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2012 Annual Report
Our Vision
3M Technology Advancing Every Company
3M Products Enhancing Every Home
3M Innovation Improving Every Life

Table of contents

  • Page 1
    2012 Annual Report Our Vision 3M Technology Advancing Every Company 3M Products Enhancing Every Home 3M Innovation Improving Every Life

  • Page 2
    To our shareholders Inge G. Thulin Chairman of the Board, President and Chief Executive Officer 2012 was another strong year for the people of 3M. In an uncertain economic environment, we kept our promises to our customers and investors while building an even stronger future for 3M. For me ...

  • Page 3
    ... - Build High Performing and Diverse Global Talent - Drive Consistent Superior Levels of Operational Excellence The strategies formed the basis of a great deal of 2012 progress across the company. For example, we aligned the organization to become more relevant and responsive to our customers. We...

  • Page 4
    ... $15 $1.00 $10 2008 2009 2010 2011 2012 0 2008 2009 2010 2011 2012 acquisition integration and Lean Six Sigma. We expanded our global footprint through continued investments around the world. And we did all of this with the high level of business conduct, integrity and character that...

  • Page 5
    ...$2.00 0 2008 2009 2010 2011 2012 * As indicated in the Financial Summary on page 4, certain years include net gains (losses) related to sales of businesses, restructuring and other items. Sales for the year were nearly $30 billion. In organic local currency terms, sales increased 2.6 percent...

  • Page 6
    ...total capital = debt plus equity) Additional Information Cash dividends paid Per share Stock price at year-end Total assets Long-term debt (excluding current portion) Capital expenditures Depreciation and amortization Research, development and related expenses Number of employees at year-end Average...

  • Page 7
    ... ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2012 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...

  • Page 8
    ... ITEM 1B Unresolved Staff Comments ITEM 2 ITEM 3 ITEM 4 PART II ITEM 5 ITEM 6 ITEM 7 Properties Legal Proceedings Mine Safety Disclosures Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and...

  • Page 9
    ... United States and 52,931 employed internationally. Business Segments In 2012, 3M managed its operations in six operating business segments: Industrial and Transportation; Health Care; Consumer and Office; Safety, Security and Protection Services; Display and Graphics; and Electro and Communications...

  • Page 10
    ... 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 closure products, orthopedic casting materials...

  • Page 11
    ...In traffic safety systems, 3M provides reflective sheeting used on highway signs, vehicle license plates, construction work-zone devices, trucks and other vehicles, and also provides pavement marking systems. Major commercial graphics products include films, inks, digital signage systems and related...

  • Page 12
    ... the completion of feasibility studies or the Company's commitment to a plan of action. Environmental expenditures for capital projects that contribute to current or future operations generally are capitalized and depreciated over their estimated useful lives. In 2012, 3M invested about $27 million...

  • Page 13
    ... Chief Executive Officer, 2012 Executive Vice President and Chief Operating Officer, 2011-2012 Executive Vice President, International Operations, 2004-2011 Executive Vice President, Safety Security and Protection Services Business, 2011-2012 Vice President and General Manager, Occupational Health...

  • Page 14
    ..., Corporate Controller and Chief Accounting Officer, 20082011 Chief Financial Officer, North America, General Motors Corp., 2007-2008 David W. Meline 55 Senior Vice President and Chief Financial Officer 2011 Frederick J. Palensky 63 Executive Vice President, Research and Development and Chief...

  • Page 15
    ... 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, ï,· new business opportunities, product development, and future performance or results of current or anticipated products...

  • Page 16
    ... tools, such as Lean Six Sigma, to improve operational efficiency and productivity. There can be no assurance that all of the projected productivity improvements will be realized. * The Company employs information technology systems to support its business, including ongoing phased implementation of...

  • Page 17
    .... 3M's general offices, corporate research laboratories, and certain division laboratories are located in St. Paul, Minnesota. The Company operates 93 manufacturing facilities in 30 states. The Company operates 133 manufacturing and converting facilities in 40 countries outside the United States. 3M...

  • Page 18
    ... Equity Securities (registered pursuant to Section 12 of the Exchange Act) Maximum Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (Millions) Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part...

  • Page 19
    ... Financial Data. (Dollars in millions, except per share amounts) 2012 2011 2010 2009 2008 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...

