3M 2006 Annual Report Download - page 55


Cash Flows from Operating Activities:
       
Years ended December 31 
(Millions) 2006 2005 2004
  
Net income $ 3,851 $3,111 $2,841
Depreciation and amortization 1,079 986 999
Company pension contributions (348) (654) (591)
Company postretirement contributions (37) (134) (168)
Company pension expense 347 331 325
Company postretirement expense 93 106 110
Stock-based compensation expense 200 155 252
Gain from sale of pharmaceuticals business (1,074) ±±
Income taxes (deferred and accrued income taxes) (178) 402 326
Excess tax benefits from stock-based compensation (60) (54) (54)
Accounts receivable (103) (184) 56
Inventories (309) (294) 7
Accounts payable 68 113 35
Product and other insurance receivables and claims 58 122 12
2WKHU±QHW  252 198 78
Net cash provided by operating activities $ 3,839 $4,204 $4,228
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 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 SD\PHQWVLQSULPDULO\UHODWHGWRWKH&RPSDQ\¶V
repatriation of $1.7 billion of foreign earnings in the United States pursuant to the provisions of the American Jobs
&UHDWLRQ$FWRI7KHFDWHJRU\³2WKHUQHW´LQWKHSUeceding table reflects changes in other asset and liability
accounts, including outstanding liabilities at December 31, 2006, related WR0¶VUHVWUXFWXULQJDFWLRQV1RWH
In 2005, cash flow was essentially flat when compared with 2004. Higher net income, higher accounts payable and
increased insurance receivable collections were offset by accounts receivable increases, inventory increases and
other items. Product and other insurance receivables and claims increased cash flow by $122 million in 2005,
benefiting from the $148 million in insurance recoveries for the breast implant matter in 2005. The catHJRU\³2WKHU±
QHW´LQWKHSUHFHGLQJWDEOHUHIOHFWVFKDQJHVLQRWKHUDVVHWand liability accounts. For example, in 2005, this category
includes the non-cash impact of adopting FIN 47 ($35 million cumulative effect of accounting change), increases in
accrued liabilities (such as the $30 million increase in liability related to legal settlement agreements), and other items.
In the third quarter of 2006, the Company made discretionary contributions totaling $200 million to its U.S. qualified
pension plan. In 2005, the Company made discretionary contributions totaling $500 million to its U.S. qualified pension
plan, with $200 million contributed in the fourth quarter of 2005, and $300 million contributed in the third quarter of
2005. In the third quarter of 2004, the Company made a sSHFLDOSHQVLRQFRQWULEXWLRQWR0¶V-DSDQHVHSHQVLRQSODQ
of $155 million and a discretionary contribution of $300 million to its U.S. qualified pension plan. Future contributions
will depend on market conditions, interest rates and other factors. 3M believes its strong cash flow and balance sheet
will allow it to fund future pension needs without compromising growth opportunities.
Cash Flows from Investing Activities:
       
Years ended December 31  
(Millions) 2006 2005 2004
Purchases of property, plant and equipment (PP&E) $(1,168) $ (943) $(937)
Proceeds from sale of PP&E and other assets 49 41 69
Acquisitions, net of cash acquired (888) (1,293) (73)
Proceeds from sale of pharmaceuticals business  ± ±
Purchases and proceeds from sale or maturities of
PDUNHWDEOHVHFXULWLHVDQGLQYHVWPHQWV±QHW (662) (46) 3
Net cash used in investing activities $(1,460) $(2,241) $(938)