3M 2007 Annual Report Download - page 36

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NEW ACCOUNTING PRONOUNCEMENTS
Information regarding new accounting pronouncements is included in Note 1 to the Consolidated Financial
Statements.
FINANCIAL CONDITION AND LIQUIDITY
The Company generates significant ongoing cash flow. Increases in long-term debt have been used, in part, to fund
share repurchase activities and acquisitions. On November 15, 2007, 3M (Safety, Security and Protection Services
Business) announced that it had entered into a definitive agreement for 3M’s acquisition of 100 percent of the
outstanding shares of Aearo Holding Corp.  a global leader in the personal protection industry that manufactures and
markets personal protection and energy absorbing products  for approximately $1.2 billion. The sale is expected to
close towards the end of the first quarter of 2008.
At December 31
(Millions) 2007 2006 2005
Total Debt $4,920 $3,553 $2,381
Less: Cash, cash equivalents and marketable securities 2,955 2,084 1,072
Net Debt $1,965 $1,469 $1,309
Cash, cash equivalents and marketable securities at December 31, 2007 totaled approximately $3 billion, helped by
strong cash flow generation and by the timing of debt issuances. At December 31, 2006, cash balances were higher
due to the significant pharmaceuticals sales proceeds received in December 2006. 3M believes its ongoing cash flows
provide ample cash to fund expected investments and capital expenditures. The Company has sufficient access to
capital markets to meet currently anticipated growth and acquisition investment funding needs. 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 $4.476 billion at December 31, 2007, compared with $1.623 billion at
December 31, 2006. Working capital was higher primarily due to increases in cash and cash equivalents, short-term
marketable securities, receivables and inventories and decreases in short-term debt and accrued income taxes.
The Company’s liquidity remains strong, with cash, cash equivalents and marketable securities at December 31, 2007
totaling approximately $3 billion. Primary short-term liquidity needs are provided through U.S. commercial paper and
euro commercial paper issuances. As of December 31, 2007, outstanding total commercial paper issued totaled
$349 million and averaged $1.249 billion during 2007. 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 $2.5
billion as of December 31, 2007. On April 30, 2007, the Company replaced its $565-million credit facility with a new
$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. As of December 31, 2007,
there are $110 million in letters of credit drawn against the facility. At December 31, 2007, available short-term
committed lines of credit internationally totaled approximately $67 million, of which $13 million was utilized. Debt
covenants do not restrict the payment of dividends. The Company has a "well-known seasoned issuer" shelf
registration statement, effective February 24, 2006, to register 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.
At December 31, 2007, certain debt agreements ($350 million of dealer remarketable securities and $87 million of
ESOP debt) had ratings triggers (BBB-/Baa3 or lower) that would require repayment of debt. 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. 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, 2007, this ratio was approximately
35 to 1.