<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, 2000 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, 2000, there were 395,808,904 shares of the
Registrant's common stock outstanding.
This document contains 22 pages.
The exhibit index is set forth on page 19.
<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
2000 1999
<S> <C> <C>
Net sales $4,052 $3,776
Operating expenses
Cost of goods sold 2,266 2,162
Selling, general and
administrative expenses 1,021 965
Other (50) --
Total 3,237 3,127
Operating income 815 649
Other income and expense
Interest expense 26 31
Investment and other
income - net (6) (8)
Total 20 23
Income before income taxes
and minority interest 795 626
Provision for income taxes 282 225
Minority interest 26 17
Net income $ 487 $ 384
Weighted average common
shares outstanding - basic 397.7 402.3
Earnings per share - basic $ 1.22 $ .95
Weighted average common
shares outstanding - diluted 401.9 405.9
Earnings per share - diluted $ 1.21 $ .95
<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,
2000 1999
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 214 $ 387
Other securities 62 54
Accounts receivable - net 2,810 2,778
Inventories
Finished goods 1,142 1,103
Work in process 586 544
Raw materials and supplies 379 383
Total inventories 2,107 2,030
Other current assets 914 817
Total current assets 6,107 6,066
Investments 527 487
Property, plant and equipment 13,406 13,379
Less accumulated depreciation (7,802) (7,723)
Property, plant and equipment - net 5,604 5,656
Other assets 1,731 1,687
Total $13,969 $13,896
Liabilities and Stockholders' Equity
Current liabilities
Short-term debt $ 1,094 $ 1,130
Accounts payable 984 1,008
Payroll 378 361
Income taxes 576 464
Other current liabilities 910 856
Total current liabilities 3,942 3,819
Long-term debt 1,449 1,480
Other liabilities 2,319 2,308
Stockholders' equity
Common stock, $.50 par value,
472,016,528 shares issued 236 236
Capital in excess of par value 60 60
Retained earnings 10,975 10,741
Treasury stock, at cost (4,084) (3,833)
March 31, 2000: 76,207,624 shares
December 31, 1999: 73,305,711 shares
Unearned compensation - ESOP (314) (327)
Accumulated other comprehensive income (loss)
Cumulative translation - net (748) (694)
Minimum pension liability adjustments - net (30) (30)
Debt and equity securities, unrealized gain - net 164 136
Total accumulated other comprehensive loss (614) (588)
Stockholders' equity - net 6,259 6,289
Total $13,969 $13,896
<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
2000 1999
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 487 $ 384
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 228 223
Accounts receivable (79) (77)
Inventory (109) 57
Implant litigation - net 21 (30)
Working capital and other changes - net 25 271
Net cash provided by operating activities 573 828
Cash Flows from Investing Activities
Purchases of property, plant and equipment (244) (289)
Other changes - net 11 (40)
Net cash used in investing activities (233) (329)
Cash Flows from Financing Activities
Change in short-term debt - net (32) (136)
Repayment of long-term debt (16) (104)
Purchases of treasury stock (341) (32)
Reissuances of treasury stock 68 67
Dividends paid to stockholders (231) (225)
Net cash used in financing activities (552) (430)
Effect of exchange rate changes on cash 39 (27)
Net increase (decrease) in cash and cash equivalents (173) 42
Cash and cash equivalents at beginning of year 387 211
Cash and cash equivalents at end of period $ 214 $ 253
<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 1999 Annual Report on Form 10-K.
New Accounting Pronouncements:
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition." An amendment in
March 2000 delayed the effective date until the second quarter of
2000. The company is reviewing the requirements of this standard and
has not yet determined the impact of this standard on its
consolidated financial statements.
Restructuring Charge:
As of December 31, 1999, the restructuring program, initiated in the
second half of 1998, was substantially complete. This is discussed
in the 1999 Form 10-K. Because certain employees can defer receipt
of termination benefits for up to 12 months, cash payments in the
first quarter of 2000 relate primarily to previous terminations. The
remaining restructuring liability as of March 31, 2000, totaled $20
million. Selected information relating to the restructuring follows.
