3M 2004 Annual Report Download - page 57

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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 2004 and 2003, cash flow
improvements were primarily driven by higher net income, tax timing differences and certain working capital
improvements (i.e. accounts receivables, inventories, accounts payable). In all periods presented, significant
Company pension contributions negatively impacted cash flows. In all years, with larger amounts in 2003 and 2002,
a portion of the tax timing benefit relates to the tax benefit received from Company pension contributions. In 2003, 3M
made $46 million of payments under the corporate restructuring plan, compared with $306 million in 2002.
In the quarter ended September 30, 2004, the Company made a special pension contribution to 3M’s Japanese
pension plan of $155 million and a discretionary contribution of $300 million to its U.S. qualified pension plan. In
the third quarter of 2003, 3M made a discretionary contribution of $600 million to its U.S. qualified pension plan,
compared with a discretionary contribution of $789 million in the third quarter of 2002. 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.
The following table recaps for breast implant and respirator masks/asbestos litigation the liabilities and associated
insurance receivables, cash received from insurance, cash fees and payments made, and the pre-tax expense for
2004 and 2003. Because of the time delay between payment of claims and receipt of insurance reimbursements, the
December 31, 2004, amounts for both breast implant and respirator mask/asbestos liabilities are less than expected
insurance recoveries. Thus, the expected net inflow of cash will increase future cash flows. The Company recorded
the LePage’s verdict liability of $93 million pre-tax in the first quarter of 2003. For a more detailed discussion of
these and other legal proceedings, refer to Part I, Item 3, Legal Proceedings, of this Annual Report on Form 10-K.
At December 31
(Millions) 2004 2003
Breast implant liabilities:
Balance at beginning of year $ 13 $ 5
Increase in liability during year 6 18
Cash fees and payments made (8) (10)
Balance at end of year $ 11 $ 13
Breast implant receivables:
Balance at beginning of year $ 338 $ 339
Increase (decrease) in receivable during year (10) 16
Cash received from insurance (50) (17)
Balance at end of year $ 278 $ 338
Breast implant pre-tax expense recorded $ 16 $ 1.5
Respirator mask/asbestos liabilities:
Balance at beginning of year $ 289 $ 161
Increase in liability during year 40 231
Cash fees and payments made (81) (103)
Balance at end of year $ 248 $ 289
Respirator mask/asbestos receivables:
Balance at beginning of year $ 448 $ 264
Increase in receivable during year 20 205
Cash received from insurance (4) (21)
Balance at end of year $ 464 $ 448
Respirator mask/asbestos pre-tax
expense recorded $ 20 $ 26
LePage’s verdict liability and pre-tax expense $ – $ 93