3M 2009 Annual Report Download - page 86

80
The ESOP debt, which matured in 2009, was serviced by dividends on stock held by the ESOP and by Company
contributions. These contributions were not reported as interest expense, but were reported as an employee benefit
expense in the Consolidated Statement of Income. Refer to Note 15 for more detail on the ESOP. Other borrowings
included debt held by 3M’s international companies and floating rate notes in the United States, with the long-term
portion of this debt primarily composed of U.S. dollar floating rate debt.
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, the $350 million of Dealer Remarketable
Securities had ratings triggers (BBB-/Baa3 or lower) that would require repayment of debt. In addition, under the
Company’s $1.5-billion five-year credit facility agreement that was effective April 30, 2007, 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. At December 31, 2009, available short-term committed lines of credit, including the preceding $1.5 billion five-
year credit facility, totaled approximately $1.593 billion, of which approximately $145 million was utilized in
connection with normal business activities. Debt covenants do not restrict the payment of dividends.
The floating rate notes due in 2044 have an annual put feature. According to the terms, holders can require 3M to
repurchase the securities at a price of 98 percent of par value each December from 2005 through 2008, at 99
percent of par value from 2009 through 2013, and at 100 percent of par value from 2014 and every anniversary
thereafter until final maturity in December 2044. In December 2009 and 2008, the Company was required to
repurchase an immaterial amount of principal on this bond.
The Company has a “well-known seasoned issuer” shelf registration statement, effective February 17, 2009, which
registers an indeterminate amount of debt or equity securities for future sales. No securities have been issued under
this shelf. The Company intends to use the proceeds from future securities sales off this shelf for general corporate
purposes. In connection with a prior “well-known seasoned issuer” shelf registration, in June 2007 the Company
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 also issued notes under an earlier $1.5 billion medium-term note program. 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. Both the note and related swap matured in November 2009. In December 2004,
3M issued a 40-year, $62 million floating rate note ($60 million outstanding at December 31, 2009), with the rate
based on a floating LIBOR index. This earlier $1.5 billion medium term note 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 (book value of
approximately $1.123 billion in U.S. Dollars at December 31, 2009). 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 (book value of approximately $398 million in U.S. Dollars at
December 31, 2009). 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 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 (which 3M would intend to payout in cash). 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 $225 million at December 31, 2009. 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 equated 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,