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 September 30, 1998March 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 September 30, 1998,March 31, 1999, there were 401,345,869402,639,206 shares of the
Registrant's common stock outstanding.
This document contains 3129 pages.
The exhibit index is set forth on page 28.26.
2
Minnesota Mining and Manufacturing Company and Subsidiaries
PART I. Financial Information
Consolidated Statement of Income
(Amounts in millions, except per-share amounts)
(Unaudited)
Three months ended
Nine months ended
September 30 September 30March 31
1999 1998
1997 1998 1997
Net sales $3,766 $3,826 $11,236 $11,357$3,776 $3,700
Operating expenses
Cost of goods sold 2,190 2,173 6,448 6,4182,162 2,096
Selling, general and
administrative expenses 947 952 2,838 2,861
Restructuring charge 332 -- 332 --965 924
Total 3,469 3,125 9,618 9,2793,127 3,020
Operating income 297 701 1,618 2,078649 680
Other income and expense
Interest expense 37 23 106 7431 34
Investment and other
income - net (8) (11)
(13) (33) (44)
Gain on divestiture - net (10) (803) (10) (803)
Total 16 (793) 63 (773)23 23
Income before income taxes
and minority interest 281 1,494 1,555 2,851626 657
Provision for income taxes 96 549 552 1,035225 237
Minority interest 7 18 39 6117 20
Net income $ 178384 $ 927 $ 964 $1,755400
Weighted average common
shares outstanding 402.7 412.5 403.7 414.7402.3 404.4
Earnings per share - basic $ 0.44.95 $ 2.25 $ 2.39 $ 4.23.99
Weighted average common
and common equivalent
shares outstanding 406.7 419.2 408.7 420.9405.9 410.0
Earnings per share - diluted $ 0.44.95 $ 2.21 $2.36 $4.17.98
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
3
Minnesota Mining and Manufacturing Company and Subsidiaries
Consolidated Balance Sheet
(Dollars in millions)
September 30,
1998(Unaudited)
March 31, December 31,
(Unaudited) 19971999 1998
Assets
Current assets
Cash and cash equivalents $ 204253 $ 230211
Other securities 177 24798 237
Accounts receivable - net 2,664 2,4342,647 2,666
Inventories
Finished goods 1,324 1,2931,147 1,161
Work in process 636 605538 613
Raw materials and supplies 468 501407 445
Total inventories 2,428 2,3992,092 2,219
Other current assets 1,017 858966 985
Total current assets 6,490 6,1686,056 6,318
Investments 639 623 613
Property, plant and equipment 12,995 12,09813,275 13,397
Less accumulated depreciation (7,684) (7,064)(7,759) (7,831)
Property, plant and equipment - net 5,311 5,0345,516 5,566
Other assets 1,541 1,4231,535 1,646
Total $13,965 $13,238$13,746 $14,153
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 878913 $ 898868
Payroll 466 306438 487
Income taxes 418 261 238
Short-term debt 1,696 1,4991,151 1,492
Other current liabilities 1,199 1,0421,062 1,278
Total current liabilities 4,500 3,9833,982 4,386
Other liabilities 2,155 2,3142,226 2,217
Long-term debt 1,426 1,0151,569 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 5,884 5,926
Shares outstanding
September 30, 1998, 401,345,869
December 31, 1997, 404,724,947
________ ________5,969 5,936
Total $13,965 $13,238$13,746 $14,153
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
4
Minnesota Mining and Manufacturing Company and Subsidiaries
Consolidated Statement of ChangesCash Flows
(Dollars in Stockholders' Equity
(Dollars and shares in millions, except per-share amounts)millions)
(Unaudited)
Three months ended
Nine months ended
September 30 September 30March 31
1999 1998 1997 1998 1997
CommonCash 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 capital in excess of
par valuecash equivalents 42 (50)
Cash and cash equivalents at beginning of year 211 230
Cash and cash equivalents at end of period $ 296253 $ 296 $ 296 $ 296
Retained earnings
Balance at beginning of period 10,081 9,061 9,848 8,756
Net income (A) 178 927 964 1,755
Dividends paid (per share:
$0.55, $0.53, $1.65, $1.59) (221) (220) (666) (661)
Stock option plans and other (13) (24) (121) (106)
Balance at end of period 10,025 9,744 10,025 9,744
Accumulated other comprehensive income - net
Balance at beginning of period
Cumulative foreign currency translation
adjustments (624) (302) (547) (178)
Unrealized gain on securities - net 8 5 8 15
Other comprehensive income
Foreign currency translation and other
adjustments - net (B) 71 (92) (6) (216)
Unrealized gain (loss) on
securities - net (C) (3) 2 (3) (8)
Balance at end of period
Cumulative foreign currency translation
adjustments (553) (394) (553) (394)
Unrealized gain on securities - net 5 7 5 7
Balance at end of period (548) (387) (548) (387)
Unearned compensation - ESOP
Balance at beginning of period (360) (396) (379) (412)
Amortization 10 8 29 24
Balance at end of period (350) (388) (350) (388)
Treasury stock, at cost
Balance at beginning of period
(shares: 68.1, 56.5, 67.3, 55.2) (3,357) (2,315) (3,300) (2,193)
Reacquired stock
(shares: 3.1, 7.9, 7.3, 13.6) (229) (728) (606) (1,229)
Issuances pursuant to stock option plans
(shares: 0.5, 1.1, 3.9, 5.5) 47 102 367 481
Balance at end of period (3,539) (2,941) (3,539) (2,941)