  • Page 20
    ... of products. In 2012, 3M managed its operations in six operating business segments: Industrial and Transportation; Health Care; Consumer and Office; Safety, Security and Protection Services; Display and Graphics; and Electro and Communications. Consistent with 3M's strategy of building relevance...

  • Page 21
    ... points. The primary benefit (as discussed in the Results of Operations section) related to the combination of selling price increases and raw material cost decreases. Currency effects reduced diluted earnings per share by an estimated 15 cents. Net insurance recoveries in 2012 related to the 2011...

  • Page 22
    ... 2012 % of Total Oper. Income Net Sales 2011 % of Total Oper. Income Business Segments 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 Credit...

  • Page 23
    ... million pre-tax, or approximately 10 cents per diluted share, when compared to 2012. Refer to "Critical Accounting Estimates" within MD&A and Note 10 (Pension and Postretirement Benefit Plans) for additional information concerning 3M's pension and post retirement plans. There are a few major items...

  • Page 24
    ...-currency sales increases, led by Latin America/Canada and the United States. Worldwide organic local-currency sales grew 10.0 percent in Industrial and Transportation, 7.1 percent in Safety, Security and Protection Services, 5.2 percent in Electro and Communications, 4.6 percent in Health Care, and...

  • Page 25
    ... million, or 1.1 percent, in 2012 when compared to 2011. In addition to cost-control and other productivity efforts, 3M experienced some savings from its first-quarter 2012 voluntary early retirement incentive program and other restructuring actions. These benefits more than offset increases related...

  • Page 26
    ... of Note 5 entitled "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, which benefited the 2011 tax rate when...

  • Page 27
    ... Notes to the Consolidated Financial Statements. The reportable segments are Industrial and Transportation; Health Care; Consumer and Office; Safety, Security and Protection Services; Display and Graphics; and Electro and Communications. Information related to 3M's business segments is presented in...

  • Page 28
    ...the primary benefit related to the combination of selling price increases and raw material cost decreases. Operating income growth was led by the United States. Operating income margins increased by 1.4 percentage points to 21.8 percent. As disclosed in Note 2, in November 2012, 3M acquired Ceradyne...

  • Page 29
    .... 3M achieved operating income margins of 20.4 percent, even with continued investments to support growth. Investment: In March 2005, 3M's automotive business completed the purchase of 19 percent of TI&M Beteiligungsgesellschaft mbH (TI&M) for approximately $55 million. TI&M is the parent company of...

  • Page 30
    ...-currency sales increased 4.7 percent, led by food safety, health information systems, and skin/wound care. Sales declined year-on-year in drug delivery systems. Acquisitions added 0.3 percent, as 3M further strengthened its health information systems business in April 2012 by acquiring CodeRyte...

  • Page 31
    ...in the United States. EMEA organic local-currency sales decreased 2 percent. Consumer and Office operating income increased 10.8 percent to $930 million. Operating income margins were 21.6 percent, compared to 20.2 percent in 2011, as all businesses and major geographic areas posted operating income...

  • Page 32
    .... The Company completed its annual goodwill impairment test in the fourth quarter of 2012, with no impairment indicated. Geographically, organic local-currency sales increased 19 percent in Latin America/Canada. Organic local-currency sales were flat in Asia Pacific and the United States, and...

  • Page 33
    ... Latin America/Canada and 6 percent in the United States. Organic local-currency sales declined 4 percent in EMEA and 6 percent in Asia Pacific, where the decrease in optical systems sales was a major factor. Operating income in 2012 totaled $693 million, down 12.1 percent. Operating income margins...

  • Page 34
    ...of information. Products include electronic 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 2012 results: Electro and Communications sales...

  • Page 35
    ... 16. A summary of key information and discussion related to 3M's geographic areas follow: 2012 United States Asia Pacific Europe, Middle East & Africa Latin America/ Canada Other Unallocated Worldwide Net sales (millions) % of worldwide sales Components of net sales change: Volume - organic Price...

  • Page 36
    ... Information Property, Plant and Equipment - net as of December 31, 2012 2011 (Millions, except Employees) Employees as of December 31, 2012 2011 2010 2012 Capital Spending 2011 2010 United States Asia Pacific Europe, Middle East and Africa Latin America and Canada Total Company Employment...

