-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IdThJnm0IdyH8tvAGa/aSV0C/0x/geSMRAwVtW89ul9FPBm6K2IXRnUl4QBmoj9e NiZh10wTS+IbjlbeeE7oJg== 0000066740-96-000005.txt : 19960312 0000066740-96-000005.hdr.sgml : 19960312 ACCESSION NUMBER: 0000066740-96-000005 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960311 SROS: CSE SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MINNESOTA MINING & MANUFACTURING CO CENTRAL INDEX KEY: 0000066740 STANDARD INDUSTRIAL CLASSIFICATION: ABRASIVE ASBESTOS & MISC NONMETALLIC MINERAL PRODUCTS [3290] IRS NUMBER: 410417775 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-03285 FILM NUMBER: 96533523 BUSINESS ADDRESS: STREET 1: 3M CENTER CITY: ST PAUL STATE: MN ZIP: 55144-1000 BUSINESS PHONE: 6127331110 10-K405 1 1995 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 1995 Commission file number 1-3285 MINNESOTA MINING AND MANUFACTURING COMPANY State of Incorporation: Delaware I.R.S. Employer Identification No. 41-0417775 Executive offices: 3M Center, St. Paul, Minnesota 55144 Telephone number: (612) 733-1110 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of each exchange Title of each class on which registered Common Stock, Without Par Value New York Stock Exchange Pacific Stock Exchange Chicago Stock Exchange Note: The common stock of the registrant is also traded on the Amsterdam Stock Exchange, German stock exchanges, Swiss stock exchanges, the Paris Stock Exchange and the Tokyo Stock Exchange. Securities registered pursuant to section 12(g) of the Act: None 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 . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by nonaffiliates of the registrant, based on the closing price of $64.50 per share as reported on the New York Stock Exchange-Composite Index on January 31, 1996, was $27.0 billion. Shares of common stock outstanding at January 31, 1996: 418,246,591. DOCUMENTS INCORPORATED BY REFERENCE Parts of the following documents are incorporated by reference in Parts III and IV of this Form 10-K: (1) Proxy Statement for registrant's 1996 annual meeting, (2) Form 10-Q for period ended June 30, 1987, and (3) Registration Nos. 33-48089, 33-49842 and 33-58767. This document contains 50 pages. The exhibit index is set forth on page 44. MINNESOTA MINING AND MANUFACTURING COMPANY FORM 10-K For the Year Ended December 31, 1995 PART I Item 1. Business. Minnesota Mining and Manufacturing Company was incorporated in 1929 under the laws of the State of Delaware to continue operations, begun in 1902, of a Minnesota corporation of the same name. As used herein, the term "3M" includes Minnesota Mining and Manufacturing Company and subsidiaries unless the context otherwise indicates. Discontinued Operations In November 1995, the Board of Directors approved a plan to launch the company's data storage and imaging systems businesses as an independent, publicly owned company. This transaction will be effected through the distribution of shares in a newly formed company to 3M shareholders. The transaction is expected to be tax free to 3M and to shareholders. The distribution is expected to occur around July 1, 1996. 3M will contribute the net assets of the data storage and imaging systems businesses to the newly formed company, reducing stockholders' equity by an estimated $1 billion. The spin-off company is a worldwide leader in the supply of products and services to the information processing industry, including printing, image capture and data storage. Major customers include graphic arts pre-press shops, commercial printers, information systems OEMs, software developers, medical imaging departments in health care, amateur photographers, and users of removable digital data storage. The new company manufactures and markets a wide variety of products meeting the information needs of these customers. For printers and graphic arts firms, these products include graphic arts film and supplies; lithographic plates and related supplies; duplicator press plates; automated imaging systems and related supplies; copy and art preparation materials; pre-press proofing systems; carbonless paper sheets for business forms; and light sensitive dry silver papers for electronically recorded images. For medical imaging users, products include a full line of diagnostic medical imaging films and equipment for X-ray and electronic imaging systems. In both printing products and medical imaging, the new company also provides hardware service and support. In addition, the spin-off company produces computer diskettes; data cartridges and tapes; CD-ROM and rewritable optical media; and amateur photographic film. In November 1995, the Board of Directors also approved the discontinuance of 3M's audio and video tape business within 12 months. As a result of the plans to spin-off the data storage and imaging systems businesses and to discontinue the audio and video tape business, the company's consolidated financial statements and notes report these businesses as discontinued operations. Prior years' consolidated financial statements and notes have been restated accordingly. General 3M is an integrated enterprise characterized by substantial interdivision and intersector cooperation in research, manufacturing and marketing of products incorporating similar component materials manufactured at common internal sources. 