3M 2014 Annual Report Download

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Annual Report 2014

Table of contents

  • Page 1
    Annual Report 2014

  • Page 2
    "3M harnesses the power of science to make the world safer, more efficient and more prosperous." Inge G. Thulin Chairman of the Board, President and Chief Executive Officer

  • Page 3
    Annual Report 2014 To our shareholders 2014 was a year of strong and broad-based results for our company. For the full year - as well as in each individual quarter - we delivered organic growth in all business groups and across all geographic areas. We posted record sales and earnings-per-share, ...

  • Page 4
    ... every company, enhancing every home and improving every life. In May 2014, 3M earned its 100,000th patent globally, testament to the power of our scientific engine. In fall 2015, we will strengthen that engine even more with the grand opening of our new laboratory in St. Paul. That state-of...

  • Page 5
    ... Health Care +4.9% Safety and Graphics +4.5% Electronics and Energy +3.2% Industrial Consumer Organic local currency sales growth by business group (year over year) +5.8% Impact of acquisitions on worldwide sales +5.4% +5.2% +4.9% +3.9% Free cash flow conversion Return on invested capital...

  • 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
    ..., or the customerʼs ability to 3M COMPANY State of Incorporation: Delaware ersʼ preferences for our products, including the su I.R.S. Employer Identification No. 41-0417775 Companyʼs products. Principal executive offices: 3M Center, St. Paul, Minnesota 55144 Telephone number: (651) 733...

  • Page 8
    ... on Accounting and Financial Disclosure ITEM 9A Controls and Procedures ITEM 9B Other Information PART III ITEM 10 Directors, Executive Officers and Corporate Governance ITEM 11 Executive Compensation ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder...

  • Page 9
    ..., the Personal Care Division, which focuses on tapes and attachment systems for infant and adult hygiene, was combined with the Industrial Adhesives and Tapes Division. 3M manages its operations in five operating business segments: Industrial; Safety and Graphics; Electronics and Energy; Health Care...

  • Page 10
    ... abrasive materials for floor maintenance and commercial cleaning; floor matting; and natural and color-coated mineral granules for asphalt shingles. Electronics and Energy Business: The Electronics and Energy segment serves customers in electronics and energy markets, including solutions that...

  • Page 11
    ... other markets include medical and surgical 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 April 2014, 3M (Health Care Business) purchased...

  • Page 12
    ... 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 2014, the Company experienced stable to declining costs for most...

  • Page 13
    ... and General Manager, Occupational Health and Environmental Safety Division, 20072011 Executive Vice President, Electro and Communications Business, 20092012 General Counsel, U.S. Department of Homeland Security, 2009-2012 Vice President, Corporate Controller and Chief Accounting Officer, 20112014...

  • Page 14
    ... Systems Inc., 2008-2014 Vice President and General Manager, Personal Safety Division, 2013 Vice President and General Manager, Occupational Health and Environmental Safety Division, 20112012 Managing Director, 3M Korea, 20082011 Vice President, Human Resources, International Operations, 2010-2012...

  • Page 15
    ... 2010-2014 Hak Cheol Shin 57 Executive Vice President, International Operations Senior Vice President, Marketing and Sales 2011 Executive Vice President, Industrial and Transportation Division Business, 2006-2011 Vice President and General Manager, Stationery and Office Supplies Division, 2012...

  • Page 16
    ... 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, • new business opportunities, product development...

  • Page 17
    ...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 an enterprise resource planning (ERP) system on a worldwide basis over the next several years...

  • Page 18
    .... 3M's general offices, corporate research laboratories, and certain division laboratories are located in St. Paul, Minnesota. The Company operates 88 manufacturing facilities in 30 states. The Company operates 127 manufacturing and converting facilities in 38 countries outside the United States. 3M...

  • Page 19
    ...5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Equity compensation plans' information is incorporated by reference from Part III, Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters...

  • Page 20
    ... to support the Company's stock-based employee compensation plans and for other corporate purposes. In February 2013, 3M's Board of Directors authorized the repurchase of up to $7.5 billion of 3M's outstanding common stock, with no pre-established end date. In February 2014, 3M's Board of Directors...

