3M 2005 Annual Report Download - page 57

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31
third party patents or other intellectual property. While 3M’s maximum exposure under these indemnification
provisions cannot be estimated, these indemnifications are not expected to have a material impact on the
Company’s consolidated financial position or results of operations.
A summary of the Company’s significant contractual obligations as of December 31, 2005, follows:
Contractual Obligations Payments due by year
After
(Millions) Total 2006 2007 2008 2009 2010 2010
Long-term debt, including
current portion (Note 8) $1,801 $492 $622 $ 85 $ 44 $ 0 $ 558
Interest on long-term debt 882 83 56 39 35 33 636
Operating leases (Note 11) 362 79 61 46 27 21 128
Capital leases (Note 11) 71 5 4 4 4 4 50
Unconditional purchase obligations 370 160 78 44 25 19 44
Total contractual cash obligations $3,486 $819 $821 $218 $135 $77 $1,41
6
Long-term debt payments due in 2006 include $350 million of dealer remarketable securities (final maturity 2010)
and $62 million of medium-term notes (final maturity 2044). These securities are classified as current portion of
long-term debt as the result of put provisions associated with these debt instruments. The next date on which
investors can require repurchase of the Convertible Notes is 2007, thus in the above schedule this is considered
due in 2007 (final maturity 2032).
Unconditional purchase obligations are defined as an agreement to purchase goods or services that is
enforceable and legally binding on the Company. Included in the unconditional purchase obligations category
above are certain obligations related to take or pay contracts, capital commitments, service agreements and
utilities. These estimates include both unconditional purchase obligations with terms in excess of one year and
normal ongoing purchase obligations with terms of less than one year. Many of these commitments relate to take
or pay contracts, in which 3M guarantees payment to ensure availability of products or services that are sold to
customers. The Company expects to receive consideration (products or services) for these unconditional
purchase obligations. The purchase obligation amounts do not represent the entire anticipated purchases in the
future, but represent only those items for which the Company is contractually obligated. The majority of 3M’s
products and services are purchased as needed, with no unconditional commitment. For this reason, these
amounts will not provide a reliable indicator of the Company’s expected future cash outflows on a stand-alone
basis.
As discussed in Note 10 to the Consolidated Financial Statements, the Company does not have a required minimum
pension contribution obligation for its U.S. plans in 2006. Thus, Company contributions to its U.S. and international
pension plans are expected to be largely discretionary in 2006 and future years. Contractual capital commitments are
also included in the preceding table, but these commitments represent a small part of the Company’s expected
capital spending in 2006 and beyond.
FINANCIAL INSTRUMENTS
The Company enters into contractual derivative arrangements in the ordinary course of business to manage foreign
currency exposure, interest rate risks and commodity price risks. A financial risk management committee, composed
of senior management, provides oversight for risk management and derivative activities. This committee determines
the Company’s financial risk policies and objectives, and provides guidelines for derivative instrument utilization. This
committee also establishes procedures for control and valuation, risk analysis, counterparty credit approval, and
ongoing monitoring and reporting.
The Company enters into foreign exchange forward contracts, options and swaps to hedge against the effect of
exchange rate fluctuations on cash flows denominated in foreign currencies and certain intercompany financing
transactions. In 2001, the Company increased the amount and duration of its foreign currency hedges to help lessen
year-over-year impacts and to improve the predictability of future earnings. However, this hedging program does not
make 3M immune to currency impacts.
The Company manages interest rate risks using a mix of fixed and floating rate debt. To help manage borrowing
costs, the Company may enter into interest rate swaps. Under these arrangements, the Company agrees to