3M 2006 Annual Report Download - page 50

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$2.621 billion. Growth in the business continues to be driven by strong global demand for personal safety products,
especially respiratory protection. Acquisitions contributed 4.0% of growth, primarily due to the Security Printing and
Systems Limited acquisition in August 2006. 3M continues to invest in additional respirator capacity, such as a new
commercial and industrial applications in a variety of iQGXVWULHV0¶VURRILQJJUDQXOHVEXVLQHVVH[SHULHQFHGD
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 7.0% to $575 million in 2006. Operating
LQFRPHLQFOXGHVPLOOLRQLQUHVWUXFWXULQJH[SHQVHVSUimarily severance and related benefits, which negatively
impacted operating income growth by 1.9%.
In 2005, Safety, Security and Protection Services local-currency sales growth was 6.9%, driven by broad-based growth
across the business portfolio and geographies. The continued global threat posed by terrorism, natural disasters, SARS
and Avian flu helped raise the awareness in the general public about the importance of personal protective equipment,
especially respiratory protection for overall health. Sales growth was driven by continued strong global demand for
personal protection products and solutions, particularly respiratory protection products, along with strong demand for
cleaning and protection products for commercial buildings. Roofing granules for asphalt shingles also showed solid sales
growth. Operating income improved 15.4% in 2005.
Electro and Communications Business (10.8% of consolidated sales):
2006 2005 2004
Sales (millions) $2,483 $2,333 $2,224
Sales change analysis:
Local currency (volume and price) 5.6% 4.2% 2.7%
Translation 0.8 0.7 3.1
Total sales change 6.4% 4.9% 5.8%
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Operating income (millions) $ 438 $ 447 $ 316
Percent change (2.1)% 41.5% 18.6%
Percent of sales 17.6% 19.2% 14.2%
The Electro and Communications segment serves the electrical, electronics and communications industries, including
electrical utilities; electrical construction, maintenance and repair; OEM electrical and electronics; computers and
peripherals; consumer electronics; telecommunications central office, outside plant and enterprise; as well as aerospace,
military, automotive and medical markets. This segment provides products that enable the efficient transmission of
electrical power and speed the delivery of information and ideas. Products include electronic and interconnect solutions,
microinterconnect systems, high-performance fluids, high-temperature and display tapes, telecommunications products
and electrical products.
In 2006, the Electro and Communications business posted sales of $2.483 billion. Organic local-currency growth for
2006 of 4.2% was attributable to the electrical and electronics markets. Acquisitions contributed 1.4% to sales growth.
3M generated good top-line growth in its electrical markets division, which sells a number of insulating, testing and
connecting products and solutions to both power utilities and manufacturing OEMs. 3M also continues to see good
growth from its electronics markets business, driven by double-digit growth in its semi-conductor and assemblies
business. Partially offsetting this was some sales softness in our U.S. communications markets business due to
higher copper costs. Operating income declined by 2.1% to $438 million. Operating income includes $46 million in
UHVWUXFWXULQJH[SHQVHVSULPDULO\FRPSULVHGRIDVVHt impairments and severance and related benefits, which
negatively impacted operating income growth by 10.3%. Operating margins continue to be impacted by rising raw
material costs, specifically copper costs, in our electrical and telecommunications markets businesses.
In 2005, local-currency sales in Electro and Communications increased 4.2%, with improving end market conditions and
VXFFHVVLQGHYHORSLQJQHZDSSOLFDWLRQVIRUH[LVWLQJSURGXFWVLQto new applications helping the business post its best local-
currency growth since 2000. Local-currency growth accelerated in the second half of 2005, with local-currency growth in
the fourth quarter of 2005 up 10.9%. Local-currency growth was led by demand for 3M electronic products from
semiconductor manufacturers, along with continued strong growth in electrical products used for insulating, testing and
sensing. This strong sales growth helped offset weakness in the electronic solutions and communications markets.
Operating margins were 19.2% in 2005, with operating income increasing 41.5% in 2005.
In 2006, local-currency sales in the Safety, Security and Protection Services business were up 13.2% to
growth in corrosion protection products, a smaller but growing business, which supplies coatings for all types of
respirator manufacturing facility in Korea, which will serve the Asia Pacific region. 3M also posted outstanding