  • Page 21
    ... share amounts) 2014 2013 2012 2011 2010 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 per 3M common share Cash dividends paid per 3M common share...

  • Page 22
    ... every business posting positive growth, led by health information systems, food safety, infection prevention, and critical and chronic care. Electronics and Energy organic local-currency sales growth was 6.2 percent, with increases in electronic-related sales in both electronics materials solutions...

  • Page 23
    ..., led by advanced materials, automotive OEM, 3M Purification Inc. (filtration products), aerospace and commercial transportation, and automotive aftermarket. Organic local-currency sales increased 4.7 percent in Safety and Graphics, led by roofing granules, personal safety, and commercial solutions...

  • Page 24
    ...drug delivery systems. Organic local-currency sales increased 1.3 percent in the Consumer business segment, led by the consumer health care and home care businesses. Electronics and Energy organic local-currency sales growth was 0.4 percent, with increases in energy-related sales in renewable energy...

  • Page 25
    ... & Poor's and an Aa3 credit rating, with a negative outlook, from Moody's Investors Service. The Company has significant cash on hand and sufficient additional access to capital markets to meet its funding needs. 3M currently expects that its effective tax rate for 2015 will be approximately 28.0 to...

  • Page 26
    ... balance sheet amounts. In addition, two items will impact the income statement in 2015: • In the fourth quarter of 2014, 3M's Board of Directors approved an amendment of the U.S. defined benefit pension plan to include a lump sum payment option for employees that have vested retirement benefits...

  • Page 27
    ... worldwide sales growth by 1.9 percent. Worldwide selling prices rose 1.0 percent in 2014. Selling prices continue to be supported by technology innovation, which is a key fundamental strength of the Company, helping to drive unique customer solutions and an increasing flow of new products. 3M...

  • Page 28
    ... cost. The Company is investing in business transformation. This term includes the ongoing multi-year phased implementation of an enterprise resource planning (ERP) system on a worldwide basis, as well as changes in processes and internal/external service delivery across 3M. Cost of Sales: Cost of...

  • Page 29
    ...of 0.8 percentage points, impacted by many factors. Factors which increased the Company's effective tax rate included a one-time international tax impact related to the establishment of the supply chain center of expertise in Europe, decreased U.S. research and development credit in 2014 compared to...

  • Page 30
    ... by 3.1 percentage points, which largely related to increases in 3M's income tax reserves for 2013 when compared to 2012. The Company currently expects that its effective tax rate for 2015 will be approximately 28.0 to 29.0 percent, which assumes that the U.S. research and development credit will be...

  • Page 31
    ...and customers. Segment information presented herein reflects the impact of these changes for all periods presented. 3M manages its operations in five operating business segments. The reportable segments are Industrial; Safety and Graphics; Electronics and Energy; Health Care; and Consumer. Corporate...

  • Page 32
    ... of Industrial's businesses experienced positive sales growth in 2013, led by aerospace and commercial transportation, automotive OEM, 3M Purification Inc. (filtration products), and industrial adhesives and tapes. Acquisition growth related to the 2012 acquisition of Ceradyne, Inc. (Ceradyne). As...

  • Page 33
    ... basis, sales grew in personal safety, commercial solutions, and industrial minerals. Organic local-currency sales declined in traffic safety and security systems. Acquisition growth related to the September 2012 purchase of net assets that comprised the business of Federal Signal Technologies Group...

  • Page 34
    ...-currency sales were flat in 3M's electronics-related businesses, with sales increases in display materials and systems offset by declines in electronics materials solutions. Organic local-currency sales were also flat in 3M's energy-related businesses, where sales gains in electrical markets were...

  • Page 35
    ... medical and surgical 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. Year 2014 results: Health Care sales totaled $5.6 billion, an increase...

  • Page 36
    .... 3M also posted positive growth in its consumer health care and home care businesses. Sales in the stationery and office supplies business were flat. On a geographic basis, organic local-currency sales increased 6 percent in Asia Pacific, 4 percent in the United States, 3 percent in Latin America...

  • Page 37
    ... its business segment results are the most relevant measure of performance, the Company also utilizes geographic area data as a secondary performance measure. Export sales are generally reported within the geographic area where the final sales to 3M customers are made. A portion of the products or...

