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2010 Annual Report
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Innovate
Driven
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Table of contents

  • Page 1
    2010 Annual Report t to DrivenInnovate

  • Page 2
    ...-plus year history - a phenomenal performance by the people of 3M. We also achieved a record operating profit of $5.9 billion, with margins of 22.2 percent, up 140 basis points. We posted another all-time annual record with earnings per share of $5.63, an increase of 25 percent year on year. Free...

  • Page 3
    ... 2009 2010 * As indicated in the Financial Summary on page 4, certain years include net gains (losses) related to sales of businesses, restructuring and other items. Dividends Per Share $2.50 $1.84 $1.92 $2.00 $2.04 $2.10 $2.00 $1.50 $1.00 0 2006 2007 2008 2009 2010 Driven to Innovate...

  • Page 4
    ... and process engineering. The ability to leverage and cross-pollinate science across multiple applications and markets is our heritage, but it is also our future. In 2010, investments in Research and Development and in New Business Ventures spurred those innovation efforts. The time was right and 3M...

  • Page 5
    ... due to our engineers, scientists, supervisors, managers and executives for this great achievement. We have rebuilt our great company, reinvented it for modern times in order to provide the people, product and technology platforms necessary for success over the next 25 years. As a company, while we...

  • Page 6
    ...) 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 shares outstanding - basic...

  • Page 7
    ... 1934 For the fiscal year ended December 31, 2010 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 PURSUANT...

  • 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
    ...; Health Care; Display and Graphics; Consumer and Office; Safety, Security and Protection Services; and Electro and Communications. 3M is among the leading manufacturers of products for many of the markets it serves. Most 3M products involve expertise in product development, manufacturing...

  • Page 10
    ... 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 closure products...

  • Page 11
    ...array of solutions - from library patron self-checkout systems to tracking packages. Other products include spill-control sorbents; 3Mâ„¢ Thinsulateâ„¢ Insulation and 3Mâ„¢ Thinsulateâ„¢ Lite Loftâ„¢ Insulation; nonwoven abrasive materials for floor maintenance and commercial cleaning; floor matting...

  • Page 12
    ... in 2008. 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; and amortization of acquired patents. The Company...

  • Page 13
    ... Markets Materials Division, 2007-2009 Vice President, Research and Development and New Business Ventures, Consumer and Office Business, 2005-2007 Executive Vice President, Electro and Communications Business, 20042009 Division Vice President, Occupational Health and Environmental Safety Division...

  • Page 14
    ... performance, and market position, x worldwide economic and capital markets conditions, such as interest rates, foreign currency exchange rates, and financial conditions of our suppliers and customers, x new business opportunities, product development, and future performance or results of current...

  • Page 15
    ... from Moody's Investors Service. This evaluation is based on a number of factors, which include financial strength, business and financial risk, as well as transparency with rating agencies and timeliness of financial reporting. The Company's current ratings have served to lower 3M's borrowing costs...

  • Page 16
    ... the Notes to Consolidated 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 76 manufacturing facilities in 28 states...

  • Page 17
    Issuer Purchases 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...

  • Page 18
    ... Selected Financial Data. (Dollars in millions, except per share amounts) 2010 2009 2008 2007 2006 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...

  • Page 19
    ... total year 2010, 3M achieved record net sales and diluted earnings per share, while investing significantly to improve long-term growth. For example, research, development and related expenses of $1.4 billion helped to drive innovation and new product sales. 3M also accelerated sales and marketing...

  • Page 20
    ... Net Sales 2009 % of Total Oper. Income Business Segments Industrial and Transportation Health Care ...Display and Graphics ...Consumer and Office ...Safety, Security and Protection Services ...Electro and Communications Corporate and Unallocated ...Elimination of Dual Credit ...Total Company...

  • Page 21
    ...funded. Asset returns in 2010 for the U.S. qualified plan were 14.4% while the year-end 2010 discount rate was 5.23%, down 0.54 percentage points from the 2009 discount rate of 5.77%. 3M expects to contribute $400 million to $600 million of cash to its global pension and postretirement plans in 2011...

