REG - 3M Company - Annual Financial Report <Origin Href="QuoteRef">MMM.N</Origin> - Part 10

3M CoAnnouncement

01/04/2016 14:49

- Part 10: For the preceding part double click  ID:nRSO0010Pi 

purchases in the future, but represent only those items
for which the Company is contractually obligated. The majority of 3M's products and services are purchased as needed, with
no unconditional commitment. For this reason, these amounts will not provide an indication of the Company's expected future
cash outflows related to purchase obligations. 
 
Warranties/Guarantees: 
 
3M's accrued product warranty liabilities, recorded on the Consolidated Balance Sheet as part of current and long-term
liabilities, are estimated at approximately $28 million at December 31, 2015, and $30 million at December 31, 2014. 3M does
not consider this amount to be material. The fair value of 3M guarantees of loans with third parties and other guarantee
arrangements are not material. 
 
Related Party Activity: 
 
3M does not have any material related party activity. 
 
Legal Proceedings: 
 
The Company and some of its subsidiaries are involved in numerous claims and lawsuits, principally in the United States,
and regulatory proceedings worldwide. These include various products liability (involving products that the Company now or
formerly manufactured and sold), intellectual property, and commercial claims and lawsuits, including those brought 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 relating to causation, scientific evidence, and whether there are
actual damages and are otherwise subject to substantial uncertainties. Assessments of lawsuits and claims can involve a
series of complex judgments about future events and can rely heavily on estimates and assumptions. The Company complies
with the requirements of ASC 450, Contingencies, and related guidance, and records liabilities for legal proceedings in
those instances where it can reasonably estimate the amount of the loss and where liability is probable. Where the
reasonable estimate of the probable loss is a range, the Company records the most likely estimate of the loss, or the low
end of the range if there is no one best estimate. The Company either discloses the amount of a possible loss or range of
loss in excess of established accruals if estimable, or states that such an estimate cannot be made. The Company discloses
significant legal proceedings even where liability is not probable or the amount of the liability is not estimable, or
both, if the Company believes there is at least a reasonable possibility that a loss may be incurred. 
 
The Company estimates insurance receivables based on an analysis of its numerous policies, including their exclusions,
pertinent case law interpreting comparable policies, its experience with similar claims, and assessment of the nature of
the claim and remaining coverage, and records an amount it has concluded is likely to be recovered. For those insured
matters where the Company has taken an accrual, the Company also records receivables for the amount of insurance that it
expects to recover under the Company's insurance program. For those insured matters where the Company has not taken an
accrual because the liability is not probable or the amount of the liability is not estimable, or both, but where the
Company has incurred an expense in defending itself, the Company records receivables for the amount of insurance that it
expects to recover for the expense incurred. 
 
Because litigation is subject to inherent uncertainties, and unfavorable rulings or developments could occur, there can be
no certainty that the Company may not ultimately incur charges in excess of presently recorded liabilities. A future
adverse ruling, settlement, or unfavorable development could result in future charges that could have a material adverse
effect on the Company's results of operations or cash flows in the period in which they are recorded. Although the Company
cannot estimate its exposure to all legal proceedings, it currently believes that such future charges, if any, would not
have a material adverse effect on the consolidated financial position of the Company. Based on experience and developments,
the Company reexamines its estimates of probable liabilities and associated expenses and receivables each period, and
whether it is able to estimate a liability previously determined to be not estimable and/or not probable. Where
appropriate, the Company makes additions to or adjustments of its estimated liabilities. As a result, the current estimates
of the potential impact on the Company's consolidated financial position, results of operations and cash flows for the
legal proceedings and claims pending against the Company could change in the future. 
 
The following sections first describe the significant legal proceedings in which the Company is involved, and then describe
the liabilities and associated insurance receivables the Company has accrued relating to its significant legal
proceedings. 
 
Respirator Mask/Asbestos Litigation 
 
As of December 31, 2015, the Company is a named defendant, with multiple co-defendants, in numerous lawsuits in various
courts that purport to represent approximately 2,130 individual claimants, compared to approximately 2,220 individual
claimants with actions pending at December 31, 2014. 
 
The vast majority of the lawsuits and claims resolved by and currently pending against the Company allege use of some of
the Company's mask and respirator products and seek damages from the Company and other defendants for alleged personal
injury from workplace exposures to asbestos, silica, coal mine dust or other occupational dusts found in products
manufactured by other defendants or generally in the workplace. A minority of the lawsuits and claims resolved by and
currently pending against the Company generally allege personal injury from occupational exposure to asbestos from products
previously manufactured by the Company, which are often unspecified, as well as products manufactured by other defendants,
or occasionally at Company premises. 
 
The Company's current volume of new and pending matters is substantially lower than it experienced at the peak of filings
in 2003. The Company expects that filing of claims by unimpaired claimants in the future will continue to be at much lower
levels than in the past. Accordingly, the number of claims alleging more serious injuries, including mesothelioma and other
malignancies, will represent a greater percentage of total claims than in the past. The Company has prevailed in all ten
cases taken to trial, including eight of the nine cases tried to verdict (such trials occurred in 1999, 2000, 2001, 2003,
2004, 2007, and 2015), and an appellate reversal in 2005 of the 2001 jury verdict adverse to the Company. The remaining
case, tried in 2009, was dismissed by the court at the close of plaintiff's evidence, based on the court's legal finding
that the plaintiff had not presented sufficient evidence to support a jury verdict. 
 
