3M 2006 Annual Report Download - page 52

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increased more than 20% in 2006. The increase in 2005 compared with 2004 of approximately 3,000 people was
primarily attributable to the August 2005 acquisition of CUNO, which added approximately 2,300 employees.
Employment increases at a manufacturing plant in Latin America also contributed to increases of approximately
600 people and 700 people in 2006 and 2005, respectively. Sales per employee in local currencies increased 7.7% in
2006, approximately 3% in 2005 and approximately 7% in 2004.
Capital Spending/Net Property, Plant and Equipment:
The bulk of 3M capital spending historically has been in the United States, resulting in higher net property, plant and
equipment balances in the United States. The Company is striving to more closely align its manufacturing and sourcing
with geographic market sales, and because more than 60% of sales are outside the United States, this would increase
production outside the United States, helping to improve customer service and reduce working capital requirements.
majority of this spending is aimed directly at accelerating top-line growth in many of our core businesses. 3M has about
15 significant plant construction projects under way, some adding to existing facilities and a few of the greenfield variety.
Internationally, 3M is building respiratory protection capacity in Russia and Korea, medical products capacity in China, an
CRITICAL ACCOUNTING ESTIMATES
Information regarding significant accounting policies is included in Note 1. As stated in Note 1, the preparation of financial
statements requires management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its
estimates on historical experience and on various assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates.
The Company believes its most critical accounting estimaWHVUHODWHWROHJDOSURFHHGLQJVWKH&RPSDQ\¶VSHQVLRQDQG
postretirement obligations, and asset impairments. Senior management has discussed the development, selection and
disclosure of its critical accounting estimates withWKH$XGLW&RPPLWWHHRI0¶V%RDUGRI'LUHFWRUV
Legal Proceedings:
The categories of claims for which the Company has estimated its probable liability, the amount of its liability accruals,
and the estimates of its related insurance receivables are critical accounting estimates related to legal proceedings.
Please refer to the section entitlHG³$FFUXHG/LDELOLWLHVDQG,QVXUDQFH5HFHLYDEOHV5HODWHGWR/HJDO3URFHHGLQJV´
FRQWDLQHGLQ³/HJDO3URFHHGLQJV´LQ1RWHIRUadditional information about such estimates.
Pension and Postretirement Obligations:
3M has various company-sponsored retirement plans covering substantially all U.S. employees and many employees
outside the United States. The Company accounts for its defined benefit pension and postretirement health care and
life insurance benefit plans in accordance with StatemHQWRI)LQDQFLDO$FFRXQWLQJ6WDQGDUGV6)$61R
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3HQVLRQV´LQPHDVXULQJSODQDVVHWVDQGEHQHILWREOLJDWLons and in determining the amount of net periodic benefit
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defined benefit postretirement plan as an asset or liability in its statement of financial position and recognize changes
in the funded status in the year in which the changes occur through accumulated other comprehensive income, which
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an after-tax decrease in accumulated other comprehensivHLQFRPHRIELOOLRQDQGPLOOLRQIRUWKH86DQG
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benefit plan.
Pension benefits associated with these plans are generally based primarily on eacKSDUWLFLSDQW¶V\HDUVRIVHUYLFH
compensation, and age at retirement or termination. Two critical assumptions, the discount rate and the expected
return on plan assets, are important elements of expense and liability measurement. The assumed health care trend
rate is the most significant postretirement health care assumption. See Note 11 for additional discussion of actuarial
assumptions used in determining pension and postretirement health care liabilities and expenses.
The Company determines the discount rate used to measure SODQOLDELOLWLHVDVRIWKH'HFHPEHUPHDVXUHPHQWGDWH
for the U.S. pension and postretirement benefit plans. The discount rate reflects the current rate at which the
associated liabilities could be effectively settled at the end of the year. In estimating this rate, the Company looks at
few. This is backed up by similar investments in the U.S.
/&'ILOPSODQWLQ3RODQGDEUDVLYHVDQGWDSHFDSDFLW\LQ&KLQDDQG,QGLa, and chemical facilities in China, just to name a
Capital expenditures are expected to increase from $1.ELOOLRQLQWRELOOLRQWRELOOLRQLQ7KH