UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended September 30, 1995
Commission file number: 1-3285
MINNESOTA MINING AND MANUFACTURING COMPANY
State of Incorporation: Delaware
I.R.S. Employer Identification No. 41-0417775
Executive offices: 3M Center, St. Paul, Minnesota 55144
Telephone number: (612) 733-1110
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X . No .
On September 30, 1995, there were 419,645,134 shares of the Registrant's
common stock outstanding.
This document contains 24 pages.
The exhibit index is set forth on page 20.
MINNESOTA MINING AND MANUFACTURING COMPANY
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF INCOME
(Amounts in millions, except per-share amounts)
(Unaudited)
Three months ended Nine months ended
September 30 September 30
1995 1994 1995 1994
Net Sales $4,069 $3,820 $12,291 $11,224
Operating Expenses
Cost of goods sold 2,474 2,282 7,385 6,697
Selling, general and
administrative expenses 1,009 964 3,085 2,834
Total 3,483 3,246 10,470 9,531
Operating Income 586 574 1,821 1,693
Other Income and Expense
Interest expense 30 25 91 63
Investment and other
income - net (5) (4) (40) (20)
Implant litigation - net -- -- -- 35
Total 25 21 51 78
Income Before Income Taxes
and Minority Interest 561 553 1,770 1,615
Provision for Income Taxes 203 199 646 581
Minority Interest 14 13 51 44
Net Income $ 344 $ 341 $ 1,073 $ 990
Average Shares Outstanding 419.9 421.4 419.9 423.8
Per-Share Amounts:
Net Income $ .82 $ .81 $ 2.56 $ 2.34
Cash dividends declared
and paid $ .47 $ .44 $ 1.41 $ 1.32
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
MINNESOTA MINING AND MANUFACTURING COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
September 30,
ASSETS 1995 December 31,
Current Assets (Unaudited) 1994
Cash and cash equivalents $ 344 $ 297
Other securities 204 194
Accounts receivable - net 3,189 2,948
Inventories
Finished goods 1,588 1,475
Work in process 734 676
Raw materials and supplies 672 612
Total inventories 2,994 2,763
Other current assets 882 726
Total current assets 7,613 6,928
Investments 573 536
Property, Plant and Equipment 13,294 12,403
Less accumulated depreciation (8,019) (7,349)
Property, plant and equipment - net 5,275 5,054
Other Assets 1,064 978
Total $14,525 $13,496
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 913 $ 996
Payroll 399 328
Income taxes 269 110
Short-term debt 842 917
Other current liabilities 1,403 1,254
Total current liabilities 3,826 3,605
Other Liabilities 2,218 2,126
Long-Term Debt 1,213 1,031
Stockholders' Equity
Common stock, no par, 472,016,528 shares issued 296 296
Retained earnings 9,472 9,039
Unearned compensation - ESOP (446) (460)
Cumulative translation - net (79) (163)
Net unrealized gain(loss)-debt & equity securities 7 (3)
Less cost of treasury stock -
September 30, 1995, 52,371,394 shares;
December 31, 1994, 52,222,826 shares (1,982) (1,975)
Stockholders' Equity - net 7,268 6,734
Total $14,525 $13,496
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
MINNESOTA MINING AND MANUFACTURING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(Unaudited)
Nine months ended
September 30
1995 1994
Cash Flows from Operating Activities:
Net income $1,073 $ 990
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 827 802
Working capital and other changes (399) (356)
Net cash provided by operating activities 1,501 1,436
Cash Flows from Investing Activities:
Capital expenditures (952) (797)
Other changes 11 (23)
Net cash used in investing activities (941) (820)
Cash Flows from Financing Activities:
Net change in short-term debt 64 237
Repayment of long-term debt (155) (57)
Proceeds from long-term debt 222 303
Purchases of treasury stock (196) (617)
Reissuances of treasury stock 141 109
Payment of dividends (592) (559)
Net cash used in financing activities (516) (584)
Effect of exchange rate changes on cash 3 (2)
Net increase in cash and cash equivalents 47 30
Cash and cash equivalents at beginning of year 297 274
Cash and cash equivalents at end of period $ 344 $ 304
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
MINNESOTA MINING AND MANUFACTURING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments necessary for a fair presentation
of financial position, results of operations and cash flows for the
periods presented. These adjustments consist of normal, recurring
items. The results of operations for any interim period are not
necessarily indicative of results for the full year. The condensed
consolidated financial statements and notes are presented as permitted
by Form 10-Q and do not contain certain information included in the
company's annual consolidated financial statements and notes. This
Form 10-Q should be read in conjunction with the company's consolidated
financial statements and notes included in its 1994 Annual Report on
Form 10-K.
