REG - 3M Company - Annual Financial Report - Updated by Form 8-K <Origin Href="QuoteRef">MMM.N</Origin> - Part 11

3M CoAnnouncement

05/05/2017 07:07

- Part 11: For the preceding part double click  ID:nRSE2625Ej 

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 was inactive from the
fourth quarter of 2007 until late 2013, 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 annually conducts a comprehensive legal review of its respirator mask/asbestos liabilities in connection with
finalizing and reporting its annual results of operations, unless significant changes in trends or new developments warrant
an earlier review. The Company reviews recent and historical claims data, including without limitation, (i) the number of
pending claims filed against the Company, (ii) the nature and mix of those claims (i.e., 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), (iii)
the costs to defend and resolve pending claims, and (iv) trends in filing rates and in costs to defend and resolve claims,
(collectively, the "Claims Data"). As part of its comprehensive legal review, the Company provides the Claims Data to a
third party with expertise in determining the impact of Claims Data on future filing trends and costs. The third party
assists the Company in estimating the costs to defend and resolve pending and future claims. The Company uses these
estimates to develop its best estimate of probable liability. 
 
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 key assumptions underlying the Company's accrual, including, the number of
future claims, the nature and mix of those claims, the average cost of defending and resolving claims, and in maintaining
trial readiness (ii) trial and appellate outcomes, (iii) the law and procedure applicable to these claims, and (iv) the
financial viability of other co-defendants and insurers. 
 
As a result of the Company's regular comprehensive legal review and underlying factors such as the costs of resolving
claims of persons who claim more serious injuries, including mesothelioma and other malignancies, the Company recorded an
expense in 2016 for respirator mask/asbestos liabilities of $69 million. In 2016, the Company made payments for legal fees
and settlements of $62 million related to the respirator mask/asbestos litigation. As of December 31, 2016 and 2015, the
Company had an accrual for respirator mask/asbestos liabilities (excluding Aearo accruals) of $595 million and $588
million, respectively. This accrual represents the Company's best estimate of probable loss and reflects an estimation
period for future claims that may be filed against the Company approaching the year 2050. Refer to Note 1 for further
detail on the revision of this accrual. 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, 2016, the Company's receivable for insurance recoveries related to the respirator mask/asbestos
litigation was $4 million. As a result of a final arbitration decision in June 2016 regarding insurance coverage under two
policies, 3M reversed its receivable for the insurance recoveries related to respirator mask/asbestos litigation by $35
million. The Company is seeking coverage under the policies of certain insolvent and other 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, 2016, 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, 2016, the Company, through its Aearo subsidiary, had accruals of $19 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 2014, the court granted Aearo's motion for summary judgment on two claims, but declined to rule on
two issues: the specific liability for certain known coal mine dust lawsuits; and Cabot's claim for allocation of liability
between injuries allegedly caused by exposure to coal mine dust and injuries allegedly caused by exposure to silica dust.
Following additional discovery, the parties filed new motions for summary judgment. In February 2016, the court ruled in
favor of Aearo on these two remaining issues, and ordered that Cabot, and not Aearo, is solely responsible for all
liability for the coal mine dust lawsuits under the 1995 agreement. Cabot has appealed with a decision expected in 2017. 
 
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, including perfluorooctanyl compounds such as perfluorooctanoate ("PFOA"),
perfluorooctane sulfonate ("PFOS"), or similar compounds ("PFCs"). 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 continues to control or eliminate the presence of certain PFCs in purchased
materials or as byproducts in some of 3M's fluorochemical manufacturing processes, products, and waste streams. 
 
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. In October 2016, the European Commission notified the World Trade Organization of a
draft regulation to restrict PFOA and its related substances under the EU's REACH Regulation (Registration, Evaluation,
Authorization, and Restriction of Chemicals). If adopted, the regulation would restrict PFOA and its related substances to
concentrations no greater than 25 parts per billion in constituents of other substances, in mixtures, and in articles. As
the database of studies of both chemicals has expanded, the EPA has developed 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. In May 2016, the EPA announced lifetime
health advisory levels for PFOA and PFOS at 70 parts per trillion (superseding the provisional levels established by the
EPA in 2009 of 400 parts per trillion for PFOA and 200 parts per trillion for PFOS). Where PFOA and PFOS are found
together, EPA recommends that the concentrations be added together, and the lifetime health advisory for PFOA and PFOS
combined is also 70 parts per trillion. 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. 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 suppliers to determine the extent of their occurrence. Through July 2016, the EPA reported results for 4,909
public water supplies nationwide. Based on the 2016 lifetime health advisory, 13 public water supplies exceed the level for
PFOA and 46 exceed the level for PFOS. A technical advisory issued by EPA in September 2016 on laboratory analysis of
drinking water samples stated that 65 public water supplies had exceeded the combined level for PFOA and PFOS. These
results are based on one or more samples collected during the period 2012-2015 and do not necessarily reflect current
conditions of these public water supplies. EPA reporting does not identify the sources of the PFOA and PFOS in the public
water supplies. 
 
