UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended September 30, 1996 Commission file number: 1-3285
MINNESOTA MINING AND MANUFACTURING COMPANY
State of Incorporation: Delaware
I.R.S. Employer Identification No. 41-0417775
Executive offices: 3M Center, St. Paul, Minnesota 55144
Telephone number: (612) 733-1110
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes X . No .
On September 30, 1996, there were 417,992,867 shares of the
Registrant's common stock outstanding.
This document contains 26 pages.
The exhibit index is set forth on page 22.
MINNESOTA MINING AND MANUFACTURING COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF INCOME
(Amounts in millions, except per-share amounts)
(Unaudited)
Three months ended Nine months ended
September 30 September 30
1996 1995 1996 1995
Net Sales $3,623 $3,370 $10,613 $10,155
Operating Expenses
Cost of goods sold 2,069 1,942 6,045 5,777
Selling, general and
administrative expenses 916 855 2,706 2,604
Total 2,985 2,797 8,751 8,381
Operating Income 638 573 1,862 1,774
Other Income and Expense
Interest expense 22 26 54 79
Investment and other
income - net (17) (5) (54) (40)
Total 5 21 -- 39
Income From Continuing
Operations Before Income
Taxes and Minority Interest 633 552 1,862 1,735
Provision for Income Taxes 221 197 670 636
Minority Interest 14 16 51 59
Income From Continuing
Operations 398 339 1,141 1,040
Discontinued Operations,
Net of Income Taxes -- 5 -- 33
Net Income $ 398 $ 344 $1,141 $1,073
Average Shares Outstanding 418.3 419.9 418.5 419.9
Per-Share Amounts:
Continuing Operations $ .95 $ .81 $ 2.73 $ 2.48
Discontinued Operations -- .01 -- .08
Net Income $ .95 $ .82 $ 2.73 $ 2.56
Cash dividends declared
and paid $ .49 $ .47 $ 1.43 $ 1.41
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
MINNESOTA MINING AND MANUFACTURING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
September 30,
ASSETS 1996 December 31,
Current Assets (Unaudited) 1995
Cash and cash equivalents $ 584 $ 485
Other securities 201 287
Accounts receivable - net 2,741 2,398
Inventories
Finished goods 1,175 1,164
Work in process 610 565
Raw materials and supplies 471 477
Total inventories 2,256 2,206
Other current assets 1,262 1,019
Total current assets 7,044 6,395
Investments 590 565
Property, Plant and Equipment 11,873 11,234
Less accumulated depreciation (7,120) (6,596)
Property, plant and equipment - net 4,753 4,638
Other Assets 1,249 1,177
Net Assets of Discontinued Operations 53 1,408
Total $13,689 $14,183
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 971 $ 762
Payroll 374 298
Income taxes 248 214
Short-term debt 1,305 822
Other current liabilities 1,453 1,628
Total current liabilities 4,351 3,724
Other Liabilities 2,352 2,372
Long-Term Debt 691 1,203
Stockholders' Equity
Common stock, no par, 472,016,528 shares issued 296 296
Retained earnings 8,620 9,164
Unearned compensation - ESOP (399) (437)
Cumulative translation - net (142) (102)
Net unrealized gains - debt & equity securities 17 16
Less cost of treasury stock -
September 30, 1996, 54,023,661 shares;
December 31, 1995, 53,313,774 shares (2,097) (2,053)
Stockholders' Equity - net 6,295 6,884
Total $13,689 $14,183
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
MINNESOTA MINING AND MANUFACTURING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(Unaudited)
Nine months ended
September 30
1996 1995
Cash Flows from Operating Activities:
Net income $1,141 $1,073
Less income from discontinued operations -- 33
Income from continuing operations 1,141 1,040
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Implant litigation - net (209) (77)
Depreciation and amortization 659 637
Working capital and other changes (350) (249)
Net cash provided by continuing operations 1,241 1,351
Net cash provided by discontinued operations 156 150
Net cash provided by operating activities 1,397 1,501
Cash Flows from Investing Activities:
Capital expenditures (759) (808)
Other changes (15) 19
Discontinued operations - net (17) (152)
Net cash used in investing activities (791) (941)
Cash Flows from Financing Activities:
Net change in short-term debt 117 64
Repayment of long-term debt (9) (155)
Proceeds from long-term debt 2 222
Purchases of treasury stock (329) (196)
Reissuances of treasury stock 211 141
Payment of dividends (599) (592)
Discontinued operations 81 --
Net cash used in financing activities (526) (516)
Effect of exchange rate changes on cash 19 3
Net increase in cash and cash equivalents 99 47
Cash and cash equivalents at beginning of year 485 297
Cash and cash equivalents at end of period $ 584 $ 344
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
MINNESOTA MINING AND MANUFACTURING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments necessary for a fair presentation
of financial position, results of operations and cash flows for the
periods presented. These adjustments consist of normal, recurring
items. The results of operations for any interim period are not
necessarily indicative of results for the full year. The condensed
consolidated financial statements and notes are presented as
permitted by the requirements for Form 10-Q and do not contain
certain information included in the company's annual consolidated
financial statements and notes. This Form 10-Q should be read in
conjunction with the company's consolidated financial statements and
notes included in its 1995 Annual Report on Form 10-K.