<TABLE>
<CAPTION>
Restructuring Employee
Liability Termination
(Millions) Benefits Other Total
<S> <C> <C> <C>
December 31, 1999 liability $ 31 $ 8 $ 39
Cash payments
First quarter 2000 (18) (1) (19)
March 31, 2000 liability $ 13 $ 7 $ 20
</TABLE>
<PAGE> 6
Business Segments:
Business segment operating income for 1999 was restated for minor
amounts, to be consistent with year 2000 management reporting
practices, by allocating certain costs previously included in
Corporate and Unallocated to the individual business segments. 3M net
sales and operating income by segment for 1999 and for the first
quarter of 2000 follow.
<TABLE>
<CAPTION>
Business
Segment First Fourth Third Second First
Information Qtr Year Qtr Qtr Qtr Qtr
(Millions) 2000 1999 1999 1999 1999 1999
<S> <C> <C> <C> <C> <C> <C>
Net sales
Industrial $ 911 $ 3,394 $ 865 $ 851 $ 836 $ 842
Transportation,
Graphics and Safety 872 3,228 819 826 806 777
Health Care 765 3,118 789 768 793 768
Consumer and Office 687 2,688 700 712 638 638
Electro and
Communications 505 2,014 553 534 485 442
Specialty Material 305 1,166 284 298 292 292
Corporate and
Unallocated 7 51 13 8 13 17
Total Company $4,052 $15,659 $4,023 $3,997 $3,863 $3,776
Operating income
Industrial $ 185 $ 612 $ 156 $ 154 $ 154 $ 148
Transportation,
Graphics and Safety 209 675 172 184 171 148
Health Care 193 680 159 183 194 144
Consumer and Office 105 401 97 121 95 88
Electro and
Communications 89 402 111 119 90 82
Specialty Material 51 185 20 50 60 55
Corporate and
Unallocated (17) 1 27 (50) 40 (16)
Total Company $ 815 $ 2,956 $ 742 $ 761 $ 804 $ 649
</TABLE>
First quarter 2000 operating income includes a $50 million benefit
relating to the termination of a product distribution agreement in
the Health Care segment. Third quarter 1999 operating income
includes a $43 million gain related to divestitures, mainly in the
Health Care area, and Corporate and Unallocated includes $73 million
in litigation expense partially offset by a $26 million change in
estimate that reduced the restructuring charge. Second quarter 1999
operating income includes one-time net gains, primarily related to
divestitures, of $30 million in Health Care and $74 million in
Corporate and Unallocated.
<PAGE> 7
Earnings Per Share:
The difference in the weighted average common 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, 2000 and
1999. Certain MSOP options outstanding at March 31, 2000, were not
included in the computation of diluted earnings per share because
they would not have had a dilutive effect (15.0 million shares of
common stock for the three months ended March 31, 2000; and 11.2
million shares of common stock for the three months ended March 31,
1999).
Comprehensive Income:
The components of total comprehensive income are shown below. In the
first quarter of 2000, deferred income taxes for the unrealized gain
on debt and equity securities totaled $17 million.
<TABLE>
<CAPTION>
Total Comprehensive Income Three months ended
March 31
(Millions) 2000 1999
<S> <C> <C>
Net income $ 487 $ 384
Other comprehensive income (loss)
Cumulative translation - net (54) (184)
Debt and equity securities,
unrealized gain - net 28 11
Total comprehensive income $ 461 $ 211
</TABLE>
Subsequent Event:
In April, 2000, 3M acquired 100 percent of the voting stock, half of
the total shares outstanding, of Quante AG, a manufacturer of
telecommunications products and systems for cash. The company has made
a tender offer for the remaining shares outstanding. The purchase method
of accounting will be used. Sales of Quante AG in 1999 were
approximately $350 million.