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 plan continues 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 2017. 
 
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 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 September 2016, the court granted 3M's
motion to dismiss plaintiffs' trespass claims with prejudice, negligence claims for personal injuries, and private nuisance
claims, and denied the motion to dismiss the plaintiffs' negligence claims for property damage, public nuisance, abatement
of nuisance, battery and wantonness. 
 
In June 2016, the Tennessee Riverkeeper, Inc. (Riverkeeper), a non-profit corporation, filed a lawsuit in the U.S. District
Court for the Northern District of Alabama against 3M; BFI Waste Systems of Alabama; the City of Decatur, Alabama; and the
Municipal Utilities Board of Decatur, Morgan County, Alabama. The complaint alleges that the defendants violated the
Resource Conservation and Recovery Act in connection with the disposal of certain PFCs through their ownership and
operation of their respective sites. The complaint further alleges such practices may present an imminent and substantial
endangerment to health and/or the environment and that Riverkeeper has suffered and will continue to suffer irreparable
harm caused by defendants' failure to abate the endangerment unless the court grants the requested relief, including
declaratory and injunctive relief. The Company believes that the complaint lacks merit. 
 
In July 2016, the City of Lake Elmo filed a lawsuit in the U.S. District Court for the District of Minnesota against 3M
alleging that the City suffered damages from drinking water supplies contaminated with PFCs, including costs to construct
alternative sources of drinking water. 
 
As of December 31, 2016, seven purported class actions were filed against 3M and other defendants in U.S. District Court -
three in the District of Colorado and four in the Eastern District of Pennsylvania. The complaints seek unstated damages
and other remedies, such as medical monitoring, and allege that the plaintiffs suffered personal injury and property damage
from drinking water supplies contaminated with certain PFCs used in Aqueous Film Forming Foam (AFFF) at current or former
airports and air force military bases located in Colorado and Pennsylvania. 
 
In September 2016, the Water Works and Sewer Board of the City of Gadsden, Alabama filed a lawsuit in the Circuit Court of
Etowah County Alabama against 3M and various carpet manufacturers. The complaint alleges that PFCs from the defendants'
facilities contaminated the Coosa River as its raw water source for drinking water and seeks unstated damages for the
installation and operation of a filtration system, expenses to monitor PFC levels, and lost profits and sales. 
 
In November 2016, the Town of Barnstable, Massachusetts filed an individual action in the U.S. District Court for the
District of Massachusetts seeking unstated compensatory and punitive damages and other relief against 3M and other
suppliers of AFFF for alleged contamination of the aquifer supplying drinking water to the Hyannis water system. The town
seeks to recover costs associated with the investigation, treatment, remediation, and monitoring of drinking water supplies
allegedly contaminated with certain PFCs used in AFFF. In January 2017, the County of Barnstable, Massachusetts, filed an
individual action in the U.S. District Court for the District of Massachusetts seeking unstated compensatory and punitive
damages and other relief (including indemnification and contribution in connection with claims asserted against the County
by the Town of Barnstable) against 3M and other suppliers of AFFF for alleged contamination of the aquifer supplying
drinking water to the Hyannis water system. 
 
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's complaint against the Metropolitan Council asks that if the court finds that
the State is entitled to any of the damages it seeks, 3M be awarded 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. Other activity in the case, which had been stayed pending the outcome
of the disqualification issue, has resumed. A trial date has not yet been set. In a separate but related action, the
Company filed suit in the Ramsey County District Court 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. In
September 2016, the court granted 3M's motion for leave to amend the complaint to plead punitive damages. 
 
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, 2016, the Company had recorded liabilities of $38 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, 2016, the Company had recorded liabilities of $29 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, 2016, 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 July 2014, 3M filed a notice of appeal of the judgment to the U.S. Court of Appeals for the
Federal Circuit. In February 2016, the U.S. Court of Appeals for the Federal Circuit issued its decision affirming the
lower court's judgment. In March 2016, 3M paid TransWeb $27 million in full satisfaction of the judgment. 
 