3M's business has developed from its research and technology in coating and bonding for coated abrasives, the company's only product in its early years. Coating and bonding is the process of applying one material to another, such as adhesives to a backing (pressure-sensitive tapes), abrasive granules to paper or cloth (coated abrasives), ceramic coating to granular mineral (roofing granules), glass beads to plastic backing (reflective sheeting), and low-tack adhesives to paper (repositionable notes). 3M is among the leading manufacturers of products for many of the markets it serves. In all cases, 3M products are subject to direct or indirect competition. Most 3M products involve expertise in product development, manufacturing and marketing and are subject to competition with products manufactured and sold by other technically oriented companies. At December 31, 1995, the company's continuing operations employed 70,687 people. Business Segments Information relating to 3M's two business segments and 3M's operations in various geographic areas of the world is provided in the Notes to Consolidated Financial Statements. Each of 3M's two business sectors brings together common or related 3M technologies, providing greater opportunity for the development of products and services and efficient sharing of business strengths. These sectors have worldwide responsibility for virtually all 3M product lines. A few miscellaneous and staff-sponsored products, still under development, are not assigned to the sectors. Various corporate assets and corporate overhead expenses are also not assigned to the sectors. Industrial and Consumer Sector: This sector is a leader in pressure- sensitive adhesives, specialty tapes, coated and nonwoven abrasives, specialty chemicals, electronic and electrical products, and telecommunications products. The sector has strong distribution channels and logistics expertise. This sector participates in the following markets: Industrial Markets; Automotive and Chemical Markets; Electro and Communications Markets; Consumer Markets; and Office Markets. The Industrial Markets businesses manufacture and market a wide variety of high-performance and general-use pressure-sensitive tapes and specialty products. Major product categories include industrial application tapes made from a wide variety of materials, such as foil, film, vinyl and polyester; specialty tapes and adhesives for industrial applications, including Scotch Brand VHB Brand Tapes, lithographic tapes, joining systems, specialty additives, vibration control materials, liquid adhesives, and reclosable fasteners; general-use tapes, such as masking, box-sealing and filament; and labels and other materials for identifying and marking durable goods. Other products include coated abrasives for grinding, conditioning and finishing a wide range of surfaces; finishing compounds; and flame-retardant materials. These businesses also market products for maintaining and repairing vehicles. The Automotive and Chemical Markets businesses' major automotive products include body side-molding and trim; functional and decorative graphics; corrosion-resistant and abrasion-resistant films; tapes for attaching nameplates, trim and moldings; and fasteners for attaching interior panels and carpeting. Major chemical products include protective chemicals for furniture, fabrics and paper products; fire- fighting agents; fluoroelastomers for seals, tubes and gaskets in engines; engineering fluids; and high-performance fluids used in the manufacture of computer chips and for electronic cooling and lubricating of computer hard disk drives. Other products include natural and color- coated mineral granules for asphalt shingles. These businesses also serve as a major resource for other 3M divisions, supplying specialty chemicals, adhesives and films used in the manufacture of many 3M products. The Electro and Communications Markets businesses provide products for the electronic, electrical, telecommunication, and visual communication fields. Electronic and electrical products include packaging and interconnection devices; insulating materials, including pressure- sensitive tapes and resins; and related items. These products are used extensively by manufacturers of electronic and electrical equipment, as well as in the construction and maintenance segments of the electric utility, telephone and other industries. The telecommunications products serve the world's telephone companies with a wide array of products for fiber-optic and copper-based telephone systems. These include many innovative connecting, closure and splicing systems, maintenance products and test equipment. The visual communication products serve the world's office and education markets with overhead projectors and transparency films, plus equipment and materials for computer-based presentations. Major products in the Consumer Markets and Office Markets businesses include Scotch Brand Tapes; Post-it Brand Note products, including memo pads, labels, stickers, pop-up notes and dispensers; home cleaning products, including Scotch-Brite Brand Scouring Products, O-Cel-O Brand Sponges and