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, 2000, and the related consolidated statements of income and
of cash flows for the three-month periods ended March 31, 2000 and
1999. 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 auditing standards generally accepted in the United States, 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 accounting principles
generally accepted in the United States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the consolidated balance
sheet as of December 31, 1999, and the related consolidated
statements of income, of changes in stockholders' equity and
comprehensive income, and of cash flows for the year then ended (not
presented herein); and in our report dated February 14, 2000, 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, 1999, 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
April 25, 2000
<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 $4.052 billion, up 7.3
percent from the first quarter last year. Volumes increased 10
percent, continuing the positive momentum from fourth quarter 1999.
Selling prices worldwide declined about 1.5 percent, largely due to
reductions in 3M's electronics and traffic control material
businesses, both of which posted strong volume gains. Currency,
while positive in the Asia Pacific area, was negative in Europe, and
decreased sales worldwide by about 1 percent.
In the United States, sales increased about 7 percent to $1.892
billion. Adjusted for divestitures and acquisitions, revenues rose
about 8 percent. Volume increased about 8 percent, while selling
prices declined about 1 percent.
Internationally, sales totaled $2.160 billion, up about 7.5 percent
in dollars and 10 percent in local currencies. Volume increased 12
percent, while selling prices declined about 2 percent. European
local currency sales increased about 8.5 percent, 3M's best growth in
several quarters. In the Asia Pacific area, local currency sales
increased nearly 14 percent. In Asia outside Japan, local currency
sales increased 26 percent, with solid gains throughout the area,
particularly in Korea. In Japan, local currency sales increased over
7 percent. In Latin America, sales in local currencies were up about
9 percent. The company saw strong growth in Mexico, and a good
rebound in business in Brazil. Dollar sales in Latin America
increased about 6.5 percent. In Canada, local currency sales
increased about 2 percent.
Cost of goods sold was 55.9 percent of sales, down 1.4 percentage
points from the first quarter last year. Gross margins benefited from
a strong performance in our factories, volume growth, productivity
gains and lower employee benefit costs. Cost of goods sold includes
manufacturing; research, development, and related expenses; and
engineering expenses.
Selling, general and administrative expenses were 25.2 percent of
sales, down three-tenths of a percentage point from the same quarter
last year. These expenses were helped by lower employee benefit
costs, but also reflected higher investments in advertising and
promotion.
Other operating income reflects a pre-tax benefit of $50 million, or 8
cents per share, associated with the termination of a product marketing
and distribution agreement in the health care business.
Worldwide operating income was 20.1 percent of sales. Excluding the
$50 million benefit, operating income was 18.9 percent of sales, up
1.7 percentage points from the first quarter last year.
<PAGE> 10
First-quarter interest expense of $26 million was down $5 million
from the same quarter last year, but in line with recent quarters.
Net investment and other income was $6 million, also in line with
recent quarters.
The worldwide effective income tax rate for the quarter was 35.5
percent, down from 36.0 percent in the first quarter last year.
Minority interest was $26 million, compared with $17 million in the
first quarter of 1999. The increase reflects higher profits in
Sumitomo 3M Limited, partially offset by a decrease in minority
interest expense relating to 3M's acquisition of the remaining 46
percent in Dyneon LLC at the end of 1999.
Net income for the first quarter of 2000 totaled $487 million, or
$1.21 per diluted share, compared with $384 million, or $.95 per
diluted share, in the first quarter of 1999. The company estimates
that changes in the value of the U.S. dollar decreased earnings for
the quarter by about 4 cents per share compared with the first
quarter of 1999. 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.
Performance by Business Segment
The following is a discussion of the global operating results of the
company's six business segments.
In 3M's largest segment, Industrial Markets, sales increased 8
percent in dollars and nearly 10 percent in local currencies,
continuing the momentum this segment began to show in the second half
of 1999. This market is growing through a stronger flow of new
products, including higher-performing masking tapes, advanced paint
finishing systems, and proprietary tapes, adhesives and abrasives for
the electronics industry. Profits of this market rose 25 percent
from the first quarter last year, propelled by volume gains,
increased manufacturing efficiencies, and other cost improvements.