  • Page 22
    ... increases, led by Asia Pacific. Worldwide local-currency sales growth was led by Electro and Communications at 27 percent, Display and Graphics at 23 percent, Industrial and Transportation at 17.5 percent and Consumer and Office at 10 percent. Refer to the sections entitled "Performance by Business...

  • Page 23
    ...the 2009 and 2008 special items by income statement caption. 2009 Restructuring and Other Summary Gain on sale of Restructuring real estate Total actions (Millions) Cost of sales ...Selling, general and administrative expenses ...Research, development and related expenses ...Total operating income...

  • Page 24
    ...of sales by 0.5 percentage points. In the fourth quarter of 2008, as part of its restructuring program, 3M took aggressive actions to reduce general and administrative expenses and also pared back selling and marketing costs in certain businesses. Research, Development and Related Expenses: Research...

  • Page 25
    ... to the 2010 tax benefits resulting from the corporate alignment transactions that allowed the Company to increase its ownership of a foreign subsidiary. The transactions are described in the section of Note 6 entitled "Purchase of Subsidiary Shares and Transfers of Ownership Interest Involving Non...

  • Page 26
    ... Summary Gain on Restructuring sale of Total real estate actions (Millions) Industrial and Transportation ...Health Care ...Display and Graphics ...Consumer and Office ...Safety, Security and Protection Services .. Electro and Communications ...Corporate and Unallocated ...Total operating income...

  • Page 27
    ...abrasives systems, and industrial adhesives and tapes. Operating income increased 43 percent to $1.8 billion in 2010, with operating income margins of 21.0 percent. In 2009, this business segment recorded charges of $89 million related to restructuring actions, with this charge comprised of employee...

  • Page 28
    .... Including these special items, 2009 operating income was $1.3 billion and operating income margins were 17.4 percent. This segment recorded $66 million related to restructuring and exit activities in 2008. Investment: In March 2005, 3M's automotive business completed the purchase of 19 percent...

  • Page 29
    ... of employee-related liabilities for severance and benefits. Lower year-on-year H1N1-related sales penalized both sales and operating income in 2010. 3M's long-term expectation is that operating income margins will be in the high 20's, as 3M continues to invest to grow this business. Year 2009...

  • Page 30
    ... safety systems business and mobile interactive solutions division, which focuses on products that improve projection, personalization and privacy for mobile device users. Geographically, sales growth was led by Asia Pacific, Latin America/Canada, and the United States. Operating income in 2010...

  • Page 31
    ... office supply products, stationery products, construction and home improvement products (do-it-yourself), home care products, protective material products, certain consumer retail personal safety products, and consumer health care products. Year 2010 results: Sales in Consumer and Office increased...

  • Page 32
    ... segment. Despite the 8 percent sales decline for the year, operating income margins rose to 23.6 percent. In 2009, this business segment recorded charges of $16 million related to restructuring actions, comprised of employee-related liabilities for severance and benefits. This charge was partially...

  • 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 2010 results: Electro and Communications sales were $2.9 billion in 2010, an increase of...

  • Page 34
    ... actions, exit activities and a loss on sale of businesses, which were partially offset by a gain on sale of real estate, decreased worldwide operating income by $269 million, with the largest impact in the United States and Europe. A summary of key information and discussion related to 3M...

  • Page 35
    ... the United States, this would increase production outside the United States, helping to improve customer service, lower transportation costs, and reduce working capital requirements. Capital expenditures were $1.091 billion in 2010, compared to $903 million in 2009 and $1.471 billion in 2008. In...

  • Page 36
    ... classes. For the U.S. pension plan, the expected long-term rate of return on an annualized basis for 2011 is 8.50%, the same as 2010. Refer to Note 11 for information on how the 2011 rate was determined. Return on assets assumptions for international pension and other post-retirement benefit plans...