Scotchgard Brand Fabric Protectors; energy control products, such as window insulation kits; nonwoven abrasive materials for floor maintenance and commercial cleaning; floor matting; and a wide range of do-it-yourself products, including surface preparation and wood finishing materials, and filters for furnaces and air conditioners. Life Sciences Sector: This sector contributes to better health and safety for people around the world. The Life Sciences Sector's major technologies include pressure-sensitive adhesives, substrates, extrusion and coating, nonwoven materials, specialty polymers and resins, optical systems, drug-delivery systems, and electro-mechanical devices. The sector has strong distribution channels in all its major markets. This sector participates in the following markets: Medical Products; Pharmaceuticals, Dental and Personal Care Products; and Traffic and Personal Safety Products. The Medical Products businesses produce a broad range of medical supplies, devices and equipment. Medical supplies include tapes, dressings, surgical drapes and masks, biological indicators, orthopedic casting materials and electrodes. Medical devices and equipment include stethoscopes, heart-lung machines, sterilization equipment, blood gas monitors, powered orthopedic instruments, and intravenous infusion pumps. These businesses also develop clinical information systems. The Pharmaceuticals, Dental and Personal Care Products businesses serve the pharmaceutical and dental markets, as well as manufacturers of disposable diapers. Pharmaceuticals include ethical drugs and drug- delivery systems. Among ethical pharmaceuticals are analgesics, anti- inflammatories and cardiovascular and respiratory products. Drug- delivery systems include metered-dose inhalers, as well as transdermal skin patches and related components. Dental products include dental restoratives, adhesives, impression materials, temporary crowns, infection control products, and orthodontic brackets and wires. These businesses also produce a broad line of tape closures for disposable diapers. The Traffic and Personal Safety Products businesses have a strong position in the following markets: traffic control materials, commercial graphics, occupational health and safety, and out-of-home advertising. In traffic control materials, 3M is a worldwide leader in reflective sheetings. These materials are used on highway signs, vehicle license plates, construction workzone devices, and trucks and other vehicles. In commercial graphics, 3M supplies a broad line of films, inks and related products used to produce graphics for trucks and signs. Major occupational health and safety products include maintenance-free and reusable respirators, plus personal monitoring systems. Out-of-home advertising includes outdoor advertising, advertising displays in shopping centers, and local advertising in national magazines. These businesses also market a variety of other products, including spill-control sorbents, Thinsulate Brand and Lite Loft Brand Insulations, traffic control devices, electronic surveillance products, reflective materials for personal safety, and films for protection against counterfeiting. Distribution 3M products are sold directly to users and through numerous wholesalers, retailers, jobbers, distributors and dealers in a wide variety of trades in many countries around the world. Management believes that the confidence of wholesalers, retailers, jobbers, distributors and dealers in 3M and its products, developed through long association with trained marketing and sales representatives, has contributed significantly to 3M's position in the marketplace and to its growth. 3M has a total of 292 sales offices and distribution centers worldwide, including nine major branch offices located in principal cities throughout the United States. 3M operates 89 sales offices and distribution centers in the United States. Internationally, with companies in more than 60 countries, 3M has 203 sales offices and distribution centers. Research, Patents and Raw Materials Research and product development constitute an important part of 3M's activities. Products resulting from research and development have been a major driver of 3M's growth. Spending for research and development activities in continuing operations totaled $883 million, $828 million and $794 million in 1995, 1994 and 1993, respectively. Corporate research laboratories support the research efforts of division and sector laboratories. These corporate labs also engage in research not directly related to existing 3M product lines. Most major operating divisions, as well as several of 3M's international companies, have their own laboratories for improvement of existing products and development of new products. Engineering research staff groups provide specialized services in instrumentation, engineering and process development. 3M also maintains an organization for technological development not sponsored by other units of the company. 3M is the owner of many domestic and foreign patents derived primarily from its own research activities. 