  • Page 38
    ... all U.S. employees and many employees outside the United States. The primary U.S. defined-benefit pension plan 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...

  • Page 39
    ...expected long-term rate of return on an annualized basis for 2015 is 7.75%, unchanged from 2013. Refer to Note 10 for information on how the 2014 rate was determined. Return on assets assumptions for international pension and other post-retirement benefit plans are calculated on a plan-by-plan basis...

  • Page 40
    ... ten reporting units were comprised of the following divisions: 3M ESPE, 3M Purification Inc., Advanced Materials, Communication Markets, Display Materials and Systems, Health Information Systems, Industrial Adhesives and Tapes, Infection Prevention, Personal Safety, and Traffic Safety and Security...

  • Page 41
    ... to invest in research and development, capital expenditures, and commercialization capability. In addition, sources for cash availability in the United States, such as ongoing cash flow from operations and access to capital markets, have historically been sufficient to fund dividend payments to...

  • Page 42
    ... 3M's credit rating in the future. Effective May 16, 2014, the Company updated its "well-known seasoned issuer" shelf registration statement, which registers an indeterminate amount of debt or equity securities for future sales. This replaced 3M's previous shelf registration dated August 5, 2011...

  • Page 43
    ... by decreases in cash, cash equivalents and marketable securities, plus inventory decreases. Current liability balance changes increased working capital by $1.5 billion, largely due to decreases in short-term debt. The Company uses various working capital measures that place emphasis and focus on...

  • Page 44
    ... flows benefited year-on-year from increases in net income including noncontrolling interest, lower pension and postretirement plans contributions, and lower year-on-year working capital requirements. The combination of accounts receivable, inventories and accounts payable increased working capital...

  • Page 45
    ... adhesives and tapes, advanced materials, electronics-related, infection prevention, and other businesses. 3M continued its investments in IT systems and infrastructure. In addition, 3M sustained existing facilities through general maintenance, cost reduction, and compliance efforts. In 2012, 3M...

  • Page 46
    ... employee compensation plans and for other corporate purposes. In February 2014, 3M's Board of Directors authorized the repurchase of up to $12 billion of 3M's outstanding common stock, which replaced the Company's February 2013 repurchase program. This authorization has no pre-established end date...

  • Page 47
    ... ongoing purchase obligations with terms of less than one year. Many of these commitments relate to take or pay contracts, in which 3M guarantees payment to ensure availability of products or services that are sold to customers. The Company expects to receive consideration (products or services) for...

  • Page 48
    ...time; therefore, the long-term portion of the net tax liability of $262 million is excluded from the preceding table. Refer to Note 7 for further details. As discussed in Note 10, the Company does not have a required minimum cash pension contribution obligation for its U.S. plans in 2015 and Company...

  • Page 49
    ... to information regarding derivatives and/or hedging instruments associated with the Company's long-term debt. Commodity Prices Risk: Certain commodities the Company uses in the production of its products are exposed to market price risks. 3M manages commodity price risks through negotiated supply...

  • Page 50
    ...losses had the following effects on net income attributable to 3M: 2014 ($8 million increase) and 2013 ($12 million decrease). 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...

  • Page 51
    ... 9. Long-Term Debt and Short-Term Borrowings Note 10. Pension and Postretirement Benefit Plans Note 11. Derivatives Note 12. Fair Value Measurements Note 13. Commitments and Contingencies Note 14. Stock-Based Compensation Note 15. Business Segments Note 16. Geographic Areas Note 17. Quarterly Data...

  • Page 52
    ... written policies, including 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...

  • Page 53
    ... in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria...

  • Page 54
    Consolidated Statement of Income 3M Company and Subsidiaries Years ended December 31 (Millions, except per share amounts) 2014 2013 2012 Net sales Operating expenses Cost of sales Selling, general and administrative expenses Research, development and related expenses Total operating expenses ...

  • Page 55
    ...3M Company and Subsidiaries Years ended December 31 (Millions) 2014 2013 2012 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 securities... 3M ...

  • Page 56
    ...long-term debt Accounts payable Accrued payroll Accrued income taxes Other current liabilities Total current liabilities Long-term debt Pension and postretirement benefits Other liabilities Total liabilities Commitments and contingencies (Note 13) Equity 3M Company shareholders' equity: Common stock...

