3M 2009 Annual Report Download - page 73

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67
NOTE 4. Restructuring Actions and Exit Activities
Restructuring actions and exit activities generally include significant actions involving employee-related severance
charges, contract termination costs, and impairment of assets associated with such actions.
Employee-related severance charges are largely based upon distributed employment policies and substantive
severance plans. These charges are reflected in the quarter in which management approves the associated actions,
the actions are probable, and the amounts are estimable. Severance amounts for which affected employees were
required to render service in order to receive benefits at their termination dates were measured at the date such
benefits were communicated to the applicable employees and recognized as expense over the employees’ remaining
service periods.
Contract termination and other charges primarily reflect costs to terminate a contract before the end of its term
(measured at fair value at the time the Company provided notice to the counterparty) or costs that will continue to be
incurred under the contract for its remaining term without economic benefit to the Company. As discussed in
accounting policies in Note 1, asset impairment charges related to intangible assets and property, plant and
equipment reflect the excess of the assets’ carrying values over their fair values.
The following provides information, respectively, concerning the Company’s 2009/2008 restructuring actions, its
2007/2006 restructuring actions, and its exit activities during 2008 and 2007.
2009 and 2008 Restructuring Actions:
During the fourth quarter of 2008 and the first nine months of 2009, management approved and committed to
undertake certain restructuring actions. Due to the rapid decline in global business activity in the fourth quarter of
2008 and into the first three quarters of 2009, 3M aggressively reduced its cost structure and rationalized several
facilities, including manufacturing, technical and office facilities. These actions included all geographies, with
particular attention in the developed areas of the world that have and are experiencing large declines in business
activity, and included the following:
• During the fourth quarter of 2008, 3M announced the elimination of more than 2,400 positions. Of these
employment reductions, about 31 percent were in the United States, 29 percent in Europe, 24 percent in
Latin America and Canada, and 16 percent in the Asia Pacific area. These restructuring actions resulted in a
fourth-quarter 2008 pre-tax charge of $229 million, with $186 million for employee-related items/benefits and
other, and $43 million related to fixed asset impairments. The preceding charges were recorded in cost of
sales ($84 million), selling, general and administrative expenses ($135 million), and research, development
and related expenses ($10 million). Cash payments in 2008 related to this restructuring were not material.
• During the first quarter of 2009, 3M announced the elimination of approximately 1,200 positions. Of these
employment reductions, about 43 percent were in the United States, 36 percent in Latin America, 16 percent
in Europe and 5 percent in the Asia Pacific area. These restructuring actions resulted in a first-quarter 2009
pre-tax charge of $67 million, with $61 million for employee-related items/benefits and $6 million related to
fixed asset impairments. The preceding charges were recorded in cost of sales ($17 million), selling, general
and administrative expenses ($47 million), and research, development and related expenses ($3 million).
• During the second quarter of 2009, 3M announced the permanent reduction of approximately 900 positions,
the majority of which were concentrated in the United States, Western Europe and Japan. In the United
States, another 700 people accepted a voluntary early retirement incentive program offer. As discussed in
Note 11, a $21 million non-cash charge was related to the approximately 700 participants who accepted the
voluntary early retirement incentive program offer. Of these aggregate employment reductions, about 66
percent were in the United States, 17 percent in the Asia Pacific area, 14 percent in Europe and 3 percent in
Latin America and Canada. These restructuring actions in total resulted in a second-quarter 2009 pre-tax
charge of $116 million, with $103 million for employee-related items/benefits and $13 million related to fixed
asset impairments. The preceding charges were recorded in cost of sales ($68 million), selling, general and
administrative expenses ($44 million), and research, development and related expenses ($4 million).