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, and also approved the
discontinuance of 3M's audio and video tape business. In June 1996,
the Board of Directors approved the distribution by 3M of the common
stock of Imation Corp. (hereinafter referred to as Imation or Imation
Corp., the newly formed company to which 3M contributed the net
assets of its data storage and imaging systems businesses) to
shareholders pursuant to a Transfer and Distribution Agreement, dated
as of June 18, 1996. The tax-free distribution was effected in early
July 1996, as a special dividend of one share of Imation common stock
for every 10 shares of outstanding 3M common stock held of record as
of the close of business on June 28, 1996. The company recorded the
special dividend of Imation common stock to its stockholders as of
the record date by reducing retained earnings by $1.075 billion at
June 30, 1996, which represented the estimated carrying value of the
net assets underlying the common stock distributed. The amount of
the special dividend was adjusted based on additional information
developed in the third quarter of 1996 to $1.012 billion; additional
adjustments are possible, but are not expected to be significant. In
connection with the distribution and capitalization of Imation Corp.,
the company recorded cash proceeds of $81 million, primarily related
to the sale of international assets to Imation. Imation Corp. also
paid off $65 million of short-term debt related to its businesses as
of June 30, 1996.
As a result of the plans to spin off Imation and to discontinue the
audio and video tape business, the company's consolidated financial
statements and notes report these businesses for all periods
presented as discontinued operations. Net sales of the discontinued
businesses for the first nine months of 1995 were $2.136 billion.
Results of operations of the discontinued businesses for the first
nine months of 1996 are not reflected in 3M's income statement
because the expected income from these operations through the
estimated date of spin-off or closure was reflected in the loss on
disposal of discontinued operations recorded in the fourth quarter of
1995.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Restructuring:
Related to the spin-off of Imation and the phase-out of the audio and
video tape business, the company recorded a restructuring charge of
$79 million in the fourth quarter of 1995. Major components of this
charge included $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
September 30, 1996, more than half of these positions had been
eliminated. An additional 500 people in continuing operations have
committed to leave toward the end of this year. About $16 million in
cash payments related to employee separations have been made through
September 30, 1996. The remaining liability of $34 million for
employee separations is included in other current liabilities.
Debt:
On October 15, 1996, the company completed a five year DM 250,000,000
5 percent Euronote Offering. After giving effect to currency and
interest rate swaps effected on the same date for the same term as
the Euronotes, the company will have an obligation of approximately
$165 million U.S. dollars with interest based on an all-in borrowing
cost of the 6 month LIBOR rate less 26 basis points.
Retirement and Other Postretirement Benefit Plans:
3M has elected to retain under its United States pension plan the
benefit obligations (and related plan assets) applicable to service
provided to 3M by U.S. Imation employees prior to the date of
distribution of Imation Corp. common stock to 3M's stockholders. The
funded status of 3M's United States pension plan reported at year-end
1995 was not affected by this final determination, as it included
amounts applicable to U.S. Imation employees. In addition, 3M has
agreed to provide other postretirement benefits to certain U.S.
Imation employees based on defined eligibility criteria. As a result
of the distribution, 3M's United States pension and postretirement
benefit plans were revalued as of July 1, 1996, to reflect certain
plan changes, the effects of the restructuring and discontinued
operations and a change in the discount rate to 7.75 percent. The
effects of these changes are not material.
Other:
Discussion of legal matters is cross-referenced to this Form 10-Q,
Part II, Item 1, Legal Proceedings, and should be considered an
integral part of the Consolidated Financial Statements and Notes.