  • Page 37
    ...U.S. pension plan, the 2013 expected long-term rate of return on an annualized basis for 2013 is 8.00%, a 0.25% decrease from 2012. Refer to Note 10 for information on how the 2013 rate was determined. Return on assets assumptions for international pension and other post-retirement benefit plans are...

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

  • Page 39
    ... outlook, from Moody's Investors Service. The Company generates significant ongoing operating 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 2012 3M acquired Ceradyne, Inc. and other...

  • Page 40
    ... forward. The Company will continue to invest in its operations to drive growth, including continual review of acquisition opportunities. 3M paid dividends of $1.635 billion in 2012, and has a long history of dividend increases. In February 2013, 3M's Board of Directors increased the quarterly 34

  • Page 41
    ...an annual dividend of $2.54 per share. In February 2013, 3M's Board of Directors also authorized the repurchase of up to $7.5 billion of 3M's outstanding common stock, replacing the Company's existing repurchase program. This authorizati on has no pre-established end date. In 2013, the Company plans...

  • Page 42
    ... 3M uses free cash flow as a useful measure of performance and as an indication of the strength of the Company and its ability to generate cash. 3M defines free cash flow as net cash provided by operating activities less purchases of property, plant and equipment (which is classified as an investing...

  • Page 43
    ... facility in Singapore and invested in optical film capacity in Korea. Lastly, in 2010, investments in the Industrial and Transportation business included solar energy in the U.S. and industrial adhesives and tapes in China. Refer to Note 2 for information on acquisitions. The Company is actively...

  • Page 44
    ... in shares in 2012, $2.701 billion in shares in 2011, and $854 million in shares in 2010. For more information, refer to the table titled "Issuer Purchases of Equity Securities" in Part II, Item 5. The Company does not utilize derivative instruments linked to the Company's stock. Cash dividends paid...

  • Page 45
    ... 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, 2012, follows: Contractual Obligations Payments due by year (Millions) Total 2013 2014 2015 2016 2017 After 2017 Long-term...

  • Page 46
    ...U.S. plans in 2013 and Company contributions to its U.S. and international pension plans are expected to be largely discretionary in future years; therefore, amounts related to these plans are not included in the preceding table. FINANCIAL INSTRUMENTS The Company enters into foreign exchange forward...

  • Page 47
    ...equivalent (based on inception date foreign currency exchange rates) gross notional amount of the Company's interest rate swaps at December 31, 2012 was $342 million. Additional details about 3M's long-term debt can be found in Note 9, including references to information regarding derivatives and/or...

  • Page 48
    ... to 3M: full-year 2012 ($49 million increase) and full-year 2011 (immaterial impact). An analysis of the global exposures related to purchased components and materials is performed at each year-end. A one percent price change would result in a pre-tax cost or savings of approximately $71 million per...

  • Page 49
    ... Statement of Cash Flows for the years ended December 31, 2012, 2011 and 2010 Notes to Consolidated Financial Statements Note 1. Significant Accounting Policies Note 2. Acquisitions Note 3. Goodwill and Intangible Assets Note 4. Supplemental Balance Sheet Information Note 5. Supplemental Equity...

  • Page 50
    ... business conduct policies, which are designed to require all employees to maintain high ethical standards in the conduct of Company affairs. Internal auditors continually review the accounting and control system. 3M Company Management's Report on Internal Control Over Financial Reporting Management...

  • Page 51
    ... of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was...

  • Page 52
    ... Statement of Income 3M Company and Subsidiaries Years ended December 31 (Millions, except per share amounts) 2012 2011 2010 Net sales Operating expenses Cost of sales Selling, general and administrative expenses Research, development and related expenses Total operating expenses Operating...

  • Page 53
    ... Income 3M Company and Subsidiaries Years ended December 31 (Millions) 2012 2011 2010 Net income including noncontrolling interest Other comprehensive income (loss), net of tax: Cumulative translation adjustment Defined benefit pension and postretirement plans adjustment Debt and equity...

  • Page 54
    ... Long-term debt Pension and postretirement benefits Other liabilities Total liabilities Commitments and contingencies (Note 13) Equity 3M Company shareholders' equity: Common stock, par value $.01 per share Shares outstanding - 2012: 687,091,650 Shares outstanding - 2011: 694,970,041 Additional paid...

