UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
Common Stock, Without Par Value New York Stock Exchange
Pacific Stock Exchange
Chicago Stock Exchange
Note: The common stock of the registrant is also traded on the Amsterdam Stock
Exchange, German stock exchanges, Swiss stock exchanges, the Paris Stock
Exchange and the Tokyo Stock Exchange.
Securities registered pursuant to section 12(g) of the Act: None
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant, based on the closing price of $64.50 per share as reported on the
New York Stock Exchange-Composite Index on January 31, 1996, was $27.0 billion.
Shares of common stock outstanding at January 31, 1996: 418,246,591.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference in Parts
III and IV of this Form 10-K: (1) Proxy Statement for registrant's 1996
annual meeting, (2) Form 10-Q for period ended June 30, 1987, and
(3) Registration Nos. 33-48089, 33-49842 and 33-58767.
This document contains 50 pages.
The exhibit index is set forth on page 44.
MINNESOTA MINING AND MANUFACTURING COMPANY
FORM 10-K
For the Year Ended December 31, 1995
PART I
Item 1. Business.
Minnesota Mining and Manufacturing Company was incorporated in 1929
under the laws of the State of Delaware to continue operations, begun in
1902, of a Minnesota corporation of the same name. As used herein, the
term "3M" includes Minnesota Mining and Manufacturing Company and
subsidiaries unless the context otherwise indicates.
Discontinued Operations
In November 1995, the Board of Directors approved a plan to launch the
company's data storage and imaging systems businesses as an independent,
publicly owned company. This transaction will be effected through the
distribution of shares in a newly formed company to 3M shareholders.
The transaction is expected to be tax free to 3M and to shareholders.
The distribution is expected to occur around July 1, 1996. 3M will
contribute the net assets of the data storage and imaging systems
businesses to the newly formed company, reducing stockholders' equity by
an estimated $1 billion.
The spin-off company is a worldwide leader in the supply of products and
services to the information processing industry, including printing,
image capture and data storage.
Major customers include graphic arts pre-press shops, commercial
printers, information systems OEMs, software developers, medical imaging
departments in health care, amateur photographers, and users of
removable digital data storage.
The new company manufactures and markets a wide variety of products
meeting the information needs of these customers. For printers and
graphic arts firms, these products include graphic arts film and
supplies; lithographic plates and related supplies; duplicator press
plates; automated imaging systems and related supplies; copy and art
preparation materials; pre-press proofing systems; carbonless paper
sheets for business forms; and light sensitive dry silver papers for
electronically recorded images. For medical imaging users, products
include a full line of diagnostic medical imaging films and equipment
for X-ray and electronic imaging systems. In both printing products and
medical imaging, the new company also provides hardware service and
support.
In addition, the spin-off company produces computer diskettes; data
cartridges and tapes; CD-ROM and rewritable optical media; and amateur
photographic film.
In November 1995, the Board of Directors also approved the
discontinuance of 3M's audio and video tape business within 12 months.
As a result of the plans to spin-off the data storage and imaging
systems businesses and to discontinue the audio and video tape business,
the company's consolidated financial statements and notes report these
businesses as discontinued operations. Prior years' consolidated
financial statements and notes have been restated accordingly.
General
3M is an integrated enterprise characterized by substantial
interdivision and intersector cooperation in research, manufacturing and
marketing of products incorporating similar component materials
manufactured at common internal sources. 3M's business has developed
from its research and technology in coating and bonding for coated
abrasives, the company's only product in its early years. Coating and
bonding is the process of applying one material to another, such as
adhesives to a backing (pressure-sensitive tapes), abrasive granules to
paper or cloth (coated abrasives), ceramic coating to granular mineral
(roofing granules), glass beads to plastic backing (reflective
sheeting), and low-tack adhesives to paper (repositionable notes).
3M is among the leading manufacturers of products for many of the
markets it serves. In all cases, 3M products are subject to direct or
indirect competition. Most 3M products involve expertise in product
development, manufacturing and marketing and are subject to competition
with products manufactured and sold by other technically oriented
companies.
At December 31, 1995, the company's continuing operations employed
70,687 people.
Business Segments
Information relating to 3M's two business segments and 3M's operations
in various geographic areas of the world is provided in the Notes to
Consolidated Financial Statements.
Each of 3M's two business sectors brings together common or related 3M
technologies, providing greater opportunity for the development of
products and services and efficient sharing of business strengths. These
sectors have worldwide responsibility for virtually all 3M product
lines. A few miscellaneous and staff-sponsored products, still under
development, are not assigned to the sectors. Various corporate assets
and corporate overhead expenses are also not assigned to the sectors.
Industrial and Consumer Sector: This sector is a leader in pressure-
sensitive adhesives, specialty tapes, coated and nonwoven abrasives,
specialty chemicals, electronic and electrical products, and
telecommunications products. The sector has strong distribution
channels and logistics expertise. This sector participates in the
following markets: Industrial Markets; Automotive and Chemical Markets;
Electro and Communications Markets; Consumer Markets; and Office
Markets.
The Industrial Markets businesses manufacture and market a wide variety
of high-performance and general-use pressure-sensitive tapes and
specialty products. Major product categories include industrial
application tapes made from a wide variety of materials, such as foil,
film, vinyl and polyester; specialty tapes and adhesives for industrial
applications, including Scotch Brand VHB Brand Tapes, lithographic tapes,
joining systems, specialty additives, vibration control materials, liquid
adhesives, and reclosable fasteners; general-use tapes, such as masking,
box-sealing and filament; and labels and other materials for identifying
and marking durable goods. Other products include coated abrasives for
grinding, conditioning and finishing a wide range of surfaces; finishing
compounds; and flame-retardant materials. These businesses also market
products for maintaining and repairing vehicles.
The Automotive and Chemical Markets businesses' major automotive
products include body side-molding and trim; functional and decorative
graphics; corrosion-resistant and abrasion-resistant films; tapes for
attaching nameplates, trim and moldings; and fasteners for attaching
interior panels and carpeting. Major chemical products include
protective chemicals for furniture, fabrics and paper products; fire-
fighting agents; fluoroelastomers for seals, tubes and gaskets in
engines; engineering fluids; and high-performance fluids used in the
manufacture of computer chips and for electronic cooling and lubricating
of computer hard disk drives. Other products include natural and color-
coated mineral granules for asphalt shingles. These businesses also
serve as a major resource for other 3M divisions, supplying specialty
chemicals, adhesives and films used in the manufacture of many 3M
products.
The Electro and Communications Markets businesses provide products for
the electronic, electrical, telecommunication, and visual communication
fields. Electronic and electrical products include packaging and
interconnection devices; insulating materials, including pressure-
sensitive tapes and resins; and related items. These products are used
extensively by manufacturers of electronic and electrical equipment, as
well as in the construction and maintenance segments of the electric
utility, telephone and other industries. The telecommunications products
serve the world's telephone companies with a wide array of products for
fiber-optic and copper-based telephone systems. These include many
innovative connecting, closure and splicing systems, maintenance
products and test equipment. The visual communication products serve
the world's office and education markets with overhead projectors and
transparency films, plus equipment and materials for computer-based
presentations.
Major products in the Consumer Markets and Office Markets businesses
include Scotch Brand Tapes; Post-it Brand Note products, including memo pads,
labels, stickers, pop-up notes and dispensers; home cleaning products,
including Scotch-Brite Brand Scouring Products, O-Cel-O Brand Sponges and
Scotchgard Brand Fabric Protectors; energy control products, such as window
insulation kits; nonwoven abrasive materials for floor maintenance and
commercial cleaning; floor matting; and a wide range of do-it-yourself
products, including surface preparation and wood finishing materials, and
filters for furnaces and air conditioners.
Life Sciences Sector: This sector contributes to better health and
safety for people around the world. The Life Sciences Sector's major
technologies include pressure-sensitive adhesives, substrates, extrusion
and coating, nonwoven materials, specialty polymers and resins, optical
systems, drug-delivery systems, and electro-mechanical devices. The
sector has strong distribution channels in all its major markets. This
sector participates in the following markets: Medical Products;
Pharmaceuticals, Dental and Personal Care Products; and Traffic and
Personal Safety Products.
The Medical Products businesses produce a broad range of medical
supplies, devices and equipment. Medical supplies include tapes,
dressings, surgical drapes and masks, biological indicators, orthopedic
casting materials and electrodes. Medical devices and equipment include
stethoscopes, heart-lung machines, sterilization equipment, blood gas
monitors, powered orthopedic instruments, and intravenous infusion
pumps. These businesses also develop clinical information systems.
The Pharmaceuticals, Dental and Personal Care Products businesses serve
the pharmaceutical and dental markets, as well as manufacturers of
disposable diapers. Pharmaceuticals include ethical drugs and drug-
delivery systems. Among ethical pharmaceuticals are analgesics, anti-
inflammatories and cardiovascular and respiratory products. Drug-
delivery systems include metered-dose inhalers, as well as transdermal
skin patches and related components. Dental products include dental
restoratives, adhesives, impression materials, temporary crowns,
infection control products, and orthodontic brackets and wires. These
businesses also produce a broad line of tape closures for disposable
diapers.
The Traffic and Personal Safety Products businesses have a strong
position in the following markets: traffic control materials,
commercial graphics, occupational health and safety, and out-of-home
advertising. In traffic control materials, 3M is a worldwide leader in
reflective sheetings. These materials are used on highway signs,
vehicle license plates, construction workzone devices, and trucks and
other vehicles. In commercial graphics, 3M supplies a broad line of
films, inks and related products used to produce graphics for trucks and
signs. Major occupational health and safety products include
maintenance-free and reusable respirators, plus personal monitoring
systems. Out-of-home advertising includes outdoor advertising,
advertising displays in shopping centers, and local advertising in
national magazines. These businesses also market a variety of other
products, including spill-control sorbents, Thinsulate Brand and Lite Loft
Brand Insulations, traffic control devices, electronic surveillance products,
reflective materials for personal safety, and films for protection
against counterfeiting.
Distribution
3M products are sold directly to users and through numerous wholesalers,
retailers, jobbers, distributors and dealers in a wide variety of trades
in many countries around the world. Management believes that the
confidence of wholesalers, retailers, jobbers, distributors and dealers
in 3M and its products, developed through long association with trained
marketing and sales representatives, has contributed significantly to
3M's position in the marketplace and to its growth. 3M has a total of
292 sales offices and distribution centers worldwide, including nine
major branch offices located in principal cities throughout the United
States. 3M operates 89 sales offices and distribution centers in the
United States. Internationally, with companies in more than 60
countries, 3M has 203 sales offices and distribution centers.
Research, Patents and Raw Materials
Research and product development constitute an important part of 3M's
activities. Products resulting from research and development have been
a major driver of 3M's growth. Spending for research and development
activities in continuing operations totaled $883 million, $828 million
and $794 million in 1995, 1994 and 1993, respectively.
