ACCOUNTING-10-K 1 a14-5644_110k.htm 10-K Table of Contents UNITED

10-K 1 a14-5644_110k.htm 10-KTable of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2013Commission file number 1-32853M COMPANYState of Incorporation: DelawareI.R.S. Employer Identification No. 41-0417775Principal executive offices: 3M Center, St. Paul, Minnesota 55144Telephone number: (651) 733-1110SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:Title of each classCommon Stock, Par Value $.01 Per ShareName of each exchangeon which registeredNew York Stock Exchange, Inc.Chicago Stock Exchange, Inc.Note: The common stock of the Registrant is also traded on the SWX Swiss Exchange.Securities registered pursuant to section 12(g) of the Act: NoneIndicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act. Yes x No oIndicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes o No xIndicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xIndicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-acceleratedfiler, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer xYes oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reportingcompany)Smaller reporting company oIndicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).No xThe aggregate market value of voting stock held by nonaffiliates of the Registrant, computed by reference to theclosing price and shares outstanding, was approximately $85.0 billion as of January 31, 2014 (approximately $74.7 billionas of June 28, 2013, the last business day of the Registrant’s most recently completed second quarter).Shares of common stock outstanding at January 31, 2014: 662,692.234.DOCUMENTS INCORPORATED BY REFERENCEParts of the Company’s definitive proxy statement (to be filed pursuant to Regulation 14A within 120 days afterRegistrant’s fiscal year-end of December 31, 2013) for its annual meeting to be held on May 13, 2014, are incorporatedby reference in this Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.Table of Contents3M COMPANYFORM 10-KFor the Year Ended December 31, 2013TABLE OF CONTENTSBeginningPagePART IITEM 1Business3ITEM 1ARisk Factors9ITEM 1BUnresolved Staff Comments11ITEM 2Properties11ITEM 3Legal Proceedings11ITEM 4Mine Safety Disclosures11Market for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities12ITEM 6Selected Financial Data14ITEM 7Management’s Discussion and Analysis of Financial Condition and Results of Operations15ITEM 7AQuantitative and Qualitative Disclosures About Market Risk41ITEM 8Financial Statements and Supplementary Data43Index to Financial Statements43PART IIITEM 5ITEM 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure118ITEM 9AControls and Procedures118ITEM 9BOther Information118Directors, Executive Officers and Corporate Governance119ITEM 11Executive Compensation119ITEM 12Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters120ITEM 13Certain Relationships and Related Transactions, and Director Independence120ITEM 14Principal Accounting Fees and Services120Exhibits, Financial Statement Schedules121PART IIIITEM 10PART IVITEM 152Table of Contents3M COMPANYANNUAL REPORT ON FORM 10-KFor the Year Ended December 31, 2013PART IItem 1. Business.3M Company was incorporated in 1929 under the laws of the State of Delaware to continue operations begun in 1902.The Company’s ticker symbol is MMM. As used herein, the term “3M” or “Company” includes 3M Company and itssubsidiaries unless the context indicates otherwise. In this document, for any references to Note 1 through Note 17, referto the Notes to Consolidated Financial Statements in Item 8.Available InformationThe SEC maintains a website that contains reports, proxy and information statements, and other information regardingissuers, including the Company, that file electronically with the SEC. The public can obtain any documents that theCompany files with the SEC at http://www.sec.gov. The Company files annual reports, quarterly reports, proxystatements and other documents with the Securities and Exchange Commission (SEC) under the Securities ExchangeAct of 1934 (Exchange Act). The public may read and copy any materials that the Company files with the SEC at theSEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on theoperation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.3M also makes available free of charge through its website (http://investor.3M.com) the Company’s Annual Report onForm 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to thosereports filed or furnished pursuant to the Exchange Act as soon as reasonably practicable after the Companyelectronically files such material with, or furnishes it to, the SEC.General3M is a diversified technology company with a global presence in the following businesses: Industrial; Safety andGraphics; Electronics and Energy; Health Care; and Consumer. 