  • Page 55
    ...) (Dollars in millions, except per share amounts) Total Retained Earnings Treasury Stock Noncontrolling Interest Balance at December 31, 2009 Net income Other comprehensive income (loss), net of tax: Cumulative translation adjustment Defined benefit pension and post-retirement plans adjustment...

  • Page 56
    ...) (Dollars in millions, except per share amounts) Total Retained Earnings Treasury Stock Noncontrolling Interest Balance at December 31, 2011 Net income Other comprehensive income (loss), net of tax: Cumulative translation adjustment Defined benefit pension and post-retirement plans adjustment...

  • Page 57
    ...taxes (current and long-term) Product and other insurance receivables and claims Other - net Net cash provided by operating activities Cash Flows from Investing Activities Purchases of property, plant and equipment (PP&E) Proceeds from sale of PP&E and other assets Acquisitions, net of cash acquired...

  • Page 58
    ... used herein, the term "3M" or "Company" refers to 3M Company and subsidiaries unless the context indicates otherwise. Foreign currency translation: Local currencies generally are considered the functional currencies outside the United States. Assets and liabilities for operations in local-currency...

  • Page 59
    ...comprehensive income (loss) in shareholders' equity. Other assets: Other 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...

  • Page 60
    ... production, modification or customization, long-term construction-type accounting involving proportional performance is generally employed. For prepaid service contracts, sales revenue is recognized on a straight-line basis over the term of the contract, unless historical evidence indicates...

  • Page 61
    ...$1.079 billion in 2012, $1.036 billion in 2011 and $919 million in 2010. Related expenses primarily include technical support provided by 3M to customers who are using existing 3M products; internally developed patent costs, which include costs and fees incurred to prepare, file, secure and maintain...

  • Page 62
    ... include stock options, 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...

  • Page 63
    ...-date fair value of consideration paid in a business combination (including contingent consideration) and the exclusion of transaction and acquisition-related restructuring costs from acquisition accounting. New Accounting Pronouncements In October 2009, the Financial Accounting Standards Board...

  • Page 64
    ... adoption will not have a material impact on 3M's consolidated results of operations or financial condition. In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. Under this standard, entities testing long-lived intangible assets for impairment now...

  • Page 65
    ...impairment testing is required. For 3M, this ASU is effective beginning January 1, 2013, with early adoption permitted under certain conditions. The adoption of this standard is not expected to have a material impact on 3M's consolidated results of operations or financial condition. In February 2013...

  • Page 66
    ... Technologie AG and the business acquired from GPI Group. 2012 Acquisition Activity Other Ceradyne, Inc. Acquisitions (Millions) Asset (Liability) Total Accounts receivable Inventory Other current assets Marketable securities Property, plant, and equipment Purchased finite-lived intangible assets...

  • Page 67
    ... Federal Signal Corp., for a total purchase price of approximately $104 million. This business focuses on electronic toll collection and parking management hardware and software services, with primary facilities spread throughout the United States and in the U.K. (3) In November 2012, 3M (Industrial...

  • Page 68
    ... useful lives were not material. 2011 acquisitions: During 2011, 3M completed nine business combinations. The purchase price paid for these business combinations (net of cash acquired) and the impact of other matters (net) during 2011 aggregated to $649 million. (1) In January 2011, 3M (Industrial...

  • Page 69
    ... to April 2010 acquisition of the A-One branded label business and related operations (discussed further below). (1) In January 2010, 3M (Consumer and Office Business) purchased all of the outstanding shares of Incavas Industria de Cabos e Vassouras Ltda., a manufacturer of floor care products based...

  • Page 70
    ... business segment follows: Goodwill Dec. 31, 2010 Balance 2011 acquisition activity 2011 translation and other Dec. 31, 2011 Balance 2012 acquisition activity 2012 translation and other Dec. 31, 2012 Balance (Millions) Industrial and Transportation Health Care Consumer and Office Safety, Security...

  • Page 71
    ... for the years ended December 31 follows: (Millions) 2012 2011 2010 Amortization expense $ 233 $ 235 $ 176 Expected amortization expense for acquired amortizable intangible assets recorded as of December 31, 2012 follows: (Millions) 2013 2014 2015 2016 2017 After 2017 Amortization expense...

  • Page 72
    ... Accrued trade payables Deferred income Derivative liabilities Restructuring actions Employee benefits and withholdings Product and other claims Property and other taxes Pension and postretirement benefits Deferred income taxes Other Total other current liabilities Other liabilities Long term income...

