3M 2011 Annual Report Download

Download and view the complete annual report

Please find the complete 2011 3M annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

2011 Annual Report
Inspired
Innovation

Table of contents

  • Page 1
    2011 Annual Report Inspired Innovation

  • Page 2
    ... Chief Executive Officer Despite all this turbulence, full-year sales increased 11 percent to $29.6 billion, with double-digit growth in Industrial and Transportation; Safety, Security and Protection Services; and Health Care. Operating margins were 20.9 percent for the company, and all businesses...

  • Page 3
    .... Earnings per share were $5.96, a 6 percent increase over the previous year. They were held back somewhat by higher year-overyear non-operational costs such as higher taxes, pension and other post employment benefit charges, driven up by record low discount rates. 3M generated free cash ï¬,ow...

  • Page 4
    ... creativity from which product and process innovation is born requires a finely balanced approach to risk, technology and investments and it also requires a little freedom. We offer that freedom to our researchers by allowing them 15 percent free time to work on whatever projects they wish, ones...

  • Page 5
    ... at 3M are not limited to research and manufacturing. Every function of the company is taking on big projects as we move to become faster and more competitive. Last year, for example, we began contemporizing our information systems across the company and around the world. With 3M's complexity...

  • Page 6
    ... sales Selling, general and administrative expenses Research, development and related expenses Other expense (income) Operating income Net income attributable to 3M Total debt to total capital (total capital = debt plus equity) Additional Information Cash dividends paid Per share Stock price at year...

  • Page 7
    ... ACT OF 1934 For the fiscal year ended December 31, 2011 Commission file number 1-3285 3M COMPANY State of Incorporation: Delaware I.R.S. Employer Identification No. 41-0417775 Principal executive offices: 3M Center, St. Paul, Minnesota 55144 Telephone number: (651) 733-1110 SECURITIES REGISTERED...

  • Page 8
    ... PART IV ITEM 15 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management...

  • Page 9
    ... businesses: Industrial and Transportation; Health Care; Consumer and Office; Safety, Security and Protection Services; Display and Graphics; and Electro and Communications. 3M is among the leading manufacturers of products for many of the markets it serves. Most 3M products involve expertise...

  • Page 10
    ... supplies, skin health and infection prevention products, inhalation and transdermal drug delivery systems, dental and orthodontic products (oral care), health information systems, and food safety products. In the medical and surgical areas, 3M is a supplier of medical tapes, dressings, wound...

  • Page 11
    ... delivery of information. Products include electronic and interconnect solutions, microinterconnect systems, high-performance fluids, high-temperature and display tapes, telecommunications products, electrical products, and touch screens and touch monitors. Major electronic and electrical products...

  • Page 12
    ... sources. 3M manages commodity price risks through negotiated supply contracts, price protection agreements and forward physical contracts. Environmental Law Compliance 3M's manufacturing operations are affected by national, state and local environmental laws around the world. 3M has made, and plans...

  • Page 13
    ... Chairman of the Board, President and Chief Executive Officer Executive Vice President, Safety Security and Protection Services Business 2005 Julie L. Bushman ... 50 2011 Vice President and General Manager, Occupational Health and Environmental Safety Division, 2007-2011 Division Vice President...

  • Page 14
    ... Financial Officer, North America, General Motors Corp., 2007-2008 Chief Financial Officer, Europe, General Motors Corp., 2004-2007 Frederick J. Palensky . 62 Executive Vice President, Research and Development and Chief Technology Officer Executive Vice President, Health Care Business Executive...

  • Page 15
    ... market position, x worldwide economic and capital markets conditions, such as interest rates, foreign currency exchange rates, financial conditions of our suppliers and customers, and natural and other disasters affecting the operations of the Company or our suppliers and customers, x new business...

  • Page 16
    ...\¶VDELOLW\WRUHDOL]H projected growth rates in its sales and earnings. Because the Company's financial statements are denominated in U.S. dollars and approximately two-thirds of the Company's revenues are derived from outside the United States, the Company's results of operations and its ability...

  • Page 17
    ... Financial Statements. Item 1B. Unresolved Staff Comments. None. Item 2. Properties. 3M's general offices, corporate research laboratories, and certain division laboratories are located in St. Paul, Minnesota. The Company operates 81 manufacturing facilities in 28 states. The Company operates...

