3M 2007 Annual Report Download - page 32

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26
Electro and Communications Business (11.3% of consolidated sales):
2007 2006 2005
Sales (millions) $2,775 $2,631 $2,509
Sales change analysis:
Local currency (volume and price) 2.3% 4.0% 1.5%
Translation 3.2 0.8 0.7
Total sales change 5.5% 4.8% 2.2%
Operating income (millions) $ 481 $ 411 $ 422
Percent change 17.0% (2.6)% 40.7%
Percent of sales 17.3% 15.6% 16.8%
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; with products that enable the efficient transmission of electrical power and
speed the delivery of information and ideas. Products include electronic and interconnect solutions, micro interconnect
systems, high-performance fluids, high-temperature and display tapes, telecommunications products, electrical products,
and visual systems products.
In 2007, the Electro and Communications segment local-currency sales increased 2.3%, including 1.5 percentage points
from acquisitions. Strong sales growth in the communications and electrical markets businesses was partially offset by the
flexible circuits business, which supplies components primarily to the ink jet printer market. This business continues to
penalize segment results as the ink jet market has become commoditized and as a number of applications go end-of-life.
Softness in this business held back overall Electro and Communications sales and operating income growth by 2.5 percent
and 9.3 percent, respectively. Operating income increased 17% as this segment has driven productivity improvements and
taken actions to improve its competitiveness. Operating income in 2007 was penalized by a $23 million charge related to
consolidating its global flexible circuits manufacturing operations and $18 million in restructuring expenses, primarily for
asset impairment charges related to the Company’s decision to close a facility in Wisconsin. Combined, these two items
negatively impacted 2007 operating income by $41 million and operating income margins by 1.5 percentage points.
In 2006, the Electro and Communications business organic local-currency growth of 2.7% was attributable to the
electrical and electronics markets. Acquisitions contributed 1.3 percentage points 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 saw 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 3M’s U.S. communications markets business due to higher copper costs and a decline in 3M’s
visual systems business, which traditionally offered analog overhead and electronic projectors and film. Operating
income declined by 2.6% to $411 million. Operating income included $46 million in restructuring expenses, primarily
comprised of asset impairments and severance and related benefits, which negatively impacted operating income
growth by 10.9%. Operating margins were impacted by rising raw material costs, specifically copper costs, in 3M’s
electrical and telecommunications markets businesses.