3M 2013 Annual Report Download - page 12

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Research and Patents
Research and product development constitutes an important part of 3M’s activities and has been a major driver of 3M’s
sales growth. Research, development and related expenses totaled $1.715 billion in 2013, $1.634 billion in 2012 and
$1.570 billion in 2011. Research and development, covering basic scientific research and the application of scientific
advances in the development of new and improved products and their uses, totaled $1.150 billion in 2013, $1.079 billion
in 2012 and $1.036 billion in 2011. 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 patents; amortization of externally acquired patents and externally acquired in-process research
and development; and gains/losses associated with certain corporate approved investments in R&D-related ventures,
such as equity method effects and impairments.
The Company’s products are sold around the world under various trademarks. The Company also owns, or holds licenses
to use, numerous U.S. and foreign patents. The Company’s research and development activities generate a steady
stream of inventions that are covered by new patents. Patents applicable to specific products extend for varying periods
according to the date of patent application filing or patent grant and the legal term of patents in the various countries
where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country,
depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the country.
The Company believes that its patents provide an important competitive advantage in many of its businesses. In general,
no single patent or group of related patents is in itself essential to the Company as a whole or to any of the Company’s
business segments. The importance of patents in the Electronics and Energy segment is described in “Performance by
Business Segment” — “Electronics and Energy Business” in Part II, Item 7, of this Annual Report on Form 10-K.
Raw Materials
In 2013, the Company experienced stable to declining costs for most raw material categories and transportation fuel. This
was driven by year-on-year cost decreases in many feedstock categories, including petroleum based materials, minerals,
metals and wood pulp based products. To date, the Company is receiving sufficient quantities of all raw materials to meet
its reasonably foreseeable production requirements. It is impossible to predict future shortages of raw materials or the
impact any such shortages would have. 3M has avoided disruption to its manufacturing operations through careful
management of existing raw material inventories and development and qualification of additional supply 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 to continue making, necessary expenditures for compliance with applicable laws. 3M is also involved in
remediation actions relating to environmental matters from past operations at certain sites (refer to “Environmental
Matters and Litigation” in Note 13, Commitments and Contingencies).
Environmental expenditures relating to existing conditions caused by past operations that do not contribute to current or
future revenues are expensed. Reserves for liabilities for anticipated remediation costs are recorded on an undiscounted
basis when they are probable and reasonably estimable, generally no later than 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 2013, 3M expended about $31 million for capital projects related to protecting the environment. This amount excludes
expenditures for remediation actions relating to existing matters caused by past operations that do not contribute to
current or future revenues, which are expensed. Capital expenditures for environmental purposes have included pollution
control devices — such as wastewater treatment plant improvements, scrubbers, containment structures, solvent recovery
units and thermal oxidizers — at new and existing facilities constructed or upgraded in the normal course of business.
Consistent with the Company’s policies stressing environmental responsibility, capital expenditures (other than for
remediation projects) for known projects are presently expected to be about $54 million over the next two years for new or
expanded programs to build facilities or modify manufacturing processes to minimize waste and reduce emissions.
While the Company cannot predict with certainty the future costs of such cleanup activities, capital expenditures or
operating costs for environmental compliance, the Company does not believe they will have a material effect on its capital
expenditures, earnings or competitive position.