(shares: 70.7, 63.3, 70.7, 63.3)
Stockholders' equity - net $ 5,884 $ 6,324 $ 5,884 $ 6,324
Total comprehensive income (A + B + C) $ 246 $ 837 $ 955 $ 1,531180
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
5
Minnesota Mining and Manufacturing Company and Subsidiaries
Consolidated Statement of Cash Flows
(Dollars in millions)
(Unaudited)
Nine months ended
September 30
1998 1997
Cash Flows from Operating Activities
Net income $ 964 $1,755
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 644 654
Asset impairment charges 161 --
Gain on divestiture - net (10) (803)
Income tax payable relating to divestiture 4 308
Implant litigation - net (209) 130
Working capital and other changes - net (56) (386)
Net cash provided by continuing operations 1,498 1,658
Net cash used by discontinued operations -- (92)
Net cash provided by operating activities 1,498 1,566
Cash Flows from Investing Activities
Capital expenditures (1,056) (1,002)
Proceeds from National Advertising Company divestiture -- 1,000
Other changes - net (68) 37
Net cash (used) provided by investing activities (1,124) 35
Cash Flows from Financing Activities
Change in short-term debt - net 145 (90)
Repayment of long-term debt (52) (546)
Proceeds from long-term debt 556 334
Purchases of treasury stock (606) (1,229)
Reissuances of treasury stock 245 294
Payment of dividends (666) (661)
Other (19) (22)
Net cash used in financing activities (397) (1,920)
Effect of exchange rate changes on cash (3) 42
Net decrease in cash and cash equivalents (26) (277)
Cash and cash equivalents at beginning of year 230 583
Cash and cash equivalents at end of period $ 204 $ 306
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
6
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, except for the restructuring charge recorded in the third
quarter of 1998.items. The results of operations for any interim
period are not necessarily indicative of results for the full year.
The condensedinterim 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 19971998 Annual Report on Form 10-K.
Restructuring Charge:
3M is rationalizing product lines that have marginal returns and/orPending Divestitures:
The company has entered into agreements to sell Eastern Heights Bank,
a decreasing strategic fit; consolidating some manufacturing
operations;subsidiary banking operation, to Norwest Bank Minnesota (a
subsidiary of Wells Fargo & Company), and identifying and eliminating lower-value activities.
As a resultto sell the assets of these initiatives, by the endits
Cardiovascular Systems business to Terumo Corp. of 1999, including
personnel reductionsTokyo, Japan.
These divestitures, expected to be finalized late in the second
half of 1998, the company expects
a total reduction of 4,500 employees.
Inquarter or early in the third quarter of 1999, should generate cash
proceeds (net of tax) of approximately $185 million.
Restructuring Charge:
In 1998, in connection with this plan to improve
productivity and reduce costs, the company recorded a restructuring charge of $332$493 million
($214313 million after-tax). Major componentsafter 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 this estimated charge include $161 million relatedtermination benefits for up to the write-down12 months, cash payments relate to
both current and previous terminations. The restructuring liability
as of certain assets to net realizable value, $102 million of employee
severance and related costs, and $69 million relating to losses on
business dispositions and other costs. These components are
reflected on the consolidated balance sheet as a reduction in
property, plant and equipment - net, and as accruals in payroll and
other current liabilities, respectively. As of September 30, 1998,
only minimal payments had been madeMarch 31, 1999, totaled $198 million. Selected information
relating to the restructuring charge.
The severancecharge follows.
Restructuring Employee
Information Termination
(Millions) Benefits Other Total
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
6
Business Segments:
Net sales and related costs componentoperating income by segment for the first quarter of
the restructuring charge
does not represent all1999 and first quarter of the amounts1998 follow.
Business Transportation,
Segment Industrial Safety and Corporate
Information and Specialty Health and Total
(Millions) Consumer Material Care Unallocated Company
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
Due to be recordedchanges in connection
with the separation of the employees referred to above. The company
expects additional charges relating to productivity improvementcost allocations among segments, total year 1998,
1997 and 1996 sales and operating income have been restated as
the assessment of the employees impacted and communication of
severance benefits to affected employees is finalized. Restructuring
charges, including the third quarter 1998 charge, are expected to
total about $500 million.follows.