The Company has demonstrated in these past trial proceedings that its respiratory protection products are effective as
claimed when used in the intended manner and in the intended circumstances. Consequently the Company believes that
claimants are unable to establish that their medical conditions, even if significant, are attributable to the Company's
respiratory protection products. Nonetheless the Company's litigation experience indicates that claims of persons with
malignant conditions are costlier to resolve than the claims of unimpaired persons, and it therefore believes the average
cost of resolving pending and future claims on a per-claim basis will continue to be higher than it experienced in prior
periods when the vast majority of claims were asserted by the unimpaired. 
 
As previously reported, the State of West Virginia, through its Attorney General, filed a complaint in 2003 against the
Company and two other manufacturers of respiratory protection products in the Circuit Court of Lincoln County, West
Virginia, and amended its complaint in 2005. The amended complaint seeks substantial, but unspecified, compensatory damages
primarily for reimbursement of the costs allegedly incurred by the State for worker's compensation 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 into separate liability and damages proceedings. At the hearing on the motion, the court
declined to bifurcate the lawsuit. No liability has been recorded for this matter because the Company believes that
liability is not probable and estimable at this time. In addition, the Company is not able to estimate a possible loss or
range of loss given the lack of any meaningful discovery responses by the State of West Virginia, the otherwise minimal
activity in this case and the fact that the complaint asserts claims against two other manufacturers where a defendant's
share of liability may turn on the law of joint and several liability and by the amount of fault, if any, a jury might
allocate to each defendant if the case is ultimately tried. 
 
Respirator Mask/Asbestos Liabilities and Insurance Receivables: The Company estimates its respirator mask/asbestos
liabilities, including the cost to resolve the claims and defense costs, by examining: (i) the Company's experience in
resolving claims, (ii) apparent trends, (iii) the apparent quality of claims (e.g., whether the claim has been asserted on
behalf of asymptomatic claimants), (iv) changes in the nature and mix of claims (e.g., the proportion of claims asserting
usage of the Company's mask or respirator products and alleging exposure to each of asbestos, silica, coal or other
occupational dusts, and claims pleading use of asbestos-containing products allegedly manufactured by the Company), (v) the
number of current claims and a projection of the number of future asbestos and other claims that may be filed against the
Company, (vi) the cost to resolve recently settled claims, and (vii) an estimate of the cost to resolve and defend against
current and future claims. 
 
Developments may occur that could affect the Company's estimate of its liabilities. These developments include, but are not
limited to, significant changes in (i) the number of future claims, (ii) the average cost of resolving claims, (iii) the
legal costs of defending these claims and in maintaining trial readiness, (iv) changes in the mix and nature of claims
received, (v) trial and appellate outcomes, (vi) changes in the law and procedure applicable to these claims, and (vii) the
financial viability of other co-defendants and insurers. 
 
As a result of the Company's cost of resolving claims of persons who claim more serious injuries, including mesothelioma
and other malignancies, the Company increased its accruals in 2015 for respirator mask/asbestos liabilities by $50 million.
In 2015, the Company made payments for legal fees and settlements of $46 million related to the respirator mask/asbestos
litigation. As of December 31, 2015, the Company had accruals for respirator mask/asbestos liabilities of $144 million
(excluding Aearo accruals). This accrual represents the low end in a range of loss. The Company cannot estimate the amount
or upper end of the range of amounts by which the liability may exceed the accrual the Company has established because of
the (i) inherent difficulty in projecting the number of claims that have not yet been asserted or the time period in which
future claims may be asserted, (ii) the complaints nearly always assert claims against multiple defendants where the
damages alleged are typically not attributed to individual defendants so that a defendant's share of liability may turn on
the law of joint and several liability, which can vary by state, (iii) the multiple factors described above that the
Company considers in estimating its liabilities, and (iv) the several possible developments described above that may occur
that could affect the Company's estimate of liabilities. 
 
As of December 31, 2015, the Company's receivable for insurance recoveries related to the respirator mask/asbestos
litigation was $39 million. The Company estimates insurance receivables based on an analysis of its policies, including
their exclusions, pertinent case law interpreting comparable policies, its experience with similar claims, and an
assessment of the nature of each claim and remaining coverage. The Company then records an amount it has concluded is
likely to be recovered. Various factors could affect the timing and amount of recovery of this receivable, including (i)
delays in or avoidance of payment by insurers; (ii) the extent to which insurers may become insolvent in the future, and
(iii) the outcome of negotiations with insurers and legal proceedings with respect to respirator mask/asbestos liability
insurance coverage. 
 
The Company has unresolved coverage with claims-made carriers for respirator mask claims. The Company is also seeking
coverage under the policies of certain insolvent insurers. Once those claims for coverage are resolved, the Company will
have collected substantially 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 sold various products, including personal protection equipment, such as eye, ear, head,
face, fall and certain respiratory protection products. 
 