  • Page 37
    ... recorded in 2009 and 2008 related to restructuring actions and other exit activities are discussed in Note 4. In June 2009, 3M's Security Systems Division (within the Safety, Security and Protection Services business segment) was notified that the UK government decided to award the production...

  • Page 38
    ... units accounting for approximately 71 percent of the goodwill. These eight reporting units were comprised of the following divisions: 3M Purification Inc., Occupational Health and Environmental Safety, Optical Systems, 3M ESPE, Communication Markets, Industrial Adhesives and Tapes, Security Systems...

  • Page 39
    ... of 397 days from date of issuance. As of December 31, 2010 and 2009, 3M had no outstanding commercial paper. The Company believes it is unlikely that its access to the commercial paper market will be restricted. Effective April 30, 2007, the Company has a $1.5-billion five-year credit facility...

  • Page 40
    ...continual review of acquisition opportunities. 3M paid dividends of $1.5 billion in 2010, and has a long history of dividend increases. In February 2011, 3M's Board of Directors increased the quarterly dividend on 3M common stock by 4.8 percent to 55 cents per share, equivalent to an annual dividend...

  • Page 41
    ... in the following operating, investing and financing activities tables reflect changes in balances from period to period adjusted for these effects. Cash Flows from Operating Activities: Years ended December 31 (Millions) 2010 2009 2008 Net income including noncontrolling interest ...Depreciation...

  • Page 42
    ... included completion of production lines in the United States for both Consumer and Office and Health Care, an R&D laboratory in Korea, a tape building in Poland, and numerous tape lines and building expansions in China. In 2008, 3M also made progress towards completion of investments in a Singapore...

  • Page 43
    ... employee compensation plans and for other corporate purposes. In February 2011, 3M's Board of Directors authorized the repurchase of up to $7.0 billion of 3M's outstanding common stock, replacing the Company's existing repurchase program. This authorization has no pre-established end date. In 2010...

  • Page 44
    ... or financial condition. A summary of the Company's significant contractual obligations as of December 31, 2010, follows: Contractual Obligations Payments due by year (Millions) Total 2011 2012 2013 2014 2015 After 2015 Long-term debt, including current portion (Note 10) ...Interest on long-term...

  • Page 45
    ... 12 $ 91 4 13 The global exposures related to purchased components and materials are such that a 1 percent price change would result in a pre-tax cost or savings of approximately $62 million per year. The global energy exposure is such that a 10 percent price change would result in a pre-tax cost...

  • Page 46
    .... The Company discusses risk management in various places throughout this document, including discussions in Item 7 concerning Financial Condition and Liquidity, and Financial Instruments, and in the Notes to Consolidated Financial Statements (Long-Term Debt and Short-Term Borrowings, Derivatives...

  • Page 47
    ... for Financial Reporting ...Management's Report on Internal Control Over Financial Reporting ...Report of Independent Registered Public Accounting Firm ...Consolidated Statement of Income for the years ended December 31, 2010, 2009 and 2008 ...Consolidated Balance Sheet at December 31, 2010 and 2009...

  • Page 48
    ... 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 49
    ...on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the...

  • Page 50
    ... Statement of Income 3M Company and Subsidiaries Years ended December 31 (Millions, except per share amounts) 2010 2009 2008 Net sales ...Operating expenses ...Cost of sales ...Selling, general and administrative expenses ...Research, development and related expenses ...Loss from sale of businesses...

  • Page 51
    ... current liabilities ...Total current liabilities ...Long-term debt ...Pension and postretirement benefits ...Other liabilities ...Total liabilities ...Commitments and contingencies (Note 14) Equity 3M Company shareholders' equity: Common stock, par value $.01 per share ...Shares outstanding - 2010...

  • Page 52
    ... Years Ended December 31 Consolidated Statement of Changes in Equity 3M Company Shareholders Common Stock and Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) (Millions) Total Retained Earnings Treasury Stock Unearned Compensation Noncontrolling Interest Balance...

