3M 2007 Annual Report Download - page 86

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As of December 31, 2007, the Company had recorded liabilities of $147 million for estimated other environmental
liabilities based upon an evaluation of currently available facts. As previously reported, the Company increased its other
environmental liabilities by $121 million in the first quarter of 2007 as a result of regulatory developments in Minnesota
and the completion of a comprehensive review with environmental consultants regarding its other environmental
liabilities which include the estimated costs of addressing trace amounts of perfluorinated compounds in drinking water
sources in the City of Oakdale and Lake Elmo, Minnesota, as well as presence in the soil and groundwater at the
Company’s manufacturing facilities in Decatur, Alabama, and Cottage Grove, Minnesota, and at two former disposal sites
in Minnesota. The Company expects that most of the spending will occur over the next three to seven years. While the
Company is not able to estimate the total costs of implementing the Settlement Agreement and Consent Order with the
MPCA (described above under Environmental Matters and Litigation - Regulatory Matters), the Company increased its
other environmental liabilities by an additional $13 million in the second quarter of 2007 to reflect its best estimate of the
specific payment obligations under that agreement.
It is difficult to estimate the cost of environmental compliance and remediation given the uncertainties regarding the
interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental
contamination and the existence of alternate cleanup methods. Developments may occur that could affect the Company’s
current assessment, including, but not limited to: (i) changes in the information available regarding the environmental
impact of the Company’s operations and products; (ii) changes in environmental regulations, changes in permissible
levels of specific compounds in drinking water sources, or changes in enforcement theories and policies, including efforts
to recover natural resource damages; (iii) new and evolving analytical and remediation techniques; (iv) success in
allocating liability to other potentially responsible parties; and (v) the financial viability of other potentially responsible
parties and third-party indemnitors.
NOTE 14. Employee Savings and Stock Ownership Plans
The Company sponsors employee savings plans under Section 401(k) of the Internal Revenue Code. These plans are
offered to substantially all regular U.S. employees. Employee contributions of up to 6% of compensation are matched at
rates ranging from 35% to 50%, with additional Company contributions depending upon Company performance. All
Company contributions initially are invested in 3M common stock, with employee contributions invested in a number of
investment funds pursuant to their elections. Vested employees may diversify their 3M shares into other investment
options.
The Company maintains an Employee Stock Ownership Plan (ESOP). This plan was established in 1989 as a cost-
effective way of funding the majority of the Company’s contributions under 401(k) employee savings plans. Total ESOP
shares are considered to be shares outstanding for earnings per share calculations.
Dividends on shares held by the ESOP are paid to the ESOP trust and, together with Company contributions, are used
by the ESOP to repay principal and interest on the outstanding ESOP debt. The tax benefit related to dividends paid on
unallocated shares was charged directly to equity and totaled approximately $3 million in 2007, $3 million in 2006, and
$4 million in 2005. Over the life of the ESOP debt, shares are released for allocation to participants based on the ratio of
the current year’s debt service to the remaining debt service prior to the current payment.
The ESOP has been the primary funding source for the Company’s employee savings plans. As permitted by AICPA
Statement of Position 93-6, “Employers’ Accounting for Employee Stock Ownership Plans,” the Company has elected
to continue its practices, which are based on Statement of Position 76-3, “Accounting Practices for Certain Employee
Stock Ownership Plans” and subsequent consensus of the EITF of the FASB. Accordingly, the debt of the ESOP is
recorded as debt, and shares pledged as collateral are reported as unearned compensation in the Consolidated
Balance Sheet and Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income.
Unearned compensation is reduced symmetrically as the ESOP makes principal payments on the debt. Expenses
related to the ESOP include total debt service on the notes, less dividends. The Company contributes treasury shares,
accounted for at fair value, to employee savings plans to cover obligations not funded by the ESOP (reported as an
employee benefit expense).
Employee Savings and Stock Ownership Plans
(Millions) 2007 2006 2005
Dividends on shares held by the ESOP $37 $39 $36
Company contributions to the ESOP 10 9 12
Interest incurred on ESOP notes 58 10
Amounts reported as an employee benefit expense:
Expenses related to ESOP debt service 547
Expenses related to treasury shares 34 36 27