REG - 3M Company - Half Yearly Report <Origin Href="QuoteRef">MMM.N</Origin> - Part 5
29/10/2014 09:35
- Part 5: For the preceding part double click ID:nRSA0731Od
$ 59
Currency Effects
3M estimates that year-on-year currency effects, including hedging impacts, decreased net income attributable to 3M by
approximately $25 million for the three months ended June 30, 2014 and decreased net income attributable to 3M by
approximately $54 million for the six months ended June 30, 2014. This estimate includes the effect of translating profits
from local currencies into U.S. dollars and the impact of currency fluctuations on the transfer of goods between 3M
operations in the United States and abroad. This estimate also includes year-on-year currency effects from transaction
gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risksand the negative
impact of converting Venezuelan bolivars into Euros and U.S. dollars, which 3M estimates decreased net income attributable
to 3M by approximately $22 million for three months ended June 30, 2014 and decreased net income attributable to 3M by
approximately $25 million for the six months ended June 30, 2014.
NOTE 10. Fair Value Measurements
3M follows ASC 820, Fair Value Measurements and Disclosures, with respect to assets and liabilities that are measured at
fair value on a recurring basis and nonrecurring basis. Under the standard, fair value is defined as the exit price, or the
amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants as of the measurement date. The standard also establishes a hierarchy for inputs used in measuring fair value
that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most
observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset
or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are
inputs that reflect the Company's assumptions about the factors market participants would use in valuing the asset or
liability developed based upon the best information available in the circumstances. The hierarchy is broken down into three
levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs
include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or
liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or
liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Categorization
within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis:
For 3M, assets and liabilities that are measured at fair value on a recurring basis primarily relate to available-for-sale
marketable securities, available-for-sale investments (included as part of investments in the Consolidated Balance Sheet)
and certain derivative instruments. Derivatives include cash flow hedges, interest rate swaps and most net investment
hedges. The information in the following paragraphs and tables primarily addresses matters relative to these financial
assets and liabilities. Separately, there were no material fair value measurements with respect to nonfinancial assets or
liabilities that are recognized or disclosed at fair value in the Company's financial statements on a recurring basis for
the three and six months ended June 30, 2014 and 2013.
3M uses various valuation techniques, which are primarily based upon the market and income approaches, with respect to
financial assets and liabilities. Following is a description of the valuation methodologies used for the respective
financial assets and liabilities measured at fair value.
Available-for-sale marketable securities - except auction rate securities:
Marketable securities, except auction rate securities, are valued utilizing multiple sources. A weighted average price is
used for these securities. Market prices are obtained for these securities from a variety of industry standard data
providers, security master files from large financial institutions, and other third-party sources. These multiple prices
are used as inputs into a distribution-curve-based algorithm to determine the daily fair value to be used. 3M classifies
U.S. treasury securities as level 1, while all other marketable securities (excluding auction rate securities) are
classified as level 2. Marketable securities are discussed further in Note 6.
Available-for-sale marketable securities - auction rate securities only:
As discussed in Note 6, auction rate securities held by 3M failed to auction since the second half of 2007. As a result,
investments in auction rate securities are valued utilizing third-party indicative bid levels in markets that are not
active and broker-dealer valuation models that utilize inputs such as current/forward interest rates, current market
conditions and credit default swap spreads. 3M classifies these securities as level 3.
Available-for-sale investments:
Investments include equity securities that are traded in an active market. Closing stock prices are readily available from
active markets and are used as being representative of fair value. 3M classifies these securities as level 1.
Derivative instruments:
The Company's derivative assets and liabilities within the scope of ASC 815, Derivatives and Hedging, are required to be
recorded at fair value. The Company's derivatives that are recorded at fair value include foreign currency forward and
option contracts, commodity price swaps, interest rate swaps, and net investment hedges where the hedging instrument is
recorded at fair value. Net investment hedges that use foreign currency denominated debt to hedge 3M's net investment are
not impacted by the fair value measurement standard under ASC 820, as the debt used as the hedging instrument is marked to
a value with respect to changes in spot foreign currency exchange rates and not with respect to other factors that may
impact fair value.
