<PAGE> 1
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, 1999 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: (651) 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, 1999, there were 402,639,206 shares of the
Registrant's common stock outstanding.
This document contains 29 pages.
The exhibit index is set forth on page 26.
<PAGE> 2
<TABLE>
Minnesota Mining and Manufacturing Company and Subsidiaries
PART I. Financial Information
Consolidated Statement of Income
(Amounts in millions, except per-share amounts)
(Unaudited)
<CAPTION>
Three months ended
March 31
1999 1998
<S> <C> <C>
Net sales $3,776 $3,700
Operating expenses
Cost of goods sold 2,162 2,096
Selling, general and
administrative expenses 965 924
Total 3,127 3,020
Operating income 649 680
Other income and expense
Interest expense 31 34
Investment and other
income - net (8) (11)
Total 23 23
Income before income taxes
and minority interest 626 657
Provision for income taxes 225 237
Minority interest 17 20
Net income $ 384 $ 400
Weighted average common
shares outstanding 402.3 404.4
Earnings per share - basic $ .95 $ .99
Weighted average common
and common equivalent
shares outstanding 405.9 410.0
Earnings per share - diluted $ .95 $ .98
<FN>
<F1>
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
</FN>
</TABLE>
<PAGE> 3
<TABLE>
Minnesota Mining and Manufacturing Company and Subsidiaries
Consolidated Balance Sheet
(Dollars in millions)
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 253 $ 211
Other securities 98 237
Accounts receivable - net 2,647 2,666
Inventories
Finished goods 1,147 1,161
Work in process 538 613
Raw materials and supplies 407 445
Total inventories 2,092 2,219
Other current assets 966 985
Total current assets 6,056 6,318
Investments 639 623
Property, plant and equipment 13,275 13,397
Less accumulated depreciation (7,759) (7,831)
Property, plant and equipment - net 5,516 5,566
Other assets 1,535 1,646
Total $13,746 $14,153
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 913 $ 868
Payroll 438 487
Income taxes 418 261
Short-term debt 1,151 1,492
Other current liabilities 1,062 1,278
Total current liabilities 3,982 4,386
Other liabilities 2,226 2,217
Long-term debt 1,569 1,614
Stockholders' equity
Common stock, $.50 par value,
472,016,528 shares issued 236 236
Capital in excess of par value 60 60
Retained earnings 10,121 9,980
Treasury stock, at cost (3,430) (3,482)
March 31, 1999, 69,377,322
December 31, 1998, 70,092,280
Unearned compensation - ESOP (337) (350)
Accumulated other comprehensive income
Cumulative translation - net (702) (518)
Debt and equity securities,
unrealized gain - net 21 10
Total accumulated other comprehensive income (681) (508)
Stockholders' equity - net 5,969 5,936
Total $13,746 $14,153
<FN>
<F1>
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
</FN>
</TABLE>
<PAGE> 4
<TABLE>
Minnesota Mining and Manufacturing Company and Subsidiaries
Consolidated Statement of Cash Flows
(Dollars in millions)
(Unaudited)
<CAPTION>
Three months ended
March 31
1999 1998
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 384 $ 400
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 223 213
Implant litigation - net (30) (91)
Working capital and other changes - net 251 (147)
Net cash provided by operating activities 828 375
Cash Flows from Investing Activities
Capital expenditures (289) (338)
Other changes - net (40) (63)
Net cash used in investing activities (329) (401)
Cash Flows from Financing Activities
Change in short-term debt - net (136) (55)
Repayment of long-term debt (104) (20)
Proceeds from long-term debt -- 333
Purchases of treasury stock (32) (187)
Reissuances of treasury stock 67 127
Payment of dividends (225) (222)
Net cash used in financing activities (430) (24)
Effect of exchange rate changes on cash (27) --
Net increase (decrease) in cash and cash equivalents 42 (50)
Cash and cash equivalents at beginning of year 211 230
Cash and cash equivalents at end of period $ 253 $ 180
<FN>
<F1>
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
</FN>
</TABLE>
<PAGE> 5
Minnesota Mining and Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
The interim consolidated 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 interim 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 1998 Annual Report on Form 10-K.
Pending Divestitures:
The company has entered into agreements to sell Eastern Heights Bank,
a subsidiary banking operation, to Norwest Bank Minnesota (a
subsidiary of Wells Fargo & Company), and to sell the assets of its
Cardiovascular Systems business to Terumo Corp. of Tokyo, Japan.
These divestitures, expected to be finalized late in the second
quarter or early in the third quarter of 1999, should generate cash
proceeds (net of tax) of approximately $185 million.
Restructuring Charge:
In 1998, the company recorded a restructuring charge of $493 million
($313 million after tax), which is discussed in the 1998 Form 10-K.
During the quarter ended March 31, 1999, the company terminated 688
employees under the plan. Because certain employees can defer receipt
of termination benefits for up to 12 months, cash payments relate to
both current and previous terminations. The restructuring liability
as of March 31, 1999, totaled $198 million. Selected information
relating to the restructuring charge follows.
<TABLE>
<CAPTION>
Restructuring Employee
Information Termination
(Millions) Benefits Other Total
<S> <C> <C> <C>
Restructuring liability as of
December 31, 1998 $232 $32 $264
1999 cash payments
First quarter (65) (1) (66)
Restructuring liability as of
March 31, 1999 $167 $31 $198
</TABLE>
<PAGE> 6
Business Segments:
Net sales and operating income by segment for the first quarter of
1999 and first quarter of 1998 follow.