  • Page 53
    ... (343) 1,011 $ 25,995 $ (10,266) $ 2010 39 (299) 3,477 (3,543) $ 2009 354 2008 Treasury stock Beginning balance ...Reacquired stock ...Issuances pursuant to stock options and benefit plans ...Ending balance ...Consolidated Statement of Comprehensive Income (Loss) (Millions) 233,433,937 10,572...

  • Page 54
    ... ...Loss from sale of businesses ...Deferred income taxes ...Excess 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...

  • Page 55
    ... 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 statements have been...

  • Page 56
    ... 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 in cash...

  • Page 57
    ...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 year incurred...

  • Page 58
    ... expense for both its General Employees' Stock Purchase Plan (GESPP) and the Long-Term Incentive Plan (LTIP). 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 period in...

  • Page 59
    ... the Consolidated Statements of Changes in Equity and Comprehensive Income. Accumulated other comprehensive income (loss) is composed of foreign currency translation effects (including hedges of net investments in international companies), defined benefit pension and postretirement plan adjustments...

  • Page 60
    ...of this ASU are not applicable to an employer's disclosures about pension and other postretirement benefit plan assets. 3M does not have any significant direct investments within the scope of ASU No. 2009-12, but certain plan assets of the Company's benefit plans are valued based on NAV as indicated...

  • Page 61
    ...exists, such as long-term construction contracts and software transactions. For 3M, ASU No. 2009-13 is effective beginning January 1, 2011. 3M will elect to adopt the provisions of this standard prospectively to new or materially modified arrangements beginning on the effective date. The adoption of...

  • Page 62
    ...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 63
    ...in Hangzhou, China. (8) In October 2010, 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...

  • Page 64
    ... 2009, 3M (Industrial and Transportation Business) purchased all of the outstanding shares of Meguiar's International, UK, a distributor of Meguiar's, Inc. products based in Daventry, United Kingdom. (4) In July 2009, 3M (Consumer and Office Business) purchased the ACE® branded (and related brands...

  • Page 65
    ...Quebec-based developer and marketer of leading-edge medical products designed to prevent infections in operating rooms and hospitals. (4) In April 2008, 3M (Consumer and Office Business) purchased all of the outstanding shares of Kolors Kevarkian, S.A., a manufacturer of branded floor cleaning tools...

  • Page 66
    ...goodwill impairment for reporting units impacted by this new structure and determined that no impairment existed. As discussed in Note 13, in June 2009, 3M tested the long lived assets grouping associated with the U.K. passport production activity of 3M's Security Systems Division for recoverability...

  • Page 67
    ... in 2008 (Note 2). Amortization expense for the years ended December 31 follows: (Millions) 2010 2009 2008 Amortization expense ... $ 176 $ 181 $ 122 Expected amortization expense for acquired amortizable intangible assets recorded as of December 31, 2010 follows: (Millions) 2011 2012...

  • Page 68
    ...-quarter 2009 net pre-tax charge of $26 million for employee-related items/benefits and other, which is net of $7 million of adjustments to prior 2008 and 2009 restructuring actions. The preceding charges were recorded in cost of sales ($25 million) and research, development and related expenses...

  • Page 69
    ...); Health Care ($9 million); Safety, Security and Protection Services ($3 million); and Corporate and Unallocated ($2 million). These charges were recorded in cost of sales ($38 million), selling, general and administrative expenses ($17 million), and research, development and related expenses...

  • Page 70
    ... value of life insurance policies ...Other ...Total other assets ...Other current liabilities Accrued trade payables ...Deferred income ...Derivative liabilities ...Restructuring actions ...Employee benefits and withholdings ...Product and other claims ...Property and other taxes ...Pension and...