3M has determined that foreign currency forwards and commodity price swaps will be considered level 1 measurements as these
are traded in active markets which have identical asset or liabilities, while currency swaps, foreign currency options,
interest rate swaps and cross-currency swaps will be considered level 2. For level 2 derivatives, 3M uses inputs other than
quoted prices that are observable for the asset. These inputs include foreign currency exchange rates, volatilities, and
interest rates. The level 2 derivative positions are primarily valued using standard calculations/models that use as their
basis readily observable market parameters. Industry standard data providers are 3M's primary source for forward and spot
rate information for both interest rates and currency rates, with resulting valuations periodically validated through
third-party or counterparty quotes and a net present value stream of cash flows model.
The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring
basis.
Fair Value Measurements
(Millions) Fair Value at Using Inputs Considered as
Description June 30, 2014 Level 1 Level 2 Level 3
Assets:
Available-for-sale:
Marketable securities:
U.S. government agency securities $ 148 $ - $ 148 $ -
Foreign government agency securities 120 - 120 -
Corporate debt securities 796 - 796 -
Certificates of deposit/time deposits 48 - 48 -
Asset-backed securities:
Automobile loan related 537 - 537 -
Credit card related 222 - 222 -
Equipment lease related 88 - 88 -
Other 68 - 68 -
U.S. treasury securities 49 49 - -
Auction rate securities 12 - - 12
Investments 1 1 - -
Derivative instruments - assets:
Foreign currency forward/option contracts 52 52 - -
Commodity price swap contracts 1 1 - -
Interest rate swap contracts 17 - 17 -
Liabilities:
Derivative instruments - liabilities:
Foreign currency forward/option contracts 54 54 - -
Commodity price swap contracts 1 1 - -
Interest rate swap contracts 2 - 2 -
Fair Value at Fair Value Measurements
(Millions) December 31, 2013 Using Inputs Considered as
Description Level 1 Level 2 Level 3
Assets:
Available-for-sale:
Marketable securities:
U.S. government agency securities $ 234 $ - $ 234 $ -
Foreign government agency securities 125 - 125 -
Corporate debt securities 781 - 781 -
Certificates of deposit/time deposits 40 - 40 -
Commercial paper 60 - 60 -
Asset-backed securities:
Automobile loan related 585 - 585 -
Credit card related 180 - 180 -
Equipment lease related 67 - 67 -
Other 75 - 75 -
U.S. treasury securities 49 49 - -
U.S. municipal securities 2 - 2 -
Auction rate securities 11 - - 11
Investments 2 2 - -
Derivative instruments - assets:
Foreign currency forward/option contracts 75 75 - -
Commodity price swap contracts 1 1 - -
Interest rate swap contracts 8 - 8 -
Liabilities:
Derivative instruments - liabilities:
Foreign currency forward/option contracts 103 103 - -
Interest rate swap contracts 7 - 7 -
The following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a
recurring basis in the table above that used significant unobservable inputs (Level 3).
Three months ended Six months ended
(Millions) June 30, June 30,
Marketable securities - auction rate securities only 2014 2013 2014 2013
Beginning balance $ 12 $ 7 $ 11 $ 7
Total gains or losses:
Included in earnings - - - -
Included in other comprehensive income - 3 1 3
Purchases, issuances, and settlements - - - -
Transfers in and/or out of Level 3 - - - -
Ending balance 12 10 12 10
Change in unrealized gains or losses for the period included in
earnings for securities held at the end of the reporting period - - - -
In addition, the plan assets of 3M's pension and postretirement benefit plans are measured at fair value on a recurring
basis (at least annually). Refer to Note 10 in 3M's Current Report on Form 8-K dated May 15, 2014 (which updated 3M's 2013
Annual Report on Form 10-K).
Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis:
Disclosures are required for certain assets and liabilities that are measured at fair value, but are recognized and
disclosed at fair value on a nonrecurring basis in periods subsequent to initial recognition. For 3M, such measurements of
fair value relate primarily to long-lived asset impairments. There were no material long-lived asset impairments for the
three and six months ended June 30, 2014 and 2013.