Business Transportation,
Segment Industrial Safety and Corporate
Information and Specialty Health and Total
(Millions) Consumer Material Care Unallocated Company
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
*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.
**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.
7
Derivatives and Hedging Activities:
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The company must
adopt this standard no later than January 1, 2000. The company is
reviewing the requirements of this standard, which are quite
complex. Although the company expects that this standard will not
materially affect its financial position and results of operations,
it has not yet determined the impact of this standard on its
financial statements.
Debt issuances:
In October 1998, a Japanese subsidiary of the company, Sumitomo 3M
Limited, completed a 5-year, 10 billion yen (approximately $85
million), 0.795 percent fixed rate private placement note.
In July 1998, a German subsidiary of the company, 3M Deutschland
GmbH, completed a 3-year, $200 million, 5.75 percent Eurobond
offering. After giving effect to an interest rate swap, the company
will have an interest obligation based on a floating LIBOR index.
Comprehensive income:
Effective January 1, 1998, the company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income."
Total comprehensive income and theThe components of accumulated othertotal comprehensive income are presented in the Consolidated Statement of
Changes in Stockholders' Equity.shown below.
Total Comprehensive Income Three months ended
March 31,
(Millions) 1999 1998
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
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 and nine-month periods ended September
30, 1998March 31, 1999 and
1997. Effective July 1997, all General Employees' Stock
Purchase Plan1998. MSOP options are exercised onto 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 last business daycomputation of each
month of grant, resulting in nodiluted 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 Consolidated Financial Statements and Notes.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.
8
Review Report of Independent Auditors
To the Stockholders and Board of Directors of Minnesota Mining and
Manufacturing Company:
We have reviewed the accompanying condensed consolidated balance sheet of
Minnesota Mining and Manufacturing Company and Subsidiaries as of
September 30, 1998,March 31, 1999, and the related condensed consolidated statements of income and
changes in stockholders' equity for the
three-month and nine-month periods ended September 30, 1998 and 1997,
and cash flows for the nine-monththree-month periods ended September 30, 1998March 31, 1999 and 1997.1998.
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 condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31,
1997,1998, 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 9, 1998, except
for the last paragraph under Debt in the Notes to Consolidated
Financial Statements, as to which the date is February 18, 1998,8, 1999, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information
set forth in the accompanying condensed consolidated balance sheet as of
December 31, 1997,1998, 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
October 22, 1998May 5, 1999
9
Minnesota Mining and Manufacturing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
ThirdFirst Quarter
Worldwide sales for the thirdfirst quarter totaled $3.766$3.776 billion, down
1.6up 2.1
percent from the thirdfirst quarter last year. Excluding changes in
currency exchange rates, sales roseVolume increased about 2
percent. Worldwide
volume andpercent, while selling prices were both 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 decreasedincreased about 12 percent to $1.892
billion. Adjusting for$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 third-quarter 1997 sale of the outdoor
advertising business, sales rose about 1 percent. A number of U.S.
businesses postedcompany saw good growth with gains in consumer, office,its
commercial graphics, protective materials and safetyroofing granule
businesses, and security businesses. The company experienced soft demanda pickup in businesses serving the electronics, transportation safety and
industrial markets. In electronics, U.S. sales of several product
lines -- including connectors, chip transport media, performance
chemicals, and bonding systems -- were impacted by industry weakness,
as well as by shifts in customer production to Asia. In
transportation safety, the enactment of the new federal highway
funding law has not yet translated into increased demand for reflective sheetings.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 expects benefits fromanalgesic. The largest effects of this new funding act
to begin incompetition will extend
through the third quarter of 1999. In industrial markets, abrasive, tape and other
industrial businesses have been negatively affected by industry
slowdowns.
Internationally, sales totaled $1.874$2.008 billion. Overall, local-
currencyVolume abroad
increased about 2.5 percent, while selling prices were up about 2
percent, resulting in overall local-currency sales gains of about 5 percent, driven about equally between
volume and selling prices, were more than offset by currency
translation. Expressed in dollars, international sales declined 24.5
percent. The company increased selling prices in all major
geographic areas, helping to offset part of the currency devaluation. Currency translation reduced international sales by about 72
percent. In Europe, volume increased about 3less than 1 percent. Good volume gainsSales were
posted in Germany, Spain and in the Nordic region, but volume was up
only 2 percent in France and was flat in the U.K. In Eastern Europe,
where 3M has traditionally posted volume gains of about 20 percent,
unit sales rose about 2 percent,
impacted by economic slowing in Western Europe and by the spillover fromuncertainty
in developing European countries. Also, the Russian economic instability.company is comparing
against its strongest quarter in Europe last year. In the Asia
Pacific area, volume was
flat.increased about 7 percent, the company's best
performance in five quarters. In Japan, unit sales rose 5 percent,
despite the continuing recession, volume increased
about 5 percent.economic weakness. In Asia outside Japan, volume
declinedrose about 712 percent. 3M posted solid gains in Singapore and China, but was
negatively affected by the economic turmoilexperienced sharp volume rebounds in Korea,
Hong Kong,
Thailand and Malaysia.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 3more than 10 percent due to economic slowing brought about by the Asian and Russian
instability. In Brazil and Argentinain
Mexico, volume was flat for the
quarter. In Mexico,in Argentina and unit sales declined about 7
percent in Brazil. The company increased selling prices in Latin
America about 57 percent. Currency translation, largely due to
Brazilian devaluation, reduced Latin American sales by about 20
percent. In Canada, volume increased about 11more 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
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 58.157.3 percent of sales, up 1.3seven-
tenths of a percentage point from the first quarter last year.