In the Transportation, Graphics and Safety segment, sales rose 12
percent both in dollars and in local currencies. This segment
continued to register outstanding growth in optical films for liquid-
crystal displays for computers, electronic organizers, mobile
phones and other electronic devices. Traffic control materials,
automotive and commercial graphics also turned in strong
performances. Profits increased 41 percent from the comparable
quarter, led by double-digit sales growth and productivity gains.
In the Health Care segment, sales were basically flat in dollars and
up 2 percent in local currencies. Excluding divestitures, local-
currency health care sales increased about 6.5 percent. The skin
health, health information systems and dental businesses all posted
good sales gains. Health care profits, which include the $50 million
pre-tax benefit, were over 25 percent of sales. Without this item,
margins in Health Care were nearly 19 percent, similar to the first
quarter last year.
<PAGE> 11
In the Consumer and Office segment, sales increased about 8 percent
in dollars and about 10 percent in local currencies. The office
supply, home care and do-it-yourself businesses drove higher
revenues. Profits rose 20 percent from the first quarter last year,
mainly due to solid volume gains.
In the Electro and Communications segment, revenues increased 14
percent in dollars and 15 percent in local currencies. The company
continued to see strong growth in Microflex circuits. The newly
formed Interconnect Solutions Division, which supplies electronic
cabling, cable assemblies and electronic connectors, also achieved
sharply higher sales. In telecommunications, growth was primarily
driven by continued strong demand for connecting, protecting and
other products used by telephone service providers to upgrade the
performance of their installed copper-based systems. Profits of this
market increased about 9 percent. Profits grew more slowly than
sales due to volume-related price decreases in certain 3M electronic
products.
In the Specialty Material Markets segment, sales increased 5 percent
in dollars and about 7 percent in local currencies. Growth was led
by performance materials, particularly in electronics-related
applications and by 3M's roofing granules business. 3M acquired the
remaining 46 percent minority interest in Dyneon at the end of 1999.
In the year 2000, the purchase method of accounting resulted in the
amortization of intangibles and higher depreciation of fixed assets
within operating income. On a proforma basis, assuming this
acquisition had occurred at the beginning of 1999, this market would
show an operating income increase of 2 percent. Also, in 2000, the
46 percent minority interest profit remains with 3M and is not
eliminated, resulting in a first quarter 2000 benefit to the company
of $7 million that is not reflected in reported market operating
income.
FINANCIAL CONDITION AND LIQUIDITY
The company's financial condition and liquidity remain strong.
Working capital totaled $2.165 billion at March 31, 2000, compared
with $2.247 billion at year-end 1999. The accounts receivable average
days' sales outstanding was 56 days, down from 61 days at year-end.
The company's inventory index was 3.2 months, up slightly from 3.1
months at year-end. The company's current ratio was 1.5, down from
1.6 at year-end.
Total debt decreased $67 million from year-end 1999 to $2.543 billion.
As of March 31, 2000, total debt was 29 percent of total capital.
The company's strong credit rating provides ready and ample access to
funds in global capital markets. At March 31, 2000, the company had
available short-term lines of credit totaling about $703 million.
Net cash provided by operating activities totaled $573 million in the
first three months of the year, down $255 million from the same
period last year. In the year 2000, accounts receivable and inventory
dollars increased, primarily due to solid sales growth. In 1999, the
company had benefits in working capital and other areas. Net cash
inflows from mammary implant litigation were $21 million in the first
three months of 2000, compared with $30 million in net cash outflows
in the same period last year.
<PAGE> 12
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 totaled $233 million in the first
three months of the year, compared with $329 million in the same
period last year. Capital expenditures for the first three months of
2000 were $244 million, a decrease of about 15 percent from the same
period last year.
In April 2000, 3M acquired 100 percent of the voting stock, half of the
total shares outstanding, of Quante AG, a manufacturer of telecommunications
products and systems for cash. The company has made a tender offer for
the remaining shares outstanding. Sales of Quante AG in 1999 were
approximately $350 million. The company expects to complete a number
of acquisitions in 2000, principally for cash, although no estimate
can currently be made of the number of such acquisitions or the amounts
involved.