  • Page 57
    ...pension and post-retirement plans adjustment Debt and equity securities - unrealized gain (loss) Cash flow hedging instruments - unrealized gain (loss) Total other comprehensive income (loss), net of tax Dividends declared ($3.395 per share, Note 5) Sale of subsidiary shares Stock-based compensation...

  • Page 58
    ...Defined benefit pension and post-retirement plans adjustment Debt and equity securities - unrealized gain (loss) Cash flow hedging instruments - unrealized gain/(loss) Total other comprehensive income (loss), net of tax Dividends declared ($3.59 per share, Note 5) Purchase of subsidiary shares Stock...

  • Page 59
    ... Accounts payable Accrued income taxes (current and long-term) 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 Purchases...

  • Page 60
    ... Accounting Policies Consolidation: 3M is a diversified global manufacturer, technology innovator and marketer of a wide variety of products. All subsidiaries are consolidated. All significant intercompany transactions are eliminated. As used herein, the term "3M" or "Company" refers to 3M Company...

  • Page 61
    ... with life insurance activity are included in "Purchases of marketable securities and investments" and "Proceeds from maturities and sale of marketable securities and investments," respectively. Inventories: Inventories are stated at the lower of cost or market, with cost generally determined...

  • Page 62
    ... date such benefits were communicated to the applicable employees and recognized as expense over the employees' remaining service periods. Contract termination and other charges primarily reflect costs to terminate a contract before the end of its term (measured at fair value at the time the Company...

  • Page 63
    ... 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 64
    ... 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 65
    ... of foreign currency translation effects (including hedges of net investments in international companies), defined benefit pension and postretirement plan adjustments, unrealized gains and losses on available-for-sale debt and equity securities, and unrealized gains and losses on cash flow hedging...

  • Page 66
    ... and supersedes most current revenue recognition guidance, including industry-specific guidance. The standard's stated core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which...

  • Page 67
    ... that closed during 2013. Adjustments in 2013 to the preliminary purchase price allocations of other acquisitions within the allocation period were not material and primarily related to the 2012 acquisition of Ceradyne, Inc. In January 2015, 3M (Electronics and Energy Business) completed the sale of...

  • Page 68
    ... 2012, 3M (Safety and Graphics Business) purchased the net assets of Federal Signal Technologies Group from 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...

  • Page 69
    ... by business segment follows: Goodwill Dec. 31, 2012 Balance 2013 acquisition activity 2013 translation and other Dec. 31, 2013 Balance 2014 acquisition activity 2014 translation and other Dec. 31, 2014 Balance (Millions) Industrial Safety and Graphics Electronics and Energy Health Care Consumer...

  • Page 70
    Amortization expense for the years ended December 31 follows: (Millions) 2014 2013 2012 Amortization expense $ 228 $ 236 $ 233 Expected amortization expense for acquired amortizable intangible assets recorded as of December 31, 2014 follows: (Millions) 2015 2016 2017 2018 2019 After 2019 ...

  • Page 71
    ... and other Property and other taxes Pension and postretirement benefits Deferred income taxes Other Total other current liabilities Other liabilities Long term income taxes payable Employee benefits Contingent liability claims and other Capital lease obligations Deferred income Deferred income taxes...

  • Page 72
    ... shares at December 31, 2012. Preferred stock, without par value, of 10 million shares is authorized but unissued. In December 2014, 3M's Board of Directors declared a first-quarter 2015 dividend of $1.025 per share (payable in March 2015), which when added to second, third and fourth quarter 2014...

  • Page 73
    ..., December 31, 2014 2013 2012 Location on Income Statement Gains (losses) associated with, defined benefit pension and postretirement plans amortization Transition asset Prior service benefit Net actuarial loss Total before tax Tax effect Net of tax Debt and equity security gains (losses) Sales or...

  • Page 74
    ... share (payable in March 2015), which reduced 3M's stockholders equity and increased other current liabilities as of December 2014 by $648 million. In the fourth quarter of 2013, 3M's Board of Directors declared a first-quarter 2014 dividend of $0.855 per share (paid in March 2014). This reduced 3M...

