3M 2007 Annual Report Download - page 71

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Convertible Notes include a yield to maturity of .50% and an initial conversion premium of 40% over the $65.00 (split-
adjusted) closing price of 3M common stock on November 14, 2002. If certain conditions for conversion (relating to
the closing common stock prices of 3M exceeding the conversion trigger price for specified periods) are met, holders
may convert each of the 30-year zero-coupon senior notes into 9.4602 shares of 3M common stock in any calendar
quarter commencing after March 31, 2003. The conversion trigger price for the fourth quarter of 2007 was $121.21
per share. If the conditions for conversion are met, and 3M elects not to settle in cash, the 30-year zero-coupon senior
notes will be convertible in the aggregate into approximately 2.4 million shares of 3M common stock. The conditions
for conversion related to the Company’s Convertible Notes have never been met. If the conditions for conversion are
met, 3M may choose to pay in cash and/or common stock; however, if this occurs, the Company has the intent and
ability to settle this debt security in cash. Accordingly, there was no impact on 3M’s diluted earnings per share.
In December 2007, the Company’s $350 million of dealer remarketable securities were remarketed for one year. They
were reissued with a fixed coupon rate of 5.83%. These securities, which are classified as current portion of long-term
debt, were issued in December 2000. The remarketable securities can be remarketed annually, at the option of the
dealer, for a year each time, with a final maturity date of December 2010. In the second quarter of 2007, 3M
repurchased $42 million in floating rate notes due in 2037 at par as the bondholder exercised put provisions
associated with this debt instrument.
NOTE 11. Pension and Postretirement Benefit Plans
3M has various company-sponsored retirement plans covering substantially all U.S. employees and many employees
outside the United States. Pension benefits associated with these plans generally are based on each participant’s
years of service, compensation, and age at retirement or termination. In addition to providing pension benefits, the
Company provides certain postretirement health care and life insurance benefits for substantially all of its U.S.
employees who reach retirement age while employed by the Company. Most international employees and retirees are
covered by government health care programs. The cost of company-provided postretirement health care plans for
international employees is not material and is combined with U.S. amounts.
The Company’s pension funding policy is to deposit with independent trustees amounts allowable by law. Trust funds
and deposits with insurance companies are maintained to provide pension benefits to plan participants and their
beneficiaries. There are no plan assets in the non-qualified plan due to its nature. For its U.S. postretirement health
care and life insurance benefit plans, the Company has set aside amounts at least equal to annual benefit payments
with an independent trustee.
In August 2006, the Pension Protection Act (PPA) was signed into law in the U.S. The PPA increases the funding
target for defined benefit pension plans to 100% of the target liability. The PPA transition rules require a funding
liability target of 92% in 2008, reaching 100% by 2011. 3M's U.S. qualified defined benefit plans are funded in excess
of the applicable transition funding liability target for 2008; therefore, the Company expects that the plans will not be
subject to the minimum required contribution of the PPA and its transition rules will not have a material impact on
expected future contributions.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).” This standard requires
employers to recognize the underfunded or overfunded status of defined benefit pension and postretirement plans as
an asset or liability in its statement of financial position, and recognize changes in the funded status in the year in
which the changes occur through accumulated other comprehensive income, which is a component of stockholders’
equity. This standard also eliminates the requirement for Additional Minimum Pension Liability (AML) required under
SFAS No. 87. As a result of the application of SFAS No. 158 as of December 31, 2006, 3M reversed assets of
$2.515 billion and increased liabilities by $703 million. These liabilities were offset to accumulated other
comprehensive income and deferred taxes. In 2006, as a result of the implementation of SFAS No. 158, the Company
recognized an after-tax decrease in accumulated other comprehensive income of $1.187 billion and $513 million for
the U.S. and International pension benefit plans, respectively, and $218 million for the postretirement health care and
life insurance benefit plan.