3M's business as a whole is not materially dependent upon any one patent, license or trade secret or upon any group of related patents, licenses or trade secrets. The company experienced no significant or unusual problems in the purchase of raw materials during 1995. While 3M has successfully met its raw material requirements, it is impossible to predict future shortages or the impact such shortages would have. Executive Officers The following is a list of the executive officers of 3M as of March 1, 1996, their present position, current age, the year first elected to their position and other positions held within 3M during the past five years. All of these persons have been employed full time by 3M or a subsidiary of 3M for more than five years. All officers are elected by the Board of Directors at its annual meeting, with vacancies and new positions filled at interim meetings. No family relationships exist among any of the executive officers named, nor is there any arrangement or understanding pursuant to which any person was selected as an officer.
Year Elected to Present Name Age Present Position Position Other Positions Held During 1991-1995 Livio D. DeSimone 59 Chairman of the Board 1991 Executive Vice President, and Chief Executive Officer Information and Imaging Technologies Sector and Corporate Services, 1989-1991 Ronald A. Mitsch 61 Vice Chairman of the 1996 Executive Vice President, Board and Executive Industrial and Consumer Sector Vice President, Industrial and Corporate Services, 1991-1995 and Consumer Sector and Senior Vice President, Research Corporate Services and Development, 1990-1991 J. Marc Adam 58 Vice President, Marketing 1995 Group Vice President, Medical Products Group, 1991-1995 Group Vice President, Consumer and Advertising Markets Group, 1991 Group Vice President, Consumer Products Group, 1986-1991 Giulio Agostini 60 Senior Vice President, 1993 Senior Vice President, Finance and Office Finance, 1991-1993 Administration Director, Finance and Administration, 3M Italy, 1972-1991 Ronald O. Baukol 58 Executive Vice President, 1995 Vice President, Asia Pacific, International Operations Canada and Latin America, 1994-1995 Vice President, Asia Pacific, 1991-1994 Group Vice President, Medical Products Group, 1990-1991 William E. Coyne 59 Senior Vice President, 1996 Vice President, Research and Research and Development Development, 1994-1995 President and General Manager, 3M Canada, Inc., 1990-1994. Lawrence E. Eaton 58 Executive Vice President 1991 Group Vice President, Memory Technologies Group, 1986-1991 Charles E. Kiester 59 Senior Vice President, 1993 Vice President, Engineering, Engineering, Quality and Quality and Manufacturing Services Manufacturing Services 1990-1993 Richard A.Lidstad 59 Vice President, 1992 Staff Vice President, Human Resource Human Resources Operations, 1987-1992 W. George Meredith 53 Executive Vice President, 1995 Group Vice President, Pharmaceuticals, Dental Life Sciences Sector and and Personal Care Products Group, 1994 Corporate Services Group Vice President, Pharmaceuticals, Dental and Disposable Products Group, 1991-1994 Group Vice President, Pharmaceutical and Dental Products Group, 1990-1991 John J. Ursu 56 Vice President, Legal 1993 General Counsel, 1992-1993 Affairs and General Counsel Deputy General Counsel, 1990-1992
Item 2. Properties. 3M's general offices, corporate research laboratories, most division laboratories and certain manufacturing facilities are located in St. Paul, Minnesota. 3M has 89 sales offices and distribution centers in 23 states and operates 67 plants in 23 states. Internationally, with companies in more than 60 countries, 3M has 203 sales offices and distribution centers. The company operates 102 manufacturing and converting facilities in 42 countries. 3M owns substantially all of its physical properties. 3M leases certain facilities financed through the issuance of industrial development bonds in the original principal amount of $30 million. 3M has capitalized the construction costs related to these facilities and recorded the related liabilities. 3M's physical facilities are highly suitable for the purposes for which they were designed. Item 3. Legal Proceedings. The company and certain of its subsidiaries are named as defendants in a number of actions, governmental proceedings and claims, including environmental proceedings, and products liability claims involving products now or formerly manufactured and sold by the company. In some actions, the claimants seek damages as well as other relief which, if granted, would require substantial expenditures. The company has accrued certain liabilities which represent reasonable estimates of its probable liabilities for these matters. The company also has recorded receivables for the probable amount of insurance recoverable with respect to these matters. Some of these matters raise difficult and complex factual and legal issues, and are subject to many uncertainties, including, but not limited to, the facts and circumstances of each particular action, the jurisdiction and forum in which each action is proceeding and differences in applicable law. Accordingly, the company is not always able to estimate the amount of future liabilities with respect to such matters. There can be no certainty that the company may not ultimately incur charges, whether for governmental proceedings and claims, products