Discussion of legal matters is cross-referenced to this Form 10-Q, Part
II, Item 1, Legal Proceedings, and should be considered an integral
part of the Consolidated Financial Statements and Notes.
Coopers & Lybrand L.L.P., the company's independent accountants, have
performed a review of the unaudited interim financial statements
included herein and their report thereon accompanies this filing.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Minnesota Mining and Manufacturing Company:
We have reviewed the accompanying condensed consolidated balance sheet
of Minnesota Mining and Manufacturing Company and Subsidiaries as of
September 30, 1995, and the related condensed consolidated statements
of income for the three- and nine-month periods ended September 30,
1995 and 1994, and cash flows for the nine-month periods ended
September 30, 1995 and 1994. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of persons
responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31,
1994, and the related consolidated statements of income and cash flows
for the year then ended (not presented herein); and in our report dated
February 13, 1995, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of
December 31, 1994, is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been
derived.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
St. Paul, Minnesota
October 25, 1995
MINNESOTA MINING AND MANUFACTURING COMPANY
AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Third Quarter
Worldwide sales for the third quarter totaled $4.069 billion, an
increase of 6.5 percent from $3.820 billion in the third quarter last
year. Worldwide unit sales rose about 4 percent.
Volume in the United States increased about 2 percent. This slow
growth extended to all three business sectors. The Industrial and
Consumer Sector posted good volume gains in specialty chemicals and in
consumer products; however, softness in tapes, abrasives and automotive
products held back the overall volume growth of this sector. The Life
Sciences Sector had balanced growth between its two major businesses,
health care, and traffic and personal safety products. Pharmaceuticals
and dental products experienced solid growth, while sales of hospital
supplies moderated after a solid showing in the first half of this
year. The traffic and personal safety products business saw strong
growth in commercial graphics and safety and security products. Sales
of reflective materials were up just slightly, while the occupational
health and safety business was affected by the slowing in United States
industrial production. The Information, Imaging and Electronic Sector
volume growth was good in the memory technologies and electro-
communications businesses, but was held back by softness in imaging
systems.
Internationally, unit sales increased about 6 percent, with all three
business sectors showing growth. Volume rose about 7 percent in
Europe, with strong growth in Germany and Italy. In the Asia Pacific
area, volume was up about 9 percent, with volume in Japan up about 7
percent. Volume in the rest of Asia grew 15 percent, less than the
gains previously posted there. In Latin America, volume was up about 2
percent, despite a volume decline of more than 30 percent in Mexico.
Volume was up only about 3 percent in Brazil. In Canada, volume
decreased more than 8 percent.
Selling prices were up about 1 percent compared with the third quarter
of 1994. Prices in the United States improved about 1 percent, with
the Industrial and Consumer Sector up about 3 percent, the Life Science
Sector up about 1.5 percent, and the Information, Imaging and
Electronic Sector down about 2 percent. Internationally, prices also
improved about 1 percent. Currency translation increased international
sales by about 4 percent and worldwide sales by about 2 percent.
Cost of goods sold, which includes manufacturing, research and
development, and engineering, was 60.8 percent of sales, up 1
percentage point from the third quarter last year. In the United
States, a 1 percent increase in selling prices and a modest increase in
volume did not compensate for higher raw material costs.
Internationally, higher raw material costs were offset through volume
growth, pricing, and positive currency effects.
Selling, general and administrative spending of $1.009 billion was 24.8
percent of sales, the lowest rate in eight quarters. This was down
four-tenths of a percentage point from the same quarter last year.
SG&A spending in the United States was down nearly 1 percent in
dollars. Internationally, SG&A spending was higher than in the third
quarter last year, but the increase was less than the growth in sales.
Operating income was $586 million, up about 2 percent from the third
quarter last year. Internationally, operating income increased about 16
percent. Operating income in the United States declined about 10
percent due to higher raw material costs and low volume growth.
On a sector basis, a strong worldwide operating income gain was
achieved in the Life Science sector. Operating income was up slightly
in the Industrial and Consumer Sector and in the Information, Imaging
and Electronic Sector.