As of December 31, 2015, Aearo and/or other companies that previously owned and operated Aearo's respirator business
(American Optical Corporation, Warner-Lambert LLC, AO Corp. and Cabot Corporation ("Cabot")) are named defendants, with
multiple co-defendants, including the Company, in numerous lawsuits in various courts in which plaintiffs allege use of
mask and respirator products and seek damages from Aearo and other defendants for 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, 2015, the Company, through its Aearo subsidiary, had accruals of $21 million 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 respective 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 a quarterly fee of $100,000,
Cabot will retain responsibility and liability for, and indemnify Aearo against, any product liability claims involving
exposure to asbestos, silica, or  silica products for respirators sold prior to July 11, 1995. Because of the difficulty in
determining how long a particular respirator remains in the stream of commerce after being sold, Aearo and Cabot have
applied the agreement to claims arising out of the alleged use of respirators involving exposure to asbestos, silica or
silica products 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 involving exposure to asbestos, silica, or silica products on
or after January 1, 1997. To date, Aearo has elected to pay the quarterly 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. 
 
In March 2012, Cabot CSC Corporation and Cabot Corporation filed a lawsuit against Aearo in the Superior Court of Suffolk
County, Massachusetts seeking declaratory relief as to the scope of Cabot's indemnity obligations under the July 11, 1995
agreement, including whether Cabot has retained liability for coal workers' pneumoconiosis claims, and seeking damages for
breach of contract. In June 2014, the court granted Aearo's motion for summary judgment on all claims. Cabot has filed a
motion for reconsideration, and Aearo filed a motion for clarification of the court's order granting Aearo summary
judgment. In October 2014, the court denied Aearo's motion for clarification. The court also denied, in part, Cabot's
motion for reconsideration and reaffirmed its ruling that Cabot retained liability for claims involving exposure to silica
in coal mine dust. The court granted Cabot's motion, in part, ruling that Aearo was not entitled to summary judgment on
Cabot's claim for equitable allocation, and on whether the 258 underlying claims were Cabot's responsibility. These two
issues remain in the case for further proceedings. New motions for summary judgment were filed and the court heard oral
arguments in October 2015. 
 
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 insurance coverage limits, and/or (ix)
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 amount accrued. 
 
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 cannot estimate the amount or range of amounts by which
Aearo's liability may exceed the accrual 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 States, at which it may have some
liability. Please refer to the section entitled "Environmental Liabilities and Insurance Receivables" that follows for
information on the amount of the accrual. 
 
Environmental Matters 
 
As previously reported, the Company has been voluntarily cooperating with ongoing reviews by local, state, federal
(primarily the U.S. Environmental Protection Agency (EPA)), and international agencies of possible environmental and health
effects of various perfluorinated compounds ("PFCs"), including perfluorooctanyl compounds such as perfluorooctanoate
("PFOA") and perfluorooctane sulfonate ("PFOS"). As a result of its phase-out decision in May 2000, the Company no longer
manufactures perfluorooctanyl compounds. The company ceased manufacturing and using the vast majority of these compounds
within approximately two years of the phase-out announcement, and ceased all manufacturing and the last significant use of
this chemistry by the end of 2008. Through its ongoing life cycle management and its raw material composition
identification processes associated with the Company's policies covering the use of all persistent and bio-accumulative
materials, the Company has on occasion identified the presence of precursor chemicals in materials received from suppliers
that may ultimately degrade to PFOA, PFOS, or similar compounds. Upon such identification, the Company works to find
alternatives for such materials. 
 
Regulatory activities concerning PFOA and/or PFOS continue in the United States, Europe and elsewhere, and before certain
international bodies. These activities include gathering of exposure and use information, risk assessment, and
consideration of regulatory approaches. As the database of studies of both chemicals has expanded, the EPA has developed
draft human health effects documents summarizing the available data from these studies. In February 2014, the EPA initiated
external peer review of its draft human health effects documents for PFOA and PFOS. The peer review panel met in August
2014. The EPA has stated that following the peer review process it will revise its health effects documents and use them to
establish lifetime health advisories for PFOS and PFOA in drinking water. Lifetime health advisories, while not
enforceable, serve as guidance and are benchmarks for determining if concentrations of chemicals in tap water from public
utilities are safe for public consumption. Once finalized, the EPA stated that the lifetime health advisories are expected
to supersede the provisional health advisories for PFOA and PFOS in drinking water issued by the EPA in 2009 - currently at
0.4 micrograms per liter for PFOA and 0.2 micrograms per liter for PFOS. In an effort to collect exposure information under
the Safe Drinking Water Act, the EPA published on May 2, 2012 a list of unregulated substances, including six PFCs,
required to be monitored during the period 2013-2015 by public water system supplies to determine the extent of their
occurrence. The EPA is reporting results from this exercise on a rolling basis that will continue in 2016. Through year-end
2015, the EPA has reported results for 4,764 public water supplies nationwide. None of these have reported PFOA above the
provisional health advisory level issued by the EPA in 2009, and seventeen have reported PFOS levels above the 2009
provisional health advisory. 
 
