3M 2011 Annual Report Download - page 118

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The following table summarizes restricted stock and restricted stock unit activity during the twelve months ended
December 31:
Restricted Stock and Restricted Stock Units
2011 2010 2009
Number of Grant Date Number of Grant Date Number of Grant Date
Awards Fair Value* Awards Fair Value* Awards Fair Value*
Nonvested balance —
As of January 1 ................. 4,812,657 $ 68.75 4,379,480 $ 68.85 2,957,538 $ 77.41
Granted:
Annual ....................... 889,448 89.46 902,549 78.81 1,150,819 53.89
Other .......................... 351,624 87.07
527,823 70.09 522,581 54.82
Vested ........................... (1,077,816) 72.21
(948,233 ) 79.12 (157,104) 73.26
Forfeited ........................ (116,941) 72.01
(48,962 ) 76.22 (94,354) 69.57
As of December 31 ........... 4,858,972 $ 73.02 4,812,657 $ 68.75 4,379,480 $ 68.85
* Weighted average
As of December 31, 2011, there was $85 million of compensation expense that has yet to be recognized related to
non-vested restricted stock and restricted stock units. This expense is expected to be recognized over the remaining
weighted-average vesting period of 2.1 years. The total fair value of restricted stock and restricted stock units that
vested during the twelve-month periods ended December 31, 2011, 2010 and 2009, respectively, was $102 million,
$75 million and $10 million. The Company’s actual tax benefits realized for the tax deductions related to the vesting
of restricted stock and restricted stock units was $36 million for 2011, $20 million for 2010, and was not material for
2009.
Restricted stock units granted under the “3M 2008 Long-Term Incentive Plan” generally vest three years following the
grant date assuming continued employment. The one-time “buyout” restricted stock unit grant in 2007 vests at the
end of five years. Restricted stock unit grants issued in 2008 and prior did not accrue dividends during the vesting
period. Beginning in 2009, dividend equivalents equal to the dividends payable on the same number of shares of 3M
common stock accrue on these restricted stock units during the vesting period, although no dividend equivalents are
paid on any of these restricted stock units that are forfeited prior to the vesting date. Dividend equivalents are paid
out in cash at the vest date on all vested restricted stock units. Since the rights to dividend equivalents are forfeitable,
there is no impact on basic earnings per share calculations. Weighted average restricted stock unit shares
outstanding are included in the computation of diluted earnings per share.
Performance Shares
Beginning in 2008, the Company grants certain members of executive management performance shares on an
annual basis. The performance criteria, which were modified in 2010, are designed to focus management attention
on three key factors that create long-term stockholder value: Organic Sales Growth, Return on Invested Capital and
sales from new products. The number of shares of 3M common stock that could actually be delivered at the end of
the three-year performance period may be anywhere from 0% to 200% of each performance share granted,
depending on the performance of the Company during such performance period. Non-substantive vesting requires
that expense for the performance shares be recognized over one or three years depending on when each individual
became a 3M executive. The first performance shares, which were granted in 2008, were distributed in 2011.
Performance shares do not accrue dividends during the performance period. Therefore, the grant date fair value is
determined by reducing the closing stock price on the date of grant by the net present value of dividends during the
performance period. As a result of the significant uncertainty due to the economic crisis of 2008-2009, the Company
granted restricted stock units instead of performance shares in 2009. Performance share grants resumed in 2010
and continued thereafter. The 2008 performance share grant was estimated to have zero percent attainment at the
beginning and ending of 2009.