3M 2005 Annual Report Download - page 97

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Dividends on shares held by the ESOP are paid to the ESOP trust and, together with Company contributions, are
used by the ESOP to repay principal and interest on the outstanding notes. The tax benefit related to dividends paid
on unallocated shares was charged directly to equity and totaled approximately $4 million in both 2005 and 2004, and
$5 million in 2003. Over the life of the notes, shares are released for allocation to participants based on the ratio of
the current year’s debt service to the remaining debt service prior to the current payment.
The ESOP has been the primary funding source for the Company’s employee savings plans. As permitted by
AICPA Statement of Position 93-6, “Employers’ Accounting for Employee Stock Ownership Plans”, the Company
has elected to continue its practices, which are based on Statement of Position 76-3, “Accounting Practices for
Certain Employee Stock Ownership Plans” and subsequent consensus of the EITF of the FASB. Accordingly, the
debt of the ESOP is recorded as debt, and shares pledged as collateral are reported as unearned compensation
in the Consolidated Balance Sheet and Consolidated Statement of Changes in Stockholders’ Equity and
Comprehensive Income. Unearned compensation is reduced symmetrically as the ESOP makes principal
payments on the debt. Expenses related to the ESOP include total debt service on the notes, less dividends. The
Company contributes treasury shares, accounted for at fair value, to employee savings plans to cover obligations
not funded by the ESOP (reported as an employee benefit expense).
Employee Savings and Stock Ownership Plans
(Millions) 2005 2004 2003
Dividends on shares held by the ESOP $36 $33 $31
Company contributions to the ESOP 12 15 17
Interest incurred on ESOP notes 10 12 14
Amounts reported as an employee benefit expense:
Expenses related to ESOP debt service 711 13
Expenses related to treasury shares 27 45 43
ESOP Debt Shares 2005 2004 2003
Allocated 16,729,528 16,200,282 15,494,346
Committed to be released 366,969 705,068 546,798
Unreleased 5,145,039 6,219,328 7,799,513
Total ESOP debt shares 22,241,536 23,124,678 23,840,657
NOTE 13. General Employees’ Stock Purchase Plan (GESPP)
In May 1997, shareholders approved 30 million shares for issuance under the Company’s GESPP. Substantially all
employees are eligible to participate in the plan. Participants are granted options at 85% of market value at the date of
grant. There are no GESPP shares under option at the beginning or end of each year because options are granted on
the first business day and exercised on the last business day of the same month.
General Employees’ Stock
Purchase Plan
2005 2004 2003
Exercise Exercise Exercise
Shares Price* Shares Price* Shares Price*
Options granted 1,646,521 $66.11 1,701,874 $69.65 1,812,055 $57.18
Options exercised (1,646,521) 66.11 (1,701,874) 69.65 (1,812,055) 57.18
Shares available for
grant – December 31 12,104,539 13,751,060 15,452,934
*Weighted average
The weighted average fair value per option granted during 2005, 2004 and 2003 was $11.67, $12.29 and $10.09,
respectively. The fair value of GESPP options was based on the 15% purchase price discount.