liability claims, environmental proceedings or other actions, in excess of presently established accruals. While such future charges could have a material adverse impact on the company's net income in the quarterly period in which they are recorded, the company believes that such additional charges, if any, will not have a material adverse effect on the consolidated financial position or annual results of operations of the company. Breast Implant Litigation As of December 31, 1995, the company had been named as a defendant, often with multiple co-defendants, in 6,566 claims and lawsuits in various courts, all seeking damages for personal injuries from allegedly defective breast implants. These claims and lawsuits purport to represent approximately 17,600 individual claimants. It is not yet certain how many of these lawsuits and claims involve products manufactured and sold by the company, as opposed to other manufacturers. The company entered the business of manufacturing breast implants in 1977 by purchasing McGhan Medical Corporation. In 1984, the company sold the business to a corporation that was also named McGhan Medical Corporation. The typical claim or lawsuit alleges that the individual's breast implants caused one or more of a wide variety of ailments, including, but not limited to, non-specific autoimmune disease, scleroderma, lupus, rheumatoid arthritis, fibromyalgia, mixed connective tissue disease, Sjogren's Syndrome, dermatomyositis, polymyositis, and chronic fatigue. Plaintiffs in these cases typically seek monetary damages, often in unspecified amounts, and also seek certain types of equitable relief, including requiring the company to fund the costs associated with removal of the breast implants, to fund medical research into the ailments allegedly caused by silicone gel breast implants and to fund periodic medical checkups. A number of breast implant claims and lawsuits seek to impose liability on the company under various theories for personal injuries allegedly caused by breast implants manufactured and sold by manufacturers other than the company, including, but not limited to, McGhan Medical Corporation and manufacturers that are no longer in business or that are insolvent, whose breast implants may or may not have been used in conjunction with implants manufactured and sold by the company. These claims raise many difficult and complex factual and legal issues that are subject to many uncertainties, including the facts and circumstances of each particular claim, the jurisdiction in which each suit is brought, differences in applicable law and insurance coverage. A number of breast implant lawsuits seek to recover punitive damages. Any such punitive damages that may be awarded against the company may or may not be covered by some insurance policies depending on the language of the insurance policy, applicable law and agreements with insurers. In addition to the individual suits against the company, a class action on behalf of all women with breast implants filed against all manufacturers of such implants has been conditionally certified and is pending in the United States District Court for the Northern District of Alabama (the "Court")(DANTE, ET AL., V. DOW CORNING, ET AL., U.S.D.C., N. Dist., Ala., 92-2589; part of IN RE: SILICONE GEL BREAST IMPLANT PRODUCT LIABILITY LITIGATION, U.S.D.C., N. Dist. Ala., MDL 926, U.S.D.C., N. Dist. Ala., CV 92-P-10000-S; now held in abeyance pending settlement proceedings in the settlement class action LINDSEY, ET AL., V. DOW CORNING CORPORATION, ET AL., U.S.D.C., N. Dist., Ala., CV 94-P- 11558-S). Class actions, some of which have been certified, are pending in various state courts, including, among others, Louisiana, Florida and Illinois, and in the British Columbia courts in Canada. The company has also been served with a purported class action brought on behalf of children allegedly exposed to silicone in utero and through breast milk. (FEUER, ET AL., V. MCGHAN, ET AL., U.S.D.C., E. Dist. NY, 93-0146.) The suit names all breast implant manufacturers as defendants and seeks to establish a medical monitoring fund. On December 22, 1995, the Court approved a revised class action settlement program for resolution of claims seeking damages for personal injuries from allegedly defective breast implants (the "Revised Settlement Program"). The Revised Settlement Program is a revision of a previous settlement pursuant to a Breast Implant Litigation Settlement Agreement (the "Settlement Agreement") reached on April 8, 1994, and approved by the Court on September 1, 1994. Under the terms of the previous Settlement Agreement, the company and other defendants agreed to make total contributions in the amount of $4.25 billion, including the company's maximum commitment of $325 million, which was to be paid into a court-administered fund within three years from the date that the final order ratifying the Settlement Agreement was entered and after appeals had been exhausted. On May 1, 1995, the Court stated that preliminary information from claims filed prior to the September 1994 deadline for current claims had led the Court to believe that the total amount of current claims likely to be approved would substantially exceed the portion of