Treasury stock repurchases for the first three months of 2000 were
$341 million, compared with $32 million in the same period last year.
Financing activities in the first three months of 2000 for both short-
term and long-term debt included net cash outflows of $48 million,
compared with net cash outflows of $240 million in the same period
last year.
The company repurchased about 3.9 million shares of common stock in
the first three months of 2000, compared with about 400,000 shares in
the same period last year. In November 1999, the Board of Directors
authorized the repurchase of up to 12 million shares of 3M common
stock through December 31, 2000. As of March 31, 2000, 8.1 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 $231 million in the first
three months of this year, compared with $225 million in the same
period last year. In February 2000, the quarterly dividend was
increased to 58 cents per share.
Legal proceedings are discussed in the Legal Proceedings section in
Part II, Item 1, of this Form 10-Q.
FUTURE OUTLOOK
The company is not able to project what the consequences will be from
the dynamic economies around the world. The company is monitoring
business conditions closely and is prepared to make adjustments in
costs, pricing and investments as appropriate.
For the next nine months, the company expects to increase sales in
local currencies, including the Quante AG acquisition, close to 10
percent. Volume is expected to increase nearly 11 percent, with
selling prices down about 1 percent. Currency, at April 25, 2000,
rates, would reduce year 2000 sales by about 1.5 percent worldwide.
<PAGE> 13
The company expects continued solid earnings growth in the remaining
nine months of 2000. The company estimates, based on currency rates
as of April 25, 2000, that currency would reduce earnings for the
year by about 10 cents per share, primarily due to a weaker-than-
anticipated Euro. The company expects raw material costs to increase
about 2 percent for the year 2000. Despite these challenges, the
company believes it will deliver solid results, helped by strong
volume gains and continued good productivity.
YEAR 2000 UPDATE
As of the date of this filing, the company has not experienced any
material Year 2000 problems with its IT or non-IT systems or
products, nor has the company experienced any material problems with
any of its key customers or suppliers. Refer to the 1999 Form 10-K
for a complete discussion of the Year 2000 issue.
THE EURO CONVERSION
There have not been any significant new developments relating to the
Euro Conversion since year-end 1999. Refer to the 1999 Form 10-K for
a complete discussion of the Euro Conversion.
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 that 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: the effects of, and changes
in, worldwide economic conditions; foreign exchange rates and
fluctuations in those rates; the timing and market acceptance of new
product offerings; raw materials, including shortages and increases
in the costs of key raw materials; and legal proceedings (see
discussion of Legal Proceedings in Part II, Item 1 of this Form 10-Q).
<PAGE> 14
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, 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, annual results of
operations, or cash flows of the company. (NOTE: The preceding
sentence applies to all legal proceedings involving the company
except the breast implant litigation and environmental matters,
which are discussed separately in the next sections).
Breast Implant Litigation
As previously reported in the company's Annual Report of Form 10-K
for the year ended December 31, 1999, the company and certain other
companies have been named as a defendant in a number of claims and
lawsuits alleging damages for personal injuries of various types
resulting from breast implants formerly manufactured by the company
or a related company. 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.
As of March 31, 2000, the company had been named as a defendant,
often with multiple co-defendants, in 2,752 lawsuits and 36 claims
in various courts, all seeking damages for personal injuries from
allegedly defective breast implants. These lawsuits and claims
purport to represent 8,751 individual claimants. It is not yet
certain how many of these lawsuits and claims involve (i) products
<PAGE> 15
manufactured and sold by the company, as opposed to other
manufacturers, or (ii) individuals who accepted benefits under the
Revised Settlement Program (as defined later). The company has
confirmed that 421 of the 8,751 individual claimants have opted out
of the class action and have 3M Implants. The company believes that
most of these lawsuits and claims will be dismissed either because
the claimants did not have 3M Implants or the claimants accepted
benefits under the Revised Settlement Program. The company continues
to work to clarify the status of these lawsuits and claims.
