for certain of the Company’s long-term assets. The fair value of these obligations is recorded as liabilities on a discounted basis.  Over time the liabilities are accreted for the change in the present value and the initial capitalized costs are depreciated over the useful lives of the related assets.  The adoption of FIN 47 resulted in the recognition of an asset retirement obligation liability of $59 million and an after tax charge of $35 million, which is reflected as a cumulative change in accounting principle in the Consolidated Statement of Income. The pro forma effect of applying this guidance in all prior periods presented was determined not to be material.



Currency Effects:

3M estimates that year-on-year currency effects, including hedging impacts, increased net income by approximately $115 million in 2005, $181 million in 2004 and $73 million in 2003. This estimate includes the effect of translating profits from local currencies into U.S. dollars; the impact of currency fluctuations on the transfer of goods between 3M operations in the United States and abroad; and transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risks.  3M estimates that year-on-year derivative and other transaction gains and losses increased net income by approximately $50 million for 2005 and $48 million in 2004. 3M estimates that year-on-year derivative and other transaction gains and losses decreased net income by $73 million in 2003.

 

PERFORMANCE BY BUSINESS SEGMENT

Effective January 1, 2006, 3M combined its Industrial and Transportation business segments. This new segment will leverage common markets, sales channels and customers, technologies, manufacturing facilities and selling processes. This combination will provide additional efficiencies that will be reinvested in growth. The results for the new Industrial and Transportation segment can be approximated by combining the existing Industrial and Transportation segments. In addition, during the first quarter of 2006, the Personal Care Division (2005 annual sales of approximately $600 million) within the Health Care segment transferred to the combined Industrial and Transportation segment. Segment information for all periods presented will be reclassified in 2006 to reflect the combined Industrial and Transportation segment in addition to the transfer of the Personal Care Division.

 

Disclosures relating to 3M’s business segments are provided in Item 1, Business Segments. Financial information and other disclosures are provided in the Notes to the Consolidated Financial Statements. In 2005, 3M managed its operations in seven operating business segments: Health Care; Industrial; Display and Graphics; Consumer and Office; Electro and Communications; Safety, Security and Protection Services; and Transportation. Information related to 3M’s business segments is presented in the tables that follow. Local-currency sales (which include both core and acquisition volume impacts, plus price impacts) are provided for each segment. The translation impact and total sales change are also provided for each segment.

 

Health Care Business (20.7%