The Company is continuing to make progress in its work, under the supervision of state regulators, to address its historic
disposal of PFC-containing waste associated with manufacturing operations at the Decatur, Alabama, Cottage Grove,
Minnesota, and Cordova, Illinois plants. 
 
As previously reported, the Company entered into a voluntary remedial action agreement with the Alabama Department of
Environmental Management (ADEM) to address the presence of PFCs in the soil at the Company's manufacturing facility in
Decatur, Alabama. Pursuant to a permit issued by ADEM, for approximately twenty years, the Company incorporated its
wastewater treatment plant sludge containing PFCs in fields at its Decatur facility. After a review of the available
options to address the presence of PFCs in the soil, ADEM agreed that the preferred remediation option is to use a
multilayer cap over the former sludge incorporation areas on the manufacturing site with subsequent groundwater migration
controls and treatment. Implementation of that option will continue and is expected to be completed in 2018. 
 
The Company continues to work with the Minnesota Pollution Control Agency (MPCA) pursuant to the terms of the previously
disclosed May 2007 Settlement Agreement and Consent Order to address the presence of certain PFCs in the soil and
groundwater at former disposal sites in Washington County, Minnesota (Oakdale and Woodbury) and at the Company's
manufacturing facility at Cottage Grove, Minnesota. Under this agreement, the Company's principal obligations include (i)
evaluating releases of certain PFCs from these sites and proposing response actions; (ii) providing treatment or
alternative drinking water upon identifying any level exceeding a Health Based Value ("HBV") or Health Risk Limit ("HRL")
(i.e., the amount of a chemical in drinking water determined by the Minnesota Department of Health (MDH) to be safe for
human consumption over a lifetime) for certain PFCs  for which a HBV and/or HRL exists as a result of contamination from
these sites; (iii) remediating identified sources of other PFCs at these sites that are not controlled by actions to
remediate PFOA and PFOS; and (iv) sharing information with the MPCA about certain perfluorinated compounds. During 2008,
the MPCA issued formal decisions adopting remedial options for the former disposal sites in Washington County, Minnesota
(Oakdale and Woodbury). In August 2009, the MPCA issued a formal decision adopting remedial options for the Company's
Cottage Grove manufacturing facility. During the spring and summer of 2010, 3M began implementing the agreed upon remedial
options at the Cottage Grove and Woodbury sites. 3M commenced the remedial option at the Oakdale site in late 2010. At each
location the remedial options were recommended by the Company and approved by the MPCA. Remediation work has been completed
at the Oakdale and Woodbury sites, and they are in an operational maintenance mode. Remediation will continue at the
Cottage Grove site during 2016. 
 
In August 2014, the Illinois EPA approved a request by the Company to establish a groundwater management zone at its
manufacturing facility in Cordova, Illinois, which includes ongoing pumping of impacted site groundwater, groundwater
monitoring and routine reporting of results. 
 
The Company cannot predict what additional regulatory actions arising from 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 (the "St. John" case), seeking unstated damages and alleging that the plaintiffs suffered fear, increased
risk, subclinical injuries, and property damage from exposure to certain perfluorochemicals at or near the Company's
Decatur, Alabama, manufacturing facility. The court in 2005 granted the Company's motion to dismiss the named plaintiff's
personal injury-related claims on the basis that such claims are barred by the exclusivity provisions of the state's
Workers Compensation Act. The plaintiffs' counsel filed an amended complaint in November 2006, limiting the case to
property damage claims on behalf of a purported class of residents and property owners in the vicinity of the Decatur
plant. In June 2015, the plaintiffs filed an amended complaint adding additional defendants, including BFI Waste Management
Systems of Alabama, LLC; BFI Waste Management of North America, LLC; the City of Decatur, Alabama; Morgan County, Alabama;
Municipal Utilities Board of Decatur; and Morgan County, Alabama, d/b/a Decatur Utilities. In September 2015, the court
issued a scheduling order staying discovery pending mediation which occurred in January 2016, but did not resolve the case.
Discovery relating to the class certification will begin, and the class certification hearing is scheduled for November
2016. 
 
In 2005, the judge in a second purported class action lawsuit filed by three residents of Morgan County, Alabama, seeking
unstated compensatory and punitive damages involving alleged damage to their property from emissions of certain
perfluorochemical compounds from the Company's Decatur, Alabama, manufacturing facility that formerly manufactured those
compounds (the "Chandler" case) granted the Company's motion to abate the case, effectively putting the case on hold
pending the resolution of class certification issues in the St. John case. Despite the stay, plaintiffs filed an amended
complaint seeking damages for alleged personal injuries and property damage on behalf of the named plaintiffs and the
members of a purported class. No further action in the case is expected unless and until the stay is lifted. 
 
In February 2009, a resident of Franklin County, Alabama, filed a purported class action lawsuit in the Circuit Court of
Franklin County (the "Stover" case) seeking compensatory damages and injunctive relief based on the application by the
Decatur utility's wastewater treatment plant of wastewater treatment sludge to farmland and grasslands in the state that
allegedly contain PFOA, PFOS and other perfluorochemicals. The named plaintiff seeks to represent a class of all persons
within the State of Alabama who have had PFOA, PFOS, and other perfluorochemicals released or deposited on their property.
In March 2010, the Alabama Supreme Court ordered the case transferred from Franklin County to Morgan County. In May 2010,
consistent with its handling of the other matters, the Morgan County Circuit Court abated this case, putting it on hold
pending the resolution of the class certification issues in the St. John case. 
 