  • Page 18
    ... of Equity Securities Repurchases of 3M common stock are made to support the Company's stock -based employee compensation plans and for other corporate purposes. In February 2007, 3M's Board of Directors authorized a two-year share repurchase of up to $7.0 billion for the period from February...

  • Page 19
    ... 2008 2007 Years ended December 31: Net sales ...Net income attributable to 3M ...Per share of 3M common stock: Net income attributable to 3M - basic ...Net income attributable to 3M - diluted . . Cash dividends declared and paid per 3M common share ...At December 31: Total assets ...Long-term debt...

  • Page 20
    ... markets and customers. The financial information presented herein reflects the impact of these changes for all periods presented. 3M manages its operations in six operating business segments: Industrial and Transportation; Health Care; Consumer and Office; Safety, Security and Protection Services...

  • Page 21
    ... $1.30 per diluted share, in the fourth quarter of 2009. Fourthquarter income was penalized by year-on-year H1N1-related comparisons, increases in raw material costs, and investments to accelerate future growth. 3M invested in research and development, sales and marketing (including advertising and...

  • Page 22
    ... Oper. Income Net Sales 2010 % of Total Oper. Income 2011 vs. 2010 % change Net Oper. Sales Income Business Segments Industrial and Transportation . Health Care ...Consumer and Office ...Safety, Security and Protection Services ...Display and Graphics ...Electro and Communications . Corporate...

  • Page 23
    ... higher valuation of the projected benefit obligation, which reduced the plans' funded status. The changes in 3M's defined-benefit pension and postretirement plans' funded status significantly impacted several balance sheet lines. These changes increased long-term liabilities by approximately...

  • Page 24
    ... Services at 11.8 percent, and Health Care at 8.4 percent. Acquisitions added 3.3 percent to worldwide growth and currency impacts benefited 2011 worldwide sales growth by 3.1 percent. Worldwide selling prices rose 1.0 percent in 2011, despite selling price declines in 3M's optical systems business...

  • Page 25
    ... In 2011, R&D expense increased versus 2010 due to R&D related to businesses acquired in the last 12 months, foreign exchange effects, and higher pension and postretirement expense, in addition to 3M's continued investment in new products. R&D, measured as a percent of sales, was 5.3 percent in 2011...

  • Page 26
    ... "Purchase and Sale of Subsidiary Shares and Transfers of Ownership Interests Involving Non-Wholly Owned Subsidiaries". Other significant items impacting the year-on-year comparison include a one-time 2010 income tax charge of $84 million, which benefited the 2011 tax rate when compared to 2010 by...

  • Page 27
    ... of actions real estate Total (Millions) Industrial and Transportation ...Health Care ...Consumer and Office ...Safety, Security and Protection Services Display and Graphics ...Electro and Communications ...Corporate and Unallocated ...Total operating income penalty (benefit) $ $ 89 20 13 16 22...

  • Page 28
    ... OEM, energy and advanced materials, aerospace, abrasives systems, and industrial adhesives and tapes. Operating income increased 43 percent to $1.8 billion in 2010, with operating income margins of 20.8 percent. In 2009, this business segment recorded charges of $89 million related to restructuring...

  • Page 29
    ... in part to sales declines in drug delivery systems. 3M's long -term expectation is that Health Care operating income margins will be in the high 20's, as 3M continues to invest to grow this business. Year 2010 results: Health Care local-currency sales increased 5.3 percent, including a benefit of...

  • Page 30
    ... products (do-it-yourself), home care products, protective material products, certain consumer retail personal safety products, and consumer health care products. Year 2011 results: Sales in Consumer and Office increased 7.8 percent in 2011 to $4.2 billion, with all businesses posting positive sales...

  • Page 31
    ...efforts in Japan. Operating income for 2011 rose 14.9 percent to $814 million. 3M achieved a 21.3 percent operating income margin, despite H1N1-related comparisons that negatively impacted results. Year 2010 results: Safety, Security and Protection Services sales increased 7.8 percent in 2010. Local...

  • Page 32
    ... in Europe. Sales also declined in Asia Pacific, where the decline in optical systems sales was a major factor. Operating income in 2011 totaled $788 million, down 16.6 percent from 2010. 3M achieved 21.5 percent operating income margins in this business segment, as productivity improvements helped...

  • Page 33
    ... and interconnect solutions, micro interconnect systems, high-performance fluids, high-temperature and display tapes, telecommunications products, electrical products, and touch screens and touch monitors. Year 2011 results: Electro and Communications sales were $3.3 billion in 2011, an increase of...