<TABLE>
<CAPTION>
Business Transportation,
Segment Industrial Safety and Corporate
Information and Specialty Health and Total
(Millions) Consumer Material Care Unallocated Company
<S> <C> <C> <C> <C> <C>
Net sales
First Quarter 1999 $1,922 $1,069 $768 $ 17 $3,776
First Quarter 1998 1,906 1,017 759 18 3,700
Operating income
First Quarter 1999 $ 322 $ 207 $142 $(22)* $ 649
First Quarter 1998 314 192 151 23 * 680
</TABLE>
Due to changes in cost allocations among segments, total year 1998,
1997 and 1996 sales and operating income have been restated as
follows.
<TABLE>
<CAPTION>
Business Transportation,
Segment Industrial Safety and Corporate
Information and Specialty Health and Total
(Millions) Consumer Material Care Unallocated Company
<S> <S> <C> <C> <C> <C> <C>
Net sales 1998 $7,714 $4,126 $3,086 $ 95 $15,021
1997 7,774 4,202 3,004 90 15,070
1996 7,377 3,896 2,897 66 14,236
Operating 1998 $1,223 $ 719 $ 571 $ (474)* $ 2,039
income 1997 1,309 774 521 71 * 2,675
1996 1,194 778 545 (26)* 2,491
Assets** 1998 $5,185 $3,764 $2,168 $3,036 $14,153
1997 5,030 3,296 2,042 2,870 13,238
1996 4,771 3,129 2,012 3,452 13,364
Depreciation 1998 $ 446 $ 236 $ 161 $ 23 $ 866
and 1997 405 261 183 21 870
amortization 1996 425 270 160 28 883
Capital 1998 $ 676 $ 517 $ 221 $ 16 $ 1,430
expenditures 1997 581 563 217 45 1,406
1996 430 445 216 18 1,109
<FN>
<F1>
*Corporate and Unallocated operating income principally includes
corporate investment gains and losses, certain derivative gains and
losses, insurance related gains and losses, banking operations,
restructuring charges and other miscellaneous items. Since this
category includes a variety of miscellaneous items, it is subject to
fluctuation on a quarterly and annual basis. Operating income for
1998 includes a $493 million restructuring charge.
<F2>
**Segment assets primarily include accounts receivable; inventory;
property, plant and equipment - net; and other miscellaneous assets.
Assets included in Corporate and Unallocated principally are cash
and cash equivalents; other securities; insurance receivables;
deferred income taxes; certain investments and other assets; and
certain unallocated property, plant and equipment.
</FN>
</TABLE>
<PAGE> 7
Comprehensive income:
The components of total comprehensive income are shown below.
<TABLE>
<CAPTION>
Total Comprehensive Income Three months ended
March 31,
(Millions) 1999 1998
<S> <C> <C>
Net income $ 384 $ 400
Other comprehensive income
Cumulative translation - net $(184) $ (42)
Debt and equity securities,
unrealized gain (loss) - net 11 (1)
Total comprehensive income $ 211 $ 357
</TABLE>
Earnings per share:
The difference in the weighted average shares outstanding for
calculating basic and diluted earnings per share is attributable to
the assumed exercise of the Management Stock Ownership Program (MSOP)
stock options for the three-month periods ended March 31, 1999 and
1998. MSOP options to purchase 11.2 million shares of common stock
at an average price of $91.59, which were outstanding at March 31,
1999, were not included in the computation of diluted earnings per
share because they would not have had a dilutive effect.
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 interim consolidated financial statements.
PricewaterhouseCoopers LLP, the company's independent auditors, have
performed a review of the unaudited interim consolidated financial
statements included herein and their review report thereon
accompanies this filing.
<PAGE> 8
Review Report of Independent Auditors
To the Stockholders and Board of Directors of Minnesota Mining and
Manufacturing Company:
We have reviewed the accompanying consolidated balance sheet of
Minnesota Mining and Manufacturing Company and Subsidiaries as of
March 31, 1999, and the related consolidated statements of income and
cash flows for the three-month periods ended March 31, 1999 and 1998.
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 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,
1998, and the related consolidated statements of income, changes in
stockholders' equity and comprehensive income, and cash flows for the
year then ended (not presented herein); and in our report dated
February 8, 1999, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information
set forth in the accompanying consolidated balance sheet as of
December 31, 1998, is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been
derived.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Paul, Minnesota
May 5, 1999
<PAGE> 9
Minnesota Mining and Manufacturing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
First Quarter
Worldwide sales for the first quarter totaled $3.776 billion, up 2.1
percent from the first quarter last year. Volume increased about 2
percent, while selling prices were up about 1 percent. Currency
translation reduced worldwide sales by about 1 percent. Currency,
while positive in the Asia Pacific area, was negative in other parts
of the world, especially Latin America.
In the United States, sales increased about 2 percent to $1.768
billion, driven by volume increases. In Transportation, Safety and
Specialty Material Markets, U.S. volume increased about 4 percent.
Within this business segment, the company saw good growth in its
commercial graphics, protective materials and roofing granule
businesses, and a pickup in demand for reflective products following
a soft 1998. In Industrial and Consumer Markets, led by the consumer
and office businesses, volume increased nearly 3 percent. Demand for
certain industrial products, including tapes and abrasives, remained
soft. Volume in the U.S. health care businesses declined about 3
percent from the year-earlier quarter. Sales of medical and dental
products experienced good growth, but sales of pharmaceuticals
declined due to the introduction of generic alternatives to a branded
3M analgesic. The largest effects of this competition will extend
through the third quarter of 1999.