3M is among the leading manufacturers of products formany of the markets it serves. Most 3M products involve expertise in product development, manufacturing andmarketing, and are subject to competition from products manufactured and sold by other technologically orientedcompanies.At December 31, 2013, the Company employed 88,667 people (full-time equivalents), with 34,719 employed in the UnitedStates and 53,948 employed internationally.Business SegmentsAs described in Note 15 to the Consolidated Financial Statements, effective in the first quarter of 2013, the Companycompleted a realignment of its business segments to better serve global markets and customers. In addition, asdescribed in Note 16, during the first quarter of 2013, 3M realigned its geographic area structure to include Puerto Rico inthe United States rather than in the Latin America/Canada region. Segment and geographic area information presentedherein reflects the impact of these changes for all periods presented.3M manages its operations in five operating business segments: Industrial; Safety and Graphics; Electronics andEnergy; 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 businessresources. These segments have worldwide responsibility for virtually all 3M product lines. Certain small businesses andlab-sponsored products, as well as various corporate assets and expenses, are not attributed to the business segments.Financial information and other disclosures relating to 3M’s business segments and operations in major geographic areasare provided in the Notes to Consolidated Financial Statements.Industrial Business: The Industrial segment serves a broad range of markets, such as automotive original equipmentmanufacturer (OEM) and automotive aftermarket (auto body shops and retail), electronics, appliance, paper and printing,packaging, food and beverage, and construction. Industrial products include tapes, a wide variety of coated, non-wovenand bonded abrasives, adhesives, advanced ceramics, sealants, specialty materials, 3M Purification Inc. (filtrationproducts), closure systems for personal hygiene products, acoustic systems products, and components and productsthat3Table of Contentsare used in the manufacture, repair and maintenance of automotive, marine, aircraft and specialty vehicles. In the fourthquarter of 2012, 3M acquired Ceradyne, Inc., which develops and produces advanced technical ceramics for demandingapplications in the automotive, oil and gas, solar, industrial, electronics and defense industries. In 2011, 3M acquiredWinterthur Technologie AG, a leading global supplier of precision grinding technology serving customers in the area ofhard-to-grind precision applications in industrial, automotive, aircraft and cutting tools.Major industrial products include vinyl, polyester, foil and specialty industrial tapes and adhesives; Scotch® MaskingTape, Scotch® Filament Tape and Scotch® Packaging Tape; packaging equipment; 3M™ VHB™ Bonding Tapes;conductive, low surface energy, sealants, hot melt, spray and structural adhesives; reclosable fasteners; label materialsfor durable goods; and coated, nonwoven and microstructured surface finishing and grinding abrasives for the industrialmarket. 3M Purification Inc. provides a comprehensive line of filtration products for the separation, clarification andpurification of fluids and gases. Other industrial products include fluoroelastomers for seals, tubes and gaskets inengines.Major transportation products include insulation components, including Thinsulate™ Acoustic Insulation and componentsfor catalytic converters; functional and decorative graphics; abrasion-resistant films; adhesives; sealants; maskingtapes; fasteners and tapes for attaching nameplates, trim, moldings, interior panels and carpeting; coated, nonwovenand microstructured finishing and grinding abrasives; structural adhesives; and other specialty materials. In addition, 3Mprovides paint finishing and detailing products, including a complete system of cleaners, dressings, polishes, waxes andother products.Safety and Graphics Business: The Safety and Graphics segment serves a broad range of markets that increase thesafety, security and productivity of people, facilities and systems. Major product offerings include personal protectionproducts; traffic safety and security products, including border and civil security solutions; commercial graphics sheetingand systems; architectural surface and lighting solutions; cleaning and protection products for commercialestablishments; and roofing granules for asphalt shingles.This segment’s products include personal protection products, such as certain maintenance-free and reusablerespirators, personal protective equipment, head and face protection, body protection, hearing protection and protectiveeyewear. In traffic safety and security, 3M provides reflective sheeting used on highway signs, vehicle license plates,construction work-zone devices, trucks and other vehicles, and also provides pavement marking systems, in addition toelectronic surveillance products, films that protect against counterfeiting, and reflective materials that are widely used onapparel, footwear and accessories, enhancing visibility in low-light situations. Traffic safety and security also providesfinger, palm, face and iris biometric systems for governments, law enforcement agencies, and commercial enterprises,in addition to remote people-monitoring technologies used for offender-monitoring applications. Major commercialgraphics products include films, inks, digital signage systems and related products used to produce graphics forvehicles, signs and interior surfaces. Other products include spill-control sorbents; nonwoven abrasive materials for floormaintenance 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 energymarkets, including solutions for dependable, cost-effective, high-performance electronic devices, telecommunicationsnetworks, electrical products, power generation and distribution, and infrastructure protection.This segment’s electronics solutions include optical film solutions for the electronic display industry. 