  • Page 71
    ...to 3M Years ended December 31 (Millions) 2010 $ $ 374 $ (3,879) (6) (32) (3,543) $ 122 (3,831) (9) (36) (3,754) 2009 2008 Net income attributable to 3M ...Cumulative translation ...Tax effect ...Cumulative translation - net of tax ...Defined benefit pension and postretirement plans adjustment...

  • Page 72
    ... and Transfers of Ownership Interests Involving Non-Wholly Owned Subsidiaries During the second half of 2009 and the first half of 2010, 3M effected a purchase of subsidiary shares and transfers of ownership interests to align activities in Japan and to simplify the Company's ownership structure. As...

  • Page 73
    ...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 67

  • Page 74
    ... Tax Assets and Liabilities (Millions) 2010 2009 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 75
    ... health care liabilities and related tax subsidies are already reflected in 3M's financial statements, the change in law resulted in a reduction of the value of the company's deferred tax asset related to the subsidy. This reduction in value resulted in a one-time non-cash income tax charge to 3M...

  • Page 76
    ... income tax authority examinations. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (UTB) is as follows: Federal, State and Foreign Tax (Millions) 2010 2009 2008 Gross UTB Balance at January 1 ...Additions based on tax positions related to the current year...

  • Page 77
    NOTE 9. Marketable Securities 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). (...

  • Page 78
    ..., usually every 7, 28, 35, or 90 days. The funds associated with failed auctions will not be accessible until a successful auction occurs or a buyer is found outside of the auction process. Refer to Note 13 for a table that reconciles the beginning and ending balances of auction rate securities. 72

  • Page 79
    ... Rate 2010 2009 Current portion of long-term debt ...U.S. dollar commercial paper ...Other borrowings ...Total short-term borrowings and current portion of long-term debt 2.41% $ - 2.47% $ 1,185 - 84 1,269 $ $ 522 - 91 613 The following weighted-average effective interest rate table reflects...

  • Page 80
    ... installments due in April 2011, July 2011, October 2011 and January 2012. At December 31, 2010, the floating interest rate on this loan was 1.8%. Other borrowings included debt held by 3M's international companies and floating rate notes in the United States, with the long-term portion of this debt...

  • Page 81
    ...these Convertible Notes in a registration statement filed with the Securities and Exchange Commission. The terms of the Convertible Notes include a yield to maturity of 0.50% and an initial conversion premium of 40 percent over the $65.00 (split-adjusted) closing price of 3M common stock on November...

  • Page 82
    ...'s years of service, compensation, and age at retirement or termination. In addition to providing pension benefits, the Company 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...

  • Page 83
    ... beginning and ending balances of the benefit obligation and the fair value of plan assets as of December 31: Qualified and Non-qualified Pension Benefits United States International 2010 2009 2010 2009 Postretirement Benefits 2010 2009 (Millions) Change in benefit obligation Benefit obligation at...

  • Page 84
    ...qualified Pension Benefits United States International 2010 2009 2010 2009 Postretirement Benefits 2010 2009 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 85
    ...in other comprehensive income Qualified and Non-qualified Pension Benefits United States International 2010 2009 2008 2010 2009 2008 Postretirement Benefits 2010 2009 2008 (Millions) Net periodic benefit cost (benefit) Service cost ...Interest cost ...Expected return on plan assets ...Amortization...

  • Page 86
    ...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 2009 2008 2010...

  • Page 87
    ...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 88
    ... market fluctuations and illiquidity of some investments may cause the allocation to a specific asset class to stray from the target allocation, potentially for long periods of time. Acceptable ranges have been designed to allow for deviation from long-term targets and to allow for the opportunity...

  • Page 89
    ... 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 and other bonds and notes are valued at either the yields currently available on comparable securities of...

  • Page 90
    ... a summary of changes in the fair values of the U.S. pension plans' level 3 assets for the year ended December 31, 2009: Fair Value Measurement Using Significant Unobservable Inputs (Level 3) Fixed Private Absolute CommEquities Total Income Equity Return odities (Millions) Beginning balance at...