Third quarter interest expense of $30 million was about the same as the
previous two quarters, but $5 million higher than in the same quarter
last year. This increase was mainly due to a planned increase in debt
together with higher interest rates. Investment and other income was
about the same as in the third quarter last year.
Net income increased 1.0 percent to $344 million, or $.82 per share,
compared with $341 million, or $.81 per share, in the same quarter last
year. Higher raw material costs penalized earnings by about 11 cents
per share. This effect was absorbed through higher selling prices,
productivity improvements and a small benefit from currency. The
company estimates that changes in the value of the U.S. dollar
increased earnings for the quarter by about 2 cents per share compared
to the third quarter of 1994. This estimate includes the effect of
translating profits from local currencies into United States dollars,
the costs in local currencies of transferring goods between the parent
company in the United States and international companies, and
transaction gains and losses in countries not considered to be highly
inflationary.
Year-To-Date
On a year-to-date basis, worldwide sales totaled $12.291 billion, an
increase of 9.5 percent from $11.224 billion in the first nine months
of last year. Worldwide unit sales rose about 6 percent.
Volume for the first nine months of 1995 increased 3 percent in the
United States and 10 percent internationally. Worldwide selling prices
were up slightly, with United States prices down slightly and
international prices up nearly 1 percent. Currency translation
increased international sales by about 6 percent and worldwide sales by
about 4 percent.
Cost of goods sold was 60.1 percent of sales, up four-tenths of a point
from the same period last year. In the United States, a modest
increase in volume did not compensate for higher raw material costs.
Internationally, these higher raw material costs were offset through
volume growth, pricing, and positive currency effects.
Selling, general and administrative spending of $3.085 billion for the
first nine months was 25.1 percent of sales. This was down one-tenth
of a point from the same period last year.
Worldwide operating income increased 7.6 percent to $1.821 billion, up
from $1.693 billion in the first nine months of 1994. International
operating income was up about 23 percent and margins were up almost 1
percentage point. International results were helped by 10-percent
volume growth, positive currency effects and productivity improvements.
Operating income in the United States was down about 9 percent and
margins declined by 1.7 percentage points, held back by modest volume
growth and by higher raw material costs.
Interest expense was $91 million, up from $63 million in the first nine
months of 1994. This increase was due to a planned increase in debt
and higher interest rates. Investment and other income was $40
million, an increase of $20 million compared with the first nine months
last year. This benefit was due to improved investment results,
including higher interest income.
As discussed in this Form 10-Q, Part II, Item 1, Legal Proceedings,
mammary implant litigation resulted in a pre-tax charge of $35 million
($22 million after tax) in the first quarter of 1994. There can be no
certainty that the company may not ultimately incur charges, whether
for governmental proceedings and claims, product liability claims,
environmental proceedings or other actions, in excess of presently
established accruals. While such future charges could have a material
adverse impact on the company's net income in the period in which they
are recorded, the company believes that such additional charges, if
any, will not have a material adverse effect on the consolidated
financial position of the company.
The worldwide effective tax rate was 36.5 percent, up seven-tenths of a
percentage point from the rate for 1994 overall. The tax rate is higher
for two reasons. First, the company has derived more of its profit
from outside the United States, where tax rates are generally higher.
Second, in 1994, the company was allowed to claim additional tax
benefits on exports from several prior years.
Net income was $1.073 billion, or $2.56 per share. This compared with
$990 million, or $2.34 per share, in the first nine months of 1994.
Earnings per share, excluding a charge for mammary implant litigation
in the first quarter last year, rose 7.1 percent.
****
Looking ahead, the company expects to set new records for sales and
earnings for 1995 as a whole. The company expects to benefit from new
products, selling prices and continued strong emphasis on cost control
and productivity improvement. United States results will continue to
be affected by the soft economy and by higher raw material costs. The
company expects good sales and profit growth outside the United States.
Currency, at September 30, 1995, exchange rates, is not expected to
have a significant impact on fourth quarter results.
Raw materials will continue to impact costs in the fourth quarter of
this year. Selling prices should continue to improve, but probably
will not be sufficient to offset these higher raw material costs in the
fourth quarter.
Worldwide employment at September 30, 1995, was 85,921 people. This
was an increase of 305 people, mainly in Asia and Europe, compared with
September 30, 1994, employment levels. Productivity, as measured by
sales per employee in local currencies, was up about 6 percent in the
first nine months of 1995, compared with 8 percent for 1994 as a whole.