  • Page 73
    ... due to sales or impairments (net of realized gains) for debt and equity securities were not material for 2012, $10 million pre-tax ($6 million after-tax) in 2011, and not material for 2010. Income taxes are not provided for foreign translation relating to permanent investments in international...

  • Page 74
    ... 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 $57 million of cash paid in 2011 as a result...

  • Page 75
    ... to 3M Company shareholders. (Millions) 2010 Net income attributable to 3M Transfers from noncontrolling interest Change in 3M Company shareholders' equity from net income attributable to 3M and transfers from noncontrolling interest NOTE 6. Supplemental Cash Flow Information (Millions) 2012 2011...

  • Page 76
    ...73 796 55 43 (212) 1,592 $ $ $ 2012 2011 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 Inventory Other - net Gross...

  • Page 77
    ... the related temporary difference. Reconciliation of Effective Income Tax Rate 2012 2011 2010 Statutory U.S. tax rate State income taxes - net of federal benefit International income taxes - net U.S. research and development credit Reserves for tax contingencies Medicare Modernization Act, one-time...

  • Page 78
    ... of the beginning and ending amount of gross unrecognized tax benefits (UTB) is as follows: Federal, State and Foreign Tax (Millions) 2012 2011 2010 Gross UTB Balance at January 1 Additions based on tax positions related to the current year Additions for tax positions of prior years Reductions for...

  • Page 79
    ... per diluted share) in 2011, and $69 million (10 cents per diluted share) in 2010. The Company has not provided deferred taxes on unremitted earnings attributable to international companies that have been considered to be reinvested indefinitely. These earnings relate to ongoing operations and were...

  • Page 80
    ... 2012 December 31, 2011 (Millions) U.S. government agency securities Foreign government agency securities Corporate debt securities Commercial paper Certificates of deposit/time deposits U.S. treasury securities U.S. municipal securities Asset-backed securities: Automobile loan related Credit card...

  • Page 81
    ... that represent interests in investment grade credit default swaps; however, currently these holdings comprise less than one percent of this portfolio. The estimated fair value of auction rate securities are $7 million and $4 million as of December 31, 2012 and 2011, respectively. Gross unrealized...

  • Page 82
    ... 5,047 563 4,484 Short-Term Borrowings and Current Portion of Long-Term Debt (Millions) Effective Interest Rate 2012 2011 Current portion of long-term debt U.S. dollar commercial paper Other borrowings Total short-term borrowings and current portion of long-term debt 3.83 % ―% 4.70 % $ $ 986...

  • Page 83
    ... securities at various prices, ranging from 99 percent to 100 percent of par value according to the redemption schedules for each security. In 2011, 2010, 2009 and 2008, 3M was required to repurchase an immaterial amount of principal on the aforementioned floating rate notes. The Company has a "well...

  • Page 84
    ... pension plan was closed to new participants effective January 1, 2009. The Company also provides certain postretirement health care and life insurance benefits for substantially all of its U.S. employees who reach retirement age while employed by the Company. Most international employees...

  • Page 85
    ... Pension Benefits United States International 2012 2011 2012 2011 (Millions) Postretirement Benefits 2012 2011 Change in benefit obligation Benefit obligation at beginning of year Acquisitions Service cost Interest cost Participant contributions Foreign exchange rate changes Plan amendments...

  • Page 86
    (Millions) Qualified and Non-qualified Pension Benefits United States International 2012 2011 2012 2011 Postretirement Benefits 2012 2011 Amounts recognized in the Consolidated Balance Sheet as of Dec. 31, Non-current assets Accrued benefit cost Current liabilities Non-current liabilities Ending ...

  • Page 87
    ... income Qualified and Non-qualified Pension Benefits United States International 2011 2010 2012 2011 2010 (Millions) 2012 Postretirement Benefits 2012 2011 2010 Net periodic benefit cost (benefit) Service cost Interest cost Expected return on plan assets Amortization of transition (asset...

  • Page 88
    ...savings accounts increase three percent per year. 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 2011 2010 2012 2011...

  • Page 89
    ... of its own stock as a direct investment for its pension and other postretirement benefit funds. However, due to external investment management of the funds, the plans may indirectly buy, sell or hold 3M stock. The aggregate amount of the shares would not be considered to be material relative to the...