Coopers & Lybrand L.L.P., the company's independent accountants, have
performed a review of the unaudited interim financial statements
included herein and their report thereon accompanies this filing.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Minnesota Mining and Manufacturing Company:
We have reviewed the accompanying condensed consolidated balance
sheet of Minnesota Mining and Manufacturing Company and Subsidiaries
as of September 30, 1996, and the related condensed consolidated
statements of income for the three-month and nine-month periods ended
September 30, 1996 and 1995, and cash flows for the nine-month
periods ended September 30, 1996 and 1995. These financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the condensed consolidated financial
statements referred to above for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31,
1995, and the related consolidated statements of income and cash
flows for the year then ended (not presented herein); and in our
report dated February 12, 1996, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1995, is fairly stated in all
material respects in relation to the consolidated balance sheet from
which it has been derived.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
St. Paul, Minnesota
October 25, 1996
MINNESOTA MINING AND MANUFACTURING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Discontinued Operations
On November 14, 1995, 3M announced the launch of its data storage and
imaging systems businesses as an independent, publicly owned company,
named Imation Corp. This launch took place on July 1, 1996. 3M also
announced that it would discontinue its audio and video tape
business.
As discussed in the Notes to Consolidated Financial Statements
essentially all activity related to the distribution and
capitalization of Imation Corp. had been reflected in the financial
statements as of June 30, 1996. 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.
Third Quarter
Worldwide sales for the third quarter totaled $3.623 billion, an
increase of 7.5 percent from $3.370 billion in the third quarter last
year. Excluding changes in currency exchange rates, sales rose about
11 percent. Unit sales increased about 10 percent, while selling
prices were up about 1 percent.
In the United States, sales were up about 8 percent to $1.747
billion. Volume rose about 7 percent, outpacing the growth of the
markets 3M serves. Selling prices in the United States were up about
1 percent, mainly reflecting the carryover of price increases
implemented during the past few quarters.
In the Life Sciences Sector, United States sales increased about 2
percent, all due to volume. Pacing this revenue growth were drug-
delivery systems, commercial graphics, and dental products. This
sector's growth was tempered by consolidation in the health care
industry. Life Sciences' overall growth was also affected by the
divestiture of the hearing aid and infusion therapy businesses.
In the Industrial and Consumer Sector, United States sales were up
more than 11 percent. Volume was up nearly 10 percent, well above the
growth of industrial and consumer markets. Selling prices rose about
1.5 percent. Good sales gains were achieved throughout this sector,
with gains particularly strong in the automotive and chemical
markets, and in the electro and communications markets. Effective
August 1, 1996, 3M together with Hoechst AG, of Frankfurt, Germany,
contributed certain fluoropolymer assets to a new venture called
Dyneon L.L.C. This company will produce and market chemical
additives for rubber hoses and seals used in automobiles, among other
things. 3M, as 54 percent majority owner, has consolidated Dyneon's
financial results as part of this sector.
Internationally, volume increased about 12 percent and selling prices
were up about 1 percent. The two business sectors contributed about
equally to the international local currency sales gain for the
quarter. Currency translation reduced international sales by about 6
percent.
In Japan, 3M's largest international company, unit sales rose about
15 percent. This gain was driven by an exceptionally strong flow of
new products tailored for the Japanese market and a pickup in the
Japanese economy. In Asia outside Japan, volume was up about 18
percent. In Latin America, unit sales increased about 30 percent.
The company continued to see a good rebound in business in Mexico, as
well as strong volume gains in most other Latin American countries.
In Europe, volume increased more than 7 percent, an acceleration from
the growth in the first half of this year. In Canada, volume
increased about 11 percent.
Cost of goods sold, which includes manufacturing, research and
development, and engineering, was 57.1 percent of sales, down half a
percentage point from the third quarter last year. Cost of goods
sold as a percent of sales benefited from volume, pricing,
productivity and from raw materials. Changes in currency exchange
rates reduced gross margins by about seven-tenths of a percentage
point. This effect relates to the purchases made by the
international companies from 3M in the United States.
Selling, general and administrative spending was 25.3 percent of
sales, down one-tenth of a point from the same quarter last year.