Andover Healthcare filed an infringement suit against 3M in May 2013 in the U.S. District Court for the District of
Delaware. Andover also filed a related infringement action against 3M and 3M Deutschland GmbH in December 2013 in Mannheim,
Germany. In both cases, Andover alleged that certain of 3M's self-adherent wraps, including Coban Latex Free and Nexcare No
Hurt Latex Free wraps, infringed Andover's U.S. and German patents. 3M denied that it infringed Andover's patents, asserted
that the patents are invalid, and claimed that Andover should be precluded from recovery of its alleged damages, in part
because of its long delay in bringing the actions. 3M and Andover each filed motions for summary judgment, and in October
2016, the court denied all pending summary judgment motions filed by both parties. Trial in the U.S. matter was scheduled
for November 2016. A hearing in the German infringement case occurred in September 2014. In November 2014, the German trial
court issued a decision ordering the appointment of an expert to assist with analysis of whether 3M's products infringe
Andover's German patent. Separately, 3M filed a nullity action in Germany, challenging the validity of Andover's German
patent. At a hearing in July 2015, the German patent court revoked Andover's German patents. Andover appealed that decision
and, in April 2016, the German trial court stayed the infringement proceedings during the pendency of Andover's appeal. In
November 2016, the parties resolved all pending litigation in the United States and Germany for an amount that 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 was not dispositive of liability or damages and subject to numerous factual and legal
challenges that could be raised with the court. In June 2016, the parties reached an agreement to resolve this dispute; the
agreement includes confidential terms that, when taking into account 3M's insurance coverage, were not material to the
Company's consolidated results of operations or financial condition. 
 
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, 2016, the Company is a named defendant in approximately 1,260 lawsuits (compared to approximately 122
lawsuits at December 31, 2015), 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 complaints seek damages and other relief based on
theories of strict liability, negligence, breach of express and implied warranties, failure to warn, design and
manufacturing defect, fraudulent and/or negligent misrepresentation/concealment, unjust enrichment, and violations of
various state consumer fraud, deceptive or unlawful trade practices and/or false advertising acts. One case, from the U.S.
District Court for the Western District of Tennessee is a putative nationwide class action. The U.S. Judicial Panel on
Multidistrict Litigation (MDL) 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. In June 2016, the Company was served with a putative class action filed in the Ontario
Superior Court of Justice for all Canadian residents who 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
representative plaintiff seeks relief (including punitive damages) under Canadian law based on theories similar to those
asserted in the MDL. 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. 
 
In September 2011, 3M Oral Care launched Lava Ultimate CAD/CAM dental restorative material. The product was originally
indicated for inlay, onlay, veneer, and crown applications. In June 2015, 3M Oral Care voluntarily removed crown
applications from the product's instructions for use, following reports from dentists of patients' crowns debonding,
requiring additional treatment. The product remains on the market for other applications. 3M communicated with the U.S.
Food and Drug Administration, as well as regulators outside the United States. 3M also informed customers and distributors
of its action, offered to accept return of unused materials and provide refunds. As of December 31, 2016, there are three
lawsuits pending that were brought by dentists and dental practices against 3M. The complaints allege 3M marketed and sold
defective Lava Ultimate material used for dental crowns to dentists and, under various theories, seek monetary damages
(replacement costs and business reputation loss), punitive damages, disgorgement of profits, injunction from marketing and
selling Lava Ultimate for use in dental crowns, statutory penalties, and attorneys' fees and costs. One lawsuit, pending in
the U.S. District Court for the District of Minnesota, names 39 plaintiffs and seeks certification of a class action of
dentists in the United States and its territories, and alternatively seeks subclasses in 13 states. The other two lawsuits
are individual complaints against 3M - one in Madison County, Illinois and the other in the U.S. District Court for the
Northern District of New York. 
 
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 (LTIP) 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. In May
2016, shareholders approved the 2016 LTIP, providing an additional 23,965,000 shares, increasing the number of approved
shares to 123,965,000 shares. The 2016 LTIP succeeds the 3M 2008 LTIP. Awards 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, count against the 123,965,000 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), as
3.50 shares for every one share covered by such award (for full value awards with grant dates of May 8, 2012 and prior to
May 10, 2016), or as 2.50 shares for every one share covered by such award (for full value awards with grant dates of May
10, 2016 or later). The remaining total shares available for grant under the LTIP Program are 36,865,814 as of December 31,
2016. There were approximately 7,600 participants with outstanding options, restricted stock, or restricted stock units at
December 31, 2016. 
 