  • Page 34
    ... electrical markets business. 3M's telecom infrastructure -related business increased slightly year-on-year. Operating income was $670 million in 2010, or 22.0 percent of sales, which was significantly improved versus 2009 as the consumer electronic-related businesses showed significant year-on-year...

  • Page 35
    ... adhesives and glass bubbles. In addition, spending on some of the following 2010 capital projects carried forward into 2011. In 2010, in the U.S., 3M invested in film manufacturing assets for optical systems and other non-optical businesses which use similar technology. In 2010, 3M also increased...

  • Page 36
    ... was closed to new participants effective January 1, 2009. The Company accounts for its defined benefit pension and postretirement health care and life insurance benefit plans in accordance with Accounting Standard Codification (ASC) 715, Compensation ² Retirement Benefits, in measuring plan assets...

  • Page 37
    ...of return on an annualized basis for 2012 is 8.25%, a 0.25% decrease from 2011. Refer to Note 11 for information on how the 2012 rate was determined. Return on assets assumptions for international pension and other post-retirement benefit plans are calculated on a plan-by-plan basis using plan asset...

  • Page 38
    ... ten reporting units were comprised of the following divisions: 3M Purification Inc., Occupational Health and Environmental Safety, Optical Systems, Infection Prevention, Security Systems, 3M ESPE, Industrial Adhesives and Tapes, Communication Markets, Abrasive Systems and Health Information Systems...

  • Page 39
    ... an Aa2 credit rating, with a stable outlook, from Moody's Investors Service. The Company generates significant ongoing cash flow, which has been used, in part, to pay dividends on 3M common stock, for acquisitions, and to fund share repurchase activities. As discussed in Note 2, in 2011 3M acquired...

  • Page 40
    ... review of acquisition opportunities. 3M paid dividends of $1.555 billion in 2011, and has a long history of dividend increases. In February 2012, 3M's Board of Directors increased the quarterly dividend on 3M common stock by 7.3 percent to 59 cents per share, equivalent to an annual dividend...

  • Page 41
    ... reflects changes in other asset and liability accounts, such as a decrease in accrued payroll amounts in 2011 related to certain annual incentives, which reduced liabilities. In 2010, cash flows provided by operating activities increased $233 million compared to 2009. The main positive contribution...

  • Page 42
    ... energy, traffic signage in developing economies, and optically clear adhesives and glass bubbles. In addition, some of the following 2010 capital projects carried forward into 2011. In 2010, in the U.S., 3M invested in film manufacturing assets for optical systems and other non-optical businesses...

  • Page 43
    ... related to its holdings in asset-backed securities to materially impact its financial condition or liquidity. Refer to Note 9 for more details about 3M's diversified marketable securities portfolio, which totaled $2.357 billion as of December 31, 2011. Additional purchases of investments include...

  • Page 44
    ... a material impact on the Company's consolidated results of operations or financial condition. A summary of the Company's significant contractual obligations as of December 31, 2011, follows: Contractual Obligations Payments due by year (Millions) Total 2012 2013 2014 2015 2016 After 2016 Long-term...

  • Page 45
    ... test the Company's exposure to changes in currency and interest rates and assess the risk of loss or benefit in after-tax earnings of financial instruments, derivatives and underlying exposures outstanding at December 31, 2011. The model (third-party bank dataset) used a 95 percent confidence level...

  • Page 46
    ...adverse changes in financial and derivative instrument market rates and prices, such as fluctuations in interest rates and foreign currency exchange rates. The Company discusses risk management in various places throughout this document, including discussions in Item 7 concerning Financial Condition...

  • Page 47
    ... for the years ended December 31, 2011, 2010 and 2009 .. Notes to Consolidated Financial Statements ...Note 1. Significant Accounting Policies ...Note 2. Acquisitions ...Note 3. Goodwill and Intangible Assets ...Note 4. Restructuring Actions ...Note 5. Supplemental Balance Sheet Information ...Note...

  • Page 48
    ... in the conduct of Company affairs. Internal auditors continually review the accounting and control system. system. 3M Company 3M Company Management's Report on Internal Control Over Financial Reporting Management's Report on Internal Control Over Financial Reporting Management is responsible...

  • Page 49
    ... Firm Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of 3M Company To the Stockholders and Board of Directors of 3M Company In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material In...

