3M 2008 Annual Report Download - page 39

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The Company generates significant ongoing cash flow. Increases in long-term debt have been used to partially fund
share repurchase activities and acquisitions. On April 1, 2008, 3M (Safety, Security and Protection Services
Business) completed its acquisition of 100 percent of the outstanding shares of Aearo — a global leader in the
personal protection industry that manufactures and markets personal protection and energy absorbing products —
for approximately $1.2 billion, inclusive of debt assumed, which was immediately paid off.
At December 31
(Millions) 2008 2007 2006
Total Debt........................................................................ $ 6,718 $ 4,920 $ 3,553
Less: Cash, cash equivalents and marketable securities 2,574 2,955 2,084
Net Debt .......................................................................... $ 4,144 $ 1,965 $ 1,469
Cash, cash equivalents and marketable securities at December 31, 2008 totaled approximately $2.6 billion, helped by
cash flows from operating activities of $4.5 billion. At December 31, 2007, cash balances were higher due to strong
cash flow generation and by the timing of debt issuances. The Company has sufficient liquidity to meet currently
anticipated growth plans, including capital expenditures, working capital investments and acquisitions. The Company
does not utilize derivative instruments linked to the Company’s stock. However, the Company does have contingently
convertible debt that, if conditions for conversion are met, is convertible into shares of 3M common stock (refer to
Note 10 in this document).
The Company’s financial condition and liquidity are strong. Various assets and liabilities, including cash and short-
term debt, can fluctuate significantly from month to month depending on short-term liquidity needs. Working capital
(defined as current assets minus current liabilities) totaled $3.759 billion at December 31, 2008, compared with
$4.476 billion at December 31, 2007. Working capital decreases were attributable to declines in cash and cash
equivalents, short-term marketable securities and accounts receivable, while increases in short-term debt and other
current liabilities also decreased working capital. This was partially offset by working capital increases attributable to
decreases in accounts payable and accrued income taxes, combined with increases in inventory.
Primary short-term liquidity needs are met through U.S. commercial paper and euro commercial paper issuances. As
of December 31, 2008, outstanding total commercial paper issued totaled $575 million and averaged $1.106 billion
during 2008. The Company believes it unlikely that its access to the commercial paper market will be restricted. In
June 2007, the Company established a medium-term notes program through which up to $3 billion of medium-term
notes may be offered, with remaining shelf borrowing capacity of $850 million as of December 31, 2008 (see
additional discussion in following paragraph). Effective April 30, 2007, the Company has a $1.5-billion five-year credit
facility, which has provisions for the Company to request an increase of the facility up to $2 billion (at the lenders’
discretion), and providing for up to $150 million in letters of credit. At December 31, 2008, available short-term
committed lines of credit, including the preceding $1.5 billion five-year credit facility, totaled approximately $1.582
billion, of which approximately $143 million was utilized for letters of credit in connection with normal business
activities. Debt covenants do not restrict the payment of dividends.
The Company has a “well-known seasoned issuer” shelf registration statement, effective February 24, 2006, which
registers an indeterminate amount of debt or equity securities for future sales. The Company intends to use the
proceeds from future securities sales off this shelf for general corporate purposes. In connection with this shelf
registration, in June 2007 the Company established a medium-term notes program through which up to $3 billion of
medium-term notes may be offered. In December 2007, 3M issued a five-year, $500 million, fixed rate note with a
coupon rate of 4.65% under this medium-term notes program. In August 2008, 3M issued a five-year, $850 million,
fixed rate note with a coupon rate of 4.375% under this medium-term notes program. In October 2008, the Company
issued a three-year $800 million, fixed rate note with a coupon rate of 4.50%, under this medium-term notes
program, reducing remaining capacity to $850 million as of December 31, 2008. The Company has the ability to
increase the amount of securities that are authorized to be issued under this program.
The Company has an AA credit rating, with a stable outlook, from Standard & Poor’s and an Aa1 credit rating, with a
negative outlook, from Moody’s Investors Service. At December 31, 2008, certain debt agreements ($350 million of
dealer remarketable securities and $44 million of ESOP debt) had ratings triggers (BBB-/Baa3 or lower) that would
require repayment of debt. In addition, under the $1.5-billion five-year credit facility agreement, 3M is required to
maintain its EBITDA to Interest Ratio as of the end of each fiscal quarter at not less than 3.0 to 1. This is calculated
(as defined in the agreement) as the ratio of consolidated total EBITDA for the four consecutive quarters then ended
to total interest expense on all funded debt for the same period. At December 31, 2008, this ratio was approximately
30 to 1.