However, this was down more than 2 percentage points from the thirdfourth
quarter last year.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 higher selling prices and lower raw material costs.
However,costs and the effects of currency exchange rates and low volume growth
more than offset these benefits. Currency reduced gross margins by
seven-tenths of a percentage point. The currency effect relates to
the impact of currency fluctuations on the transfer of goods between
3M operations in the United States and abroad.company's
restructuring actions.
Selling, general and administrative spending was 25.225.5 percent of
sales, up slightly as ahigher 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, but down $5 million.
During the third quarter, 3M recorded a $332 million ($214 million
after-tax) restructuring charge. Details of the restructuring charge
are discussed in the Notes to Consolidated Financial Statements.
The operating income discussion that follows excludes the
restructuring charge. Worldwide operating income was 16.7 percent of
sales, down 1.6 percentage points from the third quarter last year.
Margins were down nearly 3 percentage points in the United States and
four-tenths of a point internationally. Operating income was $629
million, down 10.3 percent from the year-earlier quarter. Currency
reduced operating income by about $55 million, or 8 percent.
ThirdFirst quarter interest expense of $37$31 million was up $14down $3 million
from the same quarter last year, reflecting a moderate increase in the
company's financial leverage.year. Net investment and other income was
$11$8 million, in line with the level averaged in each of the past four
quarters.recent trends.
The third quarter of 1998 reflects a $10 million
adjustment to finalize the accounting for the 1997 divestiture of
National Advertising Company.
The impact of the 1998 restructuring charge and the 1997 gain on
divestiture on 3M's income statement and tax rate is summarized in
the following table.
11
Supplemental Consolidated Statement of Income Information (Unaudited)
(Millions, except per-share amounts)
Three months ended
September 30, 1998 September 30, 1997
Excluding
Restruc- Restruc- Excluding Gain on
turing turing Reported Dives- Dives- Reported
Charge Charge Total titure titure Total
Operating income $ 629 $ (332) $ 297 $ 701 $ -- $ 701
Other income and
expense 16 -- 16 10 (803) (793)
Income before income
taxes and minority
interest $ 613 $ (332) $ 281 $ 691 $ 803 $ 1,494
Provision for income
taxes 214 (118) 96 241 308 549
Effective tax rate 35.0% 35.5% 34.3% 35.0% 38.4% 36.8%
Minority interest 7 -- 7 18 -- 18
Net income $ 392 $ (214) $ 178 $ 432 $ 495 $ 927
Earnings per
share - diluted $ 0.97 $(0.53) $ 0.44 $ 1.03 $ 1.18 $ 2.21
Excluding the 1998 restructuring charge and the 1997 gain on
divestiture, the worldwide effective income tax rate for the quarter was 35.036.0
percent, the same as in the third quarter last year. The
1998 restructuring charge was taxed at a rate of 35.5 percent. The
1997 gain on divestiture was taxed fully in the United States at a
rate of 38.4 percent (federal statutory rate of 35.0 percent and a
net effective state tax rate of 3.4 percent). This results in a
total 3M combined effective tax rate of 34.3 percent for the third
quarter, compared to 36.8 percent in the thirdfirst quarter last year.
Net income totaled $178$384 million, or $0.44$.95 per diluted share, compared
with $927$400 million, or $2.21$.98 per diluted share, in the thirdfirst quarter of
1997. Excluding the 1998 restructuring charge and the 1997 gain
on divestiture, net income totaled $392 million, or $0.97 per diluted
share, compared with $432 million, or $1.03 per diluted share, in the
third quarter of 1997.1998. The company estimates that changes in the value of the U.S.
dollar decreased earnings for the quarter by about 82 cents per share
compared with the thirdfirst quarter of 1997. 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.
Year-to-date
On a year-to-date basis, worldwide sales totaled $11.236 billion,
down about 1 percent from the same period last year. Excluding
changes in currency exchange rates, sales rose about 3 percent. Unit
sales increased about 2 percent, while selling prices were up about 1
percent.