Internationally, sales totaled $2.008 billion. Volume abroad
increased about 2.5 percent, while selling prices were up about 2
percent, resulting in overall local-currency sales gains of about 4.5
percent. Currency translation reduced international sales by about 2
percent. In Europe, volume increased less than 1 percent. Sales were
impacted by economic slowing in Western Europe and by the uncertainty
in developing European countries. Also, the company is comparing
against its strongest quarter in Europe last year. In the Asia
Pacific area, volume increased about 7 percent, the company's best
performance in five quarters. In Japan, unit sales rose 5 percent,
despite continuing economic weakness. In Asia outside Japan, volume
rose about 12 percent. 3M experienced sharp volume rebounds in Korea,
Thailand and Indonesia, and good growth in the China region. In
Latin America, volume was roughly the same as in the first quarter
last year. While unit sales increased more than 10 percent in
Mexico, volume was flat in Argentina and unit sales declined about 7
percent in Brazil. The company increased selling prices in Latin
America about 7 percent. Currency translation, largely due to
Brazilian devaluation, reduced Latin American sales by about 20
percent. In Canada, volume increased more than 10 percent.
Worldwide, the Industrial and Consumer market sales and operating
income growth was led by the consumer and office businesses.
Transportation, Safety and Specialty Material segment sales and
<PAGE> 10
operating income growth was led by films for laptop computers and
other electronic displays, and by protective materials. Health Care
showed good growth in medical and dental, but was hurt by declines in
pharmaceuticals.
Cost of goods sold, which includes manufacturing, research and
development, and engineering, was 57.3 percent of sales, up seven-
tenths of a percentage point from the first quarter last year.
However, this was down more than 2 percentage points from the fourth
quarter and was an improvement of more than half a percentage point
from the rate the company averaged for 1998 as a whole. Gross
margins benefited from lower raw material costs and the company's
restructuring actions.
Selling, general and administrative spending was 25.5 percent of
sales, higher than the company's target. For the full year 1999, the
company expects this spending to be below 25 percent of sales, helped
by productivity gains stemming from restructuring actions, and by
continuing spending discipline.
Worldwide operating income was 17.2 percent of sales, down 1.2
percentage points from the first quarter last year. While lower than
the first quarter last year, this represented an improvement from
each of the past three quarters and from 1998 in total. In dollars,
operating income declined 4.4 percent from the same quarter last
year.
First quarter interest expense of $31 million was down $3 million
from the same quarter last year. Net investment and other income was
$8 million, in line with recent trends.
The worldwide effective income tax rate for the quarter was 36.0
percent, the same as in the first quarter last year.
Net income totaled $384 million, or $.95 per diluted share, compared
with $400 million, or $.98 per diluted share, in the first quarter of
1998. 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 with the first quarter of 1998. This estimate includes the
effect of translating profits from local currencies into U.S.
dollars; the impact of currency fluctuations on the transfer of goods
between 3M operations in the United States and abroad; and
transaction gains and losses.
FUTURE OUTLOOK
The company encountered a difficult set of challenges in 1998 - large
negative currency effects, economic contractions in many
international markets, and softness in a few key U.S. markets. To
improve productivity and reduce costs, the company is exiting certain
product lines, consolidating manufacturing operations, and
eliminating lower-value activities in corporate service functions.
Relating to these actions, the company recorded a restructuring
charge in 1998. This charge is discussed in the 1998 Form 10-K.
<PAGE> 11
The company announced in mid-1998, as part of its restructuring plan,
its intent to reduce about 4,500 positions by December 31, 1999. The
majority of these reductions are expected by September 30, 1999.
During the quarter, employment declined approximately 1,100 people
due to both the restructuring and attrition, bringing the total
reductions thus far to 3,500 people. These reductions have been
about equally divided between U.S. and international operations.
When fully implemented by the end of 1999, the restructuring plan is
expected to provide annual pre-tax savings of about $250 million. The
company anticipates implementation costs associated with this
restructuring plan to be about $35 million in 1999. These costs, not
included in the 1998 restructuring charge, include expenses for
relocating employees, inventory and equipment; unfavorable overhead
variances; and other expenses. If the company does not generate
adequate sales growth, normal increases in salaries and wages and
additional depreciation from capital expenditures will create offsets
to the annual savings.
3M expects sales growth in 1999 of 4 to 5 percent in local
currencies. Sales are expected to grow 3 to 4 percent in the United
States. Sales growth in the U.S. is expected to pick up in the
remaining three quarters of this year. Internationally, the company
is expecting to increase sales in local currencies 5 to 6 percent.
The company expects continuing reasonable volume growth in the Asia
region. Asia appears to be slowly recovering and the company will be
comparing against quarters last year when many Asian economies were
at their low points. In Japan, the company is not counting on any
economic improvement, but expects to continue to do reasonably well
because of continuing demand for certain proprietary 3M products. In
Latin America, the volume picture is expected to improve as the year
progresses. Latin America is expected to show continuing good growth
in Mexico, along with gradual improvement in Brazil and Argentina. In
Europe, comparisons will become easier in the coming quarters. While
European economies are growing slowly, 3M anticipates slightly better
growth than in the first quarter.
The company is not able to project what the consequences will be from
the turmoil in various economies around the world. The company is
monitoring business conditions closely and is prepared to make
adjustments in costs, pricing and investments as appropriate.