the Settlement Agreement allocated to current claims. The Settlement Agreement provided, in that case, for a reduction in the amount to be paid to individual claimants, but first obligated the parties to attempt to adjust the Settlement Agreement. After the parties were unable to reach agreement, the Court approved the Revised Settlement Program for presentation to eligible class members. The Court has ordered that, beginning after November 30, 1995, members of the plaintiff class will be able to choose whether they will participate in the Revised Settlement Program or will opt out, which would then allow them to proceed with separate products liability actions. The Revised Settlement Program includes only domestic class members, and only class members with implants manufactured by certain manufacturer defendants, including the company and McGhan Medical Corporation. The company's obligations under the Revised Settlement Program are limited to eligible claimants with implants manufactured by the company or its predecessors ("3M implants") or manufactured only by McGhan Medical Corporation after its divestiture from the company on August 3, 1984 ("Post 8/84 McGhan implants"). With respect to claimants with only Post 8/84 McGhan implants (or only Post 8/84 McGhan implants plus certain other manufacturers' implants), the benefits may be more limited than for claimants with 3M implants. Such benefits are payable by the company, Union Carbide Corporation and McGhan Medical Corporation. In general, the amounts payable to individual current claimants (as defined in the Court's order) under the Revised Settlement Program, and the company's obligations to make those payments, will not be affected by the number of class members electing to opt out of the Revised Settlement Program or the number of class members making claims under the Revised Settlement Program. The Revised Settlement Program provides for two compensation options, in addition to certain miscellaneous benefits, for current claimants with 3M implants. Under the first option, denominated as Fixed Amount Benefits, current claimants with 3M implants who satisfy disease criteria established in the prior Settlement Agreement will receive amounts ranging from $5,000 to $100,000, depending on disease severity or disability level, whether the claimant can establish that the implants have ruptured, and whether the claimant also has had implants manufactured by Dow Corning. Under the second option, denominated as Long-Term Benefits, current claimants with 3M implants who satisfy more restrictive disease and severity criteria specified under the Revised Settlement Program can receive benefits ranging from $37,500 to $250,000. In addition, current claimants with 3M implants are eligible for (a) a one-time payment of $3,000 upon removal of 3M implants during the course of the class settlement, and (b) an advance payment of $5,000 against the above referenced benefits upon proof of having 3M implants and upon waiving or not timely exercising the right to opt out from the Revised Settlement Program. Current claimants with only Post 8/84 McGhan implants (or only Post 8/84 McGhan implants plus certain other manufacturers' implants) are eligible only for benefits ranging from $10,000 to $50,000. Eligible participants with 3M implants, who did not file current claims but are able to satisfy the more restrictive disease and severity criteria during an ongoing period of 15 years, will be eligible for the Long-Term Benefits, subject to certain funding limitations. Such participants also will be eligible for an advance payment of $1,000 upon proof of having 3M implants and upon waiving or not timely exercising the right to opt out from the Revised Settlement Program. Benefit levels for eligible participants, who are not current claimants, with only Post 8/84 McGhan implants (or only Post 8/84 McGhan implants plus certain other manufacturers' implants) again will range from $10,000 to $50,000. The company's obligations to fund Long-Term Benefits for eligible claimants with 3M implants, and its obligations to fund any benefits for claimants with only Post 8/84 McGhan implants, are suspended if certain provisions of the Revised Settlement Program are challenged on appeal and will be canceled if any of those provisions are disapproved on appeal. In that event, the other benefits provided under the Revised Settlement Program would still be payable to any claimant with 3M implants who elected to participate in the program. Because it is uncertain how many plaintiffs will choose to participate in the Revised Settlement Program, or what disease criteria they will satisfy and what options they will choose, the total amount and timing of the company's prospective payments under the Revised Settlement Program cannot be determined with precision at this time. In January 1996, the company paid $130 million into a court administered fund as an initial reserve against costs of claims payable by the company under the Revised Settlement Program. In the first quarter of 1994, the company took a pre-tax charge of $35 million ($22 million after tax) in recognition of its then best estimate of its probable liabilities and associated expenses, net of the probable