Operating income was $638 million, up more than 11 percent from the
third quarter last year. Currency reduced operating income by $40
million, or about 7 percent. In the United States, operating income
was 18.5 percent of sales, up eight-tenths of a percentage point from
the same quarter last year, and up more than 2.5 percentage points
from the first half of this year. The company leveraged the gain in
the U.S. sales very well, with domestic profits increasing more than
13 percent from the third quarter last year. Internationally,
operating income was 16.7 percent of sales, up slightly from the same
quarter last year. International profits rose more than 9 percent in
dollars and about 23 percent in local currencies. Worldwide operating
income was 17.6 percent of sales, up six-tenths of a point from the
third quarter last year. Profit growth and margin improvement was
led by the Industrial and Consumer Sector.
Third quarter interest expense of $22 million was down $4 million
from the same quarter last year. Interest expense declined due to
several factors, including lower interest rates. Net investment and
other income was $17 million, up $12 million from the third quarter
last year. This improvement reflected a positive swing on currency
transactions, as well as increased investment income due to higher
balances of cash and securities.
The worldwide effective income tax rate was 35 percent in the third
quarter of 1996. This reduction reflects increased benefits from our
international tax credits.
Income from continuing operations totaled $398 million, or $.95 per
share, with per-share income up 17.3 percent from the third quarter
of 1995. The company estimates that changes in the value of the U.S.
dollar decreased earnings for the quarter by about 5 cents per share
compared to the third quarter of 1995. This estimate includes the
effect of translating profits from local currencies into United
States dollars, the costs in local currencies of transferring goods
between the parent company in the United States and international
companies, and transaction gains and losses in countries not
considered to be highly inflationary.
Year-to-date
On a year-to-date basis, worldwide sales totaled $10.613 billion, an
increase of 4.5 percent from $10.155 billion in the first nine months
of last year. Excluding changes in currency exchange rates, sales
rose about 8 percent. Unit sales increased about 7 percent, while
selling prices were up about 1 percent.
In the United States, sales were up about 6 percent to $4.965
billion. Volume rose about 4 percent, while selling prices were up
about 2 percent, continuing a positive trend. In the Life Sciences
Sector, sales increased 3 percent, largely due to volume. Prices
were up slightly. In the Industrial and Consumer Sector, sales were
up 7 percent. Volume was up about 5 percent, while selling prices
rose over 2 percent.
Internationally, sales volume increased about 8 percent and selling
prices were up about 1 percent. The two business sectors contributed
about equally to the international local currency sales gain.
Currency translation reduced international sales by about 6 percent.
Cost of goods sold, which includes manufacturing, research and
development, and engineering, was 57.0 percent of sales, up two-
tenths of a percentage point from the first nine months of last year.
Cost of goods sold as a percent of sales benefited from volume,
pricing, and productivity, but was penalized by the effect of
currency exchange rates on gross margins. Research and development
spending was 6.7 percent of sales, up two-tenths of a point from the
first nine months of last year.
Selling, general and administrative spending was 25.5 percent of
sales, down two-tenths of a point from the first nine months of last
year.
Operating income was $1.862 billion, up nearly 5 percent from the
first nine months of last year. In the United States, profits
increased about 7 percent. Internationally, profits showed a solid
increase in local currencies, but were only up 3 percent as reported
in dollars. Currency reduced international operating income by
nearly $95 million , or about 10 percent. Both business sectors
contributed to the worldwide increase in profits.
Interest expense of $54 million was down $25 million from the first
nine months of last year. Interest expense declined due to several
factors, including lower interest rates, and a reduction in debt.
Net investment and other income was $54 million, up $14 million from
the first nine months of last year, with most of this benefit coming
in the third quarter of 1996.
The worldwide effective income tax rate was 36.0 percent. The company
continued to effectively utilize its international tax credits.
Income from continuing operations totaled $1.141 billion, or $2.73
per share, with per-share income up 10.1 percent from the first nine
months of 1995. The company estimates that changes in the value of
the U.S. dollar decreased earnings for the first nine months by about
11 cents per share compared to the same period of 1995. This
estimate includes the effect of translating profits from local
currencies into United States dollars, the costs in local currencies
of transferring goods between the parent company in the United States
and international companies, and transaction gains and losses in
countries not considered to be highly inflationary.
As discussed in this Form 10-Q, Part II, Item 1, Legal Proceedings,
mammary implant litigation resulted in a pre-tax charge of $35
million ($22 million after tax) in the first quarter of 1994. There
can be no certainty that the company may not ultimately incur
charges, whether for governmental proceedings and claims, 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.