Corporate research laboratories support the research efforts of division
and sector laboratories. These corporate labs also engage in research
not directly related to existing 3M product lines. Most major operating
divisions, as well as several of 3M's international companies, have
their own laboratories for improvement of existing products and
development of new products. Engineering research staff groups provide
specialized services in instrumentation, engineering and process
development. 3M also maintains an organization for technological
development not sponsored by other units of the company.
3M is the owner of many domestic and foreign patents derived primarily
from its own research activities. 3M's business as a whole is not
materially dependent upon any one patent, license or trade secret or
upon any group of related patents, licenses or trade secrets.
The company experienced no significant or unusual problems in the
purchase of raw materials during 1995. While 3M has successfully met
its raw material requirements, it is impossible to predict future
shortages or the impact such shortages would have.
Executive Officers
The following is a list of the executive officers of 3M as of March 1,
1996, their present position, current age, the year first elected to
their position and other positions held within 3M during the past five
years. All of these persons have been employed full time by 3M or a
subsidiary of 3M for more than five years. All officers are elected by
the Board of Directors at its annual meeting, with vacancies and new
positions filled at interim meetings. No family relationships exist
among any of the executive officers named, nor is there any arrangement
or understanding pursuant to which any person was selected as an
officer.
<TABLE>
<CAPTION>
Year Elected
to Present
Name Age Present Position Position Other Positions Held During 1991-1995
<S> <C> <C> <C> <C>
Livio D. DeSimone 59 Chairman of the Board 1991 Executive Vice President,
and Chief Executive Officer Information and Imaging
Technologies Sector and
Corporate Services, 1989-1991
Ronald A. Mitsch 61 Vice Chairman of the 1996 Executive Vice President,
Board and Executive Industrial and Consumer Sector
Vice President, Industrial and Corporate Services, 1991-1995
and Consumer Sector and Senior Vice President, Research
Corporate Services and Development, 1990-1991
J. Marc Adam 58 Vice President, Marketing 1995 Group Vice President, Medical
Products Group, 1991-1995
Group Vice President, Consumer and
Advertising Markets Group, 1991
Group Vice President, Consumer
Products Group, 1986-1991
Giulio Agostini 60 Senior Vice President, 1993 Senior Vice President,
Finance and Office Finance, 1991-1993
Administration Director, Finance and Administration,
3M Italy, 1972-1991
Ronald O. Baukol 58 Executive Vice President, 1995 Vice President, Asia Pacific,
International Operations Canada and Latin America, 1994-1995
Vice President, Asia Pacific, 1991-1994
Group Vice President, Medical Products
Group, 1990-1991
William E. Coyne 59 Senior Vice President, 1996 Vice President, Research and
Research and Development Development, 1994-1995
President and General Manager,
3M Canada, Inc., 1990-1994.
Lawrence E. Eaton 58 Executive Vice President 1991 Group Vice President,
Memory Technologies Group,
1986-1991
Charles E. Kiester 59 Senior Vice President, 1993 Vice President, Engineering,
Engineering, Quality and Quality and Manufacturing Services
Manufacturing Services 1990-1993
Richard A.Lidstad 59 Vice President, 1992 Staff Vice President, Human Resource
Human Resources Operations, 1987-1992
W. George Meredith 53 Executive Vice President, 1995 Group Vice President, Pharmaceuticals, Dental
Life Sciences Sector and and Personal Care Products Group, 1994
Corporate Services Group Vice President, Pharmaceuticals, Dental
and Disposable Products Group, 1991-1994
Group Vice President, Pharmaceutical and
Dental Products Group, 1990-1991
John J. Ursu 56 Vice President, Legal 1993 General Counsel, 1992-1993
Affairs and General Counsel Deputy General Counsel, 1990-1992
</TABLE>
Item 2. Properties.
3M's general offices, corporate research laboratories, most division
laboratories and certain manufacturing facilities are located in St.
Paul, Minnesota. 3M has 89 sales offices and distribution centers in 23
states and operates 67 plants in 23 states. Internationally, with
companies in more than 60 countries, 3M has 203 sales offices and
distribution centers. The company operates 102 manufacturing and
converting facilities in 42 countries.
3M owns substantially all of its physical properties. 3M leases certain
facilities financed through the issuance of industrial development bonds
in the original principal amount of $30 million. 3M has capitalized the
construction costs related to these facilities and recorded the related
liabilities. 3M's physical facilities are highly suitable for the
purposes for which they were designed.
Item 3. Legal Proceedings.
The company and certain of its subsidiaries are named as defendants in a
number of actions, governmental proceedings and claims, including
environmental proceedings, and products 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. The company has
accrued certain liabilities which represent reasonable estimates of its
probable liabilities for these matters. The company also has recorded
receivables for the probable amount of insurance recoverable with
respect to these matters.
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, products
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 quarterly
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 or annual results of operations of
the company.
Breast Implant Litigation
As of December 31, 1995, the company had been named as a defendant,
often with multiple co-defendants, in 6,566 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 17,600 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 that 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 variety 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 CORPORATION, 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 December 22, 1995, the Court approved a revised class action
settlement program for resolution of claims seeking damages for personal
injuries from allegedly defective breast implants (the "Revised
Settlement Program"). The Revised Settlement Program is a revision of a
previous settlement pursuant to a Breast Implant Litigation Settlement
Agreement (the "Settlement Agreement") reached on April 8, 1994, and
approved by the Court on September 1, 1994.
Under the terms of the previous Settlement Agreement, the company and
other defendants agreed to make total contributions in the amount of
$4.25 billion, including the company's maximum commitment of $325
million, which was to be paid into a court-administered fund within
three years from the date that the final order ratifying the Settlement
Agreement was entered and after appeals had been exhausted. On May 1,
1995, the Court stated that preliminary information from claims filed
prior to the September 1994 deadline for current claims 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 current claims. The Settlement Agreement
provided, in that case, for a reduction in the amount to be paid to
individual claimants, but first obligated the parties to attempt to
adjust the Settlement Agreement. After the parties were unable to reach
agreement, the Court approved the Revised Settlement Program for
presentation to eligible class members.
The Court has ordered that, beginning after November 30, 1995, members
of the plaintiff class will be able to choose whether they will
participate in the Revised Settlement Program or will opt out, which
would then allow them to proceed with separate products liability
actions.
The Revised Settlement Program includes only domestic class members, and
only class members with implants manufactured by certain manufacturer
defendants, including the company and McGhan Medical Corporation. The
company's obligations under the Revised Settlement Program are limited
to eligible claimants with implants manufactured by the company or its
predecessors ("3M implants") or manufactured only by McGhan Medical
Corporation after its divestiture from the company on August 3, 1984
("Post 8/84 McGhan implants"). With respect to claimants with only Post
8/84 McGhan implants (or only Post 8/84 McGhan implants plus certain
other manufacturers' implants), the benefits may be more limited than
for claimants with 3M implants. Such benefits are payable by the
company, Union Carbide Corporation and McGhan Medical Corporation.
In general, the amounts payable to individual current claimants (as
defined in the Court's order) under the Revised Settlement Program, and
the company's obligations to make those payments, will not be affected
by the number of class members electing to opt out of the Revised
Settlement Program or the number of class members making claims under
the Revised Settlement Program. The Revised Settlement Program provides
for two compensation options, in addition to certain miscellaneous
benefits, for current claimants with 3M implants.
Under the first option, denominated as Fixed Amount Benefits, current
claimants with 3M implants who satisfy disease criteria established in
the prior Settlement Agreement will receive amounts ranging from $5,000
to $100,000, depending on disease severity or disability level, whether
the claimant can establish that the implants have ruptured, and whether
the claimant also has had implants manufactured by Dow Corning. Under
the second option, denominated as Long-Term Benefits, current claimants
with 3M implants who satisfy more restrictive disease and severity
criteria specified under the Revised Settlement Program can receive
benefits ranging from $37,500 to $250,000.
In addition, current claimants with 3M implants are eligible for (a) a
one-time payment of $3,000 upon removal of 3M implants during the course
of the class settlement, and (b) an advance payment of $5,000 against
the above referenced benefits upon proof of having 3M implants and upon
waiving or not timely exercising the right to opt out from the Revised
Settlement Program. Current claimants with only Post 8/84 McGhan
implants (or only Post 8/84 McGhan implants plus certain other
manufacturers' implants) are eligible only for benefits ranging from
$10,000 to $50,000.
Eligible participants with 3M implants, who did not file current claims
but are able to satisfy the more restrictive disease and severity
criteria during an ongoing period of 15 years, will be eligible for the
Long-Term Benefits, subject to certain funding limitations. Such
participants also will be eligible for an advance payment of $1,000 upon
proof of having 3M implants and upon waiving or not timely exercising
the right to opt out from the Revised Settlement Program. Benefit
levels for eligible participants, who are not current claimants, with
only Post 8/84 McGhan implants (or only Post 8/84 McGhan implants plus
certain other manufacturers' implants) again will range from $10,000 to
$50,000.
The company's obligations to fund Long-Term Benefits for eligible
claimants with 3M implants, and its obligations to fund any benefits for
claimants with only Post 8/84 McGhan implants, are suspended if certain
provisions of the Revised Settlement Program are challenged on appeal
and will be canceled if any of those provisions are disapproved on
appeal. In that event, the other benefits provided under the Revised
Settlement Program would still be payable to any claimant with 3M
implants who elected to participate in the program.
Because it is uncertain how many plaintiffs will choose to participate
in the Revised Settlement Program, or what disease criteria they will
satisfy and what options they will choose, the total amount and timing
of the company's prospective payments under the Revised Settlement
Program cannot be determined with precision at this time. In January
1996, the company paid $130 million into a court administered fund as an
initial reserve against costs of claims payable by the company under the
Revised Settlement Program.
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, net of the probable
amount of insurance recoverable from its carriers. In the fourth
quarter of 1995, the company increased its estimate of the minimum
probable liabilities and associated expenses to approximately $885
million. This amount represents the company's best estimate of the cost
of the Revised Settlement Program and the cost of resolving opt-out
claims. After subtracting payments of $62 million in 1994 and $143
million in 1995 for defense costs and settlements with litigants and
claimants, the company, as of December 31, 1995, had accrued liabilities
of $678 million.
The company has substantial primary and excess products liability
occurrence insurance coverage and claims-made products liability
insurance coverage, which it believes provide coverage for substantially
all of its current exposure for breast implant claims and defense costs.
Most insurers have alleged reservations of rights to deny all or part of
the coverage for differing reasons, including each insurer's obligations
in relation to the other insurers and which claims trigger both the
various occurrence and claims-made insurance policies. Some insurers
have resolved and paid or committed to their policy obligations. The
company believes that the failure of many insurers to voluntarily
perform as promised subjects them to the company's claims for excess
liability and damages for breach of the insurers' obligation of good
faith. Based on inappropriate non-performance by insurers, it is the
opinion of counsel that insurers have waived all policy term provisions.