The company expects capital spending to increase about 15 percent for
1995 as a whole. The company is investing to meet increased demand for
certain fast-growing product lines and to improve manufacturing
efficiency.
The company is aggressively exploring cost-reduction and portfolio
management opportunities around the world in addition to its continuing
emphasis on management of SG&A spending. The company uses return on
capital, return on sales, cash flows, competitive assessments and other
tools to evaluate the financial performance and business symmetry of
its various product lines. Based on revenue and earnings trends,
certain businesses are undergoing more extensive internal reviews.
While no decisions have been reached regarding those businesses or any
others, any future decisions based on these reviews could have a
material adverse effect on the results of the company's operations in a
specific quarter.
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." This statement requires
that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If the sum of the undiscounted expected future
cash flows is less than the carrying amount of the asset, an impairment
loss is recognized. The potential impact of this statement on the
company is not yet known. The company is required to adopt this
standard no later than the first quarter of 1996.
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation." This
statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. This statement permits
entities to continue to apply the accounting provisions of APB Opinion
No. 25 to its stock-based employee compensation arrangements. The
company will continue to follow APB Opinion No. 25. Effective with
year-end 1996 reporting the company will disclose the pro forma net
income and earnings per share impact required by Statement No. 123.
FINANCIAL CONDITION AND LIQUIDITY
The company's financial condition and liquidity remain strong.
Working capital increased $464 million to $3.787 billion from $3.323
billion as of December 31, 1994. The accounts receivable average days
sales outstanding was 66 days, down one day from the same quarter last
year. The company's key inventory index of 4.2, which represents the
number of months of inventory, was unchanged from year-end. The
company's current ratio was 2.0, compared with 1.9 at year-end.
Total debt increased $107 million from year-end 1994 to $2.055 billion.
On January 10, 1995, the company completed a two-year, $200 million,
7.75 percent Eurobond offering. The company entered into an interest
rate swap, which resulted in an all-in borrowing cost of the 30-day
commercial paper rate less 30 basis points for two years. As of
September 30, 1995, total debt was 28 percent of stockholders' equity,
compared to 29 percent at year-end. The company's borrowings continue
to maintain AAA long-term ratings.
Return on average stockholders' equity for the first nine months was
20.1 percent, compared with 20.2 percent for the same period last year,
meeting the company's goal of 20 to 25 percent. Return on capital
employed for the first nine months was 20.5 percent, down from 20.9
percent in the comparable 1994 period. The company's goal is 27 percent
or better.
Legal proceedings are discussed in Part II, Item 1, of this Form 10-Q.
The company believes that such matters will not pose a material risk to
the consolidated financial position or liquidity of the company.
Net cash provided by operating activities totaled $1.501 billion in the
first nine months of the year, up $65 million from the same period last
year. This increase was primarily due to increased net income.
Cash used in investing activities was $941 million in the first nine
months of the year, up $121 million from the same period last year.
Capital expenditures for the first nine months of 1995 were $952
million, an increase of about 20 percent compared with the same period
last year.
Financing activities in both short-term and long-term debt provided net
cash inflows of $131 million, compared to inflows of $483 million in
the first nine months of last year. Treasury stock repurchases were
$196 million, compared with repurchases in the same period last year of
$617 million.
The company repurchased about 3.5 million shares of treasury stock in
the first nine months of this year, compared with 11.8 million shares
in the same period last year. On February 13, 1995, the Board of
Directors authorized the repurchase of up to 8 million shares of 3M
common stock through February 12, 1996. As of September 30, 1995, 5.1
million shares remained authorized for repurchase. Stock repurchases
are made to support employee stock purchase plans and for other
corporate purposes.
Dividends paid increased 5.9 percent to $592 million in the first nine
months of this year. The dividend payout ratio decreased to 55.2
percent in the first nine months from 56.3 percent for the year 1994.
The company expects cash generated by operating activities will support
its primary growth initiatives, with ample borrowing capacity and lines
of credit available to supplement cash flows from operations. 3M
maintains a shelf registration with the Securities and Exchange
Commission that provides the means to offer medium-term notes not to
exceed $601 million. As of September 30, 1995, $402 million of the
shelf registration was available for future financial needs.