****
As a result of the restructuring, 3M will be better positioned for
profitable growth. 3M expects solid sales and earnings growth in the
fourth quarter of 1996, despite strengthening of the U.S. dollar.
The company expects to benefit from new products, intensified
customer-satisfaction efforts, and on-going productivity improvement.
While volume, productivity and selling prices are expected to help
1996 results, currency effects will moderate profit growth. Based on
current exchange rates, currency effects in the last quarter could
reduce earnings by an estimated 4 cents a share. Raw material costs
are expected to be down slightly for 1996 as a whole.
For the year 1996, capital spending is expected to total more than
one billion dollars, and is expected to be at approximately the same
dollar level as total year 1995.
FINANCIAL CONDITION AND LIQUIDITY
The company's financial condition and liquidity remain strong.
Working capital increased $22 million to $2.693 billion from $2.671
billion as of December 31, 1995. The accounts receivable average
days' sales outstanding was 61 days, down three days from year-end
1995. The company's key inventory index was down slightly from year-
end, and is now at 3.8, which represents the number of months of
inventory. The company's current ratio was 1.6, virtually unchanged
from year-end.
Total debt decreased $29 million from year-end 1995 to $1.996
billion. Long-term debt decreased more than $500 million from year-
end 1995 due to the reclassification to short-term debt of certain
Eurobond and other debt due in 1997. Current maturities of long-term
debt are anticipated to be funded through new debt issuances. On
October 15, 1996, subsequent to the end of the third quarter, the
company completed a five year DM 250,000,000 5 percent Euronote
Offering. After giving effect to currency and interest rate swaps
effected on the same date for the same term as the Euronotes, the
company will have an obligation of approximately $165 million U.S.
dollars with interest based on an all-in borrowing cost of the 6
month LIBOR rate less 26 basis points.
The company's borrowings continue to maintain AAA long-term ratings.
As of September 30, 1996, total debt was 24 percent of total capital.
Stockholders' equity at June 30, 1996, was reduced by about $1
billion due to the Imation spin-off, essentially representing the
distribution of the net assets of Imation.
Return on average stockholders' equity for the first nine months was
24.5 percent, meeting the company's goal of 20 to 25 percent. Return
on capital employed for the first nine months was 25.0 percent, up
from 24.2 percent in the comparable 1995 period. The company's goal
is 27 percent or better.
Net cash provided by operating activities from continuing operations
totaled $1.241 billion in the first nine months of the year, down
$110 million from the same period last year. This decrease was
primarily due to an incremental $132 million net cash outflow related
to mammary implant litigation over 1995. Net cash provided by
operating activities from discontinued operations was $156 million in
the first nine months compared with $150 million in the same period
last year.
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 and receipts
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 II, Item 1, of this Form 10-Q. As a
result of actions associated with discontinued operations and
restructuring, the company will have unusually high severance
payments in future periods. 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.
Cash used in investing activities was $791 million in the first nine
months of the year, down $150 million from the same period last year.
Capital expenditures for the first nine months of 1996 for continuing
operations were $759 million, a decrease of about 6 percent compared
with the same period last year. Discontinued operations required $17
million in cash this year versus $152 million last year. This
reduction of $135 million primarily relates to a decline in capital
expenditures.
Financing activities in both short-term and long-term debt had net
cash inflows of $110 million, compared to inflows of $131 million in
the first nine months of last year. Treasury stock repurchases were
$329 million, compared with repurchases in the same period last year
of $196 million.
The company repurchased about 5.0 million shares of treasury stock in
the first nine months of this year, compared with 3.5 million shares
in the same period last year. On February 12, 1996, the Board of
Directors authorized the repurchase of up to 6 million shares of 3M
common stock through February 10, 1997. As of September 30, 1996,
1.8 million shares remained authorized for repurchase. Stock
repurchases are made to support employee stock purchase plans and for
other corporate purposes.
Dividends paid remained virtually unchanged at $599 million in the
first nine months of this year as compared to $592 million in the
same period last year. The dividend was increased from 47 cents a
share to 49 cents a share, effective with the third-quarter dividend.
Dividends paid in the third quarter increased to $205 million,
compared with $197 million in the same period last year.
3M maintains a shelf registration with the Securities and Exchange
Commission that provides the means to offer medium-term notes not to
exceed $601 million. As of September 30, 1996, $402 million of the
shelf registration was available for future financial needs. The
company expects cash generated by operating activities will support
its primary growth initiatives, with ample borrowing capacity and
lines of credit available to supplement cash flows from operations.