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. Texas is the state
with the most implant claims. 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 products liability insurance to the company and that
breast implant claims are products liability claims. A trial is
scheduled in Minnesota for March 4, 1996, to resolve the company's
insurance coverage and the financial responsibility of occurrence
insurers for breast implant claims and defense costs. Settlement
discussions continue with most insurers through court ordered and
supervised discussions.
The occurrence insurers that are parties to the litigation in Minnesota
filed more than 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). The trial court denied the insurers' motions, ruling that
the key issues of "trigger" and allocation raised in these motions will
be resolved at trial. If the occurrence insurers prevail at trial, 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 $800
million as of December 31, 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, and (iv) delays in
payment by insurers. Settlements are currently developing through court-
ordered and supervised discussions. 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 number of plaintiffs who elect to opt out and pursue
individual claims against the company, (ii) 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, (iii)
the outcome of the occurrence insurance litigation in the courts of
Minnesota and Texas, (iv) the outcome of potential arbitration with
claims-made insurers, and (v) the availability of coverage with respect
to certain of the types of claims or remedies to which the company may
be subject.
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 quarterly 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 or annual results of operations 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 substantially all of 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 had been made as of year-end 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 4. Submission of Matters to a Vote of Security Holders.
None in the quarter ended December 31, 1995.
Part II
Item 5. Market Price of 3M's Common Stock and Related Security Holder
Matters.
At January 31, 1996, there were 129,981 shareholders of record.
3M's stock is listed on the following stock exchanges: New York Stock
Exchange, Pacific Stock Exchange, Chicago Stock Exchange, Amsterdam
Stock Exchange, German stock exchanges, Swiss stock exchanges, Paris
Stock Exchange, and Tokyo Stock Exchange.
Stock price comparison information (New York Stock Exchange Composite
Transactions), reflecting a two-for-one stock split effective March 15,
1994, is as follows:
Quarter First Second Third Fourth Year
1995 High $58.88 $62.13 $60.13 $69.88 $69.88
Low 50.75 56.50 53.88 55.13 50.75
1994 High 56.38 52.38 57.13 56.63 57.13
Low 49.00 46.38 49.25 50.38 46.38
Item 6. Selected Financial Data.
(Dollars in millions, except amounts per share)
For the Year Ended December 31: 1995 1994 1993 1992 1991
Net Sales...........................$13,460 $12,148 $11,053 $10,817 $10,281
Income from continuing operations.....1,306* 1,207 1,133 1,116 984
Per Share of Common Stock:
Continuing Operations...............3.11* 2.85 2.61 2.55 2.24
Cash Dividends Declared and Paid.....1.88 1.76 1.66 1.60 1.56
Ratio of Earnings to Fixed Charges..12.41 13.96 15.93 13.11 10.80
At December 31:
Total Assets.......................14,183 13,068 11,795 11,528 10,886
Long-Term Debt (excluding portion due
within one year)..................1,203 1,031 796 687 764
All amounts presented have been restated on a continuing operations
basis. Discontinued operations and the restructuring charge are more
fully discussed in the Notes to Consolidated Financial Statements.
* 1995 includes a pre-tax restructuring charge of $79 million, or 12
cents per share.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Operating Results
On November 14, 1995, 3M announced that it intends to launch its data
storage and imaging systems businesses as an independent, publicly owned
company. 3M also announced that it will discontinue its audio and video
tape business within 12 months. As a result of these actions, the data
storage, imaging systems, and audio and video tape businesses are
presented as discontinued operations within the financial statements and
notes for all periods presented. The following discussion is on a
continuing operations basis.
Net sales in 1995 rose 10.8 percent to $13.460 billion. This followed
increases of 9.9 percent in 1994 and 2.2 percent in 1993.
Internationally, sales increased about 17 percent to $7.253 billion.
Sales in the United States were $6.207 billion, up more than 4 percent
from 1994.
Components of Sales Change
__________________________________________________________________________
1995 1994
U.S. Intl. Worldwide U.S. Intl. Worldwide
__________________________________________________________________________
Volume 3% 10% 7% 8% 10% 9%
Price 1 2 2 0 0 0
Translation - 5 2 - 2 1
__________________________________________________________________________
Total 4% 17% 11% 8% 12% 10%
__________________________________________________________________________
Internationally, volume rose 10 percent, matching the gain achieved in
1994. 3M companies in all major geographic areas abroad posted solid
volume growth. In the United States, volume growth moderated in 1995,
reflecting the slowdown in the U.S. economy.
Selling prices, which were essentially flat in 1994, increased about 2
percent in 1995. These increases helped offset higher raw material
costs.
Changes in currency exchange rates increased sales about 2 percent in
1995, following an increase of about 1 percent the previous year.
Cost of goods sold was 57.3 percent of sales, up one percentage point
from 1994, but down slightly from 1993. The increase was due to a 7.5
percent rise in raw material costs, the largest in many years. In 1994,
cost of goods sold benefited from solid worldwide volume growth,
productivity gains and cost-control efforts. Cost of goods sold
includes manufacturing, research and development, and engineering
expenses.
Selling, general and administrative expenses were 25.6 percent of sales,
the lowest level in more than five years. This spending reflected
strong emphasis on cost control and productivity improvement. In 1994,
the rate of SG&A spending increased slightly due to investments to
sustain rapid growth in developing countries.
(Percent of sales) 1995 1994 1993
Cost of goods sold 57.3 56.3 57.4
________________________________________________________________________
Selling, general and administrative expenses 25.6 26.5 26.4
________________________________________________________________________
Employment increased by about 845 people worldwide in 1995. These
additions were made to help support rapid growth in developing
countries. Sales per employee rose more than 7 percent in local
currencies. This followed an 8 percent gain in 1994.
During the fourth quarter of 1995, 3M recorded one-time, pre-tax charges
of $653 million related to the spin-off of the data storage and imaging
systems businesses and the phase-out of the audio and video tape
business. Of this amount, $79 million related to restructuring in
continuing operations and is shown on a separate line of the
Consolidated Statement of Income titled "Restructuring charge." The
remainder related to discontinued operations. The restructuring charge
and discontinued operations are discussed more fully in the Notes to
Consolidated Financial Statements.
Operating income totaled $2.221 billion, up 6.0 percent from 1994.
Excluding the one-time charge, operating income rose 9.8 percent.
Internationally, operating income rose 22 percent and profit margins
were up eight-tenths of a percentage point. International results were
helped by solid volume growth, productivity improvement and positive
currency effects.
In the United States, operating income was down about 11 percent and
profit margins declined by 2.5 percentage points. U.S. results were
affected by higher raw material costs, modest volume growth and the
restructuring charge.
In 1994, operating income rose 16.6 percent, with the gain well-balanced
between U.S. and international operations.
The company estimates that currency changes increased operating income
by $79 million in 1995 and by $17 million in 1994.
(Percent of sales) 1995 1994 1993
Operating Income 17.1* 17.2 16.2
* Excluding restructuring charge
________________________________________________________________________
Interest expense was $102 million, compared with $70 million in 1994 and
$39 million in 1993. The increases in both 1995 and 1994 were due to a
planned increase in debt and higher interest rates.
Investment and other income was $49 million, compared with $21 million
in 1994 and $94 million in 1993. The increase in 1995 was due to
improved investment results, including higher interest income. In 1993,
investment and other income included $36 million from the resolution of
several income tax claims. It also benefited from improved investment
results and other items, many of which were of a nonrecurring nature.
During the first quarter of 1994, 3M recorded a pre-tax charge of $35
million related to breast implant litigation. Other income and expense
in 1994 includes this amount, which is shown on a separate line of the
Consolidated Statement of Income titled "Implant litigation - net."
The effective tax rate was 36.2 percent of pre-tax income, about the
same as in 1994 and 1993.
Income from continuing operations totaled $1.306 billion, or $3.11 per
share ($1.358 billion, or $3.23 a share, excluding the restructuring
charge). Earnings per share from continuing operations, excluding both
the 1995 restructuring charge and the 1994 implant litigation charge,
increased 11.4 percent in 1995.
Net income, before one-time 1995 charges, totaled $1.390 billion, or
$3.31 a share, up 5.1 percent from $1.322 billion, or $3.13 a share, in
1994. Including these charges, net income was $976 million, or $2.32 a
share, compared with $1.322 billion, or $3.13 a share, in 1994.
Changes in the value of the U.S. dollar increased net income by an
estimated $51 million, or 12 cents a share, in 1995. Currency effects
increased income from continuing operations by an estimated 10 cents a
share. Changes in the value of the U.S. dollar had little impact in
1994, and reduced net income by an estimated $62 million, or 14 cents a
share, in 1993. These estimates include the effect of translating
profits from local currencies into U.S. 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.
Return on average stockholders' equity was 19.2 percent, up from 18.2
percent in 1994. Adjusting income from continuing operations for the
restructuring charge and equity for the impact of discontinued
operations, return on equity was over 24 percent in 1995. Return on
capital employed was 23.4 percent. Adjusting for the continuing
operations restructuring charge, return on capital employed was 24.3
percent, up from 23.6 percent in 1994. In 1995, about 27 percent of
sales came from products introduced within the past four years, compared
with about 26 percent in 1994.
Over the longer term, 3M expects to meet its aggressive financial goals.
These include annual growth in earnings per share of 10 percent or
better, on average; return on stockholders' equity of 20 to 25 percent;
return on capital employed of 27 percent or better; and at least 30
percent of sales from products introduced within the past four years.
Performance by Business Sector
Industrial and Consumer Sector:
Despite slowing in the U.S. economy and sharp increases in raw material
costs worldwide, this sector turned in another strong performance in
1995. Sales were up 10.4 percent to $8.365 billion. Operating income
increased 9.6 percent to $1.335 billion. Internationally, the sector's
major businesses posted strong sales gains, with even greater growth in
operating income.
This sector develops, manufactures and markets innovative, high-value
products for home, offices and industrial customers around the world.
This sector has achieved a strong position in most of the markets it
serves by leveraging 3M strengths in more than two dozen technologies,
building on strong brands, expanding its international presence and
increasing its manufacturing efficiency.
Life Sciences Sector:
In 1995, sales increased 11.4 percent to $5.018 billion. Operating
income also increased 11.4 percent, to $1.065 billion. Operating income
was 21.2 percent of sales. Profit margins exceeded 20 percent for the
12th year in a row.
This sector contributes to better health and safety for people around
the world. In the health care market, this sector is a leader in
medical-surgical supplies, clinical information systems, drug-delivery
technologies and dental products. In the safety area, this sector is a
global leader in reflective materials for traffic safety and respirators
for worker protection. This sector also is a leader in closure tapes
for disposable diapers, graphics for trucks and signs, and out-of-home
advertising.