3M providesdistinct products for five market segments, including products for: 1) LCD computer monitors, 2) LCD televisions, 3)hand-held devices such as cellular phones and tablets, 4) notebook PCs and 5) automotive displays. This segment alsoprovides desktop and notebook computer screen filters that address display light control, privacy, and glare reductionneeds. Major electronics products also include packaging and interconnection devices; high performance fluids andabrasives used in the manufacture of computer chips, and for cooling electronics and lubricating computer hard diskdrives; and high-temperature and display tapes. 3M™ Flexible Circuits use electronic packaging and interconnectiontechnology, providing more connections in less space, and are used in ink-jet printer cartridges, cell phones andelectronic devices. This segment also includes the touch systems business, including touch screens, touch monitors,and touch sensor components.This segment’s energy solutions include electrical, telecommunications, renewable energy, and infrastructure protectionproducts. This segment serves the worlds electrical and telecommunications markets, including electrical utilities,electrical construction, maintenance and repair, original equipment manufacturers (OEM), telecommunications centraloffice, outside plant and enterprise, as well as aerospace, military, automotive and medical markets, with products thatenable the efficient transmission of electrical power and speed the delivery of information. Products in this segmentinclude pressure sensitive tapes and resins, electrical insulation, a wide array of fiber-optic and copper-basedtelecommunications systems for rapid deployment of fixed and wireless networks, as well as the 3M™ Aluminum4Table of ContentsConductor Composite Reinforced (ACCR) electrical power cable that increases transmission capacity for existing powerlines. This segment also includes renewable energy component solutions for the solar and wind power industries, as wellas infrastructure products solutions that provide municipalities both protection and detection solutions for electrical, oil,natural gas, water, rebar and other infrastructure assets.Health Care Business: The Health Care segment serves markets that include medical clinics and hospitals,pharmaceuticals, dental and orthodontic practitioners, health information systems, and food manufacturing and testing.Products and services provided to these and other markets include medical and surgical supplies, skin health andinfection prevention products, inhalation and transdermal drug delivery systems, dental and orthodontic products (oralcare), health information systems, and food safety products.In the medical and surgical areas, 3M is a supplier of medical tapes, dressings, wound closure products, orthopediccasting materials, electrodes and stethoscopes. In infection prevention, 3M markets a variety of surgical drapes, masksand preps, as well as sterilization assurance equipment and patient warming solutions designed to prevent hypothermiain surgical settings. Other products include drug delivery systems, such as metered-dose inhalers, transdermal skinpatches and related components. Dental and orthodontic products include restoratives, adhesives, finishing andpolishing products, crowns, impression materials, preventive sealants, professional tooth whiteners, prophylaxis andorthodontic appliances, as well as digital workflow solutions to transform traditional impression and analog processes. Inhealth information systems, 3M develops and markets computer software for hospital coding and data classification, andprovides related consulting services. 3M provides food safety products that make it faster and easier for food processorsto test the microbiological quality of food.Consumer Business: The Consumer segment serves markets that include consumer retail, office retail, homeimprovement, building maintenance and other markets. Products in this segment include office supply products,stationery products, construction and home improvement products (do-it-yourself), home care products, protectivematerial products, certain consumer retail personal safety products, and consumer health care products.Major consumer products include Scotch® brand products, such as Scotch® Magic™ Tape, Scotch® Glue Stick andScotch® Cushioned Mailer; Post-it® Products, such as Post-it® Flags, Post-it® Note Pads, Post-it® Labeling & Coverup Tape, and Post-it® Pop-up Notes and Dispensers; construction and home improvement products, including surfacepreparation and wood-finishing materials, Command™ Adhesive Products and Filtrete™ Filters for furnaces and airconditioners; home care products, including Scotch-Brite® Scour Pads, Scotch-Brite® Scrub Sponges, Scotch-Brite™Microfiber Cloth products, O-Cel-O™ Sponges; protective material products, such as Scotchgard™ Fabric Protectors;certain maintenance-free respirators; certain consumer retail personal safety products, including safety glasses, hearingprotectors, and 3M™ Thinsulate™ Insulation, which is used in jackets, pants, gloves, hats and boots to keep peoplewarm; Nexcare™ Adhesive Bandages; and ACE® branded (and related brands) elastic bandage, supports andthermometer product lines.Distribution3M products are