12
In the United States, sales decreased slightly to $5.457 billion.
Adjusting for the third-quarter 1997 sale of the outdoor advertising
business, sales rose about 2 percent. Internationally, sales totaled
$5.779 billion, with local-currency sales gains more than offset by
currency translation. Expressed in dollars, international sales
declined 2 percent. Volume increased about 5 percent and selling
prices were up 2 percent. Currency translation reduced international
sales by about 9 percent.
Cost of goods sold, which includes manufacturing, research and
development, and engineering, was 57.3 percent of sales, up eight-
tenths of a percentage point from the same period last year. The
factors that influenced gross margins for the third quarter were the
same factors that affected the year-to-date results.
Selling, general and administrative spending was 25.3 percent of
sales, up slightly as a percent of sales from the same period last
year, but down $23 million.
The operating income discussion that follows excludes the
restructuring charge. Worldwide operating income was 17.4 percent of
sales, down nine-tenths of a percentage point from the same period
last year. Margins were down 1.7 percentage points in the United
States and down slightly internationally. Operating income was
$1.950 billion, down 6.2 percent from the year-earlier period.
Currency reduced operating income by about $200 million, or 10
percent.
Interest expense of $106 million was up $32 million from the first
nine months of last year, reflecting the company's strategy to lower
its cost of capital by moderately increasing its financial leverage.
This strategy may increase interest expense by about $50 million for
total year 1998 when compared to 1997. Net investment and other
income was $33 million, in line with recent trends.
The impact of the 1998 restructuring charge and the 1997 gain on
divestiture on 3M's income statement is summarized in the following
table.
13
Supplemental Consolidated Statement of Income Information (Unaudited)
(Millions, except per-share amounts)
Nine months ended
September 30, 1998 September 30, 1997
Excluding
Restruc- Restruc- Excluding Gain on
turing turing Reported Dives- Dives- Reported
Charge Charge Total titure titure Total
Operating income $1,950 $ (332) $ 1,618 $ 2,078 $ -- $ 2,078
Other income and
expense 63 -- 63 30 (803) (773)
Income before income
taxes and minority
interest $1,887 $ (332) $ 1,555 $ 2,048 $ 803 $ 2,851
Provision for income
taxes 670 (118) 552 727 308 1,035
Effective tax rate 35.5% 35.5% 35.5% 35.5% 38.4% 36.3%
Minority interest 39 -- 39 61 -- 61
Net income $1,178 $ (214) $ 964 $ 1,260 $ 495 $ 1,755
Earnings per
share - diluted $ 2.88 $(0.52) $ 2.36 $ 2.99 $ 1.18 $ 4.17
The worldwide effective income tax rate for the first nine months was
35.5 percent, the same as the tax rate (excluding the gain on
divestiture) in the same period last year.
Net income totaled $964 million, or $2.36 per diluted share, compared
with $1.755 billion, or $4.17 per diluted share, in the first nine
months of 1997. Excluding the 1998 restructuring charge and the 1997
gain on divestiture, net income totaled $1.178 billion, or $2.88 per
diluted share, compared with $1.260 billion, or $2.99 per diluted
share, in the first nine months of 1997. The company estimates that
changes in the value of the U.S. dollar decreased earnings for the
first nine months by about 29 cents per share compared with the same
period in 1997.1998. 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
3M expects higher fourth-quarter 1998 sales and earnings compared
with the same quarter last year, excluding the impact of any
additional restructuring charges taken in the fourth quarter of 1998.
The company expects to take additional restructuring charges related
to productivity improvement initiativesencountered a difficult set of challenges in the fourth quarter of 1998 and possibly into 1999, which would bring total restructuring charges
to an estimated $500 million. Currency, due to purchased goods- large
negative currency effects, is expected to reduce earningseconomic contractions in the fourth quarter of 1998
by about 5 cents per share.
Results are expected to benefit from 3M's cost reduction efforts. 3M
has an 8 percent annual productivity improvement objective, as
measured by sales growth per employee in local currencies. Due to
the turmoil in the Asia Pacific areamany
international markets, and softness in a few key U.S. markets. To
improve productivity and reduce costs, the company is exiting certain
businessesproduct 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.
14
the United States, 1998 productivity will not meet the 8 percent
target for the first time11
The company announced in 4 years.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 third quarter, of
1998, 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 1,600 people, about 1,000 people
excluding summer temporary workers. The company expects to reduce up
to an additional 1,000 positionsequally divided between U.S. and international operations.
When fully implemented by the end of 1998. By1999, the endrestructuring plan is
expected to provide annual pre-tax savings of 1999, including personnel reductionsabout $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 second half of 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 a total reductionsales growth in 1999 of 4,500 employees. These actions
should help4 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
regainis 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 sustain its 8 percent productivity-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, target.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 worldwide business conditions closely and will adjusts prices,is prepared to make
adjustments in costs, pricing and investments as appropriate.
