3M 2005 Annual Report Download - page 81

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Maturities of long-term debt for the five years subsequent to December 31, 2005 are as follows (in millions):
2006 2007 2008 2009 2010 Thereafter Total
$492 $622 $85 $44 $0 $558 $1,801
Long-term debt payments due in 2006 include $350 million of dealer remarketable securities (final maturity 2010)
and $62 million of medium-term notes (final maturity 2044). These securities are classified as current portion of
long-term debt as the result of put provisions associated with these debt instruments. The next date on which
investors can require the Company to repurchase the Convertible Notes is 2007, thus in the above schedule these
securities are considered due in 2007 (final maturity 2032).
The ESOP debt is serviced by dividends on stock held by the ESOP and by Company contributions. These
contributions are not reported as interest expense, but are reported as an employee benefit expense in the
Consolidated Statement of Income. Other borrowings includes debt held by 3M’s international companies and
floating rate notes in the United States, with the long-term portion of this debt primarily comprised of U.S. dollar
floating rate debt. At December 31, 2005, available short-term committed lines of credit globally totaled about
$618 million, of which $101 million was utilized. Debt covenants do not restrict the payment of dividends.
3M has a medium-term notes program and shelf registration that have remaining capacity of approximately
$1.438 billion at December 31, 2005. In September 2003, the Company filed a shelf registration statement with the
Securities and Exchange Commission relating to the potential offering of debt securities of up to $1.5 billion. This
shelf registration became effective in October 2003. In December 2003, the Company established under the shelf a
medium-term notes program through which up to $1.5 billion of medium-term notes may be offered. 3M plans to use
the net proceeds from issuances of debt securities under this registration for general corporate purposes, including
the repayment of debt; investments in or extensions of credit to 3M subsidiaries; or the financing of possible
acquisitions or business expansion. At December 31, 2004, $62 million of medium-term notes had been issued under
the medium-term notes program. No debt was issued under this program in 2005.
3M may redeem its 30-year zero-coupon senior notes (the “Convertible Notes”) at any time in whole or in part,
beginning November 21, 2007, at the accreted conversion price; however, bondholders may convert upon
notification of redemption into 9.4602 shares of 3M common stock. Holders of the 30-year zero-coupon senior
notes have the option to require 3M to purchase their notes at accreted value on November 21 in the years 2005,
2007, 2012, 2017, 2022 and 2027. In November 2005, 22,506 of the 639,000 in outstanding bonds were
redeemed, resulting in a payout from 3M of approximately $20 million. This reduced the Convertible Notes’ face
value at maturity to $616 million, which equates to a book value of approximately $539 million at December 31,
2005. As disclosed in a Form 8-K in November 2005, 3M amended the terms of these securities to pay cash at a
rate of 2.40% per annum of the principal amount at maturity of the Company’s Convertible Notes, which equates
to 2.75% per annum of the notes’ accreted value on November 21, 2005. The cash interest payments will be
made semiannually in arrears on May 22, 2006, November 22, 2006, May 22, 2007 and November 22, 2007 to
holders of record on the 15th calendar day preceding each such interest payment date.
3M originally sold $639 million in aggregate face amount of these “Convertible Notes” on November 15, 2002,
which are convertible into shares of 3M common stock. The gross proceeds from the offering, to be used for
general corporate purposes, were $550 million ($540 million net of issuance costs). Debt issuance costs were
amortized on a straight-line basis over a three-year period beginning in November 2002. On February 14, 2003,
3M registered these Convertible Notes in a registration statement filed with the Securities and Exchange
Commission. The terms of the Convertible Notes include a yield to maturity of .50% and an initial conversion
premium of 40% over the $65.00 (split-adjusted) closing price of 3M common stock on November 14, 2002. If
certain conditions for conversion (relating to the closing common stock prices of 3M exceeding the conversion
trigger price for specified periods) are met, holders may convert each of the 30-year zero-coupon senior notes into
9.4602 shares of 3M common stock in any calendar quarter commencing after March 31, 2003. The conversion
trigger price for the fourth quarter of 2005 was $120.00 per share. If the conditions for conversion are met, and 3M
elects not to settle in cash, the 30-year zero-coupon senior notes will be convertible in the aggregate into
approximately 5.8 million shares of 3M common stock. 3M may choose to pay the redemption purchase price in
cash and/or common stock; however, if redemption occurs, the Company has the intent and ability to settle this
debt security in cash. The conditions for conversion have never been met; accordingly, there has been no impact
on 3M’s diluted earnings per share. 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”.