  • Page 50
    ... Statement of Income Consolidated Statement of Income 3M Company and Subsidiaries 3M Company and Subsidiaries Years ended December 31 Years ended December 31 (Millions, except per share amounts) (Millions, except Net sales ...per ...share ...amounts) ... 29,611 Net sales expenses ...26,662 Operating...

  • Page 51
    Consolidated Statement of Comprehensive Income 3M Company and Subsidiaries Years ended December 31 (Millions) 2011 2010 2009 Net income including noncontrolling interest ...Other comprehensive income, net of tax: Cumulative translation adjustment ...Defined benefit pension and postretirement plans ...

  • Page 52
    ... Balance Sheet 3M Company and Subsidiaries At December 31 (Dollars in millions, except per share amount) 2011 2010 Assets Current assets ...Cash and cash equivalents ...Marketable securities - current ...Accounts receivable - net of allowances of $108 and $98 ...Inventories Finished goods ...Work...

  • Page 53
    ...of tax ...209 Dividends paid ($2.10 per share) ...(1,500) Purchase of subsidiary shares and transfers from noncontrolling interest ...(256) Stock-based compensation, net of tax impacts ...311 Reacquired stock ...(880) Issuances pursuant to stock option and benefit plans ...668 Balance at December 31...

  • Page 54
    ... Dividends paid ($2.20 per share) ...Business combination allocation to 56 noncontrolling interest ...Purchase and sale of subsidiary shares (49) net ...Stock-based compensation, net 300 of tax impacts ...(2,694) Reacquired stock ...Issuances pursuant to stock option and 906 benefit plans ...Balance...

  • Page 55
    ... tax benefits from stock-based compensation ...Changes in assets and liabilities ...Accounts receivable ...Inventories ...Accounts payable ...Accrued income taxes (current and long-term) ...Product and other insurance receivables and claims ...Other - net ...Net cash provided by operating activities...

  • Page 56
    ...subsidiary by approximately two-thirds in 2010 in comparison to 2009 (based on exchange rates at 2009 year-end), but did not otherwise have a material impact on operating income and 3M's consolidated results of operations. Reclassifications: Certain amounts in the prior years' consolidated financial...

  • Page 57
    ... assets include deferred income taxes, product and other insurance receivables, the cash surrender value of life insurance policies, and other long-term assets. Investments in life insurance are reported at the amount that could be realized under contract at the balance sheet date, with any changes...

  • Page 58
    ... the Company serves numerous markets, the rebate programs offered vary across businesses, but the most common incentive relates to amounts paid or credited to customers for achieving defined volume levels or growth objectives. Free goods are accounted for as an expense and recorded in cost of sales...

  • Page 59
    ... economic data and historical sales returns. The Company reviews the allowance for doubtful accounts monthly. The Company does not have any significant off-balance-sheet credit exposure related to its customers. Advertising and merchandising: These costs are charged to operations in the period...

  • Page 60
    ..., restricted stock, restricted stock units, performance shares, and the General Employees' Stock Purchase Plan (GESPP). Under applicable accounting standards, the fair value of share -based compensation is determined at the grant date and the recognition of the related expense is recorded over the...

  • Page 61
    ... traded as an asset may be considered level 1 fair value measurements (see Note 13 for a description of level 1 measurements). For 3M, this ASU was effective October 1, 2009. The adoption of this ASU did not have a material impact on 3M's consolidated results of operations or financial condition...

  • Page 62
    ... 2009-12, but certain plan assets of the Company's benefit plans are valued based on NAV as indicated in Note 11. For 3M, this ASU was effective October 1, 2009. The adoption of this ASU did not have a material impact on 3M's consolidated results of operations or financial condition. In October 2009...

  • Page 63
    ...operations or financial condition. In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment. Under this new standard, entities testing goodwill for impairment now have an option of performing a qualitative assessment before having to calculate the fair value of a reporting...

  • Page 64
    ...3M makes acquisitions of certain businesses from time to time that the Company feels align with its strategic intent with respect to, among other factors, growth markets and adjacent product lines or technologies. The impact on the consolidated balance sheet of the purchase price allocations related...

  • Page 65
    ... research and development associated with these business combinations were not material. Pro forma information related to acquisitions was not included because the impact on the Company's consolidated results of operations was not considered to be material. In addition to business combinations, 3M...

  • Page 66
    ... and plating services, materials and manufacturing capabilities for flexible circuits for the mobile hand-held, touch-screen panel and display markets. (6) In April 2011, 3M (Display and Graphics Business) purchased all of the outstanding shares of Original Wraps Inc., a company specializing in the...