Overall,Based on currency rates at the end of April 1999, the company
has experienced earnings declines of about 20 percent in
the Asia Pacific areaestimates that currency would reduce international sales for the first nine monthsyear
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 1998.$1.2 billion for 1999. The
company does not expect a significant change in this situationits tax rate in the fourth
quarter of 1998. 3M expects that the Latin American economies will
continue to decelerate. 3M is also cautious about the near-term
outlook for the U.S. and European economies. Given this scenario, 3M
expects modest sales growth in the fourth quarter when compared with
the same quarter last year.
For total year 1998, the company expects to buy back about 9 million
shares of 3M stock. This is expected to result in shares outstanding
at year-end 1998, net of issuances, of about one percent less when
comparing to year-end 1997 balances.
IMPACT OF THE1999.
12
YEAR 2000 ISSUEREADINESS
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 issue
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 products and 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-controllersmicro-
controllers contained in various manufacturing and lab equipment,laboratory
equipment; environmental and safety systems, facilities and
utilities, and(iii) date-sensitive company products; and (iii)(iv) the
readiness of key third parties, including suppliers and customers,
and the electronic data interchange (EDI) with those key third
parties.
15
The Year 2000 project team has taken an inventory of products and IT and non-IT
systems or componentsand date-sensitive company products that might malfunction or
fail atas a result of using only the end oflast two digits to indicate the
millennium.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 September 30, 1998,March 31, 1999, approximately 95%(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" andor "Critical" are believed to be Year 2000
Compliant. As of September 30, 1998,March 31, 1999, approximately 75%98 percent of the IT
systems in subsidiaries outside the United States that are deemed
"Vital" andor "Critical" are believed to be Year 2000 Compliant. 13
Non-IT Systems - The company has overmore than 100 manufacturing and
lablaboratory 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. Compliancesystems because testing of
non-IT systems often requires shutdown of the manufacturing
operations.
To
minimize these disruptions,As a result, the company has contactedapproached 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 used inand obtaining
statements that the company's facilities and obtained
statements on whether the system issystems are Year 2000 Compliant. The company
has relied on such vendor statementsCompliant, and tested(ii) testing
components of non-IT systems wherewhen 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 testing does not interrupt manufacturing
operations.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 September 30, 1998,March 31, 1999, approximately 75%93 percent of the non-IT systems
located in the United States that are deemed "Vital" andor "Critical"
and approximately 65%97 percent of the non-IT systems in subsidiaries
outside the United States that are deemed "Vital" andor "Critical" are
believed to be 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
and electronic commerce customers to minimize disruptions in the
relationship between the company and these important third parties
from the Year 2000 issue. While the company cannot guarantee
compliance by third parties, the company will consider alternate
sources of supply in the event a key supplier cannot demonstrate its
systems or products are Year 2000 Compliant.
Contingency Planning - The primary focus of the Year 2000 project
teams has been directed at making the company's IT and non-IT systems
and products Year 2000 Compliant. The company is working on contingency
plans specifying what the company will do if failures occur in its IT
and non-IT systems or important third parties are not
16
Year 2000 Compliant. The company expects to have such contingency
plans finalized by March 31, 1999 for its IT and non-IT systems and
by April 30, 1999 for its key suppliers.
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 information is
availablewebsite includes a
search feature to enable customers as of the date of this filing.
Coststo determine whether certain 3M
products are Year 2000 compliant.
Third Parties - Through September 30, 1998,In addition to internal Year 2000 IT and non-IT
remediation activities, the company had expensed incremental
costs of $41 millionis 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
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 remaining incremental cost is estimatedestimate of $77 million related to be approximately $34 million.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 total cost for the Year
2000 issue includes estimated costs and time associated with
interfacing with third parties' Year 2000 issues. These estimates
are based on currently available information.
The company's current estimates of the amount of 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, and other factors.third-parties. New developments may occur that could affect the
company's estimates of the amount of time and costs needed to modify
and test its IT and non-
ITnon-IT systems for Year 2000 compliance.compliance and,
depending on the year 2000 readiness of certain third parties, could
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 codescode in both IT and
non-IT systems; (iii) unanticipated failures in its IT and non-IT
systems; and (iv) the planning and Year 2000 compliance success that key
customers and suppliers attain.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.Compliant or the
financial impact on the company. Accordingly, the company is not able
to estimate its possible future costs beyond the current estimate
of costs.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 in costs 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, eleven11 of the fifteen15 member countries of the European
Union (EU) will establishestablished fixed conversion rates through the European
Central Bank (ECB) between their existing local currencies and the Euro,euro,
the EU's futurenew single currency. The participating 17
countries havehad agreed
to adopt the Euroeuro as their common legal currency on that date. The Euro will then tradeFrom
that date, the euro is traded on currency exchanges and beis available
for non-cash transactions.