  • Page 91
    ... the 55 plans in 23 countries, however there is significant variation in policy asset allocation from country to country. Local regulations, local funding rules, and local financial and tax considerations are part of the funding and investment allocation process in each country. 3M's Treasury group...

  • Page 92
    ...interest rate swaps that are used to help manage risks. Governments, corporate bonds and notes and mortgage backed securities are valued at either the closing price reported if traded on an active market or at yields currently available on comparable securities of issuers with similar credit ratings...

  • Page 93
    ... sets forth a summary of changes in the fair values of the international pension plans level 3 assets for the year ended December 31, 2010: Fair Value Measurement Using Significant Unobservable Inputs (Level 3) Fixed Private Absolute Income Equity Return Equities Total (Millions) Beginning balance...

  • Page 94
    ... market fluctuations and illiquidity of some investments may cause the allocation to a specific asset class to stray from the target allocation, potentially for long periods of time. Acceptable ranges have been designed to allow for deviation from long-term targets and to allow for the opportunity...

  • Page 95
    ...derivative 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...

  • Page 96
    ... sets forth a summary of changes in the fair values of the postretirement plans' level 3 assets for the year ended December 31, 2009: Fair Value Measurement Using Significant Unobservable Inputs (Level 3) Fixed Private Absolute CommoTotal Income Equity Return dities (Millions) Beginning balance...

  • Page 97
    ..., 2009 and 2008. The dollar equivalent gross notional amount of the Company's natural gas commodity price swaps designated as cash flow hedges at December 31, 2010 was $31 million. The location in the consolidated statements of income and comprehensive income and amounts of gains and losses related...

  • Page 98
    ... 31, 2010, the Company had a balance of $32 million associated with the after tax net unrealized loss associated with cash flow hedging instruments recorded in accumulated other comprehensive income. 3M expects to reclassify to earnings over the next 12 months a majority of this balance (with...

  • Page 99
    ... seven-year fixed rate Eurobond securities for amounts of 750 million Euros and 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...

  • Page 100
    ..., 2010. 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, 2010...

  • Page 101
    ... relate to available-for-sale marketable securities, available-for-sale investments (included as part of investments in the Consolidated Balance Sheet) and certain derivative instruments. Derivatives include cash flow hedges, interest rate swaps and most net investment hedges. The information...

  • Page 102
    ... 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 are readily available...

  • Page 103
    ...: Available-for-sale: Marketable securities: U.S. government agency securities ...Foreign government agency securities ...Corporate debt securities ...Commercial paper ...Asset-backed securities: Automobile loan related ...Credit card related ...Equipment lease related ...Other ...U.S. treasury...

  • Page 104
    ... ended December 31 . Securities still held at December 31 ... $ 5 - 2 - - 7 $ 1 - 6 (2) - 5 $ 16 (3) (12) - - 1 - - (2) - - (6) In addition, the plan assets of 3M's pension and postretirement benefit plans are measured at fair value on a recurring basis (at least annually). Refer to Note...

  • Page 105
    ...included in operating income results. In 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...

  • Page 106
    ... of 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. Minimum lease payments under capital and operating leases with non-cancelable terms in excess of one year as of December 31, 2010, were...

  • Page 107
    ... 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. Based on experience and developments, the Company periodically...

  • Page 108
    ... of 2007, the State of West Virginia has recently asked the Court to set a case management conference in the spring of 2011. No liability has been recorded for this matter because the Company believes that liability is not probable and estimable at this time. In addition, Company is not able to...

  • Page 109
    ... 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 manufactures and sells various products, including personal protection equipment, such as eye, ear, head...

  • Page 110
    ...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 111
    ... are found to exceed the EPA's provisional health advisory levels, 3M and the other companies will provide alternative water supplies. As previously reported, the Company entered into a voluntary remedial action agreement with the Alabama Department of Environmental Management (ADEM) to address the...