Performance by Geographic Area
United States
In the United States, volume rose about 3 percent and selling prices
increased about 1 percent, for a total sales gain of about 4 percent.
Operating profit margins decreased by about 2.5 percentage points from
1994. Adjusting for the restructuring charge, operating profit margins
decreased by about 1.4 percentage points. U.S. results were held back
by higher raw material costs and modest volume growth. Employment was
basically unchanged at year-end 1995 compared with the end of 1994.
Europe and Middle East
Sales grew about 19 percent in 1995. Unit sales rose 8 percent, selling
prices were up more than 1 percent, and translation increased sales by
almost 10 percent. Profits, aided by solid productivity gains, rose 38
percent. Sales per employee in local currencies increased nearly 10
percent.
Through 3M's European Business Centers, which direct the development,
manufacture and sale of 3M products across the continent, the company is
meeting customer needs better, faster and more efficiently. European
results were also helped by rapid growth in emerging economies. Volume
gains ranging from 30 percent to 50 percent were posted in Hungary, the
Czech Republic, Turkey and Poland.
Asia Pacific
In the Asia Pacific area, sales increased about 16 percent. Unit sales
increased about 13 percent. In Japan, unit sales rose about 10 percent,
helped by a strong flow of new products. Nearly 13 percent of 3M's
sales came from products introduced during 1995 and more than 40 percent
of sales in Japan came from products new within the past four years. In
Asia outside Japan, volume grew about 20 percent. Solid volume gains
were posted throughout the region, in which 3M has more than a dozen
companies.
To sustain rapid growth in Asia, 3M continues to add to its
capabilities. The company is expanding manufacturing operations in
China, Taiwan and Malaysia, and enlarging its technical support facility
in Singapore. A new distribution center is being built in Korea.
Canada, Latin America and Africa
In Canada, the company posted good sales and profit growth, paced by
industrial businesses. The company is continuing to build upon two
platforms for growth. These include an efficient, responsive
organization to serve Canadian customers, and a manufacturing
organization to leverage 3M resources on a North American and worldwide
basis.
In Latin America, the company achieved healthy growth again in 1995,
despite the sharp decline in economic activity in Mexico. Unit sales
increased more than 10 percent, with strong gains in most countries. In
Brazil, 3M's largest company in Latin America, volume increased more
than 20 percent. In Mexico, the company did an excellent job of
minimizing the impact of currency devaluation and overall economic
weakness.
In Africa, the company also showed solid growth. Volume in South Africa
was up more than 10 percent. Sales there are benefiting from the
lifting of trade sanctions, which has stimulated the growth of the
economy, including exports to neighboring countries.
Financial Position
3M's financial condition remained strong in 1995. The company's key
inventory index was 3.9 months, down about 10 percent from the end of
1994. The accounts receivable index was 64 days, down two days from
1994. The current ratio was 1.7, unchanged from the end of 1994.
Various assets and liabilities, including cash and short-term debt, can
fluctuate significantly on a month-to-month basis depending on short-
term liquidity needs.
The company recorded a current liability of $379 million in the fourth
quarter of 1995. Of this amount, $79 million related to the
restructuring in continuing operations. The remainder was for severance
and other payments relating to discontinued operations. As of December
31, 1995, no employee separations had occurred and no cash payments
related to employee separations had been made.
Total debt was $2.025 billion, up from $1.948 billion in 1994. Of the
debt outstanding at the end of 1995, $441 million was a guarantee of
debt of the 3M Employee Stock Ownership Plan. Total debt was 29 percent
of stockholders' equity, the same as in 1994. The company's borrowings
continued to maintain triple-A long-term ratings. At the time of the
spin-off of the data storage and imaging systems businesses,
stockholders' equity will be reduced by an estimated $1 billion,
essentially representing the distribution of the net assets of the spin-
off businesses. The company is reviewing the capital structure
requirements of the spin-off company. This determination will affect
the debt levels of both companies.
Legal proceedings are discussed in the legal proceedings section in Part
I, Item 3, of this Form 10-K. There can be no certainty that the
company may not ultimately incur charges, whether for governmental
proceedings and claims, products 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 quarterly 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 or annual results of operations of the company.
Liquidity
3M meets its cash requirements primarily from operating activities.
During 1995, cash flows provided by operating activities of continuing
operations totaled $1.935 billion, an increase of $280 million from
1994. Cash flows from continuing operations more than covered capital
expenditures and dividend payments of $1.878 billion. The increase in
cash provided from continuing operations in 1995 was helped by good
asset management. In 1994, working capital requirements increased due
to higher sales growth, affecting cash provided by operating activities.
Timing differences between payment of implant liabilities and receipt of
related insurance recoveries could affect the cash flows of future
periods. The amount and timing of prospective payments cannot be
determined with precision at this time. In January 1996, the company
paid $130 million into a court administered fund as an initial reserve
against costs of claims payable by the company under the "Revised
Settlement Program," which is discussed in the legal proceedings section
in Part I, Item 3, of this Form 10-K. As a result of actions associated
with discontinued operations and restructuring, the company will have
unusually high severance payments in 1996. 3M believes that these
timing differences and higher severance payments will not have a
material adverse effect on the consolidated financial position or
liquidity of the company.
Capital spending increased 11.9 percent to $1.088 billion. This
followed an increase of 8.2 percent in 1994. These investments are
helping to meet growing global demand for 3M products and increase
manufacturing efficiency.
Stockholder dividends increased 6.8 percent to $1.88 a share in 1995.
Cash dividend payments totaled $790 million. 3M has paid dividends for
80 consecutive years.
On February 12, 1996, the 3M Board of Directors declared a quarterly
dividend on 3M common stock of 47 cents a share, maintaining the
dividend at the existing quarterly rate. The Board will reconsider the
dividend later this year, and expects to continue 3M's record of annual
dividend increases. The Board also authorized the repurchase of up to six
million of the company's shares. This share repurchase authorization
runs through February 10, 1997. The company purchased more than six
million shares under a previous authorization.
Repurchases of 3M common stock totaled $351 million in 1995, compared
with $689 million in 1994 and $706 million in 1993. Repurchases were
made to support employee stock purchase plans and for other corporate
purposes.
The company's strong credit rating provides ready and ample access to
funds in global capital markets. 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. At December 31, 1995,
$402 million was available for future financial needs.
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 that resulted in an all-in borrowing cost equal to the 30-day
commercial paper rate, less 30 basis points, for two years.
Future Outlook
As a result of the restructuring, 3M will be better positioned for
profitable growth. The company will strive to meet its financial goals
by building on five key strengths: market leadership, technological
innovation, customer focus, global reach and employee initiative. These
strengths have always been key elements of 3M's success, but their value
will become even more pronounced in a faster, stronger and more focused
3M.
3M expects solid sales and earnings growth in 1996. The company expects
to benefit from a strong flow of new products, further expansion into
international markets, an intense focus on customer satisfaction, and
ongoing efforts to reduce costs and improve productivity. Sales per
employee are expected to increase about 8 percent in 1996.
While volume, productivity and selling prices are expected to help 1996
results, currency effects may moderate profit growth. Based on current
exchange rates, currency could reduce 1996 earnings by about 15 cents a
share. Raw material costs, which held back earnings growth in 1995, are
expected to level off. The company expects to show its strongest
earning gains in the second half of the year.
Capital spending, which was up 12 percent in 1995, is expected to
increase about 10 percent in 1996.
The company's tax rate is expected to be similar to 1995, at just over
36 percent.
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Reference (pages)
Form 10-K
Data submitted herewith:
Report of Independent Accountants. ........................... 24
Consolidated Statement of Income for the years ended
December 31, 1995, 1994 and 1993 ........................... 25
Consolidated Balance Sheet at December 31, 1995 and
1994 ....................................................... 26
Consolidated Statement of Cash Flows
for the years ended December 31,
1995, 1994 and 1993 ......................................... 27
Notes to Consolidated Financial Statements ...................28-42
Report of Independent Accountants
To the Stockholders of Minnesota Mining and Manufacturing Company:
We have audited the consolidated financial statements of Minnesota
Mining and Manufacturing Company and Subsidiaries as listed in Item 8 of
this Form 10-K. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Minnesota Mining and Manufacturing Company and Subsidiaries as of
December 31, 1995 and 1994, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
St. Paul, Minnesota
February 12, 1996
Consolidated Statement of Income
Minnesota Mining and Manufacturing Company and Subsidiaries
For the Years Ended December 31 1995 1994 1993
(Amounts in millions, except per-share amounts)
Net Sales $13,460 $12,148 $11,053
_______________________________________________________________________________
Operating Expenses
Cost of goods sold 7,720 6,829 6,336
Selling, general and administrative expenses 3,440 3,224 2,921
Restructuring charge 79 -- --
_______________________________________________________________________________
Total 11,239 10,053 9,257
_______________________________________________________________________________
Operating Income 2,221 2,095 1,796
_______________________________________________________________________________
Other Income and Expense
Interest expense 102 70 39
Investment and other income - net (49) (21) (94)
Implant litigation - net -- 35 --
_______________________________________________________________________________
Total 53 84 (55)
_______________________________________________________________________________
Income From Continuing Operations Before Income Taxes
and Minority Interest 2,168 2,011 1,851
Provision for Income Taxes 785 731 673
Minority Interest 77 73 45
_______________________________________________________________________________
Income From Continuing Operations 1,306 1,207 1,133
Discontinued Operations
Income from operations of discontinued businesses,
net of income taxes 43 115 130
Loss on disposal of discontinued businesses,
net of income taxes (373) -- --
_______________________________________________________________________________
Net Income $ 976 $1,322 $ 1,263
Per-Share Amounts:
Continuing Operations $ 3.11 $2.85 $ 2.61
Discontinued Operations (.79) .28 .30
_______________________________________________________________________________
Net Income $ 2.32 $3.13 $ 2.91
_______________________________________________________________________________
Average Shares Outstanding 419.8 423.0 434.3
The accompanying Notes to Consolidated Financial Statements are an
integral part of this statement.
Consolidated Balance Sheet
Minnesota Mining and Manufacturing Company and Subsidiaries
At December 31 1995 1994
(Dollars in millions)
Assets
Current Assets
Cash and cash equivalents $ 485 $297
Other securities 287 194
Accounts receivable - net 2,398 2,328
Inventories 2,206 2,138
Other current assets 1,019 651
___________________________________________________________________________
Total current assets 6,395 5,608
Investments 565 532
Property, Plant and Equipment - net 4,638 4,362
Other Assets 1,177 897
Net Assets of Discontinued Operations 1,408 1,669
___________________________________________________________________________
Total $14,183 $13,068
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 762 $ 820
Payroll 298 279
Income taxes 214 110
Short-term debt 822 917
Other current liabilities 1,628 1,130
___________________________________________________________________________
Total current liabilities 3,724 3,256
Other Liabilities 2,372 2,047
Long-Term Debt 1,203 1,031
Stockholders' Equity - net 6,884 6,734
Shares outstanding - 1995: 418,702,754
1994: 419,793,702
___________________________________________________________________________
Total $14,183 $13,068
The accompanying Notes to Consolidated Financial Statements are an
integral part of this statement.
