3M 2007 Annual Report Download - page 89

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As previously mentioned, the Company expanded its utilization of restricted stock units in conjunction with the May 2007
MSOP Annual Grant. The May 2007 annual restricted stock unit grant does not accrue dividends during the vesting
period and vests over three years. The 2007 one-time “buyout” restricted stock unit grant vests over five years.
General Employees’ Stock Purchase Plan (GESPP):
In May 1997, shareholders approved 30 million shares for issuance under the Company’s GESPP. Substantially all
employees are eligible to participate in the plan. Participants are granted options at 85% of market value at the date of
grant. There are no GESPP shares under option at the beginning or end of each year because options are granted on the
first business day and exercised on the last business day of the same month.
General Employees’ Stock
Purchase Plan
2007 200
6
2005
Exercise Exercise Exercise
Shares Price* Shares Price* Shares Price*
Options granted 1,507,335 $69.34 1,656,554 $65.25 1,646,521
$66.11
Options exercised (1,507,335) 69.34 (1,656,554) 65.25 (1,646,521) 66.11
Shares available for
grant – December 31 8,940,650
10,447,985
12,104,539
*Weighted average
The weighted-average fair value per option granted during 2007, 2006 and 2005 was $12.24, $11.51 and $11.67,
respectively. The fair value of GESPP options was based on the 15% purchase price discount. The Company
recognized compensation expense for GESSP options of $18 million in 2007, $19 million in 2006, and $19 million in
2005.
MSOP / GESPP Stock-based Compensation Expense:
The impact of stock-based compensation on net income and earnings per share provided below for the year ended
December 31, 2005, was recognized over the nominal vesting period, whereby if an employee retired before the end
of the vesting period, the Company would recognize any remaining unrecognized compensation cost at the date of
retirement. SFAS No. 123R requires recognition under a non-substantive vesting period approach, requiring
compensation expense recognition when an employee is eligible to retire. 3M employees in the United States are
eligible to retire beginning at age 55 and after having completed five years of service. Approximately 25% of the
number of stock-based compensation awards are made to this population. The Company changed to the non-
substantive vesting period approach for new stock compensation grants made after the Company’s adoption of SFAS
No. 123R on January 1, 2006. Therefore, primarily beginning in May 2006 with the annual MSOP grant, immediate
expensing of those stock-based compensation awards granted to employees eligible to retire resulted in higher
compensation expense than historically recognized in comparable prior periods. Capitalized stock-based
compensation amounts were not material for 2007, 2006 and 2005. The income tax benefits can fluctuate by period
due to the amount of Incentive Stock Options (ISO) exercised since the Company receives the ISO tax benefit upon
exercise. The Company last granted ISO’s in 2002. Amounts recognized in the financial statements with respect to
both the MSOP and GESPP are as follows:
MSOP / GESPP STOCK-BASED
COMPENSATION EXPENSE
Years ended
December 31
(Millions, except per share amounts) 2007 2006 2005
Cost of sales $ 47 $ 42 $ 27
Selling, general and administrative expenses 137 119 96
Research, development and related expenses 44 39 32
Operating Income (Loss) $ (228) $ (200) $ (155)
Income tax benefits $ 93 $ 72 $ 67
Net Income (Loss) $ (135) $ (128) $ (88)
Earnings per share impact – diluted $(0.18) $(0.17) $(0.14)
Earnings per share – diluted $ 5.60 $ 5.06 $ 3.98