amount of insurance recoverable from its carriers. In the fourth quarter of 1995, the company increased its estimate of the minimum probable liabilities and associated expenses to approximately $885 million. This amount represents the company's best estimate of the cost of the Revised Settlement Program and the cost of resolving opt-out claims. After subtracting payments of $62 million in 1994 and $143 million in 1995 for defense costs and settlements with litigants and claimants, the company, as of December 31, 1995, had accrued liabilities of $678 million. The company has substantial primary and excess products liability occurrence insurance coverage and claims-made products liability insurance coverage, which it believes provide coverage for substantially all of its current exposure for breast implant claims and defense costs. Most insurers have alleged reservations of rights to deny all or part of the coverage for differing reasons, including each insurer's obligations in relation to the other insurers and which claims trigger both the various occurrence and claims-made insurance policies. Some insurers have resolved and paid or committed to their policy obligations. The company believes that the failure of many insurers to voluntarily perform as promised subjects them to the company's claims for excess liability and damages for breach of the insurers' obligation of good faith. Based on inappropriate non-performance by insurers, it is the opinion of counsel that insurers have waived all policy term provisions. On September 22, 1994, three excess coverage occurrence insurers initiated in the courts of the State of Minnesota a declaratory judgment action against the company and numerous insurance carriers seeking adjudication of certain coverage issues and allocation among insurers. On December 9, 1994, the company initiated an action against its occurrence insurers in the Texas State Court in and for Harrison County, seeking a determination of responsibility among the company's various occurrence insurers having applicable coverages. Texas is the state with the most implant claims. This action has since been removed to the U.S. District Court, Eastern District of Texas, and stayed pending resolution of the litigation in the Minnesota courts. The insurers that are parties to these actions generally acknowledge that they issued products liability insurance to the company and that breast implant claims are products liability claims. A trial is scheduled in Minnesota for March 4, 1996, to resolve the company's insurance coverage and the financial responsibility of occurrence insurers for breast implant claims and defense costs. Settlement discussions continue with most insurers through court ordered and supervised discussions. The occurrence insurers that are parties to the litigation in Minnesota filed more than thirty motions for summary judgment or partial summary judgment in mid-October 1995. The insurers, through these motions, attempt to shift all or a portion of the responsibility for those claims that the company believes fall within the period of occurrence-based coverage (before 1986) into the period of claims-made coverage (from and after 1986). The trial court denied the insurers' motions, ruling that the key issues of "trigger" and allocation raised in these motions will be resolved at trial. If the occurrence insurers prevail at trial, the company could be effectively deprived of significant insurance coverage for breast implant claims. The company believes it will prevail in this insurance litigation. The company's belief is based on an analysis of its insurance policies, court decisions on similar issues, reimbursement by insurers for these types of claims and consultation with outside counsel expert in insurance coverage matters. The company had accrued receivables for insurance recoveries of $800 million as of December 31, 1995. There are various factors that could affect the timing and amount of proceeds to be received under the company's various insurance policies, including (i) the timing of payments made in settlement of claims, (ii) the outcome of occurrence insurance litigation in the courts of Minnesota and Texas, (iii) potential arbitration with claims-made insurers, and (iv) delays in payment by insurers. Settlements are currently developing through court- ordered and supervised discussions. However, there can be no absolute assurance that the company will collect all amounts accrued as being probable of recovery from its insurers. The company's current estimate of the probable liabilities, associated expenses and probable insurance recoveries related to the breast implant claims is based on the facts and circumstances existing at this time. New developments may occur that could affect the company's estimates of probable liabilities (including associated expenses) and the probable amount of insurance recoveries. These developments include, but are not limited to, (i) the number of plaintiffs who elect to opt out and pursue individual claims against the company, (ii) the success of and costs to the company in defending such individual claims, including claims involving breast implants not manufactured or sold by the company, (iii) the outcome of the