  • Page 112
    ...and the State of Wisconsin reached a settlement of the matter by the Company paying a $150,000 penalty and agreeing to implement two environmental projects at its manufacturing facility. Environmental Litigation As previously reported, a former employee filed a purported class action lawsuit in 2002...

  • Page 113
    ...reasons described above. Employment Litigation Whitaker Lawsuit: As previously reported, in December, 2004, one current and one former employee of the Company filed a purported class action in the District Court of Ramsey County, Minnesota, seeking to represent a class of all current and certain 107

  • Page 114
    ... former salaried employees in states other than Minnesota and New Jersey. In 2006, a current employee filed an age discrimination charge against the Company with the U.S. Equal Employment Opportunity Commission and the pertinent state agency in Missouri, asserting claims on behalf of a class of all...

  • Page 115
    ... of a class of all current and certain former salaried employees who worked in California. In January 2009, two former employees filed age discrimination charges against the Company with the U.S. Equal Employment Opportunity Commission and the pertinent state agency in Minnesota. The filings include...

  • Page 116
    ... of the current year's debt service to the remaining debt service prior to the current payment. Until 2009, the ESOP was the primary funding source for the Company's employee savings plans. As permitted by accounting standards relating to employers' accounting for employee stock ownership plans, the...

  • Page 117
    ...The Company contributed treasury shares (accounted for at fair value) and cash (in 2010 and 2009) 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) 2010 2009 2008 Dividends on shares...

  • Page 118
    ... The Company last granted ISOs in 2002. Stock-Based Compensation Expense (Millions) 2010 Years ended December 31 2009 2008 Cost of sales ...Selling, general and administrative expenses ...Research, development and related expenses ...Stock-based compensation expenses ...Income tax benefits ...Stock...

  • Page 119
    ... million for 2010 and was not material for 2009 and 2008. Restricted stock units granted under the "3M 2008 Long-Term Incentive Plan" generally vest three years following the grant date assuming continued employment. The one-time "buyout" restricted stock unit grant in 2007 vests at the end of five...

  • Page 120
    ... 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 2010 Shares Exercise Price* Shares 2009 Exercise Price* Shares 2008 Exercise Price* Options granted ...Options...

  • Page 121
    ... Health Care Display and Graphics Consumer and Office Safety, Security and Protection Services Electro and Communications Tapes, coated and nonwoven abrasives, adhesives, specialty materials, filtration products, closure systems for personal hygiene products, acoustic systems products...

  • Page 122
    ...; insurance receivables; deferred income taxes; certain investments and other assets, including prepaid pension assets. Corporate and unallocated assets can change from year to year due to changes in cash, cash equivalents and marketable securities, changes in prepaid pension benefits, and changes...

  • Page 123
    ... area information is used by the Company as a secondary performance measure to manage its businesses. Export sales and certain income and expense items are generally reported within the geographic area where the final sales to 3M customers are made. Net Sales 2009 Operating Income 2010 2009 2008...

  • Page 124
    ... end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. b. The Company's management is responsible for establishing and maintaining an adequate system...

  • Page 125
    ... 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 220-9E-02 St. Paul, MN 55144-1000 Attention: Director, Business Conduct and Compliance Item 11. Executive Compensation. The information required by Item 402 of Regulation...

  • Page 126
    ... 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, 2010, 2009 and 2008 ...Consolidated Balance Sheet...

  • Page 127
    ...-K for the year ended December 31, 2009. Form of 3M 2010 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...

  • Page 128
    ... 2008. 3M Executive Life Insurance Plan, as amended, is incorporated by reference from our Form 10-K for the year ended December 31, 2003. 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...

  • Page 129
    ... information from 3M Company's Annual Report on Form 10-K for the period ended December 31, 2010, filed with the SEC on February 16, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statement of Income for the years ended December 31, 2010, 2009 and 2008...

  • Page 130
    ... 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 /s/ Patrick D. Campbell Patrick...

  • 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
    www.3M.com m 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 2011. All rights reserved.