  • Page 75
    ... Taxes (Millions) 2014 2013 2012 United States International Total Provision for Income Taxes (Millions) $ $ 3,815 3,211 7,026 $ $ 3,194 3,368 6,562 $ $ 2,902 3,449 6,351 2014 2013 2012 Currently payable Federal State International Deferred Federal State International Total Components of...

  • Page 76
    ...of 0.8 percentage points, impacted by many factors. Factors which increased the Company's effective tax rate included a one-time international tax impact related to the establishment of the supply chain center of expertise in Europe, decreased U.S. research and development credit in 2014 compared to...

  • Page 77
    A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (UTB) is as follows: Federal, State and Foreign Tax (Millions) 2014 2013 2012 Gross UTB Balance at January 1 Additions based on tax positions related to the current year Additions for tax positions of prior years...

  • Page 78
    ... securities Corporate debt securities Commercial paper Certificates of deposit/time deposits U.S. municipal securities Asset-backed securities: Automobile loan related Credit card related Equipment lease related Other Asset-backed securities total Current marketable securities U.S. government agency...

  • Page 79
    ... Aaa or P-1 by Moody's Investors Service and/or AAA or F1+ by Fitch Ratings. Interest rate risk and credit risk related to the underlying collateral may impact the value of investments in asset-backed securities, while factors such as general conditions in the overall credit market and the nature of...

  • Page 80
    ... changes based on underlying indices related to 3M's floating rate debt and interest rate swaps. This reference column is also used to refer to later discussion concerning this debt. Carrying value includes the impact of derivative/hedging activity. Long-term debt and short-term borrowings as of...

  • Page 81
    ... debt instruments. Credit Rating / Five-Year Revolving Credit Facility As of February 2015, the Company has an AA- credit rating, with a stable outlook, from Standard & Poor's and an Aa3 credit rating, with a negative outlook, from Moody's Investors Service. In August 2014, 3M amended and extended...

  • Page 82
    ... rate portion totaled 300 million Euros. 2011 / 2012 Long-Term Debt Issuances (Ref. B, F, I) The Company, in connection with a prior "well-known seasoned issuer" shelf registration statement, effective August 5, 2011, registered an indeterminate amount of debt or equity securities for future sales...

  • Page 83
    ...-benefit 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 84
    ... and 2015 expense. The impact of this change increased the year-end 2014 U.S. PBO for pension and the 2014 U.S. accumulated postretirement benefit obligation. 3M was informed during the first quarter of 2009, that the general partners of WG Trading Company, in which 3M's benefit plans hold...

  • Page 85
    ... and Non-qualified Pension Benefits United States International 2014 2013 2014 2013 Postretirement Benefits 2014 2013 Amounts recognized in the Consolidated Balance Sheet as of Dec. 31, Non-current assets Accrued benefit cost Current liabilities Non-current liabilities Ending balance Amounts...

  • Page 86
    ... the years ended December 31 follow: Qualified and Non-qualified Pension Benefits United States International 2013 2012 2014 2013 2012 Postretirement Benefits 2014 2013 2012 (Millions) 2014 Net periodic benefit cost (benefit) Service cost Interest cost Expected return on plan assets Amortization...

  • Page 87
    ... 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 2013 2012 2014...

  • Page 88
    ... and international retirement plans. The Company does not have a required minimum cash pension contribution obligation for its U.S. plans in 2015. Future contributions will depend on market conditions, interest rates and other factors. Future Pension and Postretirement Benefit Payments The following...

  • Page 89
    ... the closing price reported in the active market in which the individual security is traded. Corporate bonds and notes, asset backed securities and collateralized mortgage obligations are valued at either the yields currently available on comparable securities of issuers with similar credit ratings...

  • Page 90
    ... at closing prices determined by calculation agents for outstanding transactions. Other items to reconcile to fair value of plan assets include the net of insurance receivables for WG Trading Company, interest receivables, amounts due for securities sold, amounts payable for securities purchased and...

  • Page 91
    ... to instruments sold during the period Change in unrealized gains / (losses) relating to instruments still held at the reporting date Ending balance at Dec. 31, 2014 International Pension Plans Assets $ 421 ― (92) 10 (5) 63 397 ― (43) 2 (12) 40 384 2 $ 2,136 ― 54 126 3 108 2,427...