sold through numerous distribution channels, including directly to users and through numerouswholesalers, 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 contributedsignificantly to 3M’s position in the marketplace and to its growth.5Table of ContentsResearch and PatentsResearch and product development constitutes an important part of 3M’s activities and has been a major driver of 3M’ssales growth. Research, development and related expenses totaled $1.715 billion in 2013, $1.634 billion in 2012 and$1.570 billion in 2011. Research and development, covering basic scientific research and the application of scientificadvances in the development of new and improved products and their uses, totaled $1.150 billion in 2013, $1.079 billionin 2012 and $1.036 billion in 2011. Related expenses primarily include technical support provided by 3M to customerswho are using existing 3M products; internally developed patent costs, which include costs and fees incurred to prepare,file, secure and maintain patents; amortization of externally acquired patents and externally acquired in-process researchand 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 holdslicenses to use, numerous U.S. and foreign patents. The Company’s research and development activities generate asteady stream of inventions that are covered by new patents. Patents applicable to specific products extend for varyingperiods according to the date of patent application filing or patent grant and the legal term of patents in the variouscountries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country tocountry, 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. Ingeneral, no single patent or group of related patents is in itself essential to the Company as a whole or to any of theCompany’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 onForm 10-K.Raw MaterialsIn 2013, the Company experienced stable to declining costs for most raw material categories and transportation fuel.This was driven by year-on-year cost decreases in many feedstock categories, including petroleum based materials,minerals, metals and wood pulp based products. To date, the Company is receiving sufficient quantities of all rawmaterials to meet its reasonably foreseeable production requirements. It is impossible to predict future shortages of rawmaterials or the impact any such shortages would have. 3M has avoided disruption to its manufacturing operationsthrough careful management of existing raw material inventories and development and qualification of additional supplysources. 3M manages commodity price risks through negotiated supply contracts, price protection agreements andforward physical contracts.Environmental Law Compliance3M’s manufacturing operations are affected by national, state and local environmental laws around the world. 3M hasmade, and plans to continue making, necessary expenditures for compliance with applicable laws. 3M is also involved inremediation actions relating to environmental matters from past operations at certain sites (refer to “EnvironmentalMatters and Litigation” in Note 13, Commitments and Contingencies).Environmental expenditures relating to existing conditions caused by past operations that do not contribute to current orfuture revenues are expensed. Reserves for liabilities for anticipated remediation costs are recorded on an undiscountedbasis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies orthe Company’s commitment to a plan of action. Environmental expenditures for capital projects that contribute to currentor future operations generally are capitalized and depreciated over their estimated useful lives.In 2013, 3M expended about $31 million for capital projects related to protecting the environment. This amount excludesexpenditures for remediation actions relating to existing matters caused by past operations that do not contribute tocurrent or future revenues, which are expensed. Capital expenditures for environmental purposes have included pollutioncontrol devices — such as wastewater treatment plant improvements, scrubbers, containment structures, solventrecovery units and thermal oxidizers — at new and existing facilities constructed or upgraded in the normal course ofbusiness. Consistent with the Company’s policies stressing environmental responsibility, capital expenditures (other thanfor remediation projects) for known projects are presently expected to be about $54 million over the next two years fornew or expanded programs to build facilities or modify manufacturing processes to minimize waste and reduceemissions.While the Company cannot predict with certainty the future costs of such cleanup activities, capital expenditures oroperating costs for environmental compliance, the Company does not believe they will have a material effect on itscapital expenditures, earnings or competitive position.6Table of ContentsExecutive OfficersFollowing is a list of the executive officers of 3M, and their age, present position, the year elected to their presentposition and other positions they have held during the past five years. No family relationships exist among any of theexecutive officers named, nor is there any undisclosed arrangement or understanding pursuant to which any person wasselected as an officer. This information is presented in the table below as of the date of the 10-K filing (February 13,2014).NameInge G. ThulinAge60…