Based on currency rates at the end of April 1999, the company
estimates that currency would reduce international sales for the year
by about 3 percent and would negatively impact earnings per share by
8 cents for the full year.
Capital spending totaled $1.430 billion in 1998, and is expected to
be in line with the company's target of $1.2 billion for 1999. The
company does not expect a significant change in its tax rate in 1999.
<PAGE> 12
YEAR 2000 READINESS
The Year 2000 issue is the result of using only the last two digits
to indicate the year in computer hardware and software programs and
embedded technology such as micro-controllers. As a result, these
programs do not properly recognize a year that begins with "20"
instead of the familiar "19." If uncorrected, such programs will be
unable to interpret dates beyond the year 1999, which could cause
computer system failure or other errors disrupting normal business
operations.
The company recognizes the importance of readiness for the Year 2000
and has given it high priority. In November 1996, the company
created a corporate-wide Year 2000 project team representing all
company business and staff units. The team's objective is to ensure
an uninterrupted transition to the year 2000 by assessing, testing
and modifying IT and non-IT systems (defined below) and date-
sensitive company products so that (a) they will perform as intended,
regardless of the date (before, during and after December 31, 1999),
and (b) dates (before, during and after December 31, 1999 and
including February 29, 2000) can be processed with expected results
("Year 2000 Compliant"). The scope of the Year 2000 compliance effort
includes (i) information technology ("IT") such as software and
hardware; (ii) non-IT systems or embedded technology such as micro-
controllers contained in various manufacturing and laboratory
equipment; environmental and safety systems, facilities and
utilities, (iii) date-sensitive company products; and (iv) the
readiness of key third parties, including suppliers and customers,
and the electronic data interchange (EDI) with those key third
parties.
The Year 2000 project team has taken an inventory of IT and non-IT
systems and date-sensitive company products that might malfunction or
fail as a result of using only the last two digits to indicate the
year. The project teams then categorized the potential date component
failures into three categories: "Vital" (stops the business operation
and no short-term solution is available); "Critical" (inconvenient to
the business operation and a short-term solution is available); and
"Marginal" (inconsequential to the business operation).
IT Systems - The company is using both internal and external
resources to remediate and test millions of lines of application
software code. As of March 31, 1999, approximately (i) 98 percent of
the core central IT application systems (e.g., general ledger,
payroll, procurement and order management), (ii) 92 percent of
central IT infrastructure systems (e.g., telecommunications,
electronic mail, databases, data centers, and system software), and
(iii) 84 percent of the other IT systems (e.g., systems that support
business and staff organizations) located in the United States that
are deemed "Vital" or "Critical" are believed to be Year 2000
Compliant. As of March 31, 1999, approximately 98 percent of the IT
systems in subsidiaries outside the United States that are deemed
"Vital" or "Critical" are believed to be Year 2000 Compliant.
<PAGE> 13
Non-IT Systems - The company has more than 100 manufacturing and
laboratory locations worldwide with varying degrees of non-IT systems
(such as programmable logic controllers, gauging guidance and
adjustment systems and testing equipment). Assessment and testing of
non-IT systems for Year 2000 compliance has proven much more
difficult than assessing compliance of IT systems because testing of
non-IT systems often requires shutdown of the manufacturing
operations.
As a result, the company has approached assessment and testing of non-
IT systems that are common to many of the company's facilities by (i)
contacting the suppliers of these non-IT systems and obtaining
statements that the systems are Year 2000 Compliant, and (ii) testing
components of non-IT systems when they are shut down for normal
maintenance. The company has also shut down manufacturing lines in
three of its facilities and tested non-IT systems that are common to
many of the company's facilities. These tests demonstrate that "time
intervals" instead of "dates" are used almost exclusively in these
non-IT systems and support the company's belief that potential
disruptions of such systems due to the Year 2000 issue should be
minimal.
As of March 31, 1999, approximately 93 percent of the non-IT systems
located in the United States that are deemed "Vital" or "Critical"
and approximately 97 percent of the non-IT systems in subsidiaries
outside the United States that are deemed "Vital" or "Critical" are
believed to be Year 2000 Compliant.
Company Products - The vast majority of the company's products are
not date-sensitive. The company has collected information on current
and discontinued date-sensitive products. The company's website
(http://www.3M.com) contains a section dedicated to communicating
year 2000 information to its customers. This website includes a
search feature to enable customers to determine whether certain 3M
products are Year 2000 compliant.
Third Parties - In addition to internal Year 2000 IT and non-IT
remediation activities, the company is in contact with key suppliers,
contract manufacturers and electronic commerce customers to minimize
potential disruptions in the relationships between the company and
these important third parties related to the Year 2000 issue. The
assessment process includes (i) initial survey, (ii) risk assessment
and contingency planning, and (iii) follow-up reviews.
The company has also categorized supplies purchased from vendors into
three categories: "Vital" (disruption of supply stops the business
operation and no short-term solution is available); "Critical"
(disruption of supply is inconvenient to the business operation and a
short-term solution is available); and "Marginal" (disruption of
supply is inconsequential to the business operation). The company has
focused its efforts on those vendors that supply goods or services
deemed "Vital" to the company's business. The company has received
responses to its initial year 2000 readiness survey from most of its
<PAGE> 14
"Vital" suppliers indicating that the suppliers are working on the
year 2000 issue. While the company cannot guarantee compliance by third
parties, the company is developing contingency plans with its key
suppliers that include the availability of appropriate inventories
of supplies in the event the supplier is not Year 2000 Compliant.