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 ten years
of service. This retiree-eligible population represents 35 percent of the 2016 annual stock-based compensation award
expense dollars; therefore, higher stock-based compensation expense is recognized in the first quarter. 
 
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 for disclosure purposes
by the Company. 
 
During the first quarter of 2016, the Company adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment
Accounting. The adoption is required to be implemented prospectively and resulted in income tax benefits of $184 million
for 2016. See Note 1 for additional information regarding ASU No. 2016-09. 
 
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. 
 
Stock-Based Compensation Expense 
 
                                                                                                                         
                                                             Years ended December 31         
 (Millions)                                                  2016                            2015     2014    
 Cost of sales                                               $                        47           $  46      $  47      
 Selling, general and administrative expenses                                         206             185        192     
 Research, development and related expenses                                           45              45         41      
                                                                                                                         
 Stock-based compensation expenses                           $                        298          $  276     $  280     
                                                                                                                         
 Income tax benefits                                         $                        (272)        $  (87)    $  (79)    
                                                                                                                         
 Stock-based compensation expenses (benefits), net of tax    $                        26           $  189     $  201     
 
 
Stock Option Program 
 
The following table summarizes stock option activity for the years ended December 31: 
 
                                                                                                                                                      
                        2016           2015                    2014                    
                                       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              38,552,445     $               102.01             39,235,557                   $  90.38        43,938,778        $  83.84     
 Granted:                                                                                                                                             
 Annual                 5,591,727                      147.99             5,529,544                       165.91       5,736,183            126.77    
 Exercised              (7,716,141)                    86.76              (5,978,382)                     83.74        (10,219,261)         82.37     
 Canceled               (231,799)                      148.43             (234,274)                       128.99       (220,143)            105.11    
 December 31            36,196,232     $               112.07             38,552,445                   $  102.01       39,235,557        $  90.38     
 Options exercisable                                                                                                                                  
 December 31            25,240,759     $               95.65              27,262,062                   $  85.97        27,502,208        $  81.42     
 
 
Stock options vest over a period from one to three years with the expiration date at 10 years from date of grant. As of
December 31, 2016, 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 20
months. For options outstanding at December 31, 2016, the weighted-average remaining contractual life was 69 months and the
aggregate intrinsic value was $2.407 billion. For options exercisable at December 31, 2016, the weighted-average remaining
contractual life was 56 months and the aggregate intrinsic value was $2.093 billion. 
 
The total intrinsic values of stock options exercised during 2016, 2015 and 2014 was $608 million, $465 million and $615
million, respectively. Cash received from options exercised during 2016, 2015 and 2014 was $665 million, $501 million and
$842 million, respectively. The Company's actual tax benefits realized for the tax deductions related to the exercise of
employee stock options for 2016, 2015 and 2014 was $224 million, $172 million and $226 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 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. 
 
Stock Option Assumptions 
 
                                                                               
                             Annual          
                             2016            2015     2014       
 Exercise price              $       147.87        $  165.94     $  126.72     
 Risk-free interest rate             1.5     %        1.5     %     1.9     %  
 Dividend yield                      2.5     %        2.5     %     2.6     %  
 Expected volatility                 20.8    %        20.1    %     20.8    %  
 Expected life (months)              77               76            75         
 Black-Scholes fair value    $       22.47         $  23.98      $  19.63      
 
 
Expected volatility is a statistical measure of the amount by which a stock price is expected to fluctuate during a period.
For the 2016 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: 
 
                                                                                                                                         
                        2016         2015                2014                    
                                     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        2,441,088    $           127.47             2,817,786                $  104.41       3,105,361      $  92.31     
 Granted                                                                                                                                 
 Annual                 749,068                  148.20             671,204                     165.86       798,615           126.79    
 Other                  8,115                    169.00             26,886                      156.94       78,252            152.74    
 Vested                 (960,345)                101.64             (1,010,612)                 89.99        (1,100,675)       90.37     
 Forfeited              (52,880)                 145.95             (64,176)                    118.99       (63,767)          97.23     
 As of December 31      2,185,046    $           145.64             2,441,088                $  127.47       2,817,786      $  104.41    
 
 
As of December 31, 2016, there was $81 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 22 months. The total fair value of restricted stock and restricted stock units that vested during 2016,
2015 and 2014 was $149 million, $166 million and $145 million, respectively. The Company's actual tax benefits realized for
the tax deductions related to the vesting of restricted stock and restricted 

- More to follow, for following part double click  ID:nRSE2625El