MINNESOTA MINING AND MANUFACTURING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. 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 September 30, 1996, the company had been named as a defendant,
often with multiple co-defendants, in 6,643 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 20,450 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.
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 are 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 her
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 are cancelable if certain provisions of
the Revised Settlement Program are disapproved on appeal. Pending
appeal the company will pay Long-Term Benefits to eligible claimants
providing it receives appropriate releases. The company's
obligations to fund any benefits for claimants with only Post 8/84
McGhan implants are currently suspended pending appeals and will be
canceled if any of certain provisions are disapproved on appeal. In
either 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.
As of the date of this filing it is still uncertain how many
plaintiffs will choose to participate in the Revised Settlement
Program, what disease criteria they will satisfy, and what options
they will choose. As a result, 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 second quarter of 1996, the company increased its estimate of
the minimum probable liabilities and associated expenses to
approximately $991 million. This amount represents the company's
best estimate of the cost and expense of the Revised Settlement
Program and the cost and expense of resolving opt out claims. After
subtracting payments through September 30, 1996 of $459 million
(which includes the January 1996 payment of $130 million under the
Revised Settlement Program) for defense costs and settlements with
litigants and claimants, the company, as of September 30, 1996, had
accrued liabilities of $532 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 (i.e.
allocation) 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.
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. The trial
in Minnesota to resolve the company's insurance coverage and the
financial responsibility of occurrence insurers for breast implant
claims and defense costs began on June 4, 1996 and is currently in
recess.
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 would be resolved
at trial. In the first phase of the trial, the court granted 3M
partial declaratory judgment on the question of when insurance
coverage is "triggered". The court also granted the insurers' motion
for partial declaratory judgment on the question of allocation
method to be applied in the case. Trial will continuewith further
developments expected on the allocation issue, including the
specific application of the court selected method of allocation to
particular policies. If the occurrence insurers ultimately prevail
in this insurance litigation, the company could be effectively
deprived of significant insurance coverage, the amount of which is
not presently determinable, for breast implant claims. (See
discussion of the accrued receivables for insurance recoveries
below).
The company believes it will ultimately 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 $864
million as of September 30, 1996. 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 (as
discussed above) and Texas, (iii) potential arbitration with claims-
made insurers, and (iv) delays in payment by insurers. 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 has been made.
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 5. Other Information
The company filed a final Form 10 registration statement,
dated June 21, 1996, with the Securities and Exchange
Commission (SEC), relating to the new company, named
Imation Corp., that was spun-off effective July 1, 1996.
This statement was furnished in connection with the
distribution of Imation common shares by 3M to holders of
record of 3M common stock at the close of business on June
28, 1996. Refer to the Form 8-K filing referred to in this
Form 10-Q under Item 6.(b) for additional information.
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as exhibits to this
Report.
(11) A statement regarding the computation of per share
earnings. Page 24.
(12) A statement regarding the calculation of ratio of
earnings to fixed charges. Page 25.
(15) A letter from the company's independent accountants
regarding unaudited interim financial statements.
Page 26.
(27) Financial data schedule (EDGAR filing only).
(b) The company filed a report on Form 8-K dated July 24,
1996, in connection with the distribution of the stock
of Imation Corp.
Item 5, Other Events, reporting the distribution by
3M of the common stock of Imation Corp. to the
Registrant's shareholders pursuant to a Transfer
and Distribution Agreement, dated as of June 18, 1996.
The Distribution was effected as a special dividend of
one share of Imation common stock for every ten shares
of common stock of the Registrant held of record as of
the close of business on June 28, 1996. Certificates
for Imation common stock were mailed to holders of the
Registrant's common stock on or about July 15, 1996.
Item 7, Pro Forma Financial Information and Exhibits.
A pro forma consolidated balance sheet as of
March 31, 1996, and proforma consolidated income
statements for the three month period ended March 31,
1996 and for the year ended December 31, 1995 will not
be filed since the transaction described in Item 5 is
fully reflected in the Registrant's consolidated
balance sheet as of June 30, 1996, and previously issued
statements of income already reflect the disposition.
Exhibits include the Transfer and Distribution
Agreement, dated as of June 18, 1996; Imation Corp.
Information Statement, dated June 21, 1996; and Press
Release, dated June 19, 1996.
