3M 2008 Annual Report Download - page 79

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3M originally sold $639 million in aggregate face amount of these “Convertible Notes” on November 15, 2002, which
are convertible into shares of 3M common stock. The gross proceeds from the offering, to be used for general
corporate purposes, were $550 million ($540 million net of issuance costs). Debt issuance costs were amortized on a
straight-line basis over a three-year period beginning in November 2002. On February 14, 2003, 3M registered these
Convertible Notes in a registration statement filed with the Securities and Exchange Commission. The terms of the
Convertible Notes include a yield to maturity of 0.50% and an initial conversion premium of 40 percent 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 2008
was $121.81 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 2008, the Company’s $350 million of dealer remarketable securities were remarketed for one year.
They were reissued with a fixed coupon rate of 7.14%. 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.
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 increased the funding
target for defined benefit pension plans to 100 percent of the target liability. The PPA transition rules require a
funding liability target of 92 percent in 2008, reaching 100 percent by 2011. 3M’s U.S. qualified defined benefit plans
are funded at the applicable transition funding liability target for 2008.
In accordance with 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),” the Company recognizes the underfunded
or overfunded status of defined benefit pension and postretirement plans as an asset or liability in its statement of
financial position, and recognizes 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.
During the first quarter of 2008, the Company made modifications to its U.S. postretirement benefits plan. The
changes are effective beginning January 1, 2009, and allow current retired employees and employees who retire
before January 1, 2013 the option to continue on the existing postretirement plans or elect the new plans. Current
employees who retire after December 31, 2012, will receive a savings account benefits-based plan. As a result of the
modification to the U.S. postretirement benefits plan, the Company remeasured its U.S. plans’ assets and
accumulated postretirement benefit obligation (APBO) as of March 31, 2008. The impact of the plan modifications
reduced the APBO by $148 million, which was partially offset by asset values being $97 million lower than on
December 31, 2007. Therefore, the accrued benefit cost liability recorded on the balance sheet as of March 31,
2008, was reduced by $51 million. The remeasurement reduced the 2008 expense by $15 million.