MINNESOTA MINING AND MANUFACTURING COMPANY
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The company and certain of its subsidiaries are named
defendants in a number of actions, governmental proceedings and
claims, including environmental proceedings, and product
liability claims involving products now or formerly
manufactured and sold by the company. In some actions, the
claimants seek damages as well as other relief which, if
granted, would require substantial expenditures. As explained
below, the company has accrued certain liabilities which
represent reasonable estimates of its probable liabilities for
these matters and has recorded receivables for the probable
amount of insurance recoverable with respect to them.
Some of these matters raise difficult and complex factual and
legal issues and are subject to many uncertainties, including,
but not limited to, the facts and circumstances of each
particular action, the jurisdiction and forum in which each
action is proceeding, and differences in applicable law.
Accordingly, the company is not always able to estimate the
amount of future liabilities with respect to such matters.
There can be no certainty that the company may not ultimately
incur charges, whether for governmental proceedings and claims,
product liability claims, environmental proceedings or other
actions, in excess of presently established accruals. While
such future charges could have a material adverse impact on the
company's net income in the period in which they are recorded,
the company believes that such additional charges, if any, will
not have a material adverse effect on the consolidated
financial position of the company.
Breast Implant Litigation
As of September 30, 1995, the company had been named as a
defendant, often with multiple co-defendants, in 6,540 claims
and lawsuits in various courts, all seeking damages for
personal injuries from allegedly defective breast implants.
These claims and lawsuits purport to represent approximately
17,300 individual claimants. It is not yet certain how many of
these lawsuits and claims involve products manufactured and
sold by the company, as opposed to other manufacturers. The
company entered the business of manufacturing breast implants
in 1977 by purchasing McGhan Medical Corporation; in 1984 the
company sold the business to a corporation which was also named
McGhan Medical Corporation.
The typical claim or lawsuit alleges that the individual's
breast implants caused one or more of a wide range of ailments,
including, but not limited to, non-specific autoimmune disease,
scleroderma, lupus, rheumatoid arthritis, fibromyalgia, mixed
connective tissue disease, Sjogren's Syndrome, dermatomyositis,
polymyositis, and chronic fatigue.
Plaintiffs in these cases typically seek monetary damages,
often in unspecified amounts, and also seek certain types of
equitable relief, including requiring the company to fund the
costs associated with removal of the breast implants, to fund
medical research into the ailments allegedly caused by silicone
gel breast implants and to fund periodic medical checkups.
A number of breast implant claims and lawsuits seek to impose
liability on the company under various theories for personal
injuries allegedly caused by breast implants manufactured and
sold by manufacturers other than the company, including, but
not limited to, McGhan Medical Corporation and manufacturers
that are no longer in business or that are insolvent, whose
breast implants may or may not have been used in conjunction
with implants manufactured and sold by the company. These
claims raise many difficult and complex factual and legal
issues that are subject to many uncertainties, including the
facts and circumstances of each particular claim, the
jurisdiction in which each suit is brought, differences in
applicable law and insurance coverage.
A number of breast implant lawsuits seek to recover punitive
damages. Any such punitive damages that may be awarded against
the company may or may not be covered by some insurance
policies depending on the language of the insurance policy,
applicable law and agreements with insurers.
In addition to the individual suits against the company, a
class action on behalf of all women with breast implants filed
against all manufacturers of such implants has been
conditionally certified and is pending in the United States
District Court for the Northern District of Alabama (the
"Court")(DANTE, ET AL., V. DOW CORNING, ET AL., U.S.D.C., N.
Dist., Ala., 92-2589; part of IN RE: SILICONE GEL BREAST
IMPLANT PRODUCT LIABILITY LITIGATION, U.S.D.C., N. Dist. Ala.,
MDL 926, U.S.D.C., N. Dist. Ala., CV 92-P-10000-S; now held in
abeyance pending settlement proceedings in the settlement class
action LINDSEY, ET AL., V. DOW CORNING ET AL., U.S.D.C., N.
Dist., Ala., CV 94-P-11558-S). Class actions, some of which
have been certified, are pending in various state courts,
including, among others, Louisiana, Florida and Illinois, and
in the British Columbia courts in Canada.
The company has also been served with a purported class action
brought on behalf of children allegedly exposed to silicone in
utero and through breast milk. (FEUER, ET AL., V. MCGHAN, ET
AL., U.S.D.C., E. Dist. NY, 93-0146.) The suit names all
breast implant manufacturers as defendants and seeks to
establish a medical monitoring fund.
