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 March 31, 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 March 31, 1996, there were 418,630,334 shares of the Registrant's
common stock outstanding.
This document contains 24 pages.
The exhibit index is set forth on page 20.
MINNESOTA MINING AND MANUFACTURING COMPANY
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF INCOME
(Amounts in millions, except per-share amounts)
(Unaudited)
Three months ended
March 31
1996 1995
Net Sales $3,468 $3,361
Operating Expenses
Cost of goods sold 1,990 1,886
Selling, general and
administrative expenses 882 860
Total 2,872 2,746
Operating Income 596 615
Other Income and Expense
Interest expense 17 27
Investment and other
income - net (19) (10)
Total (2) 17
Income From Continuing
Operations Before Income
Taxes and Minority Interest 598 598
Provision for Income Taxes 218 222
Minority Interest 18 21
Income From Continuing
Operations 362 355
Discontinued Operations,
Net of Income Taxes -- 21
Net Income $ 362 $ 376
Average Shares Outstanding 418.5 419.8
Per-Share Amounts:
Continuing Operations $ .87 $ .85
Discontinued Operations -- .05
Net Income $ .87 $ .90
Cash dividends declared
and paid $ .47 $ .47
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)
March 31,
ASSETS 1996 December 31,
Current Assets (Unaudited) 1995
Cash and cash equivalents $ 527 $ 485
Other securities 187 287
Accounts receivable - net 2,539 2,398
Inventories
Finished goods 1,100 1,164
Work in process 558 565
Raw materials and supplies 479 477
Total inventories 2,137 2,206
Other current assets 1,062 1,019
Total current assets 6,452 6,395
Investments 576 565
Property, Plant and Equipment 11,339 11,234
Less accumulated depreciation (6,714) (6,596)
Property, plant and equipment - net 4,625 4,638
Other Assets 1,138 1,177
Net Assets of Discontinued Operations 1,332 1,408
Total $14,123 $14,183
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 813 $ 762
Payroll 337 298
Income taxes 280 214
Short-term debt 932 822
Other current liabilities 1,502 1,628
Total current liabilities 3,864 3,724
Other Liabilities 2,302 2,372
Long-Term Debt 984 1,203
Stockholders' Equity
Common stock, no par, 472,016,528 shares issued 296 296
Retained earnings 9,294 9,164
Unearned compensation - ESOP (432) (437)
Cumulative translation - net (151) (102)
Net unrealized gain - debt & equity securities 21 16
Less cost of treasury stock -
March 31, 1996, 53,386,194 shares;
December 31, 1995, 53,313,774 shares (2,055) (2,053)
Stockholders' Equity - net 6,973 6,884
Total $14,123 $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)
Three months ended
March 31
1996 1995
Cash Flows from Operating Activities:
Net income $ 362 $ 376
Less income from discontinued operations -- 21
Income from continuing operations 362 355
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Implant litigation - net (156) (11)
Depreciation and amortization 217 209
Working capital and other changes (15) 2
Net cash provided by continuing operations 408 555
Net cash provided by discontinued operations 108 33
Net cash provided by operating activities 516 588
Cash Flows from Investing Activities:
Capital expenditures (232) (250)
Other changes 5 9
Discontinued operations, net (37) (49)
Net cash used in investing activities (264) (290)
Cash Flows from Financing Activities:
Net change in short-term debt (5) (125)
Repayment of long-term debt (1) (76)
Proceeds from long-term debt -- 200
Purchases of treasury stock (112) (56)
Reissuances of treasury stock 75 49
Payment of dividends (197) (197)
Net cash used in financing activities (240) (205)
Effect of exchange rate changes on cash 30 (35)
Net increase in cash and cash equivalents 42 58
Cash and cash equivalents at beginning of year 485 297
Cash and cash equivalents at end of period $ 527 $ 355
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. This transaction will be
effected through the distribution of shares in a newly formed
company, named Imation, 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 Imation,
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.
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 as discontinued
operations. Prior periods' consolidated financial statements and
notes have been restated accordingly. Net sales of the discontinued
businesses for the first quarter of 1995 were $726 million, with
income from discontinued operations of $21 million. Income from
discontinued operations for the first quarter of 1996 is 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.
In connection with the discontinuance of these businesses, the
company recorded a loss on disposal of $373 million, net of deferred
income taxes of $232 million, in the fourth quarter of 1995. This
loss included $300 million of severance costs for approximately 4,000
employees directly related to the discontinued operations. As of
March 31, 1996, a small number of employee separations had occurred
and $2 million in cash payments had been made. The remaining
severance liability of $298 million at March 31, 1996, is included in
other current liabilities.
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
March 31, 1996, a small number of employee separations had occurred
and $4 million in cash payments related to employee separations had
been made. The remaining liability of $57 million for employee
separations and other items is included in other current liabilities.