  • Page 67
    ... 3M (Health Care Business) purchased all of the outstanding shares of Arizant Inc., a manufacturer of patient warming solutions designed to prevent hypothermia in surgical settings based in Eden Prairie, Minnesota. (9) In October 2010, 3M (Safety, Security and Protection Services Business) purchased...

  • Page 68
    ... Dec. 31, 2010 Balance 2011 acquisition activity 2011 translation and other Dec. 31, 2011 Balance (Millions) Industrial and Transportation ...Health Care ...Consumer and Office . . Safety, Security and Protection Services . . Display and Graphics . . Electro and Communications ...Total Company...

  • Page 69
    ... unit (Security Systems Division) level. 3M completed its assessment of potential goodwill impairment for this reporting unit and determined that no goodwill impairment existed as of June 30, 2009. Acquired Intangible Assets For 2011, intangible assets (excluding goodwill) acquired through business...

  • Page 70
    ...incurred in 2009: Industrial and Transportation ...Health Care ...Consumer and Office ...Safety, Security and Protection Services ...Display and Graphics ...Electro and Communications ...Corporate and Unallocated ...Total 2009 expenses ...Non-cash changes in 2009 ...Cash payments, net of adjustments...

  • Page 71
    ... supplemental balance sheet information is provided in the table that follows. (Millions) 2011 2010 Other current assets Prepaid expenses and other ...Deferred income taxes ...Derivative assets-current ...Product and other insurance receivables ...Total other current assets ...Investments Equity...

  • Page 72
    ... to 3M Years ended December 31 (Millions) 2011 $ $ 114 $ (5,155) (6) 22 (5,025) $ 374 (3,879) (6) (32) (3,543) 2010 2009 Net income attributable to 3M ...Cumulative translation ...Tax effect ...Cumulative translation - net of tax ...Defined benefit pension and postretirement plans adjustment...

  • Page 73
    ...as of that business acquisition date. Subsequent to this business acquisition date, 3M purchased additional outstanding shares of its Winterthur subsidiary increasing 3M's ownership interest from approximately 86 percent as of the business acquisition date to 100 percent as of December 31, 2011. The...

  • Page 74
    ...A-One acquisition. During 2009, 3M recorded a capital lease asset and obligation of approximately $50 million related to an IT investment with an amortization period of seven years and contributed $600 million to its U.S. defined benefit pension plan in shares of the Company's common stock. x x 68

  • Page 75
    ... 56 156 1,388 $ $ 55 43 (212) 1,592 $ 2011 2010 Deferred tax assets: Accruals not currently deductible ...Employee benefit costs ...Product and other claims ...Miscellaneous accruals ...Pension costs ...Stock-based compensation ...Net operating/capital loss carryforwards ...Foreign tax credits...

  • Page 76
    ... "Purchase and Sale of Subsidiary Shares and Transfers of Ownership Interest Involving Non-Wholly Owned Subsidiaries". Other significant items impacting the year-on-year comparison include a one-time 2010 income tax charge of $84 million (discussed further below), which benefited the 2011 tax rate...

  • Page 77
    ... 12 months that include material unrecognized tax benefits. The Company believes that the closing of those years will result in a decrease in the Company's uncertain tax positions as a result of both cash payments and adjustments to previously recorded income tax reserves. Currently, the Company is...

  • Page 78
    ... The Company invests in agency securities, corporate securities, asset-backed securities, treasury securities and other securities. The following is a summary of amounts recorded on the Consolidated Balance Sheet for marketable securities (current and non-current). Dec. 31, 2011 Dec. 31, 2010...

  • Page 79
    ... 31, 2011 and 2010, respectively. As of December 31, 2011, auction rate securities associated with these balances have been in a loss position for more than 12 months. Since the second half of 2007, these auction rate securities failed to auction due to sell orders exceeding buy orders. Liquidity...

  • Page 80
    ... following: Long-Term Debt (Millions) Description / 2011 Principal Amount Currency/ Fixed vs. Floating Effective Interest Rate Final Maturity Date 2011 2010 Eurobond (775 million Euros) ...Medium-term note ($1 billion) ...Medium-term note ($850 million) ...Medium-term note ...30-year bond ($750...

