segment and Electro and Communications segment were impacted the most by business-specific restructuring actions (Note 4 and business segment discussion). 3M’s operating income margins remained at healthy levels, even after adjusting for net gains related to the branded pharmaceuticals sale, restructuring and other items.

For the year 2006, the Company utilized $3.7 billion of cash to repurchase 3M common stock and pay dividends. In August 2006, 3M’s Board of Directors authorized an additional $1 billion in share repurchases of the Company’s stock, raising the total authorization to $3 billion between February 13, 2006 and February 28, 2007. As of December 31, 2006, $748 million remained available for repurchases. In February 2007, 3M’s Board authorized a dividend increase of 4.3% to 48 cents per share, equivalent to an annual dividend of $1.92 per share for 2007, marking the 49th consecutive year of dividend increases, and also approved a $7 billion two-year share repurchase authorization for the period from February 12, 2007 to February 28, 2009. 3M’s debt to total capital ratio (total capital defined as debt plus equity) as of December 31, 2006 was 26%. 3M has an AA credit rating from Standard & Poor’s and an Aa1 credit rating from Moody’s Investors Service.

In 2006, the Company experienced price increases affecting metals, wood pulp and oil-derived raw materials. During the fourth quarter of 2006 total market demand for metals and oil-derived raw materials began to soften and the Company is therefore pursuing price reductions for those commodities. The Company to date is receiving sufficient quantities of all raw materials to meet its reasonably foreseeable production requirements, but it is impossible to predict future shortages of raw materials or the impact any such shortages would have.  3M manages commodity price risks through negotiated supply contracts, price protection agreements and forward physical contracts. Fluctuations in foreign currency exchange rates also impact results, although the Company minimizes this effect through hedging about half of this impact. 3M continued, as it has for many years, to incur expenses (insured and uninsured) in managing its litigation and environmental contingencies.

The sale of the pharmaceuticals business is not presented as a discontinued operation due to the extent of the projected continuing cash flows from our contractual supply relationship with the buyers in relation to those of the business that was sold. Therefore, it will create both a sales and profitability comparability issue beginning with first quarter 2007 results. Annual sales in 2006 for pharmaceuticals were $774 million, and reported operating income was $1.039 billion, including net gains of $783 million as discussed in the “Pharmaceuticals Business” discussion that follows. Sales growth in 2007 will be negatively impacted as these pharmaceutical sales are in the base 2006 period. 3M’s Drug Delivery Systems Division will be a source of supply to the acquiring companies, with expected annual revenues of approximately $100 million from the various arrangements with the three buyers. Such outsourcing arrangements involve a