In October 2015, West Morgan-East Lawrence Water & Sewer Authority ("Water Authority") filed an individual complaint
against 3M Company, Dyneon, L.L.C, and Daikin America, Inc., in the U.S. District Court for the Northern District of
Alabama.  The complaint also includes representative plaintiffs who brought the complaint on behalf of themselves, and a
class of all owners and possessors of property who use water provided by the Water Authority and five local water works to
which the Water Authority supplies water (collectively, the "Water Utilities").  The complaint seeks compensatory and
punitive damages and injunctive relief based on allegations that the defendants' chemicals, including PFOA and PFOS from
their manufacturing processes in Decatur, have contaminated the water in the Tennessee River at the water intake, and that
the chemicals cannot be removed by the water treatment processes utilized by the Water Authority. 
 
In December 2010, the State of Minnesota, by its Attorney General Lori Swanson, acting in its capacity as trustee of the
natural resources of the State of Minnesota, filed a lawsuit in Hennepin County District Court against 3M to recover
damages (including unspecified assessment costs and reasonable attorney's fees) for alleged injury to, destruction of, and
loss of use of certain of the State's natural resources under the Minnesota Environmental Response and Liability Act
(MERLA) and the Minnesota Water Pollution Control Act (MWPCA), as well as statutory nuisance and common law claims of
trespass, nuisance, and negligence with respect to the presence of PFCs in the groundwater, surface water, fish or other
aquatic life, and sediments (the "NRD Lawsuit"). The State also seeks declarations under MERLA that 3M is responsible for
all damages the State may suffer in the future for injuries to natural resources from releases of PFCs into the
environment, and under MWPCA that 3M is responsible for compensation for future loss or destruction of fish, aquatic life,
and other damages. 
 
In November 2011, the Metropolitan Council filed a motion to intervene and a complaint in the NRD Lawsuit seeking
compensatory damages and other legal, declaratory and equitable relief, including reasonable attorneys' fees, for costs and
fees that the Metropolitan Council alleges it will be required to assess at some time in the future if the MPCA imposes
restrictions on Metropolitan Council's PFOS discharges to the Mississippi River, including the installation and maintenance
of a water treatment system. The Metropolitan Council's intervention motion was based on several theories, including common
law negligence, and statutory claims under MERLA for response costs, and under the Minnesota Environmental Rights Act
(MERA) for declaratory and equitable relief against 3M for PFOS and other PFC pollution of the waters and sediments of the
Mississippi River. 3M did not object to the motion to intervene. In January 2012, 3M answered the Metropolitan Council's
complaint and filed a counterclaim alleging that the Metropolitan Council discharges PFCs to the Mississippi River and
discharges PFC-containing sludge and bio solids from one or more of its wastewater treatment plants onto agricultural lands
and local area landfills. Accordingly, 3M requested that if the court finds that the State is entitled to any of the
damages the State seeks, 3M seeks contribution and apportionment from the Metropolitan Council, including attorneys' fees,
under MERLA, and contribution from and liability for the Metropolitan Council's proportional share of damages awarded to
the State under the MWPCA, as well as under statutory nuisance and common law theories of trespass, nuisance, and
negligence. 3M also seeks declaratory relief under MERA. 
 
In April 2012, 3M filed a motion to disqualify the State of Minnesota's counsel, Covington & Burling, LLP (Covington). In
October 2012, the court granted 3M's motion to disqualify Covington as counsel to the State and the State and Covington
appealed the court's disqualification to the Minnesota Court of Appeals. In July 2013, the Minnesota Court of Appeals
affirmed the district court's disqualification order. In October 2013, the Minnesota Supreme Court granted both 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. The district
court took evidence on the disqualification issues at a hearing in October 2015. In February 2016, the district court ruled
that Covington violated the professional ethics rule against representing a client (here the State of Minnesota) in the
same or substantially related matter where that person's interests are materially adverse to the interests of a former
client (3M). The district court, however, denied 3M's motion to disqualify Covington because it further found that 3M
impliedly waived by delaying to assert the conflict. 3M is reviewing the district court's opinion to determine next steps.
Other activity in the case had been stayed pending the outcome of the disqualification issue. In a separate but related
action, the Company filed suit against Covington for breach of its fiduciary duties to the Company and for breach of
contract arising out of Covington's representation of the State of Minnesota in the NRD Lawsuit. 
 
For environmental litigation matters described in this section for which a liability, if any, has been recorded, the
Company believes the amount recorded, as well as the possible loss or range of loss in excess of the established accrual is
not material to the Company's consolidated results of operations or financial condition. For those matters for which a
liability has not been recorded, the Company believes any such liability is not probable and estimable and the Company is
not able to estimate a possible loss or range of loss at this time. 
 