  • Page 90
    ... 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 2012 2011 2012 2011 2012 2011 Fair Value at Dec. 31, 2012 2011 Equities U.S. equities Non-U.S. equities Derivatives EAFE index funds Index funds Long...

  • Page 91
    ...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, 2012 and 2011: Fair Value Measurement Using Significant Unobservable Inputs (Level 3) (Millions) Equities Fixed Income Private Equity Absolute Return Commodities Total...

  • Page 92
    ...the international pension plans by asset class are as follows: Fair Value Measurements Using Inputs Considered as Level 1 Level 2 Level 3 2012 2011 2012 2011 2012 2011 Fair Value at Dec. 31, 2012 2011 (Millions) Asset Class Equities Growth equities Value equities Core equities Total Equities Fixed...

  • Page 93
    ... forth a summary of changes in the fair values of the international pension plans' level 3 ass ets for the years ended December 31, 2012 and 2011: Fair Value Measurement Using Significant Unobservable Inputs (Level 3) (Millions) Equities Fixed Income Private Equity Absolute Return Total Beginning...

  • Page 94
    ... benefit plans by asset class are as follows: Fair Value Measurements Using Inputs Considered as Level 1 Level 2 Level 3 2012 2011 2012 2011 2012 2011 Fair Value at Dec. 31, 2012 2011 (Millions) Asset Class Equities U.S. equities Non-U.S. equities EAFE index funds Index funds Long/short equity...

  • Page 95
    ... sets forth a summary of changes in the fair values of the postretirement plans' level 3 assets for the years ended December 31, 2012 and 2011: Fair Value Measurement Using Significant Unobservable Inputs (Level 3) (Millions) Equities Fixed Income Private Equity Absolute Return Commodities Total...

  • Page 96
    ... not material for 2012, 2011 and 2010. The maximum length of time over which 3M hedges its exposure to the variability in future cash flows for a majority of the forecasted transactions is 12 months and, accordingly, at December 31, 2012, the majority of the Company's open foreign exchange forward...

  • Page 97
    ... 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 98
    ... help manage borrowing costs, the Company may enter into interest rate swaps. Under these arrangements, the Company agrees to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. The mark-to...

  • Page 99
    ... 275 million Euros, respectively. 3M designated each of these Eurobond issuances as hedging instruments of the Company's net investment in its European subsidiaries. The location in the consolidated statements of income and comprehensive income and amounts of gains and losses related to derivative...

  • Page 100
    ... instruments totaled $1.0 billion as of December 31, 2012. 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...

  • Page 101
    ... in 2012 and increased net income attributable to 3M by approximately $154 million in 2011. These estimates include 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 102
    ... 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 103
    ... as Level 1 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 Asset-backed securities: Automobile loan related Credit card related...

  • Page 104
    ... as Level 1 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 Asset-backed securities: Automobile loan related Credit card related...

  • Page 105
    ... as indicated in the preceding disclosures. For its long-term debt the Company utilized third-party quotes to estimate fair values (classified as level 2). Information with respect to the carrying amounts and estimated fair values of these financial instruments follow: (Millions) December 31, 2012...

  • Page 106
    ...Party Activity: 3M does not have any material related party activity that is not in the ordinary course of business. Legal Proceedings: The Company and some of its subsidiaries are involved in numerous claims and lawsuits, principally in the United States, and regulatory proceedings worldwide. These...

  • Page 107
    ... the Company has taken accruals and the related insurance receivables: Liability and Receivable Balances At December 31 (Millions) 2012 2011 2010 Respirator mask/asbestos liabilities Respirator mask/asbestos insurance receivables Environmental remediation liabilities Environmental remediation...

  • Page 108
    ... in prior periods when the vast majority of claims were asserted by the unimpaired. As previously reported, the State of West Virginia, through its Attorney General, filed a complaint in 2003 against the Company and two other manufacturers of respiratory protection products in the Circuit Court of...

  • Page 109
    ...judgments, is currently 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...

  • Page 110
    ..., and periodically updates, policies relating to environmental standards of performance for its operations worldwide. Under certain environmental laws, including the United States Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state laws, the Company may be...

  • Page 111
    ... its work, under the supervision of state regulators, to address its historic disposal of PFC-containing waste associated with manufacturing operations at the Cottage Grove, Minnesota and Decatur, Alabama plants. As previously reported, the Company entered into a voluntary remedial action agreement...