  • Page 92
    ... other debt. Governments, corporate bonds and notes and mortgage backed securities are valued at the closing price reported if traded on an active market or at yields currently available on comparable securities of issuers with similar credit ratings or valued under a discounted cash flow approach...

  • Page 93
    ... in the fair values of the international pension plans' level 3 assets for the years ended December 31, 2014 and 2013: Fair Value Measurement Using Significant Unobservable Inputs (Level 3) (Millions) Equities Fixed Income Private Equity Absolute Return Total Beginning balance at Jan. 1, 2013...

  • Page 94
    ... investments such as credit default swaps, interest rate swaps and futures contracts that are used to help manage risks. U.S. government and government agency bonds and notes are valued at the closing price reported in the active market in which the individual security is traded. Corporate bonds...

  • Page 95
    ...out of) level 3 Purchases, sales, issuances, and settlements, net Realized gain / (loss) Change in unrealized gains / (losses) relating to instruments sold during the period Change in unrealized gains / (losses) relating to instruments still held at the reporting date Ending balance at Dec. 31, 2014...

  • Page 96
    ...to manage price volatility. The related mark-to-market gain or loss on qualifying hedges is included in other comprehensive income to the extent effective, and reclassified into cost of sales in the period during which the hedged transaction affects earnings. Generally, the length of time over which...

  • Page 97
    ... from Effectiveness Testing Recognized in Income Location Amount Foreign currency forward/option contracts $ Foreign currency forward contracts Commodity price swap contracts Interest rate swap contracts Total $ Year Ended December 31, 2012 9 (108) 1 ― (98) Cost of sales Interest expense...

  • Page 98
    ... highly effective and, thus, there is no impact on earnings due to hedge ineffectiveness. The dollar equivalent (based on inception date foreign currency exchange rates) gross notional amount of the Company's interest rate swaps at December 31, 2014, was $1 billion. At December 31, 2014, the Company...

  • Page 99
    ... currency denominated debt due to exchange rate changes are recorded in earnings through their maturity date. 3M's use of foreign exchange forward contracts designated in hedges of the Company's net investment in European subsidiaries during 2013 and 2014 varied as foreign currency denominated debt...

  • Page 100
    ..., 2014. 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, 2014...

  • Page 101
    ... 3M's derivative instruments, excluding nonderivative instruments used as hedging instruments, and their location in the consolidated balance sheet. Additional information.../option contracts Other current assets Commodity price swap contracts Other current assets Interest rate swap contracts Other ...

  • Page 102
    ... 31, 2014, 3M has International Swaps and Derivatives Association (ISDA) agreements with 15 applicable banks and financial institutions which contain netting provisions. In addition to a master agreement with 3M supported by a primary counterparty's parent guarantee, 3M also has associated credit...

  • Page 103
    ... the impact of currency fluctuations on the transfer of goods between 3M operations in the United States and abroad; and transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risks and the negative impact of swapping Venezuelan bolivars into...

  • Page 104
    ... municipal bond market, and as such will be classified as a level 3 security. 3M's other U.S. municipal securities holdings at December 31, 2013 were classified as level 2. Available-for-sale investments: Investments include equity securities that are traded in an active market. Closing stock prices...

  • Page 105
    ... 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 Asset-backed securities: Automobile loan related Credit card related Equipment...

  • Page 106
    ... 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 107
    ...of fixed rate Eurobond securities issued by the Company as hedging instruments of the Company's net investment in its European subsidiaries. Many of 3M's fixed-rate bonds were trading at a premium at December 31, 2014 and 2013 due to the low interest rates and tightening of 3M's credit spreads. 101

  • Page 108
    ...: 2015 ($131 million), 2016 ($139 million), 2017 ($92 million), 2018 ($55 million), 2019 ($34 million) and after 2019 ($38 million). Many of these commitments relate to take or pay contracts, in which 3M guarantees payment to ensure availability of products or services that are sold to customers...

  • Page 109
    ...under the antitrust laws, and environmental proceedings. Unless otherwise stated, the Company is vigorously defending all such litigation. Process for Disclosure and Recording of Liabilities and Insurance Receivables Related to Legal Proceedings Many lawsuits and claims involve highly complex issues...