Risks and Worst Case Scenarios - The company believes that its most
reasonably likely worst case scenarios regarding the year 2000 issue
involves the IT and non-IT systems of third parties rather than the
IT and non-IT systems and products of the company. Because the
company has far less control over assessing the year 2000 readiness
of certain third parties, the company believes the risks are greatest
with suppliers of electrical, telecommunications, and transportation
services, particularly suppliers of such services located outside the
United States. Contingency planning regarding the failure of such
services involves maintaining appropriate inventories of key raw
materials and products.
Contingency Planning - The company is preparing contingency plans
specifying what the company will do if failures occur in IT and non-
IT systems, or important third parties are not Year 2000 Compliant.
The process includes identifying and prioritizing risks, assessing
the business impact of those risks, creating notification procedures,
and preparing written contingency plans for those failures with the
greatest risk to the company. As of March 31, 1999, the company's
contingency plans were 75% complete for its IT and non-IT systems and
100% complete for its key suppliers.
Costs - Through March 31, 1999, the company had spent approximately
$55 million out of a total estimate of $77 million related to Year
2000 readiness issue. These costs include the costs incurred for
external consultants and professional advisors and the costs for
software and hardware. The company's process for tracking internal
costs does not capture all of the costs incurred for each of the
teams working on the Year 2000 project. Such internal costs are
principally the related payroll costs for its information systems
group and other employees working on the Year 2000 project. The
company is expensing as incurred all costs related to the assessment
and remediation of the Year 2000 issue. These costs are being funded
through operating cash flows.
The company's current estimates of the time and costs necessary to
remediate and test its computer systems are based on the facts and
circumstances existing at this time. The estimates were made using
assumptions of future events including the continued availability of
certain resources, such as skilled IT personnel and infrastructure
(e.g., electrical supply and water and sewer service),
telecommunications, transportation supply chains, critical suppliers
of materials, and Year 2000 modification plans and implementation
success by key third-parties. New developments could affect the
company's estimates of the amount of time and costs needed to modify
and test its IT and non-IT systems for Year 2000 compliance and,
depending on the year 2000 readiness of certain third parties, could
<PAGE> 15
affect the company's ability to conduct its business. These
developments include, but are not limited to: (i) the availability
and cost of personnel trained in this area; (ii) the ability to
locate and correct all relevant date-sensitive code in both IT and
non-IT systems; (iii) unanticipated failures in IT and non-IT
systems; (iv) the planning and Year 2000 compliance success that key
customers and suppliers attain; (v) failure or collapse of
infrastructure (e.g., disruptions of electrical supply and water and
sewer service), telecommunications, transportation supply chains, and
critical suppliers of materials, particularly those suppliers of such
services and goods located outside the United States; (vi) unforeseen
product shortages due to hoarding of critical raw materials.
The company cannot determine the impact of these potential
developments on the current estimate of probable costs of making its
products and IT and non-IT systems Year 2000 Compliant or the
financial impact on the company. Accordingly, the company is not able
to estimate possible future costs beyond the current estimates. As
new developments occur, these cost estimates may be revised to
reflect the impact of these developments on the costs to the company
of making its products and IT and non-IT systems Year 2000 Compliant.
Such cost revisions could have a material adverse impact on the
company's net income in the quarterly period in which they are
recorded. Although the company considers it unlikely, such revisions
could also have a material adverse effect on the consolidated
financial position or annual results of operations of the company.
Various of the company's disclosures and announcements concerning its
products and year 2000 programs are intended to constitute "Year 2000
Readiness Disclosures" as defined in the recently enacted Year 2000
Information and Readiness Disclosure Act. The Act provides added
protection from liability for certain public and private statements
concerning an entity's year 2000 readiness and the year 2000
readiness of its products and services. The Act also potentially
provides added protection from liability for certain types of year
2000 disclosures made after January 1, 1996 and before the date of
enactment of the Act.
THE EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European
Union (EU) established fixed conversion rates through the European
Central Bank (ECB) between existing local currencies and the euro,
the EU's new single currency. The participating countries had agreed
to adopt the euro as their common legal currency on that date. From
that date, the euro is traded on currency exchanges and is available
for non-cash transactions.
Following introduction of the euro, local currencies will remain
legal tender until December 31, 2001. During this transition period,
goods and services may be paid for with the euro or the local
currency under the EU's "no compulsion, no prohibition" principle. If
cross-border payments are made in a local currency during this
transition period, the amount will be converted into euros and then
converted from euros into the second local currency at rates fixed by
<PAGE> 16
the ECB. By no later than December 31, 2001, the participating
countries will issue new euro-denominated bills and coins for use in
cash transactions. By no later than July 1, 2002, participating
countries will withdraw all bills and coins denominated in local
currencies, making the euro conversion complete.
In February 1997, the company created a European Monetary Union (EMU)
Steering Committee and project teams representing all company
business and staff units in Europe. The common objective of these
teams is to ensure a smooth transition to EMU for the company and its
constituencies. The scope of the teams' efforts includes (i)
assessing the euro's impact on the company's business and pricing
strategies for customers and suppliers, and (ii) ensuring that the
company's business processes and information technology (IT) systems
can process transactions in euros and local currencies during the
transition period and achieve the conversion of all relevant local
currency data to the euro by December 31, 2001, in the participating
countries.