On April 8, 1994, the company and other defendants concluded
provisional agreements with a plaintiffs' negotiating committee
regarding their contributions to a settlement pursuant to a
Breast Implant Litigation Settlement Agreement (the "Settlement
Agreement") in the amount of $4.25 billion, which had been
previously announced by the committee and three major
defendants in these claims and lawsuits. The company agreed to
contribute up to a maximum of $325 million into a court-
administered fund within three years from the date that a final
order ratifying the Settlement Agreement was entered and after
appeals, if any, had been exhausted. On September 1, 1994, the
Settlement Agreement was approved as fair, reasonable and
adequate by the Court.
The Settlement Agreement provided for a resolution of claims
arising out of silicone breast implants and defined the
circumstances under which payments from the funds would be
made. The Settlement Agreement included provisions for (i)
class membership and the ability of plaintiffs to opt out of
the class, (ii) the establishment of defined funds for medical
diagnostic/evaluation procedures, explantation, ruptures, and
compensation for specific diseases, (iii) payment terms and
timing, and (iv) claims administration.
The Settlement Agreement covered claims of breast implant
recipients brought in various state and federal courts. The
Settlement Agreement allowed breast implant recipients to
affirmatively decide not to participate in the Settlement
Agreement, so called "Opt Outs". Also, the Court had
specifically excluded from the Settlement Agreement certain
potential claimants who reside in Ontario or Quebec, Canada, or
in Australia unless they affirmatively joined the settlement.
The Settlement Agreement defined periods during which, upon the
occurrence of specified events, Opt Outs could elect not to
settle their claims by way of the Settlement Agreement and
instead pursue their individual claims against manufacturers
and other defendants. During that period, approximately 7,000
domestic claimants opted out of the Settlement Agreement. Any
settling defendant had the option to withdraw from the
Settlement Agreement during several specified periods if such
defendant considered the number of Opt Outs to be excessive.
The Court's final approval of the Settlement Agreement has been
appealed to the U.S. Court of Appeals for the Eleventh Circuit
by some plaintiffs and several third parties. This appeal has
been stayed by the U.S. Court of Appeals for the Eleventh
Circuit as a result of the Dow Corning bankruptcy.
On May 1, 1995, the Court stated that preliminary information
from claims filed prior to the September 1994 deadline had led
the Court to believe that the total amount of "current claims"
likely to be approved would substantially exceed the portion of
the Settlement Agreement allocated to the classification of
"current claims." Such portion accounted for $1.2 billion of
the total $4.25 billion settlement. In this circumstance, the
Settlement Agreement provided for a reduction in the amount to
be paid to individual claimants, but first obligated the
parties to attempt to adjust the Settlement Agreement. The
company has had numerous discussions with the settling and
other defendants and representatives of the plaintiffs and the
Court to restructure the settlement.
Since negotiations are on-going and final approvals of the
boards of directors of the settling defendants have not been
obtained, sufficient information is not yet available to
determine the cost to the company, or the ultimate impact
upon the Settlement Agreement.
A reduction in the amount payable to individual claimants or a
renegotiated settlement could result in a further notice to the
plaintiffs as a class and an opportunity for class members to
opt out of the Settlement Agreement. The ultimate effect of any
such actions on the company cannot be estimated at this time.
In the first quarter of 1994, the company took a pre-tax charge
of $35 million ($22 million after tax) in recognition of its
then best estimate of its probable liabilities and associated
expenses, and net of the probable amount of insurance
recoverable from its carriers. In the second quarter of 1995,
the company increased its estimate of the minimum probable
liabilities and associated expenses from nearly $500 million to
$675 million. While discussions with the settling and other
defendants, the Court and representatives of the plaintiffs
continue, for the reasons set forth in the second and third
preceding paragraphs, sufficient information is not yet
available to make a determination as to whether material
changes should be made to the company's current estimate of the
minimum probable liabilities and associated expenses of $675
million.
The company has substantial primary and excess product
liability occurrence insurance coverage and claims-made product
liability insurance coverage which it believes provide
coverage for its current exposure for breast implant claims and
defense costs. All of the company's insurers have reserved the
right to deny all or part of the coverage for differing
reasons, including each insurers' obligations in relation to
the other insurers and when coverage begins and ends under the
various occurrence and claims-made insurance policies. Some
insurers have resolved and paid or committed to their policy
obligations. There continue to be settlement discussions with
various insurers.