Environmental Liabilities and Insurance Receivables 
 
As of December 31, 2015, the Company had recorded liabilities of $43 million for estimated "environmental remediation"
costs based upon an evaluation of currently available facts with respect to each individual site and also recorded related
insurance receivables of $11 million. The Company records liabilities for remediation costs on an undiscounted basis when
they are probable and reasonably estimable, generally no later than the completion of feasibility studies or the Company's
commitment to a plan of action. Liabilities for estimated costs of environmental remediation, depending on the site, are
based primarily upon internal or third-party environmental studies, and estimates as to the number, participation level and
financial viability of any other potentially responsible parties, the extent of the contamination and the nature of
required remedial actions. The Company adjusts recorded liabilities as further information develops or circumstances
change. The Company expects that it will pay the amounts recorded over the periods of remediation for the applicable sites,
currently ranging up to 20 years. 
 
As of December 31, 2015, the Company had recorded liabilities of $35 million for "other environmental liabilities" based
upon an evaluation of currently available facts to implement the Settlement Agreement and Consent Order with the MPCA, the
remedial action agreement with ADEM, and to address trace amounts of perfluorinated compounds in drinking water sources in
the City of Oakdale, Minnesota, as well as presence in the soil and groundwater at the Company's manufacturing facilities
in Decatur, Alabama, and Cottage Grove, Minnesota, and at two former disposal sites in Washington County, Minnesota
(Oakdale and Woodbury). The Company expects that most of the spending will occur over the next four years. As of December
31, 2015, the Company's receivable for insurance recoveries related to "other environmental liabilities" was $15 million. 
 
It is difficult to estimate the cost of environmental compliance and remediation given the uncertainties regarding the
interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination
and the existence of alternative cleanup methods. Developments may occur that could affect the Company's current
assessment, including, but not limited to: (i) changes in the information available regarding the environmental impact of
the Company's operations and products; (ii) changes in environmental regulations, changes in permissible levels of specific
compounds in drinking water sources, or changes in enforcement theories and policies, including efforts to recover natural
resource damages; (iii) new and evolving analytical and remediation techniques; (iv) success in allocating liability to
other potentially responsible parties; and (v) the financial viability of other potentially responsible parties and
third-party indemnitors. For sites included in both "environmental remediation liabilities" and "other environmental
liabilities," at which remediation activity is largely complete and remaining activity relates primarily to operation and
maintenance of the remedy, including required post-remediation monitoring, the Company believes the exposure to loss in
excess of the amount accrued would not be material to the Company's consolidated results of operations or financial
condition. However, for locations at which remediation activity is largely ongoing, the Company cannot estimate a possible
loss or range of loss in excess of the associated established accruals for the reasons described above. 
 
Other Matters 
 
Commercial Litigation 
 
3M sued TransWeb Corporation in Minnesota in 2010 for infringement of several 3M patents covering fluorination and
hydrocharging of filter media used in 3M's respirators and furnace filters. TransWeb filed a declaratory judgment action in
and successfully moved the litigation to the U.S. District Court for the District of New Jersey, seeking a declaration of
invalidity and non-infringement of 3M's patents, and further alleging that 3M waited too long to enforce its rights.
TransWeb also alleged 3M obtained the patents through inequitable conduct and that 3M's attempt to enforce the patents
constituted a violation of the antitrust laws. In November 2012, a jury returned a verdict in favor of TransWeb on all but
one count, including findings that 3M's patents were invalid and not infringed, and that 3M had committed an antitrust
violation by seeking to enforce a patent it had obtained fraudulently. The jury also recommended that the court find 3M had
committed inequitable conduct in obtaining the patents, and that the patents were therefore unenforceable. Since the vast
majority of TransWeb's claim for treble antitrust damages was in the form of its attorneys' fees and expenses in connection
with the defense of the patent case, the parties agreed that the measure of damages would not go to the jury, but rather
would be submitted to a special master after the trial. In April, 2014, the court issued an order denying 3M's motions to
set aside the jury's verdict. In addition, the court found two 3M patents unenforceable due to inequitable conduct. The
court accepted the special master's recommendation as to the amount of attorneys' fees to be awarded as damages, and
entered judgment against 3M in the amount of approximately $26 million. In July 2014, 3M filed a notice of appeal of the
judgment to the U.S. Court of Appeals for the Federal Circuit. On February 10, 2016, the U.S. Court of Appeals for the
Federal Circuit issued its decision affirming the lower court's judgment. 3M is reviewing the appellate court's decision to
determine next steps. The impact of the appellate court's decision is not material to the Company's consolidated results of
operations or financial condition. 
 
Product Liability Litigation 
 
Électricité de France (EDF) filed a lawsuit against 3M France in the French courts in 2006 claiming commercial loss and
property damage after experiencing electrical network failures which EDF claims were caused by allegedly defective 3M
transition splices. The French Court of Appeals at Versailles affirmed the commercial trial court's decision that the
transition splices conformed to contract specifications and that EDF thoroughly analyzed and tested the splices before
purchase and installation. The Court of Appeals, however, ordered a court-appointed expert to study the problem and issue a
technical opinion on the cause of the network failures. The court-appointed expert submitted his report to the commercial
court in May 2014. The expert found potential defects in 3M's product and found that EDF incurred damages in excess of 100
million Euros. The expert's opinion is not dispositive of liability or damages and is subject to numerous factual and legal
challenges that will be raised with the court. The parties are briefing the court on their respective positions. Once the
briefing is complete, the commercial court may take from six months to one year to render its decision. 
 