The European market contributed 26% of consolidated sales and 20% of
consolidated operating income, excluding the restructuring charge, in
1998. The company believes that the euro will, over time, increase
price competition for the company's products across Europe due to
cross-border price transparency. The company also believes that the
adverse effects of increased price competition will be offset
somewhat by new business opportunities and efficiencies. The company,
however, is not able to estimate the anticipated net long-term
impact of the euro introduction on the company.
The company has consolidated IT operations and made significant
investments in IT systems in Europe in anticipation of the EMU. The
company expects that these investments will enable the company to
manage customer orders, invoices, payments and accounts in euros and
in local currencies according to customer needs during the three-year
transition period. During this period, the company anticipates
spending approximately $35-50 million to complete the conversion to
the euro. Because the company believes its IT systems will be ready
by December 31, 2001 for the euro conversion, it has not developed
contingency plans at this time.
The euro introduction is not expected to have a material impact on
the company's overall currency risk. Although the company engages in
significant trade within the EU, the impact to date of changes in
currency exchange rates on trade within the EU has not been material.
The company anticipates the euro will simplify financial issues
related to cross-border trade in the EU and reduce the transaction
costs and administrative time necessary to manage this trade and
related risks. The company believes that the associated savings will
not be material to corporate results.
The company has derivatives outstanding beyond January 1, 1999, in
several European currencies. Under the EU's "no compulsion, no
prohibition" principle, the outstanding derivative positions will
either mature as local currency contracts or convert to euro
contracts at no additional economic cost to the company. The company
<PAGE> 17
believes that systems used to monitor derivative positions can be
appropriately modified for these changes. The company believes the
impact of the euro introduction on the company's derivative positions
will not be material.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. This Quarterly
Report on Form 10-Q contains forward-looking statements, which
reflect the company's current views with respect to future events and
financial performance.
These forward-looking statements are subject to certain risks and
uncertainties, including those identified here, which could cause
actual results to differ materially from historical results or those
anticipated. The words "aim," "believe," "expect," "anticipate,"
"intend," "estimate," "will," "should," "could" and other expressions
that indicate future events and trends identify forward-looking
statements.
Actual future results and trends may differ materially from
historical results or those anticipated depending on a variety of
factors, including, but not limited to: foreign exchange rates and
fluctuations in those rates; the effects of, and changes in,
worldwide economic conditions; the timing and market acceptance of
new product offerings; raw materials, including shortages and
increases in the costs of key raw materials; the impact of the Year
2000 issue; and legal proceedings (see discussion of Legal
Proceedings in Part II, Item 1 of this Form 10-Q).
FINANCIAL CONDITION AND LIQUIDITY
The company's financial condition and liquidity remain strong.
Working capital increased $142 million to $2.074 billion at March 31,
1999, compared with $1.932 billion at year-end 1998. The accounts
receivable average days' sales outstanding was 60 days, down slightly
from year-end. The company's key inventory index was 3.3 months,
down from 3.4 months at year-end. The company's current ratio was
1.5, up from 1.4 at year-end.
Total debt decreased $386 million from year-end 1998 to $2.720
billion. As of March 31, 1999, total debt was 31 percent of total
capital.
The company's strong credit rating provides ready and ample access to
funds in global capital markets. At March 31, 1999, the company had
available short-term lines of credit totaling about $670 million.
Net cash provided by operating activities totaled $828 million in the
first three months of the year, up $453 million from the same period
last year. The first quarter of 1999 was helped by good working
capital management. Inventories declined by about $390 million, or
16 percent, when compared to the first quarter of 1998. Working
capital and other changes in 1999 include a $65 million use of
cash for the
<PAGE> 18
impact of the employee termination benefits paid in connection
with the restructuring charge. Net cash outflows from mammary implant
litigation were $61 million lower than in the same period last year.
During the second quarter of 1999, the company expects to receive more
than $200 million of insurance recoveries related to product claims.
Timing differences between payment of implant liabilities and receipt
of related insurance recoveries could affect the cash flows of future
periods. This is discussed in Part II, Item 1, Legal Proceedings, of
this Form 10-Q.
Cash used in investing activities was $329 million in the first three
months of the year, compared with $401 million in the same period
last year. Capital expenditures for the first three months of 1999
were $289 million, a decrease of about 15 percent when compared with
the same period last year. The company expects to receive cash
proceeds (net of tax) in the second or third quarter of 1999 of
approximately $185 million relating to its pending divestitures of
Eastern Heights Bank and the Cardiovascular Systems business.
Treasury stock repurchases for the first three months of 1999 were
$32 million, compared with repurchases in the same period last year
of $187 million. Financing activities for both short-term and long-
term debt provided net cash outflows of $240 million, compared with
net cash inflows of $258 million in the first three months last year.
The company repurchased about 400,000 shares of common stock in the
first three months of 1999, compared with 2.2 million shares in the
same period last year. In February 1999, the Board of Directors
authorized the repurchase of up to 12 million shares of 3M common
stock through December 31, 1999. As of March 31, 1999, 11.6 million
shares remained authorized for repurchase. Stock repurchases are
made to support employee stock purchase plans and for other corporate
purposes.
Cash dividends paid to shareholders totaled $225 million in the first
three months of this year, compared with $222 million in the same
period last year. In February 1999, the quarterly dividend was
increased to 56 cents a share.