On September 22, 1994, three excess coverage occurrence
insurers initiated in the courts of the State of Minnesota a
declaratory judgment action against the company and numerous
insurance carriers seeking adjudication of certain coverage
issues and allocation among insurers. On December 9, 1994, the
company initiated an action against its occurrence insurers in
the Texas State Court in and for Harrison County, seeking a
determination of responsibility among the company's various
occurrence insurers having applicable coverages. This action
has since been removed to the U.S. District Court, Eastern
District of Texas and stayed pending resolution of the
litigation in the Minnesota courts.
The insurers that are parties to these actions generally
acknowledge that they issued product liability insurance to the
company and that breast implant claims are product liability
claims. A trial is scheduled in Minnesota for late November
1995 to resolve the company's insurance coverage and the
financial responsibility among occurrence insurers for breast
implant claims and defense costs.
The occurrence insurers that are parties to the litigation in
Minnesota filed over thirty motions for summary judgment or
partial summary judgment in mid October 1995. The insurers,
through these motions, attempt to shift all or a portion of the
responsibility for those claims that the company believes fall
within the period of occurrence based coverage (before 1986)
into the period of claims-made coverage (from and after 1986).
If the occurrence insurers ultimately prevail on these motions
and in this litigation, the company could be effectively
deprived of significant insurance coverage for breast implant
claims.
The company believes it will prevail in this insurance
litigation. The company's belief is based on an analysis of
its insurance policies, court decisions on similar issues,
reimbursement by insurers for these types of claims and
consultation with outside counsel expert in insurance coverage
matters.
The company had accrued receivables for insurance recoveries of
$528 million as of September 30, 1995. There are various
factors that could affect the timing and amount of proceeds to
be received under the company's various insurance policies,
including (i) the timing of payments made in settlement of
claims, (ii) the outcome of occurrence insurance litigation in
the courts of Minnesota and Texas, (iii) potential arbitration
with claims-made insurers, (iv) delays in payment by insurers,
and (v) the extent to which insurers may become insolvent in
the future. To date, the company has received firm offers or
commitments for approximately $134 million from its insurers.
However, there can be no absolute assurance that the company
will collect all amounts accrued as being probable of recovery
from its insurers.
The company's current estimate of the probable liabilities,
associated expenses, and probable insurance recoveries related
to the breast implant claims is based on the facts and
circumstances existing at this time. New developments may
occur that could affect the company's estimates of probable
liabilities (including associated expenses) and the probable
amount of insurance recoveries. These developments include,
but are not limited to, (i) the terms of a renegotiated
settlement agreement, (ii) the number of plaintiffs who elect
to opt out and pursue individual claims against the company,
(iii) the success of and costs to the company in defending such
individual claims, including claims involving breast implants
not manufactured or sold by the company, (iv) the outcome of
the occurrence insurance litigation in the courts of Minnesota
and Texas, (v) the outcome of potential arbitration with
claims-made insurers, (vi) the availability of coverage with
respect to certain of the types of claims or remedies to which
the company may be subject, (vii) the extent to which insurers
may become insolvent in the future.
The company cannot determine the impact of these potential
developments on the current estimate of probable liabilities
(including associated expenses) and the probable amount of
insurance recoveries. Accordingly, the company is not able to
estimate its potential future liabilities beyond the current
estimate of probable liabilities. As new developments occur, the
estimates may be revised, or additional charges may be
necessary to reflect the impact of these developments on the
costs to the company of resolving breast implant litigation and
claims. While such revisions or additional future charges
could have a material adverse impact on the company's net
income in the period in which they are recorded, the company
believes that such revisions or additional charges, if any,
will not have a material adverse effect on the consolidated
financial position of the company.
The company conducts ongoing reviews, assisted by outside
counsel, to determine the adequacy and extent of insurance
coverage provided by its occurrence and claims-made insurers.
The company believes, based on these ongoing reviews and the
bases described in the fourth preceding paragraph, that the
collectible coverage provided by its applicable insurance
policies is sufficient to cover its current exposure for
breast implant claims and defense costs. Based on the
availability of this insurance coverage, the company believes
that its uninsured financial exposure has not materially
changed since the first quarter of 1994, and therefore, no
recognition of additional charges has been made as of September
30, 1995.
Environmental Matters
The company is also involved in a number of environmental
proceedings by governmental agencies asserting liability for
past waste disposal and other alleged environmental damage. The
company conducts ongoing investigations, assisted by
environmental consultants, to determine accruals for the
probable, estimable costs of remediation. The remediation
accruals are reviewed each quarter and changes are made as
appropriate.