Consolidated Statement of Cash Flows
Minnesota Mining and Manufacturing Company and Subsidiaries
For the Years Ended December 31 1995 1994 1993
(Dollars in millions)
Cash Flows from Operating Activities
Net income $ 976 $1,322 $1,263
Less income (loss) from discontinued operations (330) 115 130
Income from continuing operations 1,306 1,207 1,133
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Depreciation 795 793 768
Amortization 64 79 84
Accounts receivable (90) (225) (306)
Inventories (51) (240) (169)
Working capital and other changes (89) 41 285
______________________________________________________________________________
Net cash provided by continuing operations 1,935 1,655 1,795
Net cash provided by discontinued operations 325 274 296
Net cash provided by operating activities 2,260 1,929 2,091
Cash Flows from Investing Activities
Capital expenditures (1,088) (972) (898)
Proceeds from sale of property, plant and equipment 54 54 48
Acquisitions and other investments (49) (92) (70)
Proceeds from divestitures and investments 82 22 37
Discontinued operations, net (207) (183) (209)
______________________________________________________________________________
Net cash used in investing activities (1,208) (1,171) (1,092)
Cash Flows from Financing Activities
Net change in short-term debt (41) 216 48
Repayment of long-term debt (156) (62) (80)
Proceeds from long-term debt 223 401 150
Purchases of treasury stock (351) (689) (706)
Reissuances of treasury stock 214 138 181
Payment of dividends (790) (744) (721)
______________________________________________________________________________
Net cash used in financing activities (901) (740) (1,128)
Effect of exchange rate changes on cash 37 5 21
______________________________________________________________________________
Net increase (decrease) in cash and cash equivalents 188 23 (108)
Cash and cash equivalents at beginning of year 297 274 382
______________________________________________________________________________
Cash and cash equivalents at end of year $ 485 $ 297 $ 274
______________________________________________________________________________
The accompanying Notes to Consolidated Financial Statements are an
integral part of this statement.
Notes to Consolidated Financial Statements
Accounting Policies
Consolidation: All significant subsidiaries are consolidated.
Unconsolidated subsidiaries and affiliates are included on the equity
basis.
Foreign Currency Translation: Local currencies are generally considered
the functional currencies outside the United States, except in countries
treated as highly inflationary. Assets and liabilities for operations
in local currency environments are translated at year-end exchange
rates. Income and expense items are translated at average rates of
exchange prevailing during the year. Cumulative translation
adjustments, recorded as a component of stockholders' equity, reduced
stockholders' equity by $102 million, $163 million and $331 million at
December 31, 1995, 1994 and 1993, respectively.
For operations in countries treated as highly inflationary, certain
financial statement amounts are translated at historical exchange rates,
with all other assets and liabilities translated at year-end exchange
rates. These translation adjustments are reflected in the results of
operations. They decreased net income by $4 million in 1995, $20
million in 1994 and by $12 million in 1993.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Cash and Cash Equivalents: Cash and cash equivalents consist of cash
and temporary investments with maturities of three months or less when
purchased.
Other Securities and Investments: Other securities consist of
marketable securities and interest-bearing bank deposits with varied
maturity dates. These securities are employed in the company's banking,
captive insurance and cash management operations. Investments primarily
include debt securities held by captive insurance and banking
operations, individual and commercial loans receivable held by banking
operations, the cash surrender value of life insurance policies, and
real estate and venture capital investments.
Other Securities and Investments At December 31
(Millions) 1995 1994
Held-to-maturity (amortized cost) $168 $120
Available-for-sale (fair value) 225 160
Other (cost, which approximates fair value) 459 446
Unrealized gains and losses relating to other securities and investments
classified as available-for-sale are included as a component of
stockholders' equity. Realized gains and losses in 1995 and 1994 were
not material.
Inventories: Inventories are stated at lower of cost or market, with
cost generally determined on a first-in, first-out basis.
Other Assets: Other assets include goodwill, patents, other
intangibles, product and other insurance claims, deferred taxes and
other noncurrent assets. Intangible assets are periodically reviewed
for impairment based on an assessment of future operations to ensure
that they are appropriately valued. Goodwill is generally amortized on a
straight-line basis over 10 years. Other intangible items are amortized
on a straight-line basis over their estimated economic lives.
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 impact of this statement on the company is immaterial.
The company will adopt this standard effective January 1, 1996.
Deferred Income Taxes: Deferred income taxes arise from differences in
bases between tax reporting and financial reporting.
Revenue Recognition: Revenue is recognized upon shipment of goods to
customers and upon performance of services. The company sells a wide
range of products to a diversified base of customers around the world
and, therefore, believes there is no material concentration of credit
risk.
Depreciation: Depreciation of property, plant and equipment is
generally computed on a straight-line basis over the estimated useful
lives of these assets.
Research and Development: Research and development costs are charged to
operations as incurred and totaled $883 million in 1995, $828 million in
1994 and $794 million in 1993.
Advertising Costs: Advertising costs are generally charged to
operations in the year incurred and totaled $423 million in 1995, $422
million in 1994 and $353 million in 1993.
Derivatives: Derivative financial instruments are utilized by the
company to manage risks generally associated with foreign exchange rate
and interest rate market volatility. The company does not hold or issue
derivative financial instruments for trading purposes. The company is
not a party to leveraged derivatives. Realized and unrealized gains and
losses are deferred until the underlying transactions are realized.
These gains and losses are recognized either as interest expense over
the borrowing period for interest rate and currency swaps, as an
adjustment to cost of goods sold for inventory-related hedge
transactions, or in stockholders' equity for hedges of net investments
in international companies. Cash flows attributable to these financial
instruments are included with the cash flows from the associated hedged
items.
Accounting for Stock-Based Compensation: 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. The company intends to follow the option that permits entities
to continue to apply current accounting standards to stock-based
employee compensation arrangements. Effective with year-end 1996
reporting, the company will disclose pro forma net income and earnings
per share amounts as if Statement No. 123 accounting were applied.
Supplemental Balance Sheet Information
________________________________________________________________________
(Millions) 1995 1994
Accounts receivable
Accounts receivable $ 2,492 $2,414
Less allowances 94 86
Accounts receivable - net $ 2,398 $2,328
Inventories
Finished goods $ 1,164 $1,081
Work in process 565 583
Raw materials and supplies 477 474
Total inventories $ 2,206 $2,138
Other current assets
Product and other insurance claims $ 334 $ 158
Deferred taxes 307 177
Other 378 316
Total other current assets $ 1,019 $ 651
Property, plant and equipment - at cost
Land $ 296 $ 284
Buildings and leasehold improvements 2,814 2,595
Machinery and equipment 7,673 7,065
Construction in progress 451 358
$11,234 $10,302
Less accumulated depreciation 6,596 5,940
Property, plant and equipment - net $ 4,638 $ 4,362
Other assets
Product and other insurance claims $ 781 $ 466
Deferred taxes 105 124
Other 291 307
Total other assets $ 1,177 $ 897
Other current liabilities
Product and other liabilities $ 369 $ 183
Severance and other restructuring liabilities 379 --
Deposits - banking operations 290 270
Deferred taxes 10 10
Other 580 667
Total other current liabilities $ 1,628 $ 1,130
Other liabilities
Product and other liabilities $ 923 $ 682
Minority interest in subsidiaries 483 460
Nonpension postretirement benefits 423 404
Deferred taxes 90 97
Other 453 404
Total other liabilities $ 2,372 $ 2,047
Deposits - banking operations - are primarily demand deposits and, as
such, the carrying amount approximates fair value.
Discontinued Operations
In November 1995, the Board of Directors approved a plan to launch the
company's data storage and imaging systems businesses as an independent,
publicly owned company. This transaction will be effected through the
distribution of shares in a newly formed company to 3M shareholders.
The transaction is expected to be tax free to 3M and to shareholders.
The distribution is expected to occur around July 1, 1996. 3M will
contribute the net assets of the data storage and imaging systems
businesses to the newly formed company, reducing stockholders' equity by
an estimated $1 billion.
In November 1995, the Board of Directors also approved the
discontinuance of 3M's audio and video tape business within 12 months.
As a result of the plans to spin off the data storage and imaging
systems businesses and to discontinue the audio and video tape business,
the company's consolidated financial statements and notes report these
businesses as discontinued operations. Prior years' consolidated
financial statements and notes have been restated accordingly.
The 1995 income from operations of the discontinued businesses include
results through November 30, 1995. Income from operations of the
discontinued businesses includes interest expense allocations (based on
the ratio of net assets of discontinued operations to consolidated net
assets plus debt) of $15 million, $17 million, and $11 million in 1995,
1994 and 1993, respectively. The loss on disposal of $373 million
includes the estimated future results of operations through the
estimated date of spin-off or closure. Major components of the loss on
disposal include $300 million of severance cost and $265 million of
asset write-downs, net of deferred income taxes of $232 million.
Included in the calculation of the loss on disposal was $13 million in
interest expense. Net cash provided by discontinued operations in 1995
differs from the loss from discontinued operations principally due to
two factors -- the loss on disposal for which no cash had been expended
at December 31, 1995, and depreciation.
Discontinued Operations
(Millions) 1995 1994 1993
Net Sales $2,645 $2,931 $2,967
Income Before Income Taxes and Minority Interest 59 143 151
Provision for Income Taxes 23 40 34
Minority Interest (7) (12) (13)
Income from Operations, Net of Income Taxes 43 115 130
Loss on Disposal, Net of Income Taxes (373) -- --
Total Discontinued Operations, Net of Income Taxes (330) 115 130
Net Assets of Discontinued Operations At December 31
(Millions) 1995 1994
Current Assets $1,212 $1,320
Property, Plant and Equipment - net 456 692
Other Assets 192 85
Current Liabilities (357) (349)
Other Liabilities (95) (79)
Net Assets of Discontinued Operations $1,408 $1,669
Restructuring Charge
Related to the spin-off of the data storage and imaging businesses and
the phase-out of the audio and video tape business, the company recorded
a restructuring charge of $79 million in 1995. Major components of this
charge include $50 million of employee severance costs and $17 million
related to the write-down of certain assets to their net realizable
value. The company expects to reduce approximately 1,000 positions by
the end of 1996, mainly in corporate service functions supporting 3M
businesses in the United States and Europe. As of December 31, 1995, no
employee separations had occurred and no cash payments related to
employee separations had been made.