  • Page 110
    ... and healthcare benefits provided to all workers with occupational pneumoconiosis and unspecified punitive damages. The case has been inactive since the fourth quarter of 2007, other than a case management conference in March 2011. In November 2013, the State filed a motion to bifurcate the lawsuit...

  • Page 111
    ... all of its remaining insurance coverage for respirator mask/asbestos claims. Respirator Mask/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 manufactured and...

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    ..., 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...

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    ... the foregoing proceedings and activities, if any, may be taken regarding such compounds or the consequences of any such actions. Environmental Litigation As previously reported, a former employee filed a purported class action lawsuit in 2002 in the Circuit Court of Morgan County, Alabama, seeking...

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    ... the State's and Covington's petition for review of the decision of the Minnesota Court of Appeals. In April 2014, the Minnesota Supreme Court affirmed in part, reversed in part, and remanded the case to the district court for further proceedings. In a separate but related action, the Company filed...

  • Page 115
    ... above. Other Matters Commercial Litigation In October 2012, four plaintiffs filed purported class actions against Ceradyne, Inc., its directors, 3M, and Cyborg Acquisition Corporation (a direct wholly owned subsidiary of 3M) in connection with 3M's proposed acquisition of Ceradyne. Two suits were...

  • Page 116
    ... customer 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 the same 3M filters used in that customer's manufacturing process. The Company has resolved on an amicable basis claims...

  • Page 117
    ... stock options, 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 years ended 2014, 2013 and 2012. Stock-Based Compensation...

  • Page 118
    ... respectively. The Company's actual tax benefits realized for the tax deductions related to the exercise of employee stock options for 2014, 2013 and 2012 was $226 million, $208 million and $98 million, respectively. The Company does not have a specific policy to repurchase common shares to mitigate...

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    ... per share. Performance Shares Instead of restricted stock units, the Company makes annual grants of performance shares to members of its executive management. The performance criteria for these performance shares (organic sales volume growth, return on invested capital and sales from new products...

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    ... no performance shares distributed or related tax benefits realized during the year ended December 31, 2012. General Employees' Stock Purchase Plan (GESPP): As of December 31, 2014, shareholders have approved 60 million shares for issuance under the Company's GESPP. Substantially all employees are...

  • Page 121
    ...Safety and Graphics; Electronics and Energy; Health Care; and Consumer. 3M's five business segments bring together common or related 3M technologies, enhancing the development of innovative products and services and providing for efficient sharing of business resources. These segments have worldwide...

  • Page 122
    ...energy component solutions, and infrastructure protection 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...

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    ...income and expense items are generally reported within the geographic area where the final sales to 3M customers are made. Property, Plant and Equipment - net 2014 2013 (Millions) 2014 Net Sales 2013 2012 Operating Income 2014 2013 2012 United States Asia Pacific Europe, Middle East and Africa...

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    ...is reasonably likely to materially affect, the Company's internal control over financial reporting. The Company is implementing an enterprise resource planning ("ERP") system on a worldwide basis, which is expected to improve the efficiency of certain financial and related transaction processes. The...

  • Page 125
    ...code of ethics will also be posted. Any person may request a copy of the code of ethics, at no cost, by writing to us at the following address: 3M Company 3M Center, Building 220-11W-09 St. Paul, MN 55144-1000 Attention: Vice President, Compliance and Business Conduct Item 11. Executive Compensation...

  • Page 126
    ... rights C Number of securities remaining available for future issuance 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...

  • Page 127
    ... the quarter ended June 30, 2011. (10) Material contracts and management compensation plans and arrangements: (10.1) (10.2) (10.3) (10.4) 3M 2008 Long-Term Incentive Plan (including amendments through February 2012) is incorporated by reference from our Proxy Statement for the 2012 Annual Meeting...

  • Page 128
    ... Stock Unit Agreement for restricted stock units granted to Executive Officers under the 3M Long-Term Incentive Plan, effective February 9, 2010, is incorporated by reference from our Form 10-K for the year ended December 31, 2009. Form of 3M 2010 Performance Share Award under the 3M 2008 Long-Term...

  • Page 129
    ...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, 2014, filed with the SEC on February 12, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated...

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    ...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...

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