One customer obtained an order in the French courts against 3M Purification SAS (a French subsidiary) in October 2011
appointing an expert to determine the amount of commercial loss and property damage allegedly caused by allegedly defective
3M filters used in the customer's manufacturing process. An Austrian subsidiary of this same customer also filed a claim
against 3M Austria GmbH (an Austrian subsidiary) and 3M Purification SAS in the Austrian courts in September 2012 seeking
damages for the same issue. Those two cases are still pending. Another 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 the claims in the German
litigation. The Company has also settled without litigation the claims of two other customers arising out of the same
issue. The amounts paid are not material to the Company's consolidated results of operations or financial condition. 
 
As of December 31, 2015, the Company is a named defendant in 122 lawsuits, most of which are pending in federal or state
court in Minnesota, in which the plaintiffs claim they underwent various joint arthroplasty, cardiovascular, and other
surgeries and later developed surgical site infections due to the use of the Bair Hugger patient warming system.  The U.S.
Judicial Panel on Multidistrict Litigation granted the plaintiffs' motion to transfer and consolidate all cases pending in
federal courts to the U.S. District Court for the District of Minnesota to be managed in a multi-district proceeding during
the pre-trial phase of the litigation. 
 
The Bair Hugger product line was acquired by 3M as part of the 2010 acquisition of Arizant, Inc., a leading manufacturer of
patient warming solutions designed to prevent hypothermia and maintain normal body temperature in surgical settings. No
liability has been recorded for this matter because the Company believes that any such liability is not probable and
estimable at this time. 
 
For product liability litigation matters described in this section for which a liability has been recorded, the Company
believes the amount recorded is not material to the Company's consolidated results of operations or financial condition. In
addition, the Company is not able to estimate a possible loss or range of loss in excess of the established accruals at
this time. 
 
NOTE 15. Stock-Based Compensation 
 
The 3M 2008 Long-Term Incentive Plan provides for the issuance or delivery of up to 100 million shares of 3M common stock
(including additional shareholder approvals subsequent to 2008) pursuant to awards granted under the plan. Awards under
this plan may be issued in the form of incentive stock options, nonqualified stock options, progressive stock options,
stock appreciation rights, restricted stock, restricted stock units, other stock awards, and performance units and
performance shares. Awards denominated in shares of common stock other than options and stock appreciation rights, per the
2008 Plan, count against the 100 million share limit as 3.38 shares for every one share covered by such award (for full
value awards with grant dates prior to May 11, 2010), as 2.87 shares for every one share covered by such award (for full
value awards with grant dates on or after May 11, 2010, and prior to May 8, 2012), or as 3.50 shares for every one share
covered by such award (for full value awards with grant dates of May 8, 2012 or later). The remaining total shares
available for grant under the 2008 Long Term Incentive Plan Program are 20,328,681 as of December 31, 2015. There were
approximately 9,200 participants with outstanding options, restricted stock, or restricted stock units at December 31,
2015. 
 
The Company's annual stock option and restricted stock unit grant is made in February to provide a strong and immediate
link between the performance of individuals during the preceding year and the size of their annual stock compensation
grants. The grant to eligible employees uses the closing stock price on the grant date. Accounting rules require
recognition of expense under a non-substantive vesting period approach, requiring compensation expense recognition when an
employee is eligible to retire. Employees are considered eligible to retire at age 55 and after having completed five years
of service. This retiree-eligible population represents 35 percent of the 2015 annual stock-based compensation award
expense dollars; therefore, higher stock-based compensation expense is recognized in the first quarter. 3M also has granted
progressive (reload) options. These options are nonqualified stock options that were granted to certain participants under
the 1997 or 2002 Management Stock Ownership Program, but for which the reload feature was eliminated in 2005 (on a
prospective basis only). 
 
In addition to the annual grants, the Company makes other minor grants of stock options, restricted stock units and other
stock-based grants. The Company issues cash settled restricted stock units and stock appreciation rights in certain
countries. These grants do not result in the issuance of common stock and are considered immaterial by the Company. 
 
Amounts recognized in the financial statements with respect to stock-based compensation programs, which include 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 2015, 2014 and 2013. 
 