Legal proceedings are discussed in the Legal Proceedings section in
Part II, Item 1, of this Form 10-Q. 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, would not have a material adverse effect
on the consolidated financial position or annual results of
operations of the company. (NOTE: The preceding sentence applies to
all legal proceedings involving the company except the breast implant
litigation. See discussion of breast implant litigation in Legal
Proceedings, Part II, Item 1.)
<PAGE> 19
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 its possible 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, would not have a material
adverse effect on the consolidated financial position or annual
results of operations of the company. (NOTE: The preceding sentence
applies to all legal proceedings involving the company except the
breast implant litigation, which is discussed separately in the next
section).
Breast Implant Litigation
As of March 31, 1999, the company had been named as a defendant,
often with multiple co-defendants, in 5,488 lawsuits and 121 claims
in various courts, all seeking damages for personal injuries from
allegedly defective breast implants. These claims and lawsuits
purport to represent 20,060 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, or how many of these lawsuits and claims involve
individuals who accepted benefits under the Revised Settlement
Program (as defined below). The company has confirmed that
approximately 1,000 individuals who opted out of the class action
have 3M implants. 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 also was
named McGhan Medical Corporation.
<PAGE> 20
The typical claim or lawsuit alleges the individual's breast implants
caused one or more of a wide variety of ailments and local
complications, 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 may seek certain types of equitable
relief, including requiring the company to fund the costs associated
with removal of the breast implants.
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. These manufacturers include,
but are 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, and
differences in applicable law and insurance coverage.
A number of breast implant lawsuits seek to recover punitive damages.
Any punitive damages that may be awarded against the company may or
may not be covered by certain insurance policies depending on the
language of the insurance policy, applicable law and agreements with
insurers.
In addition to 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 Louisiana state court action (SPITZFADEN, ET
AL., v. DOW CORNING CORPORATION, ET AL., Dist. Ct., Parish of
Orleans, 92-2589) has been decertified by the trial court.
Plaintiffs' writ for an emergency appeal from the decertification has
been denied by the Louisiana Supreme Court. A normal appeal remains
pending.
<PAGE> 21
The company also has 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 ordered that, beginning after November 30, 1995, members of
the plaintiff class may choose to participate in the Revised
Settlement Program or opt out, which would then allow them to proceed
with separate products liability actions.
The Revised Settlement Program includes domestic class members with
implants manufactured by certain manufacturer defendants, including
Baxter International, Bristol-Myers Squibb Company, 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. Post 8/84 McGhan implant benefits are
payable in fixed shares by the company, Union Carbide Corporation and
McGhan Medical Corporation. McGhan Medical Corporation has defaulted
on its fixed share obligation (which does not affect 3M's obligation
to pay its share) and has a request for a mandatory class action
recently approved by the Court.
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, are not
affected by the number of class members who have elected to opt out
of the Revised Settlement Program or the number of class members
making claims under the Revised Settlement Program. In addition to
certain miscellaneous benefits, the Revised Settlement Program
provides for two compensation options 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
<PAGE> 22
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 of 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 of the Revised
Settlement Program or, as an elective option expiring on June 15,
1999, a payment of $3,500 in full settlement of all breast implant
claims including any claim for Long-Term Benefits under the Revised
Settlement Program. Benefit levels for eligible participants who are
not current claimants and have only Post 8/84 McGhan implants (or
only Post 8/84 McGhan implants plus certain other manufacturers'
implants) will range from $10,000 to $50,000.
On June 10, 1998 the Court approved the terms of a settlement program
offered by Baxter International, Bristol-Myers Squibb Company and the
company to eligible foreign implant recipients (the "Foreign
Settlement Program"). Notices and claim forms were mailed on June
15, 1998. Benefits to eligible foreign claimants range from $3,500
to $50,000.
As of the date of this filing, the company believes that
approximately 90% of the registrants, including those claimants who
filed current claims, have elected to participate in the Revised
Settlement Program. It is still unknown as to what disease criteria
all claimants have satisfied, and what options they have chosen. 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. As of March 31, 1999, the company has
paid $232 million into the court-administered fund as a reserve
against costs of claims payable by the company under the Revised
Settlement Program (including a $5 million administrative
assessment). Additional payments will be made as necessary. Payments
to date have been consistent with the company's estimates of the
total liability for these claims.
<PAGE> 23
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 1998, the company increased its estimate of the
minimum probable liabilities and associated expenses to approximately
$1.1 billion, with an offsetting increase in the probable amount of
insurance recoveries. This amount represents the company's best
estimate of the minimum amount to cover the cost and expense of the
Revised Settlement Program and the cost and expense of resolving opt-
out claims and recovering insurance proceeds. After subtracting
payments of $1.007 billion as of March 31, 1999, for defense and
other costs and settlements with litigants and claimants, the company
had accrued liabilities of $93 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 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 with applicable coverages. The
state of Texas has 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 continuing in
phases. The most recent phases were completed on January 20, 1999
and March 31, 1999.
<PAGE> 24
In mid-October 1995, the occurrence insurers that are parties to the
litigation in Minnesota filed more than 30 motions for summary
judgment or partial summary judgment. The insurers, through these
motions, attempted to shift all or a portion of the responsibility
for those claims 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
trial's first phase in 1996, 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 the allocation method to be applied in
the case. In July 1997, the trial court ruled further on the trigger
issue and on the general allocation method. That ruling was
consistent with and further supported the company's opinion as stated
in the following paragraph. In November 1997, upon reconsideration,
the court reversed a portion of its July ruling and reinstated a
portion of its previous ruling. The company believed that conflicting
rulings existed that needed to be clarified by the court and
reconciled with applicable law. Motions to clarify the allocation
methodology of triggered policies under these rulings were filed and
have been ruled upon by the Court. While the Court clarified certain
aspects of these rulings it also ruled that there would be no
allocation from and after 1986. This ruling is consistent with the
company's position on the allocation issue.