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 March 31, 1996, and the related condensed consolidated
statements of income and cash flows for the three-month periods ended
March 31, 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
May 2, 1996
MINNESOTA MINING AND MANUFACTURING COMPANY
AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
First Quarter
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. 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.
Worldwide sales for the first quarter totaled $3.468 billion, an
increase of 3.2 percent from $3.361 billion in the first quarter last
year. Excluding changes in currency exchange rates, sales rose about
5 percent. Unit sales increased about 3 percent, while selling
prices were up about 2 percent.
In the United States, sales were up about 3 percent to more than $1.5
billion. This revenue gain was due to pricing. Volume, reflecting
the slower growth of the U.S. economy, was basically flat. In the
Life Sciences Sector, volume was up about 3 percent, while selling
prices increased about 1 percent. Pacing this revenue growth were
the pharmaceuticals and personal care products businesses. In the
Industrial and Consumer Sector, sales were up about 2 percent.
Prices rose about 3 percent, while volume declined about 1 percent.
Good sales gains were achieved in the consumer and office supply
businesses. Sales were basically flat in the industrial businesses,
which posted solid gains in the first quarter a year ago. Demand for
industrial products was affected by industry softness, particularly
in auto production, furniture and textiles.
Internationally, sales increased about 4 percent to $1.9 billion, or
55 percent of total sales. Volume abroad increased about 6 percent
and selling prices were up about 2 percent. Currency translation
reduced international sales by about 4 percent. The two business
sectors contributed about equally to the international sales gain for
the quarter. While 6-percent international volume growth is less
than normal, this gain came on top of a 14-percent volume increase in
the first quarter last year. In the first three months last year,
all major international areas posted double-digit volume gains.
In Europe, volume rose about 3 percent. While this was a modest
gain, it came on the heels of double-digit volume growth in the first
quarter last year. Solid volume gains were achieved in the United
Kingdom and Spain, with strong growth in many developing countries.
Overall growth in Europe was held back by the economic situation in
Germany and France.In Japan, 3M's largest international company, unit
sales rose about 11 percent. This gain was driven by an exceptionally
strong flow of new products and a pickup in the Japanese economy. In
Asia outside Japan, volume was up about 13 percent, with overall
growth constrained by the disruption in the China region. In Latin
America, unit sales increased about 11 percent, with strong volume
gains throughout the area, except Brazil. Unit sales in Brazil were
up just slightly this quarter, following an outstanding volume gain
in the first quarter last year. In Canada, volume decreased about 2
percent.
Cost of goods sold, which includes manufacturing, research and
development, and engineering, was 57.4 percent of sales, up 1.3
percentage points from the first quarter last year. The benefit from
higher selling prices was more than offset by modest volume growth,
higher research and development costs, and by material costs.
Research and development spending was 6.7 percent of sales, up four-
tenths of a point from the first quarter last year. This increase
was magnified by low sales growth and by increased investments in
major new product-development programs. While up from the first
quarter last year, cost of goods sold was lower than in each of the
past two quarters. Cost of goods sold is expected to decline going
forward.
Selling, general and administrative spending was 25.4 percent of
sales, roughly the same as in the fourth-quarter of 1995, which was
the lowest rate in more than five years. Strong emphasis on cost
control and streamlining of operations are driving this improvement.
Selling, general and administrative spending in the United States was
similar to the first quarter last year in dollars and down nearly
five-tenths of a percentage point as a ratio to sales.
Employment decreased slightly when compared with the first quarter
last year, with sales per employee up about 5 percent in local
currencies. This followed a 7 percent gain for total year 1995.
Operating income was $596 million, down about 3 percent from the
first quarter last year. Currency effects, which had a positive
effect on operating income in the first quarter last year, reduced
profits this quarter by more than $15 million dollars, or about 3
percent. Internationally, operating income increased about 2 percent.
United States operating income declined about 10 percent due to low
sales growth, higher material costs and increased research and
development spending. Worldwide operating income dollars were down
in both sectors.
First quarter interest expense of $17 million was down $10 million
from the same quarter last year. More than half of this decline was
due to a combination of lower interest rates and lower debt, factors
expected to continue going forward. One-time positive financial
events also contributed to the decline in interest expense this
quarter. Investment and other income was $19 million, up $9 million
from the first quarter last year. This increase largely reflected
gains on financial investments, many of which were of a nonrecurring
nature.
The worldwide effective tax rate was 36.5 percent, about the rate
expected for the full year. The company continued to effectively
utilize its international tax credits.
Income from continuing operations totaled $362 million, or $.87 per
share, up about 2 percent from the first quarter of 1995. The
company estimates that changes in the value of the U.S. dollar
decreased earnings for the quarter by about 2 cents per share
compared to the first 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.