Fair Value of Financial Instruments:
The Company's financial instruments include cash and cash equivalents, marketable securities, accounts receivable, certain
investments, accounts payable, borrowings, and derivative contracts. The fair values of cash and cash equivalents, accounts
receivable, accounts payable, and short-term borrowings and current portion of long-term debt (except the Eurobond
securities totaling 1.025 billion Euros, which were moved from long-term debt to current portion of long-term debt in July
2013 and are shown separately in the table below) approximated carrying values because of the short-term nature of these
instruments. Available-for-sale marketable securities and investments, in addition to certain derivative instruments, are
recorded at fair values as indicated in the preceding disclosures. For its long-term debt the Company utilized third-party
quotes to estimate fair values (classified as level 2). Information with respect to the carrying amounts and estimated fair
values of these financial instruments follow:
June 30, 2014 December 31, 2013
Carrying Fair Carrying Fair
(Millions) Value Value Value Value
Eurobond securities due July 2014 $ 1,396 $ 1,398 $ 1,424 $ 1,447
Long-term debt, excluding current portion 5,323 5,575 4,326 4,463
The fair values reflected above consider the terms of the related debt absent the impacts of derivative/hedging activity.
The carrying amount of long-term debt referenced above is impacted by certain fixed-to-floating interest rate swaps that
are designated as fair value hedges and by the designation of fixed rate Eurobond securities issued by the Company as
hedging instruments of the Company's net investment in its European subsidiaries. Many of 3M's fixed-rate bonds were
trading at a premium at June 30, 2014 and December 31, 2013 due to the low interest rates and tightening of 3M's credit
spreads.
NOTE 11. Commitments and Contingencies
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. Additional information about the Company's process for disclosure and recording of liabilities and insurance
receivables related to legal proceedings can be found in Note 13 "Commitments and Contingencies" in the Company's Annual
Report on Form 10-K for the year ended December 31, 2013, as updated by the Company's Current Report on Form 8-K dated May
15, 2014.
The following table shows the major categories of significant legal matters -respirator mask/asbestos litigation (including
Aearo - described below), environmental remediation and other environmental liabilities - for which the Company has been
able to estimate its probable liability and for which the Company has recorded accruals and the related insurance
receivables:
Liability and Receivable Balances
(Millions) June 30, 2014 December 31, 2013
Respirator mask/asbestos liabilities $ 153 $ 152
Respirator mask/asbestos insurance receivables 47 58
Environmental remediation liabilities $ 26 $ 27
Environmental remediation insurance receivables 11 11
Other environmental liabilities $ 45 $ 48
Other environmental insurance receivables 15 15
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 June 30, 2014, the Company is a named defendant, with multiple co-defendants, in numerous lawsuits in various courts
that purport to represent approximately 2,225 individual claimants, compared to approximately 2,200 individual claimants
with actions pending at December 31, 2013.
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 its historical experience over a decade
ago. 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 nine
cases taken to trial, including seven of the eight cases tried to verdict (such trials occurred in 1999, 2000, 2001, 2003,
2004, and 2007), and an appellate reversal in 2005 of the 2001 jury verdict adverse to the Company. The ninth 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. While the case has been inactive
since the fourth quarter of 2007, the court held 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. A hearing on that motion has not
yet been scheduled. 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 on-going review of its accruals and the greater cost of resolving claims of persons who claim
more serious injuries, including mesothelioma and other malignancies, the Company increased its accruals in the first six
months of 2014 for respirator mask/asbestos liabilities by $21 million, $14 million of which occurred in the second quarter
of 2014. In the first six months of 2014, the Company made payments for fees and settlements of $19 million related to the
respirator mask/asbestos litigation, $9 million of which occurred in the second quarter of 2014. As of June 30, 2014, the
Company had accruals for respirator mask/asbestos liabilities of $129 million (excluding Aearo accruals). The Company
cannot estimate the amount or 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, (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 June 30, 2014, the Company's receivable for insurance recoveries related to the respirator mask/asbestos litigation
was $47 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 assessment of the
nature of each claim and remaining coverage, and 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.
As previously reported, on January 5, 2007 the Company was served with a declaratory judgment action filed on behalf of two
of its insurers (Continental Casualty and Continental Insurance Co. - both part of the Continental Casualty Group)
disclaiming coverage for respirator mask/asbestos claims. The action, in the District Court in Ramsey County, Minnesota,
sought declaratory judgment regarding coverage provided by the policies and the allocation of covered costs among the
policies issued by the various insurers. The action named, in addition to the Company, over 60 of the Company's insurers.