Stock-Based Compensation Expense 
 
                                                                                                             
                                                  Years ended December 31        
 (Millions)                                       2015                           2014     2013    
 Cost of sales                                    $                        46          $  47      $  27      
 Selling, general and administrative expenses                              185            192        183     
 Research, development and related expenses                                45             41         30      
                                                                                                             
 Stock-based compensation expenses                $                        276         $  280     $  240     
                                                                                                             
 Income tax benefits                              $                        (87)        $  (79)    $  (71)    
                                                                                                             
 Stock-based compensation expenses, net of tax    $                        189         $  201     $  169     
 
 
Stock Option Program 
 
The following table summarizes stock option activity for the years ended December 31: 
 
                                                                                                                                                        
                         2015           2014                    2013                     
                                        Weighted                                         Weighted                        Weighted          
                         Number of      Average                 Number of                Average            Number of    Average           
                         Options        Exercise Price          Options                  Exercise Price     Options      Exercise Price    
 Under option -                                                                                                                                         
 January 1               39,235,557     $               90.38              43,938,778                    $  83.84        56,565,030        $  80.33     
 Granted:                                                                                                                                               
 Annual                  5,529,544                      165.91             5,736,183                        126.77       6,220,810            101.55    
 Progressive (Reload)    -                              -                  -                                -            140,447              109.83    
 Other                   -                              -                  -                                -            191                  119.62    
 Exercised               (5,978,382)                    83.74              (10,219,261)                     82.37        (18,825,218)         79.25     
 Canceled                (234,274)                      128.99             (220,143)                        105.11       (162,482)            89.92     
 December 31             38,552,445     $               102.01             39,235,557                    $  90.38        43,938,778        $  83.84     
 Options exercisable                                                                                                                                    
 December 31             27,262,062     $               85.97              27,502,208                    $  81.42        32,038,228        $  79.58     
 
 
Stock options vest over a period from one to three years with the expiration date at 10 years from date of grant.
Outstanding options under grant include grants from previous plans. As of December 31, 2015, there was $69 million of
compensation expense that has yet to be recognized related to non-vested stock option based awards. This expense is
expected to be recognized over the remaining weighted-average vesting period of 21 months. For options outstanding at
December 31, 2015, the weighted-average remaining contractual life was 66 months and the aggregate intrinsic value was
$1.958 billion. For options exercisable at December 31, 2015, the weighted-average remaining contractual life was 52 months
and the aggregate intrinsic value was $1.763 billion. 
 
The total intrinsic values of stock options exercised during 2015, 2014 and 2013 was $465 million, $615 million and $562
million, respectively. Cash received from options exercised during 2015, 2014 and 2013 was $501 million, $842 million and
$1.492 billion, respectively. The Company's actual tax benefits realized for the tax deductions related to the exercise of
employee stock options for 2015, 2014 and 2013 was $172 million, $226 million and $208 million, respectively. 
 
The Company does not have a specific policy to repurchase common shares to mitigate the dilutive impact of options;
however, the Company has historically made adequate discretionary purchases, based on cash availability, market trends, and
other factors, to satisfy stock option exercise activity. 
 
For annual and progressive (reload) options, the weighted average fair value at the date of grant was calculated using the
Black-Scholes option-pricing model and the assumptions that follow. As discussed earlier, the progressive (reload) feature
was eliminated in 2005, resulting in no activity in the below table for 2014 and thereafter. 
 
Stock Option Assumptions 
 
                                                                                                                                        
                             Annual          Progressive (Reload)     
                             2015            2014                     2013       2015          2014     2013     
 Exercise price              $       165.94                        $  126.72     $     101.49        $  -        $  -     $  109.84     
 Risk-free interest rate             1.5     %                        1.9     %        1.2     %        -     %     -  %     0.2     %  
 Dividend yield                      2.5     %                        2.6     %        2.7     %        -     %     -  %     2.7     %  
 Volatility                          20.1    %                        20.8    %        20.0    %        -     %     -  %     16.3    %  
 Expected life (months)              76                               75               75               -           -        12         
 Black-Scholes fair value    $       23.98                         $  19.63      $     13.46         $  -        $  -     $  6.42       
 
 
Expected volatility is a statistical measure of the amount by which a stock price is expected to fluctuate during a period.
For the 2015 annual grant date, the Company estimated the expected volatility based upon the average of the most recent one
year volatility, the median of the term of the expected life rolling volatility, the median of the most recent term of the
expected life volatility of 3M stock, and the implied volatility on the grant date. The expected term assumption is based
on the weighted average of historical grants. 
 
Restricted Stock and Restricted Stock Units 
 
The following table summarizes restricted stock and restricted stock unit activity for the years ended December 31: 
 
                                                                                                                                           
                        2015           2014                2013                    
                                       Weighted                                    Weighted                    Weighted       
                                       Average                                     Average                     Average        
                        Number of      Grant Date          Number of               Grant Date     Number of    Grant Date     
                        Awards         Fair Value          Awards                  Fair Value     Awards       Fair Value     
 Nonvested balance -                                                                                                                       
 As of January 1        2,817,786      $           104.41             3,105,361                $  92.31        3,261,562      $  85.17     
 Granted                                                                                                                                   
 Annual                 671,204                    165.86             798,615                     126.79       946,774           101.57    
 Other                  26,886                     156.94             78,252                      152.74       44,401            111.19    
 Vested                 (1,010,612)                89.99              (1,100,675)                 90.37        (1,100,095)       79.93     
 Forfeited              (64,176)                   118.99             (63,767)                    97.23        (47,281)          90.82     
 As of December 31      2,441,088      $           127.47             2,817,786                $  104.41       3,105,361      $  92.31     
 
 
As of December 31, 2015, there was $84 million of compensation expense that has yet to be recognized related to non-vested
restricted stock and restricted stock units. This expense is expected to be recognized over the remaining weighted-average
vesting period of 24 months. The total 

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