None of the other items contained in Part II of this Form 10-Q are
applicable to the company for the quarter ended September 30, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MINNESOTA MINING AND MANUFACTURING COMPANY
(Registrant)
Date: October 25, 1996
/s/ Giulio Agostini
Giulio Agostini, Senior Vice President and
Chief Financial Officer
(Mr. Agostini is the Principal Financial
and Accounting Officer and has been duly
authorized to sign on behalf of the
registrant.)
EXHIBIT 11
MINNESOTA MINING AND MANUFACTURING COMPANY AND SUBSIDIARIES
EARNINGS PER SHARE OF COMMON STOCK
(Unaudited)
Three months ended Nine months ended
September 30 September 30
1996 1995 1996 1995
------- ------- ------- -------
(Millions)
Income from continuing operations $398 $339 $1,141 $1,040
Discontinued operations -- 5 -- 33
Net income $398 $344 $1,141 $1,073
- -------------------------------------------------------------------------------
Primary earnings per share:
Continuing operations $.95 $.81 $2.73 $2.48
Discontinued operations -- .01 -- .08
Net Income $.95 $.82 $2.73 $2.56
Weighted average number of
common shares outstanding 418,329,485 419,922,978 418,513,444 419,947,878
- -------------------------------------------------------------------------------
Fully diluted earnings
per share: (1)
Continuing operations $.93 $.80 $2.68 $2.45
Discontinued operations -- .01 -- .08
Net Income $.93 $.81 $2.68 $2.53
Weighted average number of
common shares outstanding 418,329,485 419,922,978 418,513,444 419,947,878
Common equivalent shares 7,714,743 3,908,123 7,714,743 3,960,898
----------- ----------- ----------- -----------
Average number of common
and common equivalent
shares outstanding 426,044,228 423,831,101 426,228,187 423,908,776
- -------------------------------------------------------------------------------
Primary earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding for each period.
The calculation excludes the effect of common equivalent shares
resulting from stock options using the treasury stock method as the
effect would not be material.
Fully diluted earnings per share is computed based on the weighted
average number of common shares and common equivalent shares
outstanding for each period.
(1) This calculation is submitted in accordance with Regulation S-K
Item 601(b)(11) although not required by APB Opinion No. 15 because it
results in dilution of less than 3%.
EXHIBIT 12
MINNESOTA MINING AND MANUFACTURING COMPANY AND SUBSIDIARIES
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
(Unaudited)
Nine Months
Ended
September 30, Year Year Year Year Year
1996 1995 1994 1993 1992 1991
EARNINGS -------- ------- ------- ------- ------- -------
Income from continuing
operations before
income taxes and
minority interest $1,862 $2,168 $2,011 $1,851 $1,779 $1,620
Add:
Interest on debt 54 102 70 39 61 78
Interest component of the
ESOP benefit expense 26 37 39 41 42 44
Portion of rent under
operating leases
representative of the
interest component 34 51 46 44 44 44
Less:
Equity in undistributed
income of 20-50% owned
companies -- 1 2 -- (1) (6)
-------- ------- ------- ------- ------- -------
TOTAL EARNINGS AVAILABLE
FOR FIXED CHARGES $1,976 $2,357 $2,164 $1,975 $1,927 $1,792
FIXED CHARGES
Interest on debt 54 102 70 39 61 78
Interest component of the
ESOP benefit expense 26 37 39 41 42 44
Portion of rent under
operating leases
representative of the
interest component 34 51 46 44 44 44
------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES $ 114 $ 190 $ 155 $ 124 $ 147 $ 166
RATIO OF EARNINGS TO
FIXED CHARGES 17.33 12.41 13.96 15.93 13.11 10.80
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We are aware that our report dated October 25, 1996 on our reviews of
interim condensed consolidated financial information of Minnesota
Mining and Manufacturing Company and Subsidiaries (the Company) for
the three-month and nine-month periods ended September 30, 1996 and
1995, and included in the Company's Form 10-Q for the quarter ended
September 30, 1996, is incorporated by reference in the Company's
registration statements on Form S-8 (Registration Nos. 2-78422, 33-
14791, 33-48690, 33-49842, 33-58763 and 33-58767), and Form S-3
(Registration No. 33-48089). Pursuant to Rule 436(c), under the
Securities Act of 1933, this report should not be considered a part of
the registration statements prepared or certified by us within the
meaning of Sections 7 and 11 of that Act.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
St. Paul, Minnesota
October 25, 1996
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