Long-Term Debt and Short-Term Borrowings

9 Months Ended

Sep. 30, 2011

Long-Term Debt and Short-Term Borrowings

Long-Term Debt and Short-Term Borrowings

NOTE 7.  Long-Term Debt and Short-Term Borrowings

As discussed in Note 10 in 3M’s Current Report on Form 8-K dated May 26, 2011 (which updated 3M’s 2010 Annual Report on Form 10-K), 3M’s Convertible Notes were originally issued on November 15, 2002, with partial redemptions in 2005 and 2007. In September 2011, 3M redeemed all remaining Convertible Notes, which were otherwise due in 2032. As a result, in September 2011, 3M paid out cash of approximately $227 million (with no gain or loss on extinguishment). Of this amount, $24 million was classified as cash flows from operating activities (for accretion/accreted interest on debt), with the remainder classified as cash flows from financing activities (repayment of debt).

The Company has a “well-known seasoned issuer” shelf registration statement, effective August 5, 2011, which registers 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. This replaced 3M’s previous shelf registration dated February 17, 2009. In September 2011, in connection with the August 5, 2011 “well-known seasoned issuer” registration statement, 3M established a $3 billion medium-term notes program (Series F), from which 3M issued a five-year $1 billion fixed rate note with a coupon rate of 1.375%. Proceeds will be used for general corporate purposes, including repayment of $800 million (principal amount) of medium-term notes due in November 2011.

In August 2011, 3M entered into a $1.5 billion, five-year multi-currency revolving credit agreement, which replaced the existing agreement that was due to expire in April 2012. This credit agreement includes a provision under which 3M may request an increase of up to $500 million, bringing the total facility up to $2 billion (at the lenders’ discretion). This facility was undrawn at September 30, 2011. Also, in August 2011, 3M entered into a $200 million, one-year letter of credit agreement with HSBC Bank USA. This agreement replaced the sublimit for letters of credit that was previously encompassed in the $1.5 billion five-year facility. As of September 30, 2011, 3M letters of credit issued under this $200 million facility totaled $121 million. An additional $102 million in U.S. letters of credit was outstanding with other banking partners. These letters of credit are utilized in connection with normal business activities. Under both the $1.5 billion and $200 million credit agreements, the Company 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 September 30, 2011, this ratio was approximately 38 to 1.

As disclosed in 3M’s Current Report on Form 8-K dated May 26, 2011 (which updated 3M’s 2010 Annual Report on Form 10-K), in the fourth quarter of 2010, the Company entered into a 100.5 million Canadian Dollar loan, with four equal installments due in April 2011, July 2011, October 2011 and January 2012. During March 2011, this loan agreement was amended to increase the loan amount to 201 million Canadian Dollars and to allow for repayment of the total loan in July 2012, instead of in four equal installments. However, 3M has the option to repay the principal amount of this loan before July 2012. All other terms and conditions of the loan agreement remain in full force. In the third quarter of 2011, 3M repaid principal of 50.25 million Canadian Dollars, resulting in a remaining principal amount of 150.75 million Canadian Dollars as of September 30, 2011.

As also disclosed in 3M’s Current Report on Form 8-K dated May 26, 2011 (which updated 3M’s 2010 Annual Report on Form 10-K), during the first quarter of 2010, the Company entered into a floating rate note payable of 17.4 billion Japanese Yen (approximately $188 million based on exchange rates at that time) in connection with the purchase of additional interest in the Company’s Sumitomo 3M Limited subsidiary as discussed in Note 4. This note was due in three equal installments of 5.8 billion Japanese Yen, with one installment paid on September 30, 2010, one installment paid on March 30, 2011, and the final installment paid on September 30, 2011. Interest accrued on the note based on the three-month Tokyo Interbank Offered Rate (TIBOR) plus 40 basis points.