Following introduction of the Euro, theeuro, local currencies will remain
legal tender between January 1, 1999 and January 1, 2002.until December 31, 2001. During thethis transition period,
goods and services may be paid for using eitherwith the Euroeuro 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 first be converted into the Euroeuros and then
converted from the Euroeuros into the second local currency at the rates fixed by
16
the ECB. BeginningBy no later than January 1, 2002,December 31, 2001, the participating
countries will issue new Euro-denominatedeuro-denominated bills and coins for use in
cash transactions. By no later than July 1, 2002, the participating
countries will withdraw all bills and coins denominated in local
currencies, making conversion to the Euroeuro 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 teams'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'seuro'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 Euroseuros and local currencies during the
transition period and achieve the conversion of all relevant local
currency data to the Euroeuro by January 1, 2002December 31, 2001, in the participating
countries.
Europe is a significantThe European market for the company, contributing 24%contributed 26% of consolidated sales and 16%20% of
consolidated operating income, excluding the restructuring charge, in
1997.1998. The company believes that the Euroeuro will, over time, create increasedincrease
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
to some
extentsomewhat by new business opportunities and efficiencies in what will
become the world's second largest economy.efficiencies. The company,
however, is not able to estimate the anticipated net long-term
impact of the euro introduction of the Euro on the company.
The company has consolidated its IT operations and made significant
investments in its IT systems in Europe over the past few years in anticipation of the EMU. The
company expects that these investments will enable the company to
manage customer orders, invoices, payments and accounts in Euroseuros and
in local currencies according to customer needs by January 1, 1999. Duringduring the three-year
transition period. During this period, the company anticipates
spending approximately $25$35-50 million to complete the conversion to
the Euro. The company has not developed
contingency plans at this time sinceeuro. Because the company believes its IT systems will be ready
by January 1, 2002December 31, 2001 for the Euro conversion.euro conversion, it has not developed
contingency plans at this time.
The euro introduction of the Euro 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 todayto date of changes in
currency exchange rates on the trade within the EU has not 18
been material.
The company anticipates the Euroeuro 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 however, that the associated savings will
not be material to corporate results.
The company does havehas derivatives outstanding beyond January 1, 1999, in
several of the European local currencies. Under the EU's "no compulsion, no
prohibition" principle, the outstanding derivative positions will
either mature as local currency contracts or convert to Euroeuro
contracts at no additional economic cost to the company. The company 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 of the Euro 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'scompany'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 below,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
whichthat 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 decreased $195increased $142 million to $1.990$2.074 billion at September
30, 1998,March 31,
1999, compared to $2.185with $1.932 billion at year-end 1997.1998. The accounts
receivable average days' sales outstanding was 5760 days, down slightly
from year-end. The company's key inventory index was 3.83.3 months,
unchangeddown from 3.4 months at year-end. The company's current ratio was
1.4, down1.5, up from 1.51.4 at year-end.
Total debt increased $608decreased $386 million from year-end 19971998 to $3.122$2.720
billion. In line with the company's strategy to lower its cost of
capital, total debt increased from an average of about $2 billion in
1997 to $3.122 billion as of September 30, 1998. As of September 30,
1998,March 31, 1999, total debt was 3531 percent of total
capital. 19
The company's strong credit rating provides ready and ample access to
funds in global capital markets. In February 1998, the parent
company issued $330 million of 30-year, 6.375 percent debentures. In
July 1998, a German subsidiary of the company, 3M Deutschland GmbH,
completed a 3-year, $200 million, 5.75 percent Eurobond offering. In
October 1998, a Japanese subsidiary of the company, Sumitomo 3M
Limited, completed a 5-year, 10 billion yen (approximately $85
million), 0.795 percent fixed rate private placement note. At September 30, 1998,March 31, 1999, the company had
available short-term lines of credit totaling about $600$670 million.
Net cash provided by operating activities from continuing operations
totaled $1.498 billion$828 million in the
first ninethree months of the year, down
$160up $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
18
impact of the employee termination benefits paid in connection
with the restructuring charge. Net cash outflows from mammary implant
litigation were $339$61 million higherlower than in the same period last year.
Asset impairment chargesDuring the second quarter of $1611999, the company expects to receive more
than $200 million relateof insurance recoveries related to the third quarter 1998 restructuring and represent the write-down of
certain assets to net realizable value. Working capital and other
changes in 1998 includes the impact of the employee severance and
business disposition components of the restructuring charges.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.
Net cash used by operating activities from discontinued operations
was $92 million in the first nine months of 1997. Payments made in
1997 were primarily severance payments related to discontinued
operations.
