3M 2005 Annual Report Download - page 56

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is classified as long-term debt. At December 31, 2005, the dealer remarketable securities and $62 million of
medium-term notes are classified as current portion of long-term debt as the result of put provisions associated
with these debt instruments. For a discussion of accounting pronouncements that will affect accounting treatment
for the Convertible Note, refer to Note 1 to the Consolidated Financial Statements for discussion of EITF Issue No.
04-08, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share” and proposed SFAS No.
128R, “Earnings per Share”.
Repurchases of common stock are made to support the Company’s stock-based employee compensation plans and
for other corporate purposes. On November 8, 2004, the Board of Directors authorized the purchase of $2.0 billion of
the Company’s common stock between January 1, 2005 and January 31, 2006. In October 2005, 3M’s Board of
Directors authorized the repurchase of an additional $300 million of the Company’s stock through January 31, 2006.
This increased the total repurchase authorization to $2.3 billion for the period through January 31, 2006. As of
December 31, 2005, substantially all of this repurchase authorization had been utilized. Refer to the table captioned
“Issuer Purchases of Equity Securities” in Part II, Item 5, for more information.
Cash dividends paid to stockholders totaled $1.286 billion ($1.68 per share) in 2005, $1.125 billion ($1.44 per
share) in 2004 and $1.034 billion ($1.32 per share) in 2003. 3M has paid dividends since 1916. Other cash flows
from financing activities include distributions to minority interests, changes in cash overdraft balances, and principal
payments for capital leases.
Liquidity:
The Company’s liquidity remains strong. Primary short-term liquidity needs are provided through U.S. commercial
paper and euro commercial paper issuances. As of December 31, 2005, outstanding total commercial paper
issued totaled $514 million and averaged approximately $823 million during 2005. Medium-term note shelf
borrowing capacity totaled $1.438 billion as of December 31, 2005. Credit support for outstanding commercial
paper is provided by a $565 million credit agreement among a group of primary relationship banks. In March 2005,
the Company replaced its 364-day credit agreement with a five-year credit agreement with similar terms. This
$565 million credit facility provides up to $115 million in letters of credit ($97 million of which was utilized at
December 31, 2005), with provisions for increasing this limit up to $150 million. Committed credit facilities of
$53 million are in place across several international subsidiary locations.
The Company believes it is unlikely that its access to the commercial paper market will be restricted. Cash and cash
equivalents and certain other current assets could provide additional liquidity to meet near term obligations, if
necessary. At year-end 2005, certain debt agreements ($350 million of dealer remarketable securities and
$165 million of ESOP debt) had ratings triggers (BBB-/Baa3 or lower) that would require repayment of debt. The
Company currently has AA/Aa1 debt ratings. In addition, the $565 million, five-year credit agreement requires 3M
to maintain a capitalization ratio at no more than 0.60 to 1 at the end of each quarter. This ratio is calculated as
funded debt (including all borrowed money and letters of credit utilized) to the sum of funded debt and equity. At
December 31, 2005, this ratio was approximately 0.20 to 1.
3M’s cash balance at December 31, 2005 totaled $1.072 billion. 3M’s strong balance sheet and liquidity provide the
Company with significant flexibility to take advantage of numerous opportunities going forward. The Company will
continue to invest in its operations to drive growth, including continual review of acquisition opportunities. 3M paid
dividends of $1.286 billion in 2005, and has a long history of dividend increases. In February 2006, the Board of
Directors increased the quarterly dividend on 3M common stock by 9.5% to 46 cents per share, equivalent to an
annual dividend of $1.84 per share. In February 2006, 3M’s Board of Directors also authorized the purchase of up to
$2.0 billion of the Company’s common stock between February 13, 2006 and February 28, 2007. The Company may
also make additional contributions to its pension plan in the future, but exact amounts are uncertain and will depend
on market conditions.
Off-Balance Sheet Arrangements and Contractual Obligations:
As of December 31, 2005, the Company had not utilized special purpose entities to facilitate off-balance sheet
financing arrangements. 3M’s accrued product warranty liabilities, recorded on the Consolidated Balance Sheet as
part of current and long-term liabilities, are estimated at approximately $22 million. 3M does not consider this
amount to be material. The fair value of 3M guarantees of loans with third parties and other guarantee
arrangements are not material.
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 3M products or the negligence of 3M personnel, or claims alleging that 3M products infringe