3M 2010 Annual Report Download - page 110

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alleged personal injury from workplace exposures to asbestos, silica-related, or other occupational dusts found in
products manufactured by other defendants or generally in the workplace.
As of December 31, 2010, the Company, through its Aearo subsidiary, has recorded $32 million as the best estimate
of the probable liabilities for product liabilities and defense costs related to current and future Aearo-related asbestos
and silica-related claims. Responsibility for legal costs, as well as for settlements and 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 “AO Safety” brand and/or owned the AO Safety Division of American
Optical Corporation and the alleged years of exposure of the individual plaintiff. Aearo’s share of the contingent
liability is further limited by an agreement entered into between Aearo and Cabot on July 11, 1995. This agreement
provides that, so long as Aearo pays to Cabot an annual fee of $400,000, Cabot will retain responsibility and liability
for, and indemnify Aearo against, asbestos and silica-related product liability claims for respirators manufactured
prior to July 11, 1995.
Because the date of manufacture for a particular respirator allegedly used in the past is often difficult to determine,
Aearo and Cabot have applied the agreement to claims arising out of the alleged use of respirators while exposed to
asbestos or silica or products containing asbestos or silica prior to January 1, 1997. With these arrangements in
place, Aearo’s potential liability is limited to exposures alleged to have arisen from the use of respirators while
exposed to asbestos, silica or other occupational dusts on or after January 1, 1997.
To date, Aearo has elected to pay the annual fee. Aearo could potentially be exposed to additional claims for some
part of the pre-July 11, 1995 period covered by its agreement with Cabot if Aearo elects to discontinue its
participation in this arrangement, or if Cabot is no longer able to meet its obligations in these matters.
Developments may occur that could affect the estimate of Aearo’s liabilities. These developments include, but are not
limited to: (i) significant changes in the number of future claims, (ii) significant changes in the average cost of
resolving claims, (iii) significant changes in the legal costs of defending these claims, (iv) significant changes in the
mix and nature of claims received, (v) trial and appellate outcomes, (vi) significant changes in the law and procedure
applicable to these claims, (vii) significant changes in the liability allocation among the co-defendants, (viii) the
financial viability of members of the Payor Group including exhaustion of available coverage limits, (ix) the outcome
of pending insurance coverage litigation among certain other members of the Payor Group and their respective
insurers, and/or (x) a determination that the interpretation of the contractual obligations on which Aearo has
estimated its share of liability is inaccurate. The Company cannot determine the impact of these potential
developments on its current estimate of Aearo’s share of liability for these existing and future claims. If any of the
developments described above were to occur, the actual amount of these liabilities for existing and future claims
could be significantly larger than the reserved amount.
Because of the inherent difficulty in projecting the number of claims that have not yet been asserted, the complexity
of allocating responsibility for future claims among the Payor Group, and the several possible developments that may
occur that could affect the estimate of Aearo’s liabilities, the Company can not estimate the amount or range of
amounts by which Aearo’s liability may exceed the reserve the Company has established.
Environmental Matters and Litigation
The Company’s operations are subject to environmental laws and regulations including those pertaining to air
emissions, wastewater discharges, toxic substances, and the handling and disposal of solid and hazardous wastes
enforceable by national, state, and local authorities around the world, and private parties in the United States and
abroad. These laws and regulations provide, under certain circumstances, a basis for the remediation of
contamination, for restoration of or compensation for damages to natural resources, and for personal injury and
property damage claims. The Company has incurred, and will continue to incur, costs and capital expenditures in
complying with these laws and regulations, defending personal injury and property damage claims, and modifying its
business operations in light of its environmental responsibilities. In its effort to satisfy its environmental
responsibilities and comply with environmental laws and regulations, the Company has established, 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 jointly and severally liable,
typically with other companies, for the costs of remediation of environmental contamination at current or former
facilities and at off-site locations. The Company has identified numerous locations, most of which are in the United