3M 2009 Annual Report Download - page 61

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55
accounting for uncertainty in income taxes. 3M follows this guidance to record uncertainties and judgments in the
application of complex tax regulations in a multitude of jurisdictions (refer to Note 8 for additional information).
Earnings per share: The difference in the weighted average 3M shares outstanding for calculating basic and diluted
earnings per share attributable to 3M common shareholders is the result of the dilution associated with the
Company’s stock-based compensation plans. Certain options outstanding under these stock-based compensation
plans during the years 2009, 2008 and 2007 were not included in the computation of diluted earnings per share
attributable to 3M common shareholders because they would not have had a dilutive effect (54.3 million average
options for 2009, 41.0 million average options for 2008, and 21.6 million average options for 2007). As discussed in
Note 10, 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 diluted
earnings per share attributable to 3M common shareholders. 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) 2009 2008 2007
Numerator:
Net income attributable to 3M..................................................... $ 3,193 $ 3,460 $ 4,096
Denominator:
Denominator for weighted average 3M common shares
outstanding — basic ............................................................... 700.5 699.2 718.3
Dilution associated with the Company’s stock-based
compensation plans ................................................................ 6.2 8.0 13.7
Denominator for weighted average 3M common shares
outstanding — diluted ............................................................. 706.7 707.2 732.0
Earnings per share attributable to 3M common shareholders —
basic ........................................................................................... $4.56
$ 4.95 $ 5.70
Earnings per share attributable to 3M common shareholders —
diluted ......................................................................................... $4.52
$ 4.89 $ 5.60
Stock-based compensation: The Company recognizes compensation expense for both its General Employees’ Stock
Purchase Plan (GESPP) and the Long-Term Incentive Plan (LTIP). Under applicable accounting standards, the fair
value of share-based compensation is determined at the grant date and the recognition of the related expense is
recorded over the period in which the share-based compensation vests. Refer to Note 16 for additional information.
Comprehensive income: Total comprehensive income and the components of accumulated other comprehensive
income (loss) are presented in the Consolidated Statements of Changes in Equity and Comprehensive Income.
Accumulated other comprehensive income (loss) is composed of foreign currency translation effects (including
hedges of net investments in international companies), defined benefit pension and postretirement plan adjustments,
unrealized gains and losses on available-for-sale debt and equity securities, and unrealized gains and losses on
cash flow hedging instruments.
Derivatives and hedging activities: All derivative instruments within the scope of ASC 815, Derivatives and Hedging,
are recorded on the balance sheet at fair value. The Company uses interest rate swaps, currency and commodity
price swaps, and foreign currency forward and option contracts to manage risks generally associated with foreign
exchange rate, interest rate and commodity market volatility. All hedging instruments that qualify for hedge
accounting are designated and effective as hedges, in accordance with U.S. generally accepted accounting
principles. If the underlying hedged transaction ceases to exist, all changes in fair value of the related derivatives that
have not been settled are recognized in current earnings. Instruments that do not qualify for hedge accounting are
marked to market with changes recognized in current earnings. The Company does not hold or issue derivative
financial instruments for trading purposes and is not a party to leveraged derivatives. However, the Company does
have contingently convertible debt that, if conditions for conversion are met, is convertible into shares of 3M common
stock (refer to Note 10 in this document).