  • Page 81
    ... 2011, in connection with the August 5, 2011 "well-known seasoned issuer" registration statement, 3M established a $3 billion medium -term notes program (Series F), from which 3M issued a five-year $1 billion fixed rate note with a coupon rate of 1.375%. Proceeds were used for general corporate...

  • Page 82
    ..., from Moody's Investors Service. In August 2011, 3M entered into a $1.5 billion, five-year multicurrency revolving credit agreement, which replaced the existing agreement that was due to expire in April 2012. This credit agreement includes a provision under which 3M may request an increase of up to...

  • Page 83
    ... health care and life insurance benefit plans, the Company has set aside amounts at least equal to annual benefit payments with an independent trustee. In August 2006, the Pension Protection Act (PPA) was signed into law in the U.S. The PPA transition rules increased the funding target for defined...

  • Page 84
    ... of 3M's fair value of total plan assets. 3M currently believes that the resolution of these events will not have a material adverse effect on the consolidated financial position of the Company. In December 2011, the Company began offering a voluntary early retirement incentive program to certain...

  • Page 85
    ... relate to pension plans with accumulated benefit obligations in excess of plan assets as of December 31: Qualified and Non-qualified Pension Plans United States International 2011 2010 2011 2010 (Millions) Projected benefit obligation ...Accumulated benefit obligation ...Fair value of plan assets...

  • Page 86
    ... income Qualified and Non-qualified Pension Benefits United States International 2011 2010 2009 2011 2010 2009 Postretirement Benefits 2011 2010 2009 (Millions) Net periodic benefit cost (benefit) Service cost ...Interest cost ...Expected return on plan assets ...Amortization of transition (asset...

  • Page 87
    ...savings account benefits-based plan announced in 2008. Therefore, the Company no longer has material exposure to health care cost inflation. Weighted-average assumptions used to determine net cost for years ended Qualified and Non-qualified Pension Benefits United States International 2010 2009 2011...

  • Page 88
    ...U.S. qualified pension plan. All of the 3M shares contributed to the U.S. pension plan were sold before 2009 year end by an independent fiduciary to the plan. Normally, 3M does not buy or sell any of its own stock as a direct investment for its pension and other postretirement benefit funds. However...

  • Page 89
    ...allocation is reviewed regularly by the named fiduciary of the plans. The fair values of the assets held by the U.S. pension plans by asset class are as follows: (Millions) Asset Class Fair Value Measurements Using Inputs Considered as Level 1 Level 2 Level 3 2011 2010 2011 2010 2011 2010 Fair Value...

  • Page 90
    ... Trading Company, interest receivable, amounts due for securities sold, amounts payable for securities purchased and interest payable. The following table sets forth a summary of changes in the fair values of the U.S. pension plans' level 3 assets for the years ended December 31, 2011 and 2010: Fair...

  • Page 91
    ... managed managed to to the the Morgan Morgan Stanley Stanley Capital Capital All All Country Country World World Index. Index. Publicly Publicly traded traded equities equities are are valued valued at at the the closing closing price price reported reported in in the the active active market market...

  • Page 92
    ... due for securities sold, amounts payable for securities purchased and interest payable. The following table sets forth a summary of changes in the fair values of the international pension plans level 3 assets for the years ended December 31, 2011 and 2010: Fair Value Measurement Using Significant...

  • Page 93
    ... is reviewed regularly by the named fiduciary of the plan. The fair values of the assets held by the postretirement benefits plans by asset class are as follows: Fair Value Measurements Using Inputs Considered as Level 1 Level 2 Level 3 2011 2010 2011 2010 2011 2010 Fair Value at Dec 31, 2011 2010...

  • Page 94
    ... Income Equity Return Commodities Total (Millions) Beginning balance at Jan. 1, 2010 .. Net transfers into / (out of) level 3 .. Purchases, sales, issuances and settlements, net ...Realized gain/(loss) ...Change in unrealized gains/(losses) relating to instruments still held at the reporting date...

  • Page 95
    ... are accounted for, and how such instruments impact 3M's financial position and performance. Additional information with respect to the impacts on other comprehensive income of nonderivative hedging and derivative instruments is included in Note 6. Additional information with respect to the fair...

  • Page 96
    ... over the five-year life of the note. 3M expects to reclassify a majority of the remaining balance to earnings over the next 12 months (with the impact offset by cash flows from underlying hedged items). The location in the consolidated statements of income and comprehensive income and amounts of...