  • Page 112
    ... of the class certification issues in the first case filed there. In December 2010, the State of Minnesota, by its Attorney General Lori Swanson, acting in its capacity as trustee of the natural resources of the State of Minnesota, filed a lawsuit in Hennepin County District Court against 3M to...

  • Page 113
    ... the completion of feasibility studies or the Company's commitment to a plan of action. Liabilities for estimated costs of environmental remediation, depending on the site, are based primarily upon internal or third-party environmental studies, and estimates as to the number, participation level and...

  • Page 114
    ... law. The Company has answered the appraisal petition and is defending this matter vigorously. Trial in Delaware occurred in November 2012; post-trial briefing is ongoing. In October 2012, four plaintiffs filed purported class actions against Ceradyne, its directors, 3M and Cyborg Acquisition...

  • Page 115
    ...certain information relating to the pricing of a particular drug in France prior to the acquisition. Meda seeks to recover compensatory damages in excess of $300 million (including prejudgment interest), punitive damages, and attorneys' fees. In September 2012, 3M filed a motion for summary judgment...

  • Page 116
    ... filed a lawsuit against 3M Deutschland GmbH (a German subsidiary) in the German courts in March 2012 seeking commercial loss and property damage allegedly caused by socalled defective 3M filters used in that customer's manufacturing process. The Company has resolved on an amicable basis claims...

  • Page 117
    ... (ISOs). The Company last granted ISOs in 2002. Stock-Based Compensation Expense (Millions) 2012 Years ended December 31 2011 2010 Cost of sales Selling, general and administrative expenses Research, development and related expenses Stock-based compensation expenses Income tax benefits Stock-based...

  • Page 118
    ..., 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...

  • Page 119
    ... 31, 2012, 2011 and 2010 was $86 million, $36 million and $20 million, respectively. 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...

  • Page 120
    ... actual tax benefits realized for the tax deductions related to the distribution of performance shares was $5 million. General Employees' Stock Purchase Plan (GESPP): In May 2012, shareholders approved an additional 30 million shares for issuance under the Company's GESPP, increasing the number of...

  • Page 121
    ... Graphics Electro and Communications 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, consumer and office tapes...

  • Page 122
    Business Segment Information (Millions) 2012 Net Sales 2011 2010 2012 Operating Income 2011 2010 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 123
    ... where the final sales to 3M customers are made. Property, Plant and Equipment - net 2012 2011 (Millions) 2012 Net Sales 2011 2010 Operating Income 2012 2011 2010 United States Asia Pacific Europe, Middle East and Africa Latin America and Canada Other Unallocated Total Company $ 10,528 $ 10...

  • Page 124
    ..., the Company's internal control over financial reporting is effective. Management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2012 excluded Ceradyne, Inc., which was acquired by the Company in November 2012 in a purchase business...

  • Page 125
    ... 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 126
    ... under equity compensation plans (excluding securities reflected in column (A)) Plan Category Equity compensation plans approved by security holders Stock options Restricted stock units Performance shares Non-employee director deferred stock units Total Employee stock purchase plan Subtotal...

  • Page 127
    ... 2012) is incorporated by reference from our Proxy Statement for the 2012 Annual Meeting of Stockholders. Form of Agreement for Stock Option Grants to Executive Officers under the 3M 2008 Long-Term Incentive Plan is incorporated by reference from our Form 8-K dated May 13, 2008. Form of Stock...

  • Page 128
    ... December 31, 2009. Form of 3M Performance Share Award under the 3M 2008 Long-Term Incentive Plan is incorporated by reference from our Form 8-K dated March 4, 2010. Form of Stock Option Agreement for U.S. Employees under 3M 2008 Long-Term Incentive Plan is incorporated by reference from our Form...

  • Page 129
    .... Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. Mine Safety Disclosures. The following financial information from 3M Company's Annual Report on Form 10-K for the period ended December 31, 2012, filed with the SEC on...

  • Page 130
    ...hereby sign this document pursuant to powers of attorney duly executed by the other persons named, filed with the Securities and Exchange Commission on behalf of such other persons, all in the capacities and on the date stated, such persons constituting a majority of the directors of the Company. By...

  • Page 131
    ... 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 10-K and 10-Q are available online at: http://investor.3M.com Product Information...

  • Page 132
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