Cash used in investing activities was $1.124 billion$329 million in the first ninethree
months of the year, compared to cash provided of $35with $401 million in the same period
last year. In 1997, cash proceeds related to the
sale of National Advertising Company totaled $1 billion. Capital expenditures for the first ninethree months of 19981999
were $1.056 billion,
an increase$289 million, a decrease of 5.5about 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 ninethree months of 19981999 were
$606$32 million, compared with repurchases in the same period last year
of $1.229 billion. In the third quarter of 1997, net proceeds from
the National Advertising Company divestiture were primarily used to
repurchase shares and to reduce short-term debt.$187 million. Financing activities for both short-term and long-termlong-
term debt provided net cash inflowsoutflows of $649$240 million, compared with
net cash outflowsinflows of $302$258 million in the first ninethree months last year.
The company repurchased about 7.3 million400,000 shares of common stock in the
first ninethree months of 1998,1999, compared with 13.62.2 million shares in the
same period last year. In November 1997,February 1999, the Board of Directors
authorized the repurchase of up to 2512 million shares of 3M common
stock through December 31, 1998.1999. As of September 30, 1998, 15.3March 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.
20
Cash dividends paid to shareholders totaled $666$225 million in the first
ninethree months of this year, compared with $661$222 million in the same
period last year. In February 1998,1999, the quarterly dividend was
increased to 5556 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.)
The company expects to complete the refinancing of its Employee Stock
Ownership Plan in late 1998 or early 1999, which would result in an
estimated $40 million after tax charge (estimated $0.10 per diluted
share). This would be reported as an extraordinary loss from early
extinguishment of debt.
2119
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 September 30, 1998,March 31, 1999, the company had been named as a defendant,
often with multiple co-defendants, in 6,9295,488 lawsuits and 144121 claims
in various courts, all seeking damages for personal injuries from
allegedly defective breast implants. These claims and lawsuits
purport to represent 22,75720,060 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.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.
2220
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.
21
The company also has been served with a purported class action
brought on behalf of children allegedly exposed to silicone in utero 23
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 as supplemented now includes both
foreign and domestic class members with
implants manufactured by certain manufacturer defendants, including
Baxter International, Bristol Meyers-Squibb,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 foreign claimants and 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
domestic 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, willare not be
affected by the number of class members electingwho 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
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. 24
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 15,1999,15,
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) or who are current foreign claimants
will range from $10,000 to $50,000.
A benefit paymentOn June 10, 1998 the Court approved the terms of $3,500 for
foreign registrants other than current foreign claimants, so called
Other Registrants, has been agreed toa settlement program
offered by theBaxter International, Bristol-Myers Squibb Company and the
Foreign
Claimants Committee. This benefit thus completes thecompany to eligible foreign claimant aspects of the Revisedimplant recipients (the "Foreign
Settlement Program. A noticeProgram"). Notices and claim forms were mailed on June
15, 1998. Benefits to eligible foreign registrants has been approved by the Court.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 September 30, 1998March 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. 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.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 25
the
Revised Settlement Program and the cost and expense of resolving opt-outopt-
out claims and recovering insurance proceeds. After subtracting
payments of $912 million$1.007 billion as of September 30, 1998,March 31, 1999, for defense and
other costs and settlements with litigants and claimants, the company
had accrued liabilities of $188$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 with the next trial phase scheduled forwere completed on January 4,20, 1999
and March 31, 1999. 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 26
"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 believesbelieved that conflicting
rulings now existexisted that needneeded to be clarified by the court and
reconciled with applicable law. Motions to clarify the allocation
methodology of triggered policies under these rulings are pending.were filed and
have been ruled upon by the Court. While the Court options include clarification,
further trial followed by additionalclarified certain
aspects of these rulings or certification for
interlocutory (whileit also ruled that there would be no
allocation from and after 1986. This ruling is consistent with the
case is still pending) appeal.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 September 30, 1998,March 31, 1999, the company had accrued receivables for
insurance recoveries of $772$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. 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. 27
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.
2826
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 30.28.
(15) A letter from the company's independent auditors
regarding unaudited interim consolidated
financial statements. Page 31.29.
(27) Financial data schedule (EDGAR filing only).
(b) Reports on Form 8-K:
The company filed a report on Form 8-K dated August 27, 1998.
In a release dated August 27, 1998, the company announced that it
expects double-digit earnings growth for the coming three years and
sales to increase an average of eight percent per year. The company
also announced its plans for growth and productivity improvement.
The company stated that it anticipates a pre-tax charge of as much as
$500 million associated with actions outlined in the release. The
news release contained forward-looking statements relating to
earnings and sales growth over the next three years and other
matters. The news release was attached as Exhibit 99 to the Form 8-K.
None of the other item requirements of Part II of Form 10-Q are
applicable to the company for the quarter ended September 30, 1998.March 31, 1999.
2927
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: NovemberMay 6, 19981999
/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.)