3M 2007 Annual Report Download - page 70

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rate notes in the United States, with the long-term portion of this debt primarily composed of U.S. dollar floating rate
debt.
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 from Standard & Poor’s, with a stable outlook, and an Aa1 credit rating from Moody’s Investors Service,
with a negative outlook. 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. Under the new credit 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.
At December 31, 2007, available short-term committed lines of credit internationally totaled approximately $67 million,
of which approximately $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. On June 15, 2007, the Company
registered 150,718 shares of the Company's common stock under this shelf on behalf of and for the sole benefit of the
selling stockholders in connection with the Company's acquisition of assets of Diamond Productions, Inc. The
Company intends to use the proceeds from future securities sales off this shelf for general corporate purposes. In
connection with this shelf registration, in June 2007 the Company established a medium-term notes program through
which up to $3 billion of medium-term notes may be offered. In December 2007, 3M issued a five-year, $500 million,
fixed rate note with a coupon rate of 4.65% under this medium-term notes program. This program has a remaining
capacity of $2.5 billion as of December 31, 2007.
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. In March 2007, the Company issued a 30-year, $750
million, fixed rate note with a coupon rate of 5.70%. In November 2006, 3M issued a three-year, $400 million, fixed
rate note. The Company entered into an interest rate swap to convert this to a rate based on a floating LIBOR index.
In December 2004, 3M issued a 40-year, $62 million, floating rate note, with the rate based on a floating LIBOR index.
This $1.5 billion medium term notes program was replaced by the $3 billion program established in June 2007.
In July 2007, 3M issued a seven year 5.0% fixed rate Eurobond for an amount of 750 million Euros (approximately
$1.102 billion in U.S. Dollars at December 31, 2007). Upon debt issuance in July 2007, 3M completed a fixed-to-
floating interest rate swap on a notional amount of 400 million Euros as a fair value hedge of a portion of the fixed
interest rate Eurobond obligation. In December 2007, 3M reopened the existing seven year 5.0% fixed rate Eurobond
for an additional amount of 275 million Euros (approximately $404 million in U.S. Dollars at December 31, 2007). This
security was issued at a premium and was subsequently consolidated with the original security on January 15, 2008.
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 each of the notes 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. In November 2007, an additional 364,598 outstanding
bonds were redeemed resulting in a payout from 3M of approximately $322 million. These payouts reduced the
Convertible Notes’ face value at maturity to $252 million, which equates to a book value of approximately $222 million
at December 31, 2007. 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 were
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. Effective November 22, 2007,
the effective interest rate reverted back to the original yield of 0.50%.
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