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 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 product liability
actions.
The company believes that approximately 90 percent 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, 2000, the company has paid $293
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.
Under the Revised Settlement Program, additional opt outs are
expected to be minimal since the opt-out deadline has passed for
virtually all U.S. class members. The company's remaining
obligations under the Revised Settlement Program are limited since
(i) most payments to Current Claimants have already been made, (ii)
no additional Current Claims may be filed without court approval,
and (iii) Late Registrants are limited by the terms of the Revised
Settlement Program.
The company's current best estimate of the 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 is $1.2 billion. After subtracting payments of $1.137
billion as of March 31, 2000, for defense and other costs and
settlements with litigants and claimants, the company had accrued
liabilities of $63 million.
As previously reported in the company's Annual Report of Form 10-K
for the year ended December 31, 1999, the company's insurers
initiated a declaratory judgment action in Ramsey County Minnesota
<PAGE> 16
against the company seeking adjudication of certain coverage and
allocation issues. The jury trial finished on February 24, 2000. The
jury returned a verdict favorable to the company by rejecting all of
the insurers' remaining defenses to coverage for breast implant
liabilities and costs. The court will consider additional remedies
requested by the company and the insurers including eliminating,
limiting or extending allocation among the insurers providing
occurrence-based coverage (before 1986), pre- and post-judgment
interest, attorneys' fees and further equitable relief. The company
expects the court's findings and final judgment in the summer of
2000.
As of March 31, 2000, the company had accrued receivables for
insurance recoveries of $578 million, representing settled but yet
to be paid amounts as well as amounts contested by the insurance
carriers. During the first quarter of 2000, the company reached
final settlement or settlement agreements in principle with a number
of its occurrence carriers and received payments from several of
these occurrence carriers. 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.
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
<PAGE> 17
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, annual results of operations, or cash flows of the
company.
Environmental Matters
The company's operations are subject to environmental laws and
regulations enforceable by foreign, federal, state, local
authorities and private parties in the United States and abroad,
including those pertaining to air emissions, wastewater discharges,
toxic substances, and the handling and disposal of solid and
hazardous wastes. These laws and regulations provide under certain
circumstances for the remediation of contamination, as well as
personal injury and property damage claims. The company has
incurred, and will continue to incur, costs and capital expenditures
in complying with these laws and regulations, defending potential
personal injury and property damage claims, and modifying its
business operations in light of its environmental responsibilities.
In its effort to carry out its environmental responsibilities and
comply with environmental laws and regulations, the company has
established, and periodically updates, policies relating to
environmental standards of performance for its operations worldwide.
Under certain environmental laws, including the United States
Comprehensive Environmental Response, Compensation and Liability Act
of 1980 and similar state laws, the company may be jointly and
severally liable for the costs of environmental contamination at
current or former facilities and at off-site locations at which the
company has disposed of hazardous waste. The company has identified
numerous locations, most of which are in the United States, at which
it may have some liability for remediating contamination. Amounts
expensed for environmental remediation activities are not expected
to be material for the year 2000 at these locations. Liabilities for
estimated costs of environmental remediation are, depending on the
site, based primarily upon internal or third-party environmental
studies, and estimates as to the number, participation level and
financial viability of any other potentially responsible parties,
the extent of the contamination and the nature of required remedial
actions. Recorded liabilities are adjusted as further information
develops or circumstances change. The amounts provided in the
company's consolidated financial statements for environmental
liabilities are the gross amount of such liabilities, without
deductions for insurance or third party indemnity claims. The
company expects that the amounts accrued will be paid out over the
periods of remediation for the applicable sites, currently ranging
from approximately 5 to 30 years.
<PAGE> 18
It is often difficult to estimate the cost of environmental
compliance and remediation and potential claims given the
uncertainties regarding the interpretation and enforcement of
applicable environmental laws and regulations, the extent of
environmental contamination and the existence of alternate cleanup
methods. The company records an environmental liability when it is
probable that a liability has been incurred by the company and the
amount of the liability can be reasonably estimated. Where no
amount within a range of estimates is more likely, the minimum is
recorded. Otherwise, the most likely cost to be incurred is
recorded.