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as exhibits to this
Report.
(11) A statement regarding the computation of per share
earnings. Page 22.
(12) A statement regarding the calculation of ratio of
earnings to fixed charges. Page 23.
(15) A letter from the company's independent accountants
regarding unaudited interim financial statements.
Page 24.
(27) Financial data schedule (EDGAR filing only).
None of the other items contained in Part II of this Form 10-Q are
applicable to the company for the quarter ended September 30, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MINNESOTA MINING AND MANUFACTURING COMPANY
(Registrant)
Date: November 10, 1995
/s/ Giulio Agostini
Giulio Agostini, Senior Vice President and
Chief Financial Officer
(Mr. Agostini is the Principal Financial and
Accounting Officer and has been duly
authorized to sign on behalf of the
registrant.)
EXHIBIT 11
MINNESOTA MINING AND MANUFACTURING COMPANY AND SUBSIDIARIES
EARNINGS PER SHARE OF COMMON STOCK
(Unaudited)
Three months ended Nine months ended
September 30 September 30
1995 1994 1995 1994
------- ------- ------- -------
Net income (millions) $344 $341 $1,073 $990
- --------------------------------------------------------------------------------
Primary earnings per share:
Earnings per share $.82 $.81 $2.56 $2.34
Weighted average number of
common shares outstanding 419,922,978 421,363,545 419,947,878 423,804,773
- --------------------------------------------------------------------------------
Fully diluted earnings
per share: (1)
Earnings per share $.81 $.79 $2.53 $2.31
Weighted average number of
common shares outstanding 419,922,978 421,363,545 419,947,878 423,804,773
Common equivalent shares 3,908,123 4,441,814 3,960,898 4,441,814
----------- ----------- ----------- -----------
Average number of common
and common equivalent
shares outstanding 423,831,101 425,805,359 423,908,776 428,246,587
- --------------------------------------------------------------------------------
Primary earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding for each period.
The calculation excludes the effect of common equivalent shares
resulting from stock options using the treasury stock method as the
effect would not be material.
Fully diluted earnings per share is computed based on the weighted
average number of common shares and common equivalent shares outstanding
for each period.
(1) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by APB Opinion No. 15 because it
results in dilution of less than 3%.
EXHIBIT 12
MINNESOTA MINING AND MANUFACTURING COMPANY AND SUBSIDIARIES
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
(Unaudited)
Nine Months
Ended
September 30, Year Year Year Year Year
1995 1994 1993 1992 1991 1990
EARNINGS -------- ------- ------- ------- ------- -------
Income Before Income Taxes,
Minority Interest and
Cumulative Effect of
Accounting Changes $1,770 $2,154 $2,002 $1,947 $1,877 $2,135
Add:
Interest on debt 91 87 50 76 97 98
Interest component of the
ESOP benefit expense 28 39 41 42 44 45
Portion of rent under
operating leases
representative of the
interest component 37 49 47 47 47 44
Less:
Equity in undistributed
income of 20-50% owned
companies -- 2 -- (1) (6) 1
-------- ------- ------- ------- ------- -------
TOTAL EARNINGS AVAILABLE
FOR FIXED CHARGES $1,926 $2,327 $2,140 $2,113 $2,071 $2,321
FIXED CHARGES
Interest on debt 91 87 50 76 97 98
Interest component of the
ESOP benefit expense 28 39 41 42 44 45
Portion of rent under
operating leases
representative of the
interest component 37 49 47 47 47 44
------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES $156 $175 $138 $165 $188 $187
RATIO OF EARNINGS TO
FIXED CHARGES 12.35 13.30 15.51 12.81 11.02 12.42
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We are aware that our report dated October 25, 1995 on our reviews of
interim condensed consolidated financial information of Minnesota Mining
and Manufacturing Company and Subsidiaries (the Company) for the three-
and nine-month periods ended September 30, 1995 and 1994, and included
in the Company's Form 10-Q for the quarter ended September 30, 1995, is
incorporated by reference in the Company's registration statements on
Form S-8 (Registration Nos. 2-78422, 33-14791, 33-48690, 33-49842, 33-
58763 and 33-58767), and Form S-3 (Registration No. 33-48089). Pursuant
to Rule 436(c), under the Securities Act of 1933, this report should not
be considered a part of the registration statements prepared or
certified by us within the meaning of Sections 7 and 11 of that Act.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
St. Paul, Minnesota
November 10, 1995
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