The company believes it ultimately will prevail in this insurance
litigation. The company's belief is based on an analysis of its
insurance policies; court decisions on these and similar issues;
reimbursement by insurers for these types of claims; and consultation
with outside counsel who are experts in insurance coverage matters.
If, however, the occurrence insurers ultimately prevail in this
insurance litigation, the company could be effectively deprived of
significant and potentially material insurance coverage for breast
implant claims. (See discussion of the accrued receivables for
insurance recoveries below.)
As of March 31, 1999, the company had accrued receivables for
insurance recoveries of $750 million, substantially all of which is
contested by the insurance carriers. During the first quarter of 1999
the company executed a settlement agreement with its lead occurrence
underwriter. The first payment of settlement dollars was received on
April 14, 1999, with additional and final payments to be made no
later than June 15, 1999. Various factors 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; (iv) delays in
payment by insurers; and (v) the extent to which insurers may become
insolvent in the future. There can be no absolute assurance that the
company will collect all amounts accrued as being probable of
recovery from its insurers.
<PAGE> 25
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 ultimate Fixed
Amount Benefit distribution to claimants in the Revised Settlement
Program; (ii) the success of and costs to the company in defending
opt-out 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;
and (iv) the outcome of potential arbitration with claims-made
insurers.
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
possible future liabilities and recoveries beyond the current
estimates of probable amounts. As new developments occur, these
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, claims and insurance
recoveries. 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. Although the company considers it
unlikely, such revisions or additional future charges could also 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, it is probable 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.
Therefore, no recognition of additional charges has been made.
Environmental Matters
The company also is involved in a number of environmental proceedings
by governmental agencies and by private parties 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.
<PAGE> 26
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as exhibits to this
Report.
(12) A statement regarding the calculation of the ratio of
earnings to fixed charges. Page 28.
(15) A letter from the company's independent auditors
regarding unaudited interim consolidated
financial statements. Page 29.
(27) Financial data schedule (EDGAR filing only).
None of the other item requirements of Part II of Form 10-Q are
applicable to the company for the quarter ended March 31, 1999.
<PAGE> 27
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 6, 1999
/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.)
<PAGE> 28
<TABLE>
EXHIBIT 12
MINNESOTA MINING AND MANUFACTURING COMPANY AND SUBSIDIARIES
CALCULATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
(Unaudited)
<CAPTION>
Three Months
Ended
March 31, Year Year Year Year Year
1999 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income from continuing
operations before
income taxes, minority
interest and
extraordinary loss* $ 626 $1,952 $3,440 $2,479 $2,168 $2,011
Add:
Interest on debt 31 139 94 79 102 70
Interest component of the
ESOP benefit expense 5 29 32 34 37 39
Portion of rent under
operating leases
representative of the
interest component 10 41 41 46 51 46
Less: Equity in undistributed
income of 20-50% owned
companies 1 4 3 -- 1 2
------ ------- ------- ------- ------- -------
TOTAL EARNINGS AVAILABLE
FOR FIXED CHARGES $ 671 $2,157 $3,604 $2,638 $2,357 $2,164
====== ====== ====== ====== ====== ======
FIXED CHARGES
Interest on debt 31 139 94 79 102 70
Interest component of the
ESOP benefit expense 5 29 32 34 37 39
Portion of rent under
operating leases
representative of the
interest component 10 41 41 46 51 46
------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES $ 46 $ 209 $ 167 $ 159 $ 190 $ 155
====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO
FIXED CHARGES 14.59 10.32 21.58 16.59 12.41 13.96
<FN>
<F1>
*1998 includes a pre-tax restructuring charge of $493 million; 1997
includes a pre-tax gain on the sale of National Advertising Company of $803
million; 1995 includes a pre-tax restructuring charge of $79 million.
</FN>
</TABLE>
<PAGE> 29
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated May 5, 1999, on our reviews of
interim consolidated financial information of Minnesota Mining and
Manufacturing Company and Subsidiaries (the Company) for the three-
month periods ended March 31, 1999 and 1998, and included in the
Company's Form 10-Q for the quarter ended March 31, 1999, is
incorporated by reference in the Company's registration statements on
Form S-8 (Registration Nos. 33-14791, 33-49842, 33-58767, 333-26957,
333-30689 and 333-30691), and Form S-3 (Registration No. 33-48089).
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Paul, Minnesota
May 6, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED BALANCE SHEET
AND RELATED NOTES 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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 253
<SECURITIES> 98
<RECEIVABLES> 2,647
<ALLOWANCES> 0
<INVENTORY> 2,092
<CURRENT-ASSETS> 966
<PP&E> 13,275
<DEPRECIATION> 7,759
<TOTAL-ASSETS> 13,746
<CURRENT-LIABILITIES> 3,982
<BONDS> 1,569
0
0
<COMMON> 236
<OTHER-SE> 5,733
<TOTAL-LIABILITY-AND-EQUITY> 13,746
<SALES> 3,776
<TOTAL-REVENUES> 3,776
<CGS> 2,162
<TOTAL-COSTS> 2,162
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 626
<INCOME-TAX> 225
<INCOME-CONTINUING> 384
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 384
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
