005 drove record sales of 3M’s
proprietary optical films and components despite growing pricing pressure. Display and Graphics sales growth was
negatively impacted by approximately 4% in 2005 due to the continued decline in lens systems for the CRT rear
projection television market along with the phase out of the commercial videotape business announced in the fourth
quarter of 2004. Operating income increased 2.3% in 2005. Operating income was impacted by the commercial
videotape business phase out and decline in lens systems for the CRT rear projection television market, which
negatively impacted 2005 operating income by approximately 8%.
In 2004, Display and Graphics’ local-currency sales growth was 10.5%. Strong demand for 3M films that brighten the
displays on electronic products, such as flat-panel computer monitors, cellular phones, notebook PCs and LCD
televisions, continued to drive results in 2004. Year-on-year local-currency sales growth in the Optical Systems
business was slower in the last half of 2004, primarily due to inventory channel adjustments in the LCD market. This
resulted in reduced demand for 3M’s proprietary optical films and components. While this business is subject to
periodic customer inventory fluctuations, 3M believes that this business will continue to be a significant growth engine
for 3M. In the fourth quarter of 2004, 3M announced the phase out of its commercial videotape business, and this
action, combined with a continuing decline in lens systems for the CRT rear-projection television market, negatively
impacted sales and operating income. Operating income increased 27.9% to $1.133 billion in 2004.