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
1996, despite strengthening of the U.S. dollar. The company expects
to benefit from a strong flow of innovative new products, further
expansion into international markets, an intense focus on customer
satisfaction, expected improvement in the pace of economic activity,
a more favorable raw material picture, and ongoing productivity-
improvement efforts.
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 more
than 10 cents a share. The pressure from raw material costs is
expected to abate, with costs expected to be down for 1996 as a
whole. The company expects to show its strongest earnings gains in
the second half of the year.
Capital spending, which was up 12 percent in 1995, is expected to
increase less than 10 percent in 1996.
FINANCIAL CONDITION AND LIQUIDITY
The company's financial condition and liquidity remain strong.
Working capital decreased $83 million to $2.588 billion from $2.671
billion as of December 31, 1995. The accounts receivable average
days' sales outstanding was 61 days, unchanged from the same quarter
last year, but down three days from the end of 1995. The company's
key inventory index of 3.7, which represents the number of months of
inventory, was down 5 percent from year-end. The company's current
ratio was 1.7, unchanged from year-end.
Total debt decreased $109 million from year-end 1995 to $1.916
billion. As of March 31, 1996, total debt was 27 percent of
stockholders' equity, down from 29 percent at year-end. The
company's borrowings continue to maintain AAA long-term ratings. At
the time of the spin-off of Imation, stockholders' equity will be
reduced by an estimated $1 billion, essentially representing the
distribution of the net assets of Imation. Imation has filed a
preliminary information statement with the SEC. This indicates that
Imation will have a total capitalization of about $1.25 billion,
including about $250 million of debt. 3M expects to maintain its
debt to equity ratio after spin-off in the 27 to 29 percent range.
Return on average stockholders' equity for the first three months was
20.9 percent, compared with 20.5 percent for the same period last
year, meeting the company's goal of 20 to 25 percent. Adjusting
income from continuing operations for the restructuring charge and
equity for the impact of discontinued operations, return on equity
would be about 25 percent for both periods. Return on capital
employed for the first three months was 24.5 percent, down from 25.8
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 $408 million in the first three months of the year, down $147
million from the same period last year. This decrease was primarily
due to the $156 million net cash outflow related to mammary implant
litigation. Net cash provided by operating activities from
discontinued operations was $108 million in the first quarter
compared with $33 million in the same period last year. This
increase of $75 million was primarily due to lower working capital
requirements.
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 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.
Cash used in investing activities was $264 million in the first three
months of the year, down $26 million from the same period last year.
Capital expenditures for the first three months of 1996 for
continuing operations were $232 million, a decrease of about 7
percent compared with the same period last year.
Financing activities in both short-term and long-term debt had a
minimal cash flow impact in the first three months of both 1996 and
1995. Treasury stock repurchases were $112 million, compared with
repurchases in the same period last year of $56 million.
The company repurchased about 1.7 million shares of treasury stock in
the first three months of this year, compared with 1.1 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 March 31, 1996, 5.1
million shares remained authorized for repurchase. Stock repurchases
are made to support employee stock purchase plans and for other
corporate purposes.
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 current quarterly rate. The Board will reconsider
the dividend rate later this year, and expects to continue 3M's
record of annual increases. Dividends paid remained unchanged at
$197 million in the first three months of this year as compared with
the same period last year.
The company expects cash generated by operating activities will
support its primary growth initiatives, with ample borrowing capacity
and lines of credit available to supplement cash flows from
operations. 3M maintains a shelf registration with the Securities
and Exchange Commission that provides the means to offer medium-term
notes not to exceed $601 million. As of March 31, 1996, $402 million
of the shelf registration was available for future financial needs.
MINNESOTA MINING AND MANUFACTURING COMPANY
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The company and certain of its subsidiaries are named 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 March 31, 1996, the company had been named as a defendant,
often with multiple co-defendants, in 6,571 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 18,980 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 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, 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,
$143 million in 1995 and $180 million in the first quarter of 1996
for defense costs and settlements (which includes the January 1996
payment of $130 million under the Revised Settlement Program) with
litigants and claimants, the company, as of March 31, 1996, had
accrued liabilities of $498 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. The trial
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 has been
postponed pending appeal on procedural matters. The trial will be
rescheduled for later this year. 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 $777
million as of March 31, 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 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.
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 preliminary information statement on
Form 10 dated April 2, 1996, with the Securities and
Exchange Commission (SEC), relating to the new company,
named Imation, that will be spun-off.
The statement is a required business document that allows
3M to communicate to the SEC on issues ranging from why the
spin-off is taking place to what Imation will need to do to
become successful, and what the relationship between 3M and
Imation will be. Imation and 3M management will continue
to work with the SEC to finalize this filing, which is
preliminary and subject to change.