The plaintiffs, Continental Casualty and Continental Insurance Co., as well as a significant number of the insurer
defendants named in the amended complaint were dismissed because of settlements they had reached with the Company regarding
the matters at issue in the lawsuit. In July 2013, the Company reached agreements in principle with the remaining insurers
in the lawsuit. All of the settlement agreements have now been executed. In June 2014, the Court issued an order dismissing
the case. During the first six months of 2014, the Company received payments of $11 million from settlements with insurers,
$6 million of which occurred in the second quarter of 2014.
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 June 30, 2014, 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 June 30, 2014, the Company, through its Aearo subsidiary, has recorded $24 million as the best estimate of the
probable liabilities for product liabilities and defense costs related to current and future Aearo-related asbestos and
silica-related claims. Responsibility for legal costs, as well as for settlements and judgments, is currently shared in an
informal arrangement among Aearo, Cabot, American Optical Corporation and a subsidiary of Warner Lambert and their insurers
(the "Payor Group"). Liability is allocated among the parties based on the number of years each company sold respiratory
products under the "AO Safety" brand and/or owned the AO Safety Division of American Optical Corporation and the alleged
years of exposure of the individual plaintiff. Aearo's share of the contingent liability is further limited by an agreement
entered into between Aearo and Cabot on July 11, 1995. This agreement provides that, so long as Aearo pays to Cabot 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 has filed a motion for clarification of the court's order granting Aearo summary
judgment.
Developments may occur that could affect the estimate of Aearo's liabilities. These developments include, but are not
limited to: (i) significant changes in the number of future claims, (ii) significant changes in the average cost of
resolving claims, (iii) significant changes in the legal costs of defending these claims, (iv) significant changes in the
mix and nature of claims received, (v) trial and appellate outcomes, (vi) significant changes in the law and procedure
applicable to these claims, (vii) significant changes in the liability allocation among the co-defendants, (viii) the
financial viability of members of the Payor Group including exhaustion of available coverage limits, 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 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 purchased from suppliers that may ultimately
degrade to PFOA, PFOS, or similar compounds. Upon such identification, the Company works to find alternatives for such
chemicals.
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. Following peer review, the EPA stated
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 suppliers to determine the extent of their occurrence.
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 throughout the balance of 2014 and is expected to be
completed in 2017.
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 2014.
In February 2014, the Company submitted its most recent environmental assessment report to the Illinois Environmental
Protection Agency summarizing the levels of PFCs in the soil, groundwater and surface water at or near its manufacturing
facility in Cordova, Illinois. The Company will continue to monitor PFCs at the site and is engaged in discussions with the
Illinois EPA concerning next steps for the site. In June 2014, the Illinois EPA conditionally approved a request by the
Company to establish a groundwater management zone at the site, 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, 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 Circuit 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 May 2013,
the Court stayed the case for an unknown period due to the filing of a bankruptcy petition by a co-defendant.
Also, 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) granted the Company's motion to abate the case, effectively putting the case on hold pending the resolution of
class certification issues in the first action described above, filed in the same court in 2002. 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 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 defendants in the case include 3M, its subsidiary Dyneon LLC, Daikin
America, Inc., Synagro-WWT, Inc., Synagro South, LLC, and Biological Processors of America. 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 first case filed there.
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 biosolids 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. 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.
The State of New Jersey filed suit in 2005 against Occidental Chemical Corporation, Tierra Solutions Inc., Maxus Energy
Corporation and five other companies seeking cleanup and removal costs and other damages associated with the presence of
dioxin and other hazardous substances in the sediment of a 17-mile stretch of the Passaic River in New Jersey. In June
2009, the Company, along with more than 250 other companies, was served with a third-party complaint by Tierra Solutions
Inc. and Maxus Energy Corporation seeking contribution towards the cost and damages asserted or incurred for investigation
and remediation of discharges to the Passaic River. The third-party complaint seeks to spread those costs among the
third-party defendants, including 3M. Allegations asserted against 3M relate to its use of two commercial drum conditioning
facilities in New Jersey. In March 2013, 3M and other third party defendants entered into a settlement agreement with the
- More to follow, for following part double click ID:nRSA0731OfRecent news on 3M Co
See all newsREG - Stock Exch Notice - Admission to ISM - 30/11/2023
AnnouncementRCS - 3M Company - StageZero Announces COC Protocol in Europe
AnnouncementREG - Official List - Removal: 3M Company
AnnouncementREG - Stock Exch Notice - Cancellation - 3M Company
AnnouncementREG - 3M Company - 3rd Quarter Results
Announcement