Debt
Short-Term Debt Effective
(Millions) Interest Rate* 1995 1994
Commercial paper 4.91% $ 574 $ 593
Long-term debt - current portion 8.19% 47 174
Other borrowings 8.70% 201 150
__________________________________________________________________________
Total short-term debt $ 822 $ 917
__________________________________________________________________________
Long-Term Debt Effective Maturity
(Millions) Interest Rate* Date 1995 1994
ESOP debt guarantee 8.21% 1997-2004 $ 412 $ 444
U.S. 7.75% Eurobond 5.50% 1997 200 --
U.S. 6.375% Eurobond 5.02% 1997 200 200
Canadian 6.5% Eurobond 4.81% 1998 114 114
Medium-term 6.25% note 5.11% 1999 100 100
Swiss Franc 5.5% note 5.50% 1997 98 98
Other borrowings 7.67% 1997-2025 79 75
__________________________________________________________________________
Total long-term debt $1,203 $1,031
*Effective interest rates, which reflect the effects of interest rate
and currency swaps, at December 31, 1995.
Debt with fixed interest rates include the ESOP, Canadian Eurobond and a
portion of other borrowings. Other borrowings consist primarily of
borrowings of 3M's international companies and industrial bond issues in
the United States.
Maturities of long-term debt for the next five years are as follows:
1996, $47 million; 1997, $558 million; 1998, $162 million; 1999, $144
million; and 2000, $45 million.
Interest payments included in the Consolidated Statement of Cash Flows
totaled $104 million in 1995, $72 million in 1994 and $42 million in
1993. The ESOP debt is being serviced by dividends on stock held by the
ESOP and by company contributions. These contributions are reported as
a benefit expense.
The company estimates that the fair value of short-term and long-term
debt approximates the carrying amount of this debt. Payment of
dividends is not restricted by debt covenants.
Other Financial Instruments
Interest Rate and Currency Swaps: To manage interest rate and foreign
exchange rate risk and to lower its cost of borrowing, the company has
entered into interest rate and currency swaps. The notional amounts set
forth in the table below serve solely as a basis for the calculation of
payment streams to be exchanged. These notional amounts are not a
measure of the exposure of the company through its use of derivatives.
These instruments mature in relationship to their underlying debt and
have maturities extending to 1999. Unrealized gains and losses and
exposure to changes in market conditions were not material at December
31, 1995 and 1994.
Notional Amounts
(Millions) 1995 1994
Interest rate swaps $836 $489
Currency swaps 306 256
Foreign Exchange Forward and Options Contracts: The company has entered
into foreign exchange forward and options contracts, all having
maturities of less than one year. The face amounts represent contracted
U.S. dollar equivalents of non-U.S. dollar denominated forward and
options contracts. The amounts at risk are not material because the
company is not required to exercise options purchased and has the
ability to generate offsetting foreign currency cash flows. The
unrealized gains and losses at December 31, 1995 and 1994, were not
material.
Face Amounts
(Millions) 1995 1994
Forward contracts $1,178 $772
Options purchased 196 65
Options sold 137 109
The company engages in foreign currency hedging activities to reduce
exchange risks arising from cross-border, non-U.S. dollar denominated
cash flows. The company operates on a global basis, generating more than
half of its revenues from international customers and engaging in
substantial product and financial transfers among geographic areas. The
major forward contracts at December 31, 1995, were denominated in
Italian lira, French francs, Japanese yen, German marks, Swiss francs,
British pound sterling and Canadian dollars.
Credit Risk: The company is exposed to credit loss in the event of
nonperformance by counterparties in interest rate swaps, currency swaps
and foreign exchange contracts, but does not anticipate nonperformance
by any of these counterparties. The company actively monitors its
exposure to credit risk through the use of credit approvals and credit
limits, and by selecting major international banks and financial
institutions as counterparties.
Leases
Rental expense under operating leases was $154 million in 1995, $140
million in 1994 and $132 million in 1993. The table below sets forth
minimum payments under operating leases with noncancelable terms in
excess of one year, as of year-end 1995.
________________________________________________________________________
After
(Millions) 1996 1997 1998 1999 2000 2000 Total
Minimum lease payments $71 $57 $36 $28 $22 $83 $297
Income Taxes
___________________________________________________________________________
Income From Continuing Operations Before Income Taxes and Minority Interest
(Millions) 1995 1994 1993
U.S. $1,274 $1,284 $1,264
International 894 727 587
Total $2,168 $2,011 $1,851
___________________________________________________________________________
Provision for Income Taxes
(Millions) 1995 1994 1993
Currently payable
Federal $ 346 $ 306 $ 382
State 58 60 68
International 380 306 298
Deferred
Federal 21 48 (55)
State 2 4 (5)
International (22) 7 (15)
___________________________________________________________________________
Total $ 785 $ 731 $ 673
Components of Deferred Tax Assets and Liabilities
(Millions) 1995 1994
Accruals not currently deductible:
Benefit costs $265 $273
Severance and other restructuring costs 144 --
Product and other liabilities 492 330
Product and other insurance claims (425) (238)
Accelerated depreciation (350) (342)
Other 186 171
Net Deferred Tax Asset $312 $194
Income tax payments included in the Consolidated Statement of Cash Flows
totaled $793 million in 1995, $865 million in 1994 and $754 million in
1993.
At December 31, 1995, approximately $3.377 billion of retained earnings
attributable to international companies were considered to be
permanently invested. No provision has been made for taxes that might
be payable if these earnings were remitted to the United States. It is
not practical to determine the amount of incremental tax that might
arise were these earnings to be remitted.
____________________________________________________________________________
Reconciliation of Effective Income Tax Rate 1995 1994 1993
Statutory U.S. tax rate 35.0% 35.0% 35.0%
State income taxes - net 1.8 2.1 2.2
International taxes 2.1 2.9 4.2
Adjusted prior years' export sales benefit -- (1.5) --
All other - net (2.7) (2.1) (5.0)
Effective worldwide tax rate 36.2% 36.4% 36.4%
<TABLE>
Stockholders' Equity
Common stock, without par value, of 500,000,000 shares is authorized,
with 472,016,528 shares issued in 1995, 1994 and 1993. Treasury shares
at year-end totaled 53,313,774 in 1995, 52,222,826 in 1994 and
42,537,890 in 1993. This stock is reported at cost. Preferred stock,
without par value, of 10,000,000 shares is authorized but unissued. All
share and per-share data reflect a two-for-one common stock split
effective March 15, 1994.
<CAPTION>
_______________________________________________________________________________________
Translation
and Fair ESOP
Common Retained Value Unearned Treasury
(Dollars in millions) Stock Earnings Adjustments Compensation Stock Total
_______________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $296 $8,012 $(198) $(498) $(1,013) $6,599
Net income 1,263 1,263
Dividends paid ($1.66 per share) (721) (721)
Reacquired stock (13,161,736 shares) (706) (706)
Issuances pursuant to stock option and
benefit plans (4,572,274 shares) (54) 245 191
Amortization of unearned compensation 19 19
Translation adjustments (133) (133)
Balance, December 31, 1993 $296 $8,500 $(331) $(479) $(1,474) $6,512
Net income 1,322 1,322
Dividends paid ($1.76 per share) (744) (744)
Reacquired stock (13,136,376 shares) (689) (689)
Issuances pursuant to stock option and
benefit plans (3,451,440 shares) (39) 188 149
Amortization of unearned compensation 19 19
Translation and fair value adjustments 165 165
Balance, December 31, 1994 $296 $9,039 $(166) $(460) $(1,975) $6,734
Net income 976 976
Dividends paid ($1.88 per share) (790) (790)
Reacquired stock (5,879,092 shares) (351) (351)
Issuances pursuant to stock option and
benefit plans (4,788,144 shares) (61) 273 212
Amortization of unearned compensation 23 23
Translation and fair value adjustments 80 80
Balance, December 31, 1995 $296 $9,164 $ (86) $(437) $(2,053) $6,884
</TABLE>
Business Segments
As a result of the restructuring plan, the company's businesses now are
organized into two sectors. The company's electro and communications
businesses now are included in the Industrial and Consumer Sector.
Accordingly, all prior data have been restated.
3M's two business sectors have worldwide responsibility for virtually
all of the company's product lines. These product lines serve a wide
range of markets, including automotive, communication, consumer,
electronic, health care, industrial, office, personal care and safety.
3M's business is not dependent upon any single product or market.
Financial information relating to the company's business sectors for the
years ended December 31, 1995, 1994 and 1993 appears below. 3M is an
integrated enterprise characterized by substantial intersector
cooperation, cost allocations and inventory transfers. Therefore,
management does not represent that these sectors, if operated
independently, could earn the operating income shown.
Industrial Life Corporate & Total
(Millions) and Consumer Sciences Unallocated Company
Net Sales 1995 $8,365 $5,018 $ 77 $13,460
1994 7,578 4,504 66 12,148
1993 6,897 4,092 64 11,053
Operating 1995 $1,335 $1,065 $ (179)* $ 2,221
Income 1994 1,218 956 (79)* 2,095
1993 1,041 850 (95)* 1,796
Identifiable 1995 $5,482 $3,276 $5,425 $14,183
Assets ** 1994 5,242 3,038 4,788 13,068
1993 4,718 2,768 4,309 11,795
Depreciation 1995 $ 471 $ 253 $ 71 $ 795
1994 475 261 57 793
1993 451 249 68 768
Capital 1995 $ 627 $ 438 $ 23 $ 1,088
Expenditures 1994 605 351 16 972
1993 557 327 14 898
* Operating income for 1995 includes a $79 million restructuring charge.
For all years presented, operating income includes unallocated
corporate overhead expenses, most of which historically were allocated
to discontinued operations.
** Identifiable assets for business sectors primarily include accounts
receivable; inventory; net property, plant and equipment; and other
miscellaneous assets. Assets included in the Corporate and Unallocated
column are principally cash and cash equivalents; other securities;
insurance receivables; deferred income taxes; certain investments and
other assets; net assets of discontinued operations; and certain
unallocated property, plant and equipment.
Revenue by Classes of Similar Products or Services (Unaudited)
(Millions) 1995 1994 1993
Tape Products $ 2,042 $1,801 $1,617
Abrasive Products 1,220 1,117 1,002
Automotive and Chemical Products 1,328 1,195 1,176
Connecting and Insulating Products 1,470 1,362 1,252
Consumer and Office Products 2,272 2,069 1,844
Health Care Products 2,221 2,002 1,876
Safety and Personal Care Products 1,220 1,067 974
All Other Products 1,687 1,535 1,312
Total $13,460 $12,148 $11,053
Geographic Areas
Information in the table below is presented on the same basis utilized
by the company to manage the business. Export sales and certain income
and expense items are reported in the geographic area where the final
sale to customers is made, rather than where the transaction originates.
