3M 2009 Annual Report Download - page 43

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37
established a $3 billion medium-term notes program. Three debt securities have been issued under this medium-
term notes program. First, in December 2007, 3M issued a five-year, $500 million, fixed rate note with a coupon rate
of 4.65%. Second, in August 2008, 3M issued a five-year, $850 million, fixed rate note with a coupon rate of 4.375%.
Third, in October 2008, the Company issued a three-year $800 million, fixed rate note with a coupon rate of 4.50%.
The Company entered into an interest rate swap to convert this $800 million note to a floating rate.
The Company has an AA- credit rating, with a stable outlook, from Standard & Poor’s and an Aa2 credit rating, with a
stable outlook, from Moody’s Investors Service. At December 31, 2009, $350 million of Dealer Remarketable
Securities 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, 2009, this ratio was approximately 27 to 1.
3M’s cash and cash equivalents balance at December 31, 2009 totaled $3.040 billion, with an additional $1.569
billion in current and long-term marketable securities. 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
$1.431 billion in 2009, and has a long history of dividend increases. In February 2010, the Board of Directors
increased the quarterly dividend on 3M common stock by 2.9 percent to 52.5 cents per share, equivalent to an
annual dividend of $2.10 per share. In February 2007, 3M’s Board of Directors authorized a two-year share
repurchase of up to $7.0 billion for the period from February 12, 2007 to February 28, 2009. In February 2009, 3M’s
Board of Directors extended this share repurchase authorization until the remaining amount is fully utilized. At
December 31, 2009, the Company has $2.6 billion remaining under this authorization.
In 2010, the Company expects to contribute in cash an amount in the range of $500 million to $700 million to its U.S.
and international pension plans. The Company does not have a required minimum pension contribution obligation for
its U.S. plans in 2010. Therefore, the amount of the anticipated discretionary contribution could vary significantly
depending on the U.S. qualified plans’ funded status as of the 2010 measurement date and the anticipated tax
deductibility of the contribution. Future contributions will also 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 Company uses various working capital measures that place emphasis and focus on certain working capital
assets and liabilities. These measures are not defined under U.S. generally accepted accounting principles and may
not be computed the same as similarly titled measures used by other companies. One of the primary working capital
measures 3M uses is a combined index, which includes accounts receivable, inventory and accounts payable. This
combined index (defined as quarterly net sales — fourth quarter at year-end — multiplied by four, divided by ending
net accounts receivable plus inventory less accounts payable) was 5.5 at December 31, 2009, a significant
improvement from 4.5 at December 31, 2008. Receivables increased $55 million, or 1.7 percent, compared with
December 31, 2008. Currency translation increased accounts receivable by $82 million year-on-year, as the U.S.
dollar weakened in aggregate against a multitude of currencies. Inventories decreased $374 million, or 12.4 percent,
compared with December 31, 2008. Currency translation increased inventories by $71 million year-on-year. Accounts
payable increased $152 million compared with December 31, 2008. Currency translation increased accounts payable
by $17 million year-on-year.