3M 2007 Annual Report Download - page 27

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Operating income included $15 million in restructuring expenses, primarily comprised of asset impairments and
severance and related benefits, which negatively impacted operating income growth by 1.2%.
In March 2005, 3M’s automotive business completed the purchase of 19% of TI&M Beteiligungsgesellschaft mbH
(TI&M) for approximately $55 million. TI&M is the parent company of I&T Innovation Technology Entwicklungsund
Holding Aktiengesellschaft (I&T), an Austrian maker of flat flexible cable and circuitry. Pursuant to a Shareholders
Agreement, 3M marketed the firm's flat flexible wiring systems for automotive interior applications to the global
automotive market. I&T filed a petition for bankruptcy protection in August 2006. As part of its agreement to purchase
the shares of TI&M, the Company was granted a put option, which gave the Company the right to sell back its entire
ownership interest in TI&M to the other investors from whom 3M acquired its 19% interest. The put option became
exercisable January 1, 2007. The Company exercised the put option and recovered approximately $25 million of its
investment from one of the investors based in Belgium in February 2007. The other two TI&M investors have filed a
bankruptcy petition in Austria. The Company is pursuing recovery of the balance of its investment both through the
Austrian bankruptcy proceedings and pursuant to the terms of the Share Purchase Agreement. The Company
believes collection of its remaining investment is probable and, as a result, no impairment reserve has been recorded.
Health Care Business (16.2% of consolidated sales):
2007 2006 2005
Sales (millions) $3,968 $4,011 $3,760
Sales change analysis:
Local currency (volume and price) 18.3% 6.0% 4.2%
Divestitures (23.7) – –
Translation 4.3 0.7 0.4
Total sales change (1.1)% 6.7% 4.6%
Operating income (millions) $1,882 $1,845
$1,114
Percent change 2.0% 65.6% 14.6%
Percent of sales 47.4% 46.0% 29.6%
The Health Care segment serves markets that include medical, clinics and hospitals, pharmaceuticals, dental and
orthodontic practitioners, and health information systems. Products and services provided to these and other markets
include medical and surgical supplies, skin health and infection prevention products, drug delivery systems, dental and
orthodontic products, health information systems and microbiology solutions. As discussed in Note 2, the global branded
pharmaceuticals business was sold in December 2006 and January 2007.
In 2007, Health Care sales were $3.968 billion. Local-currency growth was 18.3% (excluding divestitures), including
4.4 percentage points of growth from acquisitions and 4.5 percentage points of growth from supply agreements
related to the sale of the global branded pharmaceuticals business. The sale of the pharmaceuticals business
reduced Health Care sales growth by 23.7%. 3M provides disaggregated information on sales growth for Health
Care’s remaining businesses (without pharmaceuticals) further below.
The combination of the following items positively impacted total year 2007 Health Care operating income by $791
million. As discussed in Note 2, in January 2007 the Company sold its branded pharmaceuticals business in the Europe
region. The operating income gain related to this sale, which is included in Health Care, totaled $781 million. In addition, as
discussed in Note 4, a net operating income gain of $10 million was recorded in 2007, which primarily related to
adjustments to restructuring costs incurred in the fourth quarter of 2006.
In 2006, Health Care sales were $4.011 billion. Organic local-currency growth was 5.3%, with acquisitions adding an
additional 0.7% of growth. Local-currency growth was led by the medical supplies and dental businesses. 3M’s
pharmaceutical business was approximately 19% of Health Care sales in 2006. Pharmaceutical local-currency sales
declined 3.5% in 2006, while the remaining businesses’ 2006 local-currency sales growth increased 8.5%.
Geographically, Health Care’s local-currency sales growth was strongest in the United States, Europe and Asia
Pacific areas. Operating income for 2006 was up 65.6%, impacted by the gain on sale of 3M’s branded
pharmaceuticals business, restructuring impacts and other items as discussed in the following paragraph, which
positively impacted operating income growth by 60.4%.
The combination of the following items positively impacted total year 2006 Health Care operating income by $673
million, primarily in the fourth quarter of 2006. As discussed in Note 2, in early December 2006, the Company sold its
branded pharmaceuticals business in the Asia Pacific region, including Australia and South Africa. The Company also sold
its branded pharmaceuticals business in the United States, Canada and Latin America in late December 2006. The