3M 2006 Annual Report Download - page 58

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In addition to guarantees, 3M, in the normal course of business, periodically enters into agreements that require 3M to
indemnify either major customers or suppliers for specific risks, such as claims for injury or property damage arising
out of the use of 3M products or the negligence of 3M personnel, or claims alleging that 3M products infringe third
SDUW\SDWHQWVRURWKHULQWHOOHFWXDOSURSHUW\:KLOH0¶Vmaximum exposure under these indemnification provisions
cannot be estimated, these indemnifications are not H[SHFWHGWRKDYHDPDWHULDOLPSDFWRQWKH&RPSDQ\¶V
consolidated financial position or results of operations.
$VXPPDU\RIWKH&RPSDQ\¶VVLJQLILcant contractual obligations as of December 31, 2006, follows:
Contractual Obligations Payments due by year
After
(Millions) Total 2007 2008 2009 2010 2011 2011
Long-term debt, including
current portion (Note 10) $2,161 $1,114 $ 89 $444 $ - $ - $ 514
Interest on long-term debt 780 85 37 37 28 28 565
Operating leases (Note 13) 359 85 65 50 26 19 114
Capital leases (Note 13) 79 6 6 5 5 5 52
Unconditional purchase obligations 396 162 110 84 11 8 21
Total contractual cash obligations $3,775 $1,452 $307 $620 $70 $60 $1,266
Long-term debt payments due in 2007 include $542 million of Convertible Notes (final maturity 2032), $350 million of
dealer remarketable securities (final maturity 2010), $62 million of medium-term notes (final maturity 2044) $42 million
of floating rate notes (final maturity 2037), and $29 million of floating rate notes (final maturity 2027). These securities
are classified as the current portion of long-term debt as the result of put provisions associated with these debt
instruments.
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. 7KHPDMRULW\RI0¶VSURGXFWVDQGVHrvices are purchased as needed, with no
unconditional commitment. For this reason, these amounts wLOOQRWSURYLGHDUHOLDEOHLQGLFDWRURIWKH&RPSDQ\¶V
expected future cash outflows on a stand-alone basis.
As discussed in Note 11, the Company does not have a required minimum pension contribution obligation for its U.S.
plans in 2007. Thus, Company contributions to its U.S. and international pension plans are expected to be largely
discretionary in 2007 and future years. Contractual capital commitments are also included in the preceding table, but
these commitments represent a small part of the CoPSDQ\¶VH[SHFWHGFDSLWDOVSHQGLQJLQDQGEH\RQG
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
&RPSDQ\¶VILQDQFLDOULVNSROLFLHVDQGREMHFWLYHVDQGSURYLGHV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. 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
exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an
agreed-upon notional principal amount. The Company manages commodity price risks through negotiated supply
contracts, price protection agreements and forward physical contracts.
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