3M 2006 Annual Report Download - page 69

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recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the
FRPSOHWLRQRIIHDVLELOLW\VWXGLHVRUWKH&RPSDQ\¶Vcommitment to a plan of action. Environmental expenditures for
capital projects that contribute to current or future operations generally are capitalized and depreciated over their
estimated useful lives.
Income taxes: The provision for income taxes is determined using the asset and liability approach. Under this approach,
deferred income taxes represent the expected future tax consequences of temporary differences between the carrying
amounts and tax basis of assets and liabilities. The Company records a valuation allowance to reduce its deferred tax
assets when uncertainty regarding their reliability exists. As of December 31, 2006, no valuation allowances were
recorded.
Earnings per share: The difference in the weighted average shares outstanding for calculating basic and diluted earnings
per share is attributable to the dilution associated wiWKWKH&RPSDQ\¶VVWRFNEDVHGcompensation plans. Certain
0DQDJHPHQW6WRFN2ZQHUVKLS3URJUDPDYHUDJHRSWLRQVoutstanding during the years 2006, 2005 and 2004 were not
included in the computation of diluted earnings per share because they would not have had a dilutive effect (31.5 million
average options for 2006, 15.4 million average options for 2005, and 6.6 million average options for 2004). As discussed
in Note 10, the conditions for conversion related to the &RPSDQ\¶V&RQYHUWLEOH1RWHVKDYe never been met; accordingly,
WKHUHZDVQRLPSDFWRQ0¶VGLOXWHGHDUQLQJV per share. If the conditions for conversion are met, 3M may choose to pay in
FDVKDQGRUFRPPRQVWRFNKRZHYHULIWKLV occurs, the Company has the intent and ability to settle this debt security in
cash. The computations for basic and diluted earnings per share for the years ended December 31 follow:
 
Earnings Per Share Computations
(Amounts in millions, except per share amounts) 2006 2005 2004
Numerator:
Net income $3,851 $3,111 $2,841
 
Denominator:
Denominator for weighted average common
VKDUHVRXWVWDQGLQJ±EDVLF 747.5 764.9 780.5
 
'LOXWLRQDVVRFLDWHGZLWKWKH&RPSDQ\¶V
VWRFNEDVHGFRPSHQVDWLRQSODQV 13.5 16.4 16.8
Denominator for weighted average common
VKDUHVRXWVWDQGLQJ±GLOXWHG 761.0 781.3 797.3
(DUQLQJVSHUVKDUH±EDVLF $ 5.15 $ 4.07 $ 3.64
(DUQLQJVSHUVKDUH±GLOXWHG $ 5.06 $ 3.98 $ 3.56
Stock-based compensation:
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004). SFAS
1R5VXSHUVHGHV$3%2SLQLRQ1R8QGHU$3%2SLQLRQ1RQRFRPSHQVDWLRQH[SHQVHLVUHFRJQL]HGIRU
HPSOR\HHVWRFNRSWLRQJUDQWVLIthe exercise price of the CoPSDQ\¶VVWRFNRSWLRQJUDQWVLVDWRUDERYHWKHIDLUPDUNHW
YDOXHRIWKHXQGHUO\LQJVWRFNRQWKHdate of grant. Under SFAS No. 123R, compensation expense is recognized for
ERWKWKH*HQHUDO(PSOR\HHV¶6WRFN3XUFKDVH3ODQ*(633DQGWKH0DQDJHPHQW6WRFN2ZQHUVKLS3ODQ0623
SFAS No. 123R requires the determination of the fair valXHRIWKHVKDUHEDVHGFRPSHQVation at the grant date and
the recognition of the related expense RYHUWKHSHULRGLQZKLFKWKHVKDUHbased compensation vests. The Company
adopted SFAS No. 123R effective January 1, 2006. The Company adopted SFAS No. 123R using the modified
retrospective method. All prior periods have been restated to JLYHHIIHFWWRWKHIDLUYDOXHEDVHGPHWKRGRIDFFRXQWLQJ
for awards granted in fiscal years beginning on or after January 1, 1995. The Company believes that the modified
retrospective application of this standard achieves the highest level of clarity and comparability among the presented
SHULRGV2Q1RYHPEHUWKH)$6%LVVXHG)$6%6WDII3RVLWLRQ1R)$657UDQVLWLRQ(OHFWLRQ5HODWHG
WR$FFRXQWLQJIRUWKH7D[(IIHFWVRI6KDUH%DVHG3D\PHQW$ZDUGVWKH)637KH)63SUovides that companies may
HOHFWWRXVHDVSHFLILHGVKRUWFXWmethod to calculate the historical pool of windfall tax benefits upon adoption of
6)$61R57KH&RPSDQ\HOHFWHGWRXVHWKH³VKRUWFXW´PHWKRGZKHQLWDGRSWHG6)$61R5RQ-DQXDU\
2006.
7KH&RPSDQ\LVVXHV0623RSWLRQVWRHOLJLEOHHPSOR\HHVDQQXDOO\LQ0D\XVLQJWKHDYHUDJHVWRFNSULFHRQWKHJUDQW
date, which is the date of the AQQXDO6WRFNKROGHUV¶0HHWLQJ,Q0Dy 2005, shareholders approved 36.75 million