3M 2007 Annual Report Download - page 38

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Cash flows from operating activities can fluctuate significantly from period to period, as pension funding decisions, tax
timing differences and other items can significantly impact cash flows. In both 2007 and 2006, the Company made
discretionary contributions of $200 million to its U.S. qualified pension plan, and in 2005 made discretionary
contributions totaling $500 million.
In 2007, cash flows provided by operating activities increased $436 million, including an increase in net income of
$245 million. Since the gain from sale of businesses is included in and increases net income, the pre-tax gain from the
sale of the businesses must be subtracted, as shown above, to properly reflect operating cash flows. The cash
proceeds from the sale of the pharmaceuticals business are shown as part of cash from investing activities; however,
when the related taxes are paid they are required to be shown as part of cash provided by operating activities. Thus,
operating cash flows for 2007 were penalized due to cash income tax payments of approximately $630 million in 2007
that related to the sale of the global branded pharmaceuticals business. Non-pharmaceutical related cash income tax
payments were approximately $475 million lower than 2006 due to normal timing differences in tax payments, which
benefited cash flows. Accounts receivable and inventory increases reduced cash flows in 2007, but decreased cash
flow less than in 2006, resulting in a year-on-year benefit to cash flows of $323 million. The category “Other-net” in the
preceding table reflects changes in other asset and liability accounts, including the impact of cash payments made in
connection with 3M’s restructuring actions (Note 4).
In 2006, cash flows provided by operating activities decreased $365 million. This decrease was due in large part to an
increase of approximately $600 million in tax payments in 2006 compared with 2005. The higher tax payments in 2006
primarily related to the Company’s repatriation of $1.7 billion of foreign earnings in the United States pursuant to the
provisions of the American Jobs Creation Act of 2004. The category “Other-net” in the preceding table reflects
changes in other asset and liability accounts, including outstanding liabilities at December 31, 2006, related to 3M’s
restructuring actions (Note 4).
Cash Flows from Investing Activities:
Years ended December 31
(Millions) 2007 2006 2005
Purchases of property, plant and equipment (PP&E) $(1,422) $(1,168) $ (943)
Proceeds from sale of PP&E and other assets 103 49 41
Acquisitions, net of cash acquired (539) (888) (1,293)
Proceeds from sale of businesses 897 1,209 –
Purchases and proceeds from sale or maturities of
marketable securities and investments – net
(406)
(662) (46)
Net cash used in investing activities $(1,367) $(1,460) $(2,241)
Investments in property, plant and equipment enable growth in diverse markets, helping to meet product demand and
increasing manufacturing efficiency. In 2007, numerous plants were opened or expanded internationally. This
included two facilities in Korea (respirator manufacturing facility and optical plant), an optical plant in Poland, industrial
adhesives/tapes facilities in both Brazil and the Philippines, a plant in Russia (corrosion protection, industrial adhesive
and tapes, and respirators), a plant in China (optical systems, industrial adhesives and tapes, and personal care), an
expansion in Canada (construction and home improvement business), in addition to investments in India, Mexico and
other countries. In addition, 3M expanded manufacturing capabilities in the U.S., including investments in industrial
adhesives/tapes and optical. 3M also exited several high-cost underutilized manufacturing facilities and streamlined
several supply chains by relocating equipment from one facility to another. The streamlining work has primarily
occurred inside the U.S. and is in addition to the streamlining achieved through plant construction. As a result of this
increased activity, capital expenditures were $1.422 billion in 2007, an increase of $254 million when compared to
2006. The Company expects capital expenditures to total approximately $1.3 billion to $1.4 billion in 2008. Refer to
the preceding “Capital Spending/Net Property, Plant and Equipment” section for more detail.
Refer to Note 2 for information on 2007, 2006 and 2005 acquisitions. Note 2 also provides information on the
proceeds from the sale of businesses. The Company is actively considering additional acquisitions, investments and
strategic alliances, and from time to time may also divest certain businesses.
Purchases of marketable securities and investments and proceeds from sale (or maturities) of marketable securities and
investments are primarily attributable to asset-backed securities, agency securities, corporate medium-term note
securities, auction rate securities and other securities, which are classified as available-for-sale. Refer to Note 9 for
more details about 3M’s diversified marketable securities portfolio, which totaled $1.059 billion as of December 31,
2007. Purchases of marketable securities, net of sales and maturities, totaled $429 million for 2007 and $637 million for
2006. Purchases of investments in 2005 include the purchase of 19% of TI&M Beteiligungsgesellschaft mbH for