3M 2008 Annual Report Download - page 21

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During 2008 the funded status of the Company’s global pension plans declined from 100 percent to 85 percent. As of
December 31, 2008, the U.S. pension plans’ funded status was 89 percent with the qualified plan at 92 percent, and
the international plans at 75 percent. By utilizing an effective hedging strategy for both fixed income and equity
investments, the Company was able to limit the decline in U.S. pension plan’s assets to a negative 13.6% return in
2008, much better than the overall market. In 2009, the Company expects to contribute an amount in the range of
$600 million to $850 million to its U.S. and international pension plans. The Company does not have a required
minimum pension contribution obligation for its U.S. plans in 2009. The changes in 3M’s defined benefit pension and
postretirement plans’ funded status, which are required to be measured as of each year-end, significantly impacted
several balance sheet line amounts at December 31, 2008. In the fourth quarter of 2008, these required annual
measurements decreased prepaid pension benefits’ assets by $1.7 billion, increased deferred taxes within other
assets by $1.1 billion, increased pension and postretirement benefits’ long-term liabilities by $1.7 billion and
decreased stockholders’ equity (reflected after taxes) by $2.3 billion. Other pension and postretirement changes
during the year, such as contributions and amortization, also impacted these balance sheet captions. Refer to critical
accounting estimates within MD&A and Note 11 (Pension and Postretirement Benefit Plans) for additional information
concerning 3M’s pension and post-retirement plans.
The preceding forward-looking statements involve risks and uncertainties that could cause results to differ materially
from those projected (refer to the forward-looking statements section in Item 7 and the risk factors provided in Item
1A for discussion of these risks and uncertainties).
Special Items:
Special items represent significant charges or credits that are important to understanding changes in the Company’s
underlying operations.
In 2008, net losses for restructuring and other actions decreased operating income by $269 million and net income
by $194 million, or $0.28 per diluted share. 2008 included restructuring actions ($229 million pre-tax, $147 million
after-tax and minority interest), exit activities ($58 million pre-tax, $43 million after-tax) and losses related to the sale
of businesses ($23 million pre-tax, $32 million after-tax), which were partially offset by a gain on sale of real estate
($41 million pre-tax, $28 million after-tax). Divestiture impacts, restructuring actions and exit activities are discussed
in more detail in Note 2 (Acquisitions and Divestitures) and Note 4 (Restructuring Actions and Exit Activities).
Concerning the real estate gain, 3M received proceeds and recorded a gain in 2008 for a sale-leaseback transaction
relative to an administrative location in Italy. 3M anticipates leasing back the facility through late 2009 at which time a
new location will be utilized.
In 2007, gains on sale of businesses and real estate, net of restructuring and other items, increased operating
income by $681 million and net income by $448 million, or $0.62 per diluted share. 2007 included net benefits from
gains related to the sale of businesses ($849 million pre-tax, $550 million after-tax) and a gain on sale of real estate
($52 million pre-tax, $37 million after-tax), which were partially offset by increases in environmental liabilities ($134
million pre-tax, $83 million after-tax), restructuring actions ($41 million pre-tax, $27 million after-tax), and other exit
activities ($45 million pre-tax, $29 million after-tax). These items, except the gain on sale of real estate, are
discussed in more detail in Note 2 (Acquisitions and Divestitures), Note 4 (Restructuring Actions and Exit Activities)
and Note 14 (Commitments and Contingencies). Gains on sale of businesses include the second-quarter 2007 sale
of 3M’s Opticom Priority Control Systems and Canoga Traffic Detection businesses, and the first-quarter 2007 sale of
the global branded pharmaceuticals business in Europe. Concerning the real estate sale, 3M sold a laboratory facility
located in Suwon, Korea.
In 2006, gains on sale of businesses, net of restructuring and other items, increased operating income by $523
million and net income by $438 million, or $0.57 per diluted share. 2006 included net benefits from gains related to
the sale of certain portions of 3M’s branded pharmaceuticals business ($1.074 billion pre-tax, $674 million after-tax)
and favorable income tax adjustments ($149 million), which were partially offset by restructuring actions ($403 million
pre-tax, $257 million after-tax), acquired in-process research and development expenses ($95 million pre-tax and
after-tax), settlement costs of an antitrust class action ($40 million pre-tax, $25 million after-tax), and environmental
obligations related to the pharmaceuticals business ($13 million pre-tax, $8 million after-tax). These items, except the
settlement costs and environmental obligations, are discussed in more detail in Note 2 (Acquisitions and
Divestitures), Note 4 (Restructuring Actions and Exit Activities) and Note 8 (Income Taxes). Concerning settlement
costs, the Company recorded $40 million in 2006 with respect to a settlement in principle related to the antitrust class
action brought on behalf of direct purchasers who did not purchase private label tape. Concerning environmental
obligations, the Company increased its reserves by $13 million during 2006 for estimated environmental remediation
costs at a European pharmaceutical plant.