3M 2004 Annual Report Download - page 96

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70
NOTE 15. Management Stock Ownership Program (MSOP)
In May 2002, shareholders approved 45.4 million shares for issuance under the MSOP in the form of management
stock options, restricted stock and stock appreciation rights. Under the plan, the Company has principally issued
management stock options that are granted at market value at the date of grant. These options generally are
exercisable one year after the date of grant and expire 10 years from the date of grant. Thus, outstanding shares
under option include grants from previous plans. There were approximately 14,600 participants in the plan at
December 31, 2004.
Management Stock Ownership Program
2004 2003 2002
Shares
Exercise
Price* Shares
Exercise
Price* Shares
Exercise
Price*
Under option –
January 1 73,629,275 $52.42 71,187,226 $48.78 69,100,376 $44.06
Granted
Annual 12,499,425 84.39 12,571,075 61.91 12,472,134 64.43
Progressive (Reload) 892,425 83.10 1,048,236 66.86 826,092 61.25
Exercised (8,686,381) 44.81 (10,942,261) 41.26 (11,011,778) 37.57
Canceled (40,990) 79.85 (235,001) 39.29 (199,598) 64.50
December 31 78,293,754 $58.70 73,629,275 $52.42 71,187,226 $48.78
Options exercisable
December 31 65,471,418 $53.91 60,663,659 $50.36 58,045,582 $46.13
Shares available for grant
December 31 7,869,168 20,410,498 32,758,572
*Weighted average
MSOP Options Outstanding and Exercisable at December 31, 2004
Options Outstanding Options Exercisable
Range of
Exercise
Prices Shares
Remaining
Contractual
Life (months)*
Exercise
Price* Shares
Exercise
Price*
$28.64-43.35 11,223,646 41 $37.70 11,203,330 $37.70
43.43-58.62 29,296,613 55 51.29 28,909,689 51.29
58.63-64.50 23,877,013 92 63.10 23,841,701 63.10
64.65-89.15 13,896,482 107 83.75 1,516,698 79.00
*Weighted average
For annual and progressive (reload) options, the weighted average fair value at date of grant was calculated utilizing
the Black-Scholes option-pricing model and the assumptions that follow. The tax benefit charged directly to equity
for employee stock options was $114 million in 2004, $95 million in 2003 and $77 million in 2002. Refer to Note 1
to the Consolidated Financial Statements for the impact of stock-based compensation on pro forma net income
and earnings per share.
MSOP Assumptions Annual Progressive (Reload)
2004 2003 2002 2004 2003 2002
Exercise price $84.39 $61.91 $64.50 $ 83.10 $66.86 $61.25
Risk-free interest rate 4.1% 2.6% 4.6% 2.7% 1.8% 2.6%
Dividend yield (2004, 2003)/growth rate (2002) 2.2% 2.1% 3.2% 2.2% 2.2% 3.2%
Volatility 23.8% 23.8% 25.0% 21.6% 23.7% 24.1%
Expected life (months) 73 66 66 39 32 28
Black-Scholes fair value $20.30 $12.75 $16.76 $12.42 $ 9.44 $ 8.91