  • Page 97
    ... million Euros recorded as part of the underlying debt balance is not part of gains on hedged items recognized in income in the tables below. In November 2006, the Company entered into a $400 million fixed-to-floating interest rate swap concurrent with the issuance of the three-year medium-term note...

  • Page 98
    ..., 2011. The Company does not hold or issue derivative financial instruments for trading purposes. The location in the consolidated statements of income and amounts of gains and losses related to derivative instruments not designated as hedging instruments are as follows: Year ended December 31, 2011...

  • Page 99
    ... in 2011 and increased net income attributable to 3M by approximately $15 million in 2010. This estimate includes the effect of translating profits from local currencies into U.S. dollars; the impact of currency fluctuations on the transfer of goods between 3M operations in the United States and...

  • Page 100
    ... models that utilize inputs such as current/forward interest rates, current market conditions and credit default swap spreads. 3M classifies these securities as level 3. Available-for-sale investments: Investments include equity securities that are traded in an active market. Closing stock prices...

  • Page 101
    ... to changes in spot foreign currency exchange rates and not with respect to other factors that may impact fair value. 3M has determined that foreign currency forwards and commodity price swaps will be considered level 1 measurements as these are traded in active markets which have identical asset or...

  • Page 102
    ..., 2010 Level 1 Fair Value Measurements Using Inputs Considered as Level 2 Level 3 Assets: Available-for-sale: Marketable securities: U.S. government agency securities ...Foreign government agency securities . Corporate debt securities ...Certificates of deposit/time deposits ...Commercial paper...

  • Page 103
    ...addition to the restructuring activities, in June 2009 the Company recorded a $13 million impairment of certain long-lived assets associated with the UK passport production activity of 3M's Security Systems Division (within the Safety, Security and Protection Services business segment). In June 2009...

  • Page 104
    ... product warranty liabilities, recorded on the Consolidated Balance Sheet as part of current and long term liabilities, are estimated at approximately $28 million as of December 31, 2011 and approximately $27 million as of December 31, 2010. 3M does not consider this amount to be material. The fair...

  • Page 105
    ... of operations or cash flows in the period in which they are recorded. The Company currently believes that such future charges, if any, would not have a material adverse effect on the consolidated financial position of the Company, taking into account its significant available insurance coverage...

  • Page 106
    ... since the fourth quarter of 2007, the Court held a case management conference in March 2011, but no further activity has occurred in the case since that conference. No liability has been recorded for this matter because the Company believes that liability is not probable and estimable at this time...

  • Page 107
    .../Asbestos Litigation - Aearo Technologies On April 1, 2008, a subsidiary of the Company purchased the stock of Aearo Holding Corp., the parent of Aearo Technologies ("Aearo"). Aearo manufactures and sells various products, i ncluding personal protection equipment, such as eye, ear, head, face, fall...

  • Page 108
    ... shared in an informal arrangement among Aearo, Cabot, American Optical Corporation and a subsidiary of Warner Lambert and their insurers (the "Payor Group"). Liability is allocated among the parties based on the number of years each company sold respiratory products under the "AO Safety" brand...

  • Page 109
    ... ATSDR to release its report in 2012. 3M continues its third and final phase of work pursuant to a Memorandum of Understanding with the EPA regarding an environmental assessment program at the Company's Decatur manufacturing site. That work includes groundwater sampling off-site from the Decatur...

  • Page 110
    ... site in late 2010. At each location the remedial options were among those recommended by the Company. Remediation work has been completed at the Oakdale site, and it is in an operational maintenance mode. Remediation will continue at the other two sites throughout the balance of 2012. The Company...

  • Page 111
    ... Receivables As of December 31, 2011, the Company had recorded liabilities of $28 million for estimated "environmental remediation" costs based upon an evaluation of currently available facts with respect to each individual site and also recorded related insurance receivables of $15 million. The...

  • Page 112
    ...: (i) changes in the information available regarding the environmental impact of the Company's operations and products; (ii) changes in environmental regulations, changes in permissible levels of specific compounds in drinking water sources, or changes in enforcement theories and policies, including...

  • Page 113
    ...as a result of reports it received about its subsidiary in Turkey, alleging bid rigging and bribery and other inappropriate conduct in connection with the supply of certain reflective and other materials and related services to Turkish government entities. The Company also contacted certain affected...

  • Page 114
    ... Dennison Corporation in the United States District Court for the District of Minnesota in June 2010, alleging that Avery's OmniCubeâ„¢ full cube retroreflective sheeting products, which are used for highway signage, infringe a number of 3M patents. 3M's motion to preliminarily enjoin the sales of...

