3M 2012 Annual Report Download - page 12
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Research and Patents
Research and product development constitutes an important part of 3M’s activities and has been a major driver of 3M’s
sales growth. Research, development and related expenses totaled $1.634 billion in 2012, $1.570 billion in 2011 and
$1.434 billion in 2010. Research and development, covering basic scientific research and the application of scientific
advances in the development of new and improved products and their uses, totaled $1.079 billion in 2012, $1.036 billion
in 2011 and $919 million in 2010. Related expenses primarily include technical support provided by 3M to customers who
are using existing 3M products; internally developed patent costs, which include costs and fees incurred to prepare, file,
secure and maintain patents; and amortization of acquired patents.
The Company’s products are sold around the world under various trademarks. The Company also owns, or holds licenses
to use, numerous U.S. and foreign patents. The Company’s research and development activities generate a steady
stream of inventions that are covered by new patents. Patents applicable to specific products extend for varying periods
according to the date of patent application filing or patent grant and the legal term of patents in the various countries
where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country,
depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the country.
The Company believes that its patents provide an important competitive advantage in many of its businesses. In general,
no single patent or group of related patents is in itself essential to the Company as a whole or to any of the Company’s
business segments. The importance of patents in the Display and Graphics segment is described in “Performance by
Business Segment” — “Display and Graphics Business” in Part II, Item 7, of this Form 10-K.
Raw Materials
In 2012, the Company experienced stable to declining cost for most raw material categories and transportation fuel costs.
This was driven by year-on-year cost decreases in many feedstock categories, including petroleum based materials,
minerals, metals and wood pulp based products. To date, the Company is receiving sufficient quantities of all raw
materials to meet its reasonably foreseeable production requirements. It is impossible to predict future shortages of raw
materials or the impact any such shortages would have. 3M has avoided disruption to its manufacturing operations
through careful management of existing raw material inventories and development and qualification of additional supply
sources. 3M manages commodity price risks through negotiated supply contracts, price protection agreements and
forward physical contracts.
Environmental Law Compliance
3M’s manufacturing operations are affected by national, state and local environmental laws around the world. 3M has
made, and plans to continue making, necessary expenditures for compliance with applicable laws. 3M is also involved in
remediation actions relating to environmental matters from past operations at certain sites. Refer to the “Environmental
Matters and Litigation” section in Note 13, Commitments and Contingencies, for more detail.
Environmental expenditures relating to existing conditions caused by past operations that do not contribute to current or
future revenues are expensed. Reserves for liabilities related to anticipated remediation costs are recorded on an
undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility
studies or the Company’s commitment to a plan of action. Environmental expenditures for capital projects that contribute
to current or future operations generally are capitalized and depreciated over their estimated useful lives.
In 2012, 3M invested about $27 million in capital projects to protect the environment. This amount excludes expenditures
for remediation actions relating to existing matters caused by past operations that do not contribute to current or future
revenues, which are expensed. Capital expenditures for environmental purposes have included pollution control devices
— such as wastewater treatment plant improvements, scrubbers, containment structures, solvent recovery units and
thermal oxidizers — at new and existing facilities constructed or upgraded in the normal course of business. Consistent
with the Company’s policies stressing environmental responsibility, capital expenditures (other than for remediation
projects) for known projects are presently expected to be about $36 million over the next two years for new or expanded
programs to build facilities or modify manufacturing processes to minimize waste and reduce emissions.
While the Company cannot predict with certainty the future costs of such cleanup activities, capital expenditures or
operating costs for environmental compliance, the Company does not believe they will have a material effect on its capital
expenditures, earnings or competitive position.