3M 2012 Annual Report Download - page 118

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The following table summarizes stock option activity during the twelve months ended December 31:
Stock Option Program
2012
2011
2010
Number of
Options
Weighted
Average
Exercise Price
Number of
Options
Weighted
Average
Exercise Price
Number of
Options
Weighted
Average
Exercise Price
Under option —
January 1
64,148,415
$
77.28
70,335,044
$
74.80
74,268,165
$
72.39
Granted:
Annual
5,770,190
87.91
5,514,500
89.46
5,788,313
78.79
Progressive (Reload)
110,065
89.65
237,839
94.02
188,105
88.67
Other
51,661
89.25
8,953
86.71
27,911
82.13
Exercised
(13,123,617)
68.78
(11,625,863)
68.47
(9,678,654)
59.11
Canceled
(391,684)
83.65
(322,058)
75.09
(258,796)
70.76
December 31
56,565,030
$
80.33
64,148,415
$
77.28
70,335,044
$
74.80
Options exercisable
December 31
45,207,143
$
78.78
52,644,364
$
76.90
58,201,617
$
75.87
Outstanding options under grant include grants from previous plans. For options outstanding at December 31, 2012, the
weighted-average remaining contractual life was 55 months and the aggregate intrinsic value was $709 million. For
options exercisable at December 31, 2012, the weighted-average remaining contractual life was 44 months and the
aggregate intrinsic value was $637 million. As of December 31, 2012, there was $54 million of compensation expense that
has yet to be recognized related to non-vested stock option based awards. This expense is expected to be recognized
over the remaining weighted-average vesting period of 21 months.
The total intrinsic values of stock options exercised during 2012, 2011 and 2010 was $282 million, $287 million and $263
million, respectively. Cash received from options exercised during 2012, 2011 and 2010 was $903 million, $796 million
and $571 million, respectively. The Company’s actual tax benefits realized for the tax deductions related to the exercise of
employee stock options for 2012, 2011 and 2010 was $98 million, $96 million and $93 million, respectively.
The Company does not have a specific policy to repurchase common shares to mitigate the dilutive impact of options;
however, the Company has historically made adequate discretionary purchases, based on cash availability, market
trends, and other factors, to satisfy stock option exercise activity.
For annual and progressive (reload) options, the weighted average fair value at the date of grant was calculated using the
Black-Scholes option-pricing model and the assumptions that follow.
Stock Option
Assumptions
Annual
Progressive (Reload)
2012
2011
2010
2012
2011
2010
Exercise price
$
87.89
$
89.47
$
78.72
$
87.89
$
93.94
$
86.72
Risk-free interest rate
1.1
%
2.8
%
2.8
%
0.2
%
0.4
%
0.6
%
Dividend yield
2.6
%
2.6
% 2.5
%
2.6
%
2.6
% 2.5
%
Volatility
24.5
%
22.0
%
25.7
%
23.4
%
21.5
%
33.2
%
Expected life (months)
74
72
72
19
15
17
Black-Scholes fair value
$
14.94
$ 16.10
$ 16.50
$
8.50
$ 7.49
$ 12.01
Expected volatility is a statistical measure of the amount by which a stock price is expected to fluctuate during a period.
For the 2012 annual grant date, the Company estimated the expected volatility based upon the average of the most
recent one year volatility, the median of the term of the expected life rolling volatility, the median of the most recent term of
the expected life volatility of 3M stock, and the implied volatility on the grant date. The expected term assumption is based
on the weighted average of historical grants.