  • Page 115
    ... debt service on the notes, less dividends. The Company contributed treasury shares (accounted for at fair value) and cash 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) 2011 2010...

  • Page 116
    ..., restricted stock, restricted stock units, performance shares, and the General Employees' Stock Purchase Plan (GESPP), are provided in the following table. Capitalized stock-based compensation amounts were not material for the twelve months ended 2011, 2010 and 2009. The income tax benefits shown...

  • Page 117
    ...at the date of grant was calculated using the Black-Scholes option-pricing model and the assumptions that follow. Stock Option Assumptions Annual 2010 Progressive (Reload) 2010 2011 2009 2011 2009 Exercise price ...Risk-free interest rate ...Dividend yield ...Volatility ...Expected life (months...

  • Page 118
    ... 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...

  • Page 119
    ... 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 2011 Shares Exercise Price* Shares...

  • Page 120
    ... paint finishing and detailing products, energy control products Medical and surgical supplies, skin health and infection prevention products, drug delivery systems, dental and orthodontic products, health information systems and food safety products Sponges, scouring pads, high-performance cloths...

  • Page 121
    Business Segment Information Net Sales 2010 Operating Income 2010 (Millions) 2011 2009 2011 2009 Industrial and Transportation Health Care Consumer and Office Safety, Security and Protection Services Display and Graphics Electro and Communications Corporate and Unallocated Elimination of Dual ...

  • Page 122
    ...generally reported within the geographic area where the final sales to 3M customers are made. Net Sales 2010 Operating Income 2011 2010 2009 Property, Plant and Equipment - net 2011 2010 (Millions) 2011 2009 United States ...Asia Pacific ...Europe, Middle East and Africa Latin America and Canada...

  • Page 123
    ... financial reporting and will require testing for effectiveness. The Company completed implementation with respect to elements of certain processes/sub-processes in limited subsidiaries/locations and will continue to roll-out the ERP system over the next several years. As with any new information...

  • Page 124
    ... the 3M Proxy Statement and such information is incorporated by reference herein. Code of Ethics. All of our employees, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer and Controller, are required to abide by 3M's long-standing business conduct policies to...

  • Page 125
    ... information relating to security ownership of certain beneficial owners and management is set forth under the designation "Information on Stock Ownership of Directors and Executive Officers" and "Security Ownership of More Than 5 Percent Stockholders" in the 3M Proxy Statement and such information...

  • Page 126
    ... Statements. The consolidated financial statements filed as part of this report are listed in the index to financial statements on page 41 as follows: Page Number Report of Independent Registered Public Accounting Firm ...Consolidated Statement of Income for the years ended December 31, 2011, 2010...

  • Page 127
    ... year ended December 31, 2008. Form of Restricted Stock Unit Agreement for U.S. Employees under 3M 2008 Long-Term Incentive Plan is incorporated by reference from our Form 10-K for the year ended December 31, 2008. Amendment of the 3M 2005 Management Stock Ownership Program and the 3M 2008 Long-term...

  • Page 128
    ...) (10.41) (10.42) (10.43) (10.44) (10.45) Summary of Personal Financial Planning Services for 3M Executives is incorporated by reference from our Form 10-K for the year ended December 31, 2003. 3M policy on reimbursement of incentive payments is incorporated by reference from our Form 10-K for the...

  • Page 129
    ... financial information from 3M Company's Annual Report on Form 10-K for the period ended December 31, 2011, filed with the SEC on February 16, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statement of Income for the years ended December 31, 2011, 2010...

  • Page 130
    ... the Board, President and Chief Executive Officer (Principal Executive Officer and Director) Vice President, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer) Director Director Director Director Director Director Director Director Director David W. Meline, by signing...

  • Page 131
    ... analysts, portfolio managers and representatives of financial institutions should contact: 3M Investor Relations 3M Center, Building 225-01-S-15 St. Paul, MN 55144-1000 Phone: (651) 737-8503 Fax: (651) 737-2901 Corporate News and Reports Corporate news releases, 3M's Annual Report, and Forms...

  • Page 132
    www.3M.com Corporate Headquarters 3M Center St. Paul, MN 55144-1000 U.S.A. (651) 733-1110 www.3M.com C Please recycle Printed in U.S.A. © 3M 2012. All rights reserved.