United Europe and Asia Other Elimina- Total
(Millions) States Middle East Pacific Areas * tions Company
and Other
Net Sales to 1995 $6,207 $3,489 $2,549 $1,215 $13,460
Customers 1994 5,944 2,937 2,191 1,076 12,148
1993 5,531 2,706 1,870 946 11,053
Transfers 1995 $1,382 $ 153 $ 43 $ 188 $(1,766) --
Between 1994 1,227 149 31 152 (1,559) --
Geographic 1993 1,026 85 24 141 (1,276) --
Areas
Operating 1995 $ 925 $ 436 $ 626 $ 234 $ 2,221
Income 1994 1,035 317 535 208 2,095
1993 898 262 444 192 1,796
Identifiable 1995 $7,337 $ 2,782 $ 1,802 $ 854 $ 1,408 $14,183
Assets ** 1994 6,462 2,420 1,734 783 1,669 13,068
1993 5,795 2,201 1,459 720 1,620 11,795
* Includes Canada, Latin America and Africa.
** Net Assets of Discontinued Operations are reported in the
Eliminations and Other column.
Retirement Plans
3M has various company-sponsored retirement plans covering substantially
all U.S. employees and many employees outside the United States.
Pension benefits are based principally on an employee's years of service
and compensation near retirement. Plan assets are invested in common
stocks, fixed-income securities, real estate and other investments.
The company's funding policy is to deposit with an independent trustee
amounts at least equal to those required by law. A trust fund is
maintained to provide pension benefits to plan participants and their
beneficiaries. In addition, a number of plans are maintained by
deposits with insurance companies. The charge to income relating to
these plans was $152 million in 1995, $153 million in 1994 and $170
million in 1993.
Net pension cost is reported on a continuing operations basis, whereas
the funded status of pension plans includes both continuing and
discontinued operations. The company is in the process of determining
the benefit arrangements of the spin-off company and, thus, the funded
status of pension plans is subject to change based on these
determinations.
Net Pension Cost U.S. Plan International Plans
(Millions) 1995 1994 1993 1995 1994 1993
Service cost $ 96 $117 $110 $86 $ 85 $86
Interest cost 304 280 276 92 89 80
Return on plan assets - actual (846) 70 (430) (124) (2) (185)
Net amortization and deferral 532 (377) 154 39 (79) 112
Discontinued operations (14) (16) (18) (13) (14) (15)
Net pension cost $ 72 $ 74 $ 92 $80 $ 79 $78
Funded Status of Pension Plans U.S. Plan International Plans
(Millions) 1995 1994 1995 1994
Plan assets at fair value $4,134 $3,343 $1,293 $1,333
Accrued pension cost 97 161 110 97
Amount provided for future benefits $4,231 $3,504 $1,403 $1,430
Actuarial present value of:
Vested benefit obligation 3,666 2,889 1,051 1,022
Non-vested benefit obligation 521 423 108 100
Accumulated benefit obligation $4,187 $3,312 $1,159 $1,122
Amount provided for future benefits
less accumulated benefit obligation 44 192 244 308
Projected benefit obligation 4,696 3,721 1,482 1,514
Plan assets at fair value less
projected benefit obligation $ (562) $ (378) $ (189) $ (181)
Unrecognized net transition
(asset) obligation (149) (187) 22 22
Other unrecognized items 614 404 57 62
Accrued pension cost $ (97) $ (161) $ (110) $ (97)
U.S. Plan International Plans
Assumptions at Year-End 1995 1994 1993 1995 1994 1993
Discount rate 7.00% 8.25% 7.25% 7.10% 7.45% 7.26%
Compensation rate increase 5.00% 5.00% 5.00% 5.38% 5.71% 5.31%
Long term rate of return on assets 9.00% 9.00% 9.00% 7.59% 7.65% 7.64%
Net pension cost is determined using assumptions at the beginning of the
year. Funded status is determined using assumptions at year-end.
Other Postretirement Benefits
The company provides health care and life insurance benefits for
substantially all of its U.S. employees who reach retirement age while
employed by the company. The company has set aside funds with an
independent trustee for these postretirement benefits and makes periodic
contributions to the plan. The assets held by the trustee are invested
in common stocks and fixed-income securities. Employees outside the
United States are covered principally by government-sponsored plans.
The cost of company-provided plans for these employees is not material.
Net periodic postretirement benefit cost is reported on a continuing
operations basis, whereas the funded status of the postretirement
benefit plan includes both continuing and discontinued operations. The
company is in the process of determining the benefit arrangements of the
spin-off company and, thus, the funded status of the postretirement
benefit plan is subject to change based on these determinations.
The table below sets forth the components of the net periodic
postretirement benefit cost and a reconciliation of the funded status of
the postretirement benefit plan for U.S. employees.
Net Periodic Postretirement Benefit Cost
(Millions) 1995 1994 1993
Service cost $ 26 $ 28 $ 23
Interest cost 63 55 53
Return on plan assets - actual (76) 16 (23)
Net amortization and deferral 51 (40) 1
Discontinued operations (11) (10) (9)
Total $ 53 $ 49 $ 45
Funded Status of Postretirement Benefit Plan
(Millions) 1995 1994
Fair value of plan assets $ 398 $ 319
Accumulated postretirement
benefit obligation:
Retirees $ 286 $ 256
Fully eligible active plan participants 201 167
Other active plan participants 468 367
Benefit obligation $ 955 $ 790
Plan assets less benefit obligation $ (557) $(471)
Adjustments and unrecognized items 134 67
Accrued postretirement cost $ (423) $(404)
The accumulated postretirement benefit obligation and related benefit
costs are determined through the application of relevant actuarial
assumptions. The company anticipates its health care cost trend rate to
slow from 6.9 percent in 1996 to 5.0 percent in 2003, after which the
trend rate is expected to stabilize. The effect of a one percentage
point increase in the assumed health care cost trend rate for each
future year would increase the benefit obligation by $78 million and the
current year benefit expense by $9 million. Other actuarial assumptions
include an expected long-term rate of return on plan assets of 9.0
percent (before taxes applicable to a portion of the return on plan
assets), and a discount rate of 7.0 percent.
Employee Savings and Stock Ownership Plans
The company sponsors employee savings plans under Section 401(k) of the
Internal Revenue Code. These plans are offered to substantially all
regular U.S. employees. The company matches employee contributions of
up to 6 percent of compensation at rates ranging from 10 to 85 percent,
depending upon company performance.
The company maintains an Employee Stock Ownership Plan (ESOP) for
substantially all regular U.S. employees not covered by collective
bargaining agreements. This plan was established in 1989 as a cost-
effective way of funding certain employee retirement savings benefits,
including the company's matching contributions under 401(k) employee
savings plans. The ESOP borrowed $548 million and used the proceeds to
purchase 15.4 million shares of the company's common stock, previously
held in treasury. Because the company has guaranteed repayment of the
ESOP debt, the debt and related unearned compensation are recorded in
the Consolidated Balance Sheet.
Dividends on shares held by the ESOP are paid to the ESOP trust and,
together with company contributions, are used by the ESOP to repay
principal and interest on the outstanding notes. Shares are released
for allocation to participants based upon the ratio of the current
year's debt service to the sum of total principal and interest payments
over the life of the notes.
Annual expenses related to the ESOP generally represent total debt
service on the notes, less dividends, and totaled $30 million in 1995,
$32 million in 1994 and $34 million in 1993. Unearned compensation,
shown as a reduction of stockholders' equity, is reduced by the higher
of principal payments or the cost of shares allocated.
Interest incurred on the ESOP's notes amounted to $37 million in 1995,
$39 million in 1994 and $41 million in 1993. The company paid dividends
on the stock held by the ESOP of $28 million in 1995, $26 million in
1994 and $25 million in 1993. Company contributions to the ESOP were
$40 million in 1995, $35 million in 1994 and $34 million in 1993. These
contributions are reported as a benefit expense.
ESOP Shares 1995 1994 1993
Allocated shares 5,116,265 4,236,925 3,447,668
Committed to be released -- -- --
Unreleased shares 9,892,575 10,941,944 11,875,928
Total shares held by the ESOP 15,008,840 15,178,869 15,323,596
General Employees' Stock Purchase Plan
Substantially all regular U.S. employees are eligible to participate in
the General Employees' Stock Purchase Plan. Participants are granted
options at 85 percent of market value at the date of grant. Options
must be exercised within 27 months from date of grant.
Shares Price Range
Under option-
January 1, 1995 369,200 $41.76-48.30
Granted 1,778,647 43.89-55.41
Exercised (1,741,794) 41.76-55.41
Canceled (55,248) 41.76-55.41
Under option-
December 31, 1995 350,805 $41.76-55.41
Shares available for grant-
December 31, 1995 14,236,150
Management Stock Ownership Program
Management stock options are granted at market value at the date of
grant. At year-end, there were 4,545 participants in the plan. All
outstanding options expire between May 1996 and May 2005.
Shares Price Range
Under option-
January 1, 1995 22,715,941 $19.44-58.08
Granted 4,300,298 50.95-61.50
Exercised (3,001,292) 19.44-59.60
Canceled (40,232) 19.44-59.60
Under option-
December 31, 1995 23,974,715 $24.94-61.50
Options exercisable-
December 31, 1995 20,219,581 $24.94-61.50
Shares available for grant-
December 31, 1995 13,323,715
Quarterly Data (Unaudited)
(Millions, except per-share data)
First Second Third Fourth Year
Net Sales
1995 $3,361 $3,424 $3,370 $3,305 $13,460
1994 2,911 3,040 3,107 3,090 12,148
Cost of Goods Sold
1995 $1,886 $1,949 $1,942 $1,943 $7,720
1994 1,649 1,700 1,746 1,734 6,829
Income from Continuing Operations*
1995 $355 $346 $339 $ 266 $1,306
1994 270 314 329 294 1,207
Discontinued Operations
1995 $ 21 $ 7 $ 5 $(363) $ (330)
1994 36 29 12 38 115
Net Income (Loss)
1995 $376 $353 $344 $ (97) $ 976
1994 306 343 341 332 1,322
Per-Share - Continuing Operations*
1995 $.85 $.82 $.81 $.63 $3.11
1994 .63 .74 .78 .70 2.85
Per-Share - Discontinued Operations
1995 $.05 $.02 $.01 $(.87) $(.79)
1994 .09 .07 .03 .09 .28
Per-Share
1995 $.90 $.84 $.82 $(.24) $2.32
1994 .72 .81 .81 .79 3.13
* First quarter 1994 includes a pre-tax implant litigation charge of $35
million, or 5 cents a share. Fourth quarter 1995 includes a pre-tax
restructuring charge of $79 million, or 12 cents a share.
Stock Price Comparisons (NYSE Composite Transactions)
1995 High $58.88 $62.13 $60.13 $69.88 $69.88
1995 Low 50.75 56.50 53.88 55.13 50.75
1994 High 56.38 52.38 57.13 56.63 57.13
1994 Low 49.00 46.38 49.25 50.38 46.38
Legal Proceedings
Discussion of legal matters is cross-referenced to Part I, Item 3, of
this Form 10-K, and should be considered an integral part of the
Consolidated Financial Statements and Notes.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions.
