3M 2008 Annual Report Download - page 23

17
2008 Restructuring and Other Summary
Loss
Gain
on sale
Restructuring Exit on sale of of real
(Millions) actions activities businesses estate Total
Cost of sales................................................. $ 84 $ 38 $ — $ — $ 122
Selling, general and administrative expenses 135 17 — (41 ) 111
Research, development and related expenses 10 3 — — 13
Loss on sale of businesses .......................... — — 23 — 23
Total operating income penalty (benefit)...... $ 229 $ 58 $ 23 $ (41 ) $ 269
2007 Gain on Sale, Restructuring and Other Summary
Gain on Environ- Restructuring
Gain
on sale
Sale of mental and exit of real
(Millions) businesses liabilities activities estate Total
Cost of sales................................................. $ — $ — $ 64 $ — $ 64
Selling, general and administrative expenses — 134 26 (52 ) 108
Research, development and related expenses — — (4 )— (4)
Gain on sale of businesses .......................... (849 ) — — — (849 )
Total operating income penalty (benefit)...... $ (849 ) $ 134 $ 86 $ (52 ) $ (681 )
2006 Gain on Sale, Restructuring and Other Summary
Gain on sale of Pharmaceuticals Overhead Business Total
pharmaceuticals restructuring reduction specific restructuring
(Millions) business actions actions actions actions Other Total
Cost of sales..................... $ — $ 32 $ 24 $ 74 $ 130 $ 13 $ 143
Selling, general and
administrative expenses — 66 81 51 198 40 238
Research, development and
related expenses .......... — 68 7 — 75 95 170
Gain on sale of businesses (1,074 ) — — — — — (1,074 )
Total operating income
penalty (benefit)............ $ (1,074 ) $ 166 $ 112 $ 125 $ 403 $ 148 $ (523 )
Cost of Sales:
Cost of sales includes manufacturing, engineering and freight costs. Cost of sales as a percent of net sales
increased 0.8 percentage points in 2008 compared to 2007, with this increase primarily due to the decline in Optical
Systems sales and the rapid volume declines of certain other businesses in the fourth quarter. For the majority of the
year 3M’s broad-based portfolio performed as expected, with benefits from selling price increases, foreign currency
translation, and a continuous focus on driving operational excellence, helping to offset raw material inflation of
approximately 4 percent for 2008, compared with 2007. In 2008, restructuring and exit costs increased cost of sales
by $122 million, or 0.4 percentage points as a percent of net sales, similar to the 0.3 percentage point impact in
2007, as discussed below.
Cost of sales as a percent of net sales increased 1.0 percentage point in 2007 compared to 2006, with this increase
primarily due to the sale of the branded pharmaceuticals business, which had lower than average cost of sales. Raw
material costs increased approximately 1 percent in 2007, compared with 2006. In 2007, restructuring and exit costs
increased cost of sales by $64 million, or 0.3 percentage points. These charges primarily related to the consolidation
of certain flexible circuit manufacturing operations, the phaseout of operations at the Company’s New Jersey roofing
granule facility and charges related to the Company’s decision to close an Electro and Communications facility in
Wisconsin. In 2006, restructuring and other items increased cost of sales by $143 million, or 0.7 percentage points.
Selling, General and Administrative Expenses:
Selling, general and administrative (SG&A) expenses as a percent of net sales increased 0.3 percentage points in
2008 when compared to 2007, or 4.6 percent in dollars. In 2008, SG&A expenses related to restructuring actions and
exit activities were partially offset by a gain on sale of real estate, which combined increased SG&A by $111 million,
or 0.5 percentage points, similar to the 0.4 percentage point impact in 2007, as discussed below. In the fourth quarter
of 2008, as part of its restructuring program, 3M took aggressive actions to reduce general and administrative
expenses and also pared back selling and marketing costs in certain businesses.