3M 2015 Annual Report Download - page 6

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TableofContents
Distribution
3Mproductsaresoldthroughnumerousdistributionchannels,includingdirectlytousersandthroughnumerouswholesalers,
retailers,jobbers,distributorsanddealersinawidevarietyoftradesinmanycountriesaroundtheworld.Managementbelievesthe
confidenceofwholesalers,retailers,jobbers,distributorsanddealersin3Manditsproducts—aconfidencedevelopedthroughlong
associationwithskilledmarketingandsalesrepresentatives—hascontributedsignificantlyto3M’spositioninthemarketplaceand
toitsgrowth.
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and
profitgrowth.Research,developmentandrelatedexpensestotaled$1.763billionin2015,$1.770billionin2014and$1.715billion
in2013.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.223billionin2015,$1.193billionin2014and$1.150billionin2013.
Relatedexpensesprimarilyincludetechnicalsupport;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2015,theCompanyexperienceddecliningcostsformostrawmaterialcategoriesandtransportationfuel,duelargelytothe
significantpricedecreasesincrudeoil.Thisinturndrove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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14,
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,theCompany’scommitmenttoa
planofaction,orapprovalbyregulatoryagencies.Environmentalexpendituresforcapital
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