The information required by Items 10 through 13 are incorporated by
reference from the registrant's definitive proxy statement pursuant to
general instruction G(3). The registrant will file with the Commission
a definitive proxy statement pursuant to Regulation 14A before April 29,
1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The financial statements filed as part of this report are listed in
the index to financial statements on page 23.
All financial statement schedules are omitted because of the absence of
the conditions under which they are required or because the required
information is included in the financial statements or the notes
thereto.
(b) Reports on Form 8-K:
The company filed two reports on Form 8-K during the fourth quarter of
1995.
November 14, 1995: Item 5, Other Events, which incorporates by
reference the press release issued by the company on November 14, 1995.
This press release reports that the company intends to launch its data
storage and imaging systems business as an independent, publicly owned
company, and will discontinue its audio and video tape business within
12 months.
December 22, 1995: Item 5, Other Events, which provides information
about approval by the U.S. District Court, Northern District of Alabama,
of a revised class action settlement program for resolution of claims
seeking damages for personal injuries from allegedly defective breast
implants.
(c) Exhibits:
Incorporated by Reference:
Incorporated by Reference in the
Report From
(3) Restated certificate of incorporation Exhibit (3) to
and bylaws, amended to and Form 10-Q
including amendments of for period ended
May 12, 1987. June 30, 1987.
(4) Instruments defining the rights of security
holders, including debentures:
(a) common stock. Exhibit (3) above
(b) medium-term notes. Registration No. 33-48089
on Form S-3.
(10) Material contracts, management
remuneration:
(a) management stock ownership program. Exhibit 4 of
Registration Nos. 33-49842
and 33-58767 on Form S-8
(b) profit sharing plan, performance Written description contained
unit plan and other compensation in issuer's proxy statement
arrangements. for the 1996 annual
shareholders' meeting.
Reference (pages)
Form 10-K
Submitted herewith:
(11) Computation of per share earnings. 45
(12) Calculation of ratio of earnings
to fixed charges. 46
(21) Subsidiaries of the registrant. 47
(23) Consent of experts. 48
(24) Power of attorney. 49
(27) Financial data schedule for the year ended
December 31, 1995 (EDGAR filing only).
(27) Restated financial data schedule for the year ended
December 31, 1994 (EDGAR filing only).
SIGNATURES
Pursuant to the requirements of Section 13 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
By /s/ Giulio Agostini
Giulio Agostini, Senior Vice President
Principal Financial and Accounting Officer
March 11, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 11, 1996.
Signature Title
LIVIO D. DeSIMONE Chairman of the Board and
Chief Executive Officer, Director
EDWARD A. BRENNAN Director
LAWRENCE E. EATON Director
HARRY A. HAMMERLY Director
ALLEN. F. JACOBSON Director
JERRY R. JUNKINS Director
RONALD A. MITSCH Director
ALLEN E. MURRAY Director
AULANA L. PETERS Director
ROZANNE L. RIDGWAY Director
FRANK SHRONTZ Director
F. ALAN SMITH Director
LOUIS W. SULLIVAN Director
Roger P. Smith, by signing his name hereto, does hereby sign this
document pursuant to powers of attorney duly executed by the other
persons named, filed with the Securities and Exchange Commission on
behalf of such other persons, all in the capacities and on the date
stated, such persons constituting a majority of the directors of the
company.
By /s/ Roger P. Smith
Roger P. Smith, Attorney-in-Fact
EXHIBIT 11
MINNESOTA MINING AND MANUFACTURING COMPANY
AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS OF COMMON STOCK
Year ended December 31 1995 1994 1993
(Millions)
Income from continuing operations $1,306 $1,207 $1,133
Discontinued operations, net of income taxes (330) 115 130
Net income $ 976 $1,322 $1,263
Primary earnings per share:
Continuing operations $ 3.11 $ 2.85 $ 2.61
Discontinued operations (.79) .28 .30
Earnings per share $ 2.32 $ 3.13 $ 2.91
Weighted average number of
common shares outstanding 419,823,549 422,955,241 434,312,393
Fully diluted earnings per share: (1)
Continuing operations $ 3.06 $ 2.83 $ 2.58
Discontinued operations (.77) .27 .30
Earnings per share $ 2.29 $ 3.10 $ 2.88
Weighted average number of
common shares outstanding 419,823,549 422,955,241 434,312,393
Common equivalent shares 6,749,060 3,706,298 4,331,742
Average number of common
shares outstanding and
equivalents 426,572,609 426,661,539 438,644,135
All share and per-share data reflect a two-for-one stock split effective
March 15, 1994.
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 are 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), despite not being required by APB Opinion No. 15 because it
results in dilution of less than 3 percent.
EXHIBIT 12
MINNESOTA MINING AND MANUFACTURING COMPANY
AND SUBSIDIARIES
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
1995 1994 1993 1992 1991
EARNINGS
Income from continuing operations
before income taxes and
minority interest $2,168 $2,011 $1,851 $1,779 $1,620
Add:
Interest on debt 102 70 39 61 78
Interest component of the ESOP
benefit expense 37 39 41 42 44
Portion of rent under operating
leases representative of
the interest component 51 46 44 44 44
Less:
Equity in undistributed income
of 20-50 percent owned companies 1 2 - (1) (6)
TOTAL EARNINGS AVAILABLE
FOR FIXED CHARGES $2,357 $2,164 $1,975 $1,927 $1,792
FIXED CHARGES
Interest on debt 102 70 39 61 78
Interest component of the ESOP
benefit expense 37 39 41 42 44
Portion of rent under operating
leases representative of
the interest component 51 46 44 44 44
TOTAL FIXED CHARGES $ 190 $ 155 $ 124 $ 147 $ 166
RATIO OF EARNINGS TO FIXED CHARGES 12.41 13.96 15.93 13.11 10.80
EXHIBIT 21
MINNESOTA MINING AND MANUFACTURING COMPANY
AND CONSOLIDATED SUBSIDIARIES
PARENT AND SUBSIDIARIES
Percentage of
Voting Securities
Organized Under Beneficially Owned
Name of Company Laws of by Registrant
Registrant:
Minnesota Mining and Manufacturing Company Delaware
Consolidated subsidiaries of the registrant:
Eastern Heights Bank Minnesota 99
Media Networks, Inc. Delaware 100
National Advertising Company Delaware 100
3M Unitek Corporation California 100
3M Argentina S.A.C.I.F.I.A. Argentina 100
3M Australia Pty. Limited Australia 100
3M Oesterreich GmbH Austria 100
3M Belgium S.A./N.V. Belgium 100
Seaside Insurance Limited Bermuda 100
3M do Brasil Limitada Brazil 100
3M Canada Limited Canada 100
3M A/S Denmark 100
Suomen 3M Oy Finland 100
3M France, S.A. France 100
3M Deutschland GmbH Germany 100
3M Hong Kong Limited Hong Kong 100
3M Italia Finanziaria S.p.A. Italy 100
Sumitomo 3M Limited Japan 50
3M Health Care Limited Japan 75
3M Korea Limited Korea 60
3M Mexico, S.A. de C.V. Mexico 100
Distribution Services International B.V. Netherlands 100
3M Nederland B.V. Netherlands 100
3M (New Zealand) Limited New Zealand 100
3M Norge A/S Norway 100
3M Puerto Rico, Inc. Puerto Rico 100
3M Singapore Private Limited Singapore 100
3M South Africa (Proprietary) Limited South Africa 100
3M Espana, S.A. Spain 100
3M Svenska AB Sweden 100
3M (East) A.G. Switzerland 100
3M (Schweiz) A.G. Switzerland 100
3M Taiwan Limited Taiwan 100
3M Thailand Limited Thailand 100
3M United Kingdom Holdings P.L.C. United Kingdom 100
3M Venezuela, S.A. Venezuela 100
NOTE: Subsidiary companies excluded from the above listing, if
considered in the aggregate, would not constitute a significant
subsidiary.
EXHIBIT 23
CONSENT TO INCORPORATION BY REFERENCE
We consent to the incorporation by reference in the Registration
Statements of Minnesota Mining and Manufacturing Company on Form S-8
(Registration Nos. 33-14791, 33-48690, 33-58763, 33-49842, 33-58767 and
2-78422) and Form S-3 (Registration No. 33-48089), of our report dated
February 12, 1996, on our audits of the consolidated financial
statements of Minnesota Mining and Manufacturing Company and
Subsidiaries as of December 31, 1995 and 1994, and for each of the three
years in the period ended December 31, 1995, which report is included in
this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
St. Paul, Minnesota
March 8, 1996
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned directors and the
Principal Financial and Accounting Officer of MINNESOTA MINING AND
MANUFACTURING COMPANY, a Delaware corporation, hereby constitute and
appoint Livio D. DeSimone, Giulio Agostini, John J. Ursu, Roger P.
Smith, Janet L. Yeomans and Gregg M. Larson or any of them, their true
and lawful attorneys-in-fact and agents, and each of them with full
power to act without the others, for them and in their name, place, and
stead, in any and all capacities, to do any and all acts and things and
execute any and all instruments which said attorneys and agents may deem
necessary or desirable to enable MINNESOTA MINING AND MANUFACTURING
COMPANY to comply with the Securities Exchange Act of 1934, as amended,
and any rules, regulations, and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing
with said Commission of its annual report Form 10-K for the fiscal year
ended December 31, 1995, including specifically, but without limiting
the generality of the foregoing, power and authority to sign the name of
MINNESOTA MINING AND MANUFACTURING COMPANY, and the names of the
undersigned directors and Principal Financial and Accounting Officer to
the Form 10-K and to any instruments and documents filed as part of or
in connection with said Form 10-K or amendments thereto; and the
undersigned hereby ratify and confirm all that said attorneys and agents
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these presents this
12th day of February, 1996.
/s/ Livio D. DeSimone /s/ Giulio Agostini
Livio D. DeSimone, Chairman Giulio Agostini
of the Board and Chief Executive Senior Vice President
Officer, Director Principal Financial Officer
Principal Accounting Officer
/s/ Edward A. Brennan /s/ Allen E. Murray
Edward A. Brennan, Director Allen E. Murray, Director
/s/ Lawrence E. Eaton /s/ Aulana L. Peters
Lawrence E. Eaton, Director Aulana L. Peters, Director
/s/ Harry A. Hammerly /s/ Rozanne L. Ridgway
Harry A. Hammerly, Director Rozanne L. Ridgway, Director
/s/ Allen F. Jacobson /s/ Frank Shrontz
Allen F. Jacobson, Director Frank Shrontz, Director
/s/ Jerry R. Junkins /s/ F. Alan Smith
Jerry R. Junkins, Director F. Alan Smith, Director
/s/ Ronald A. Mitsch /s/ Louis W. Sullivan
Ronald A. Mitsch, Director Louis W. Sullivan, Director
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