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as exhibits to this
Report.
(11) A statement regarding the computation of per share
earnings. Page 22.
(12) A statement regarding the calculation of ratio of
earnings to fixed charges. Page 23.
(15) A letter from the company's independent
accountants regarding unaudited interim financial
statements. Page 24.
(27) Financial data schedule (EDGAR filing only).
None of the other items contained in Part II of this Form 10-Q are
applicable to the company for the quarter ended March 31, 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: May 9, 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
March 31
1996 1995
------- -------
(Millions)
Income from continuing operations $362 $355
Discontinued operations -- 21
Net income $362 $376
- ----------------------------------------------------
Primary earnings per share:
Continuing operations $.87 $.85
Discontinued operations -- .05
Net Income $.87 $.90
Weighted average number of
common shares outstanding 418,545,428 419,811,248
- ----------------------------------------------------
Fully diluted earnings
per share: (1)
Continuing operations $.85 $.83
Discontinued operations -- .05
Net Income $.85 $.88
Weighted average number of
common shares outstanding 418,545,428 419,811,248
Common equivalent shares 6,082,097 5,023,033
----------- -----------
Average number of common
and common equivalent
shares outstanding 424,627,525 424,834,281
- ----------------------------------------------------
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)
Three Months
Ended
March 31, Year Year Year Year Year
1996 1995 1994 1993 1992 1991
EARNINGS -------- ------- ------- ------- ------- -------
Income from continuing
operations before
income taxes and
minority interest $598 $2,168 $2,011 $1,851 $1,779 $1,620
Add:
Interest on debt 17 102 70 39 61 78
Interest component of the
ESOP benefit expense 9 37 39 41 42 44
Portion of rent under
operating leases
representative of the
interest component 12 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 $636 $2,357 $2,164 $1,975 $1,927 $1,792
FIXED CHARGES
Interest on debt 17 102 70 39 61 78
Interest component of the
ESOP benefit expense 9 37 39 41 42 44
Portion of rent under
operating leases
representative of the
interest component 12 51 46 44 44 44
------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES $ 38 $190 $155 $124 $147 $166
RATIO OF EARNINGS TO
FIXED CHARGES 16.74 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 May 2, 1996 on our reviews of
interim condensed consolidated financial information of Minnesota
Mining and Manufacturing Company and Subsidiaries (the Company) for
the three-month periods ended March 31, 1996 and 1995, and included in
the Company's Form 10-Q for the quarter ended March 31, 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
May 9, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS AND NOTES.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 527
<SECURITIES> 187
<RECEIVABLES> 2,539
<ALLOWANCES> 0
<INVENTORY> 2,137
<CURRENT-ASSETS> 6,452
<PP&E> 11,339
<DEPRECIATION> 6,714
<TOTAL-ASSETS> 14,123
<CURRENT-LIABILITIES> 3,864
<BONDS> 984
<COMMON> 296
0
0
<OTHER-SE> 6,677
<TOTAL-LIABILITY-AND-EQUITY> 14,123
<SALES> 3,468
<TOTAL-REVENUES> 3,468
<CGS> 1,990
<TOTAL-COSTS> 1,990
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 598
<INCOME-TAX> 218
<INCOME-CONTINUING> 362
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 362
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE RESTATED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995 DEC-31-1995
<PERIOD-END> MAR-31-1995 JUN-30-1995 SEP-30-1995
<CASH> 355 397 344
<SECURITIES> 191 192 204
<RECEIVABLES> 2,537 2,590 2,560
<ALLOWANCES> 0 0 0
<INVENTORY> 2,276 2,364 2,323
<CURRENT-ASSETS> 6,075 6,366 6,236
<PP&E> 10,839 11,099 11,105
<DEPRECIATION> 6,291 6,491 6,510
<TOTAL-ASSETS> 13,781 14,309 14,093
<CURRENT-LIABILITIES> 3,270 3,555 3,484
<BONDS> 1,213 1,231 1,213
<COMMON> 296 296 296
0 0 0
0 0 0
<OTHER-SE> 6,830 6,998 6,972
<TOTAL-LIABILITY-AND-EQUITY> 13,781 14,309 14,093
<SALES> 3,361 6,785 10,155
<TOTAL-REVENUES> 3,361 6,785 10,155
<CGS> 1,886 3,835 5,777
<TOTAL-COSTS> 1,886 3,835 5,777
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 27 53 79
<INCOME-PRETAX> 598 1,183 1,735
<INCOME-TAX> 222 439 636
<INCOME-CONTINUING> 355 701 1,040
<DISCONTINUED> 21 28 33
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 376 729 1,073
<EPS-PRIMARY> .90 1.74 2.56
<EPS-DILUTED> .90 1.74 2.56
</TABLE>