The company's current assessment of the probable liabilities and
associated expenses related to environmental matters is based on the
facts and circumstances known at this time. New developments may
occur that could affect the company's assessment. These developments
include, but are not limited to, (i) changes in the information
available regarding the environmental impact of the company's
operations and products; (ii) changes in environmental regulations
or enforcement policies; (iii) new and evolving analytical and
remediation techniques; (iv) success in allocating liability to
other potentially responsible parties; and (v) financial viability
of other potentially responsible parties and third-party
indemnitors.
Although the company believes that the amounts accrued for current
environmental liabilities are adequate, given the uncertainties
involved in environmental matters, it is possible that the amount of
capital expenditures and other costs which will be required may
exceed the amounts accrued for environmental liabilities and the
difference could have a material adverse effect on the consolidated
financial position, annual results of operations, or cash flows of
the company.
<PAGE> 19
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as exhibits to this
Report.
(12) A statement setting forth the calculation of the
ratio of earnings to fixed charges. Page 21.
(15) A letter from the company's independent auditors
regarding unaudited interim consolidated
financial statements. Page 22.
(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, 2000.
<PAGE> 20
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 8, 2000
/s/ Robert J. Burgstahler
Robert J. Burgstahler, Vice President and
Chief Financial Officer
(Mr. Burgstahler is the Principal Financial
and Accounting Officer and has been duly
authorized to sign on behalf of the
registrant.)
<PAGE> 21
<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
2000 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- -------
<S>
EARNINGS <C> <C> <C> <C> <C> <C>
Income from continuing
operations before
income taxes, minority
interest and
extraordinary loss* $ 795 $2,880 $1,952 $3,440 $2,479 $2,168
Add:
Interest expense 31 109 139 94 79 102
Interest component of the
ESOP benefit expense 5 21 29 32 34 37
Portion of rent under
operating leases
representative of the
interest component 9 37 41 41 46 51
Less: Equity in undistributed
income of 20-50% owned
companies 1 4 4 3 -- 1
------ ------- ------- ------- ------- -------
TOTAL EARNINGS AVAILABLE
FOR FIXED CHARGES $ 839 $3,043 $2,157 $3,604 $2,638 $2,357
====== ====== ====== ====== ====== ======
FIXED CHARGES
Interest on debt 32 109 139 94 79 102
Interest component of the
ESOP benefit expense 5 21 29 32 34 37
Portion of rent under
operating leases
representative of the
interest component 9 37 41 41 46 51
------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES $ 46 $ 167 $ 209 $ 167 $ 159 $ 190
====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO
FIXED CHARGES 18.24 18.22 10.32 21.58 16.59 12.41
<FN>
<F1>
*1999 includes non-recurring pre-tax net gains of $100 million, 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.
</FN>
</TABLE>
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated April 25, 2000, 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, 2000 and 1999, and included in the
Company's Form 10-Q for the quarter ended March 31, 2000, 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 8, 2000
<TABLE> <S> <C>
<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-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 214
<SECURITIES> 62
<RECEIVABLES> 2,810
<ALLOWANCES> 0
<INVENTORY> 2,107
<CURRENT-ASSETS> 6,107
<PP&E> 13,406
<DEPRECIATION> 7,802
<TOTAL-ASSETS> 13,969
<CURRENT-LIABILITIES> 3,942
<BONDS> 1,449
0
0
<COMMON> 236
<OTHER-SE> 6,023
<TOTAL-LIABILITY-AND-EQUITY> 13,969
<SALES> 4,052
<TOTAL-REVENUES> 4,052
<CGS> 2,266
<TOTAL-COSTS> 2,266
<OTHER-EXPENSES> (50)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 795
<INCOME-TAX> 282
<INCOME-CONTINUING> 487
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 487
<EPS-BASIC> 1.22
<EPS-DILUTED> 1.21
</TABLE>