occurrence insurance litigation in the courts of Minnesota and Texas, (iv) the outcome of potential arbitration with claims-made insurers, and (v) the availability of coverage with respect to certain of the types of claims or remedies to which the company may be subject. The company cannot determine the impact of these potential developments on the current estimate of probable liabilities (including associated expenses) and the probable amount of insurance recoveries. Accordingly, the company is not able to estimate its potential future liabilities beyond the current estimate of probable liabilities. As new developments occur, the estimates may be revised, or additional charges may be necessary to reflect the impact of these developments on the costs to the company of resolving breast implant litigation and claims. While such revisions or additional future charges could have a material adverse impact on the company's net income in the quarterly period in which they are recorded, the company believes that such revisions or additional charges, if any, will not have a material adverse effect on the consolidated financial position or annual results of operations of the company. The company conducts ongoing reviews, assisted by outside counsel, to determine the adequacy and extent of insurance coverage provided by its occurrence and claims-made insurers. The company believes, based on these ongoing reviews and the bases described in the fourth preceding paragraph, that the collectible coverage provided by its applicable insurance policies is sufficient to cover substantially all of its current exposure for breast implant claims and defense costs. Based on the availability of this insurance coverage, the company believes that its uninsured financial exposure has not materially changed since the first quarter of 1994, and therefore, no recognition of additional charges had been made as of year-end 1995. Environmental Matters The company is also involved in a number of environmental proceedings by governmental agencies asserting liability for past waste disposal and other alleged environmental damage. The company conducts ongoing investigations, assisted by environmental consultants, to determine accruals for the probable, estimable costs of remediation. The remediation accruals are reviewed each quarter and changes are made as appropriate. Item 4. Submission of Matters to a Vote of Security Holders. None in the quarter ended December 31, 1995. Part II Item 5. Market Price of 3M's Common Stock and Related Security Holder Matters. At January 31, 1996, there were 129,981 shareholders of record. 3M's stock is listed on the following stock exchanges: New York Stock Exchange, Pacific Stock Exchange, Chicago Stock Exchange, Amsterdam Stock Exchange, German stock exchanges, Swiss stock exchanges, Paris Stock Exchange, and Tokyo Stock Exchange. Stock price comparison information (New York Stock Exchange Composite Transactions), reflecting a two-for-one stock split effective March 15, 1994, is as follows: Quarter First Second Third Fourth Year 1995 High $58.88 $62.13 $60.13 $69.88 $69.88 Low 50.75 56.50 53.88 55.13 50.75 1994 High 56.38 52.38 57.13 56.63 57.13 Low 49.00 46.38 49.25 50.38 46.38 Item 6. Selected Financial Data. (Dollars in millions, except amounts per share) For the Year Ended December 31: 1995 1994 1993 1992 1991 Net Sales...........................$13,460 $12,148 $11,053 $10,817 $10,281 Income from continuing operations.....1,306* 1,207 1,133 1,116 984 Per Share of Common Stock: Continuing Operations...............3.11* 2.85 2.61 2.55 2.24 Cash Dividends Declared and Paid.....1.88 1.76 1.66 1.60 1.56 Ratio of Earnings to Fixed Charges..12.41 13.96 15.93 13.11 10.80 At December 31: Total Assets.......................14,183 13,068 11,795 11,528 10,886 Long-Term Debt (excluding portion due within one year)..................1,203 1,031 796 687 764 All amounts presented have been restated on a continuing operations basis. Discontinued operations and the restructuring charge are more fully discussed in the Notes to Consolidated Financial Statements. * 1995 includes a pre-tax restructuring charge of $79 million, or 12 cents per share. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Operating Results On November 14, 1995, 3M announced that it intends to launch its data storage and imaging systems businesses as an independent, publicly owned company. 3M also announced that it will discontinue its audio and video tape business within 12 months. As a result of these actions, the data storage, imaging systems, and audio and video tape businesses are presented as discontinued operations within the financial statements and notes for all periods presented. The following discussion is on a continuing operations basis. Net sales in 1995 rose 10.8 percent to $13.460 billion. This followed increases of 9.9 percent in 1994 and 2.2 percent in 1993. Internationally, sales increased about 17 percent to $7.253 billion. Sales in the United States were $6.207 billion, up more than 4 percent from 1994. Components of Sales Change __________________________________________________________________________ 1995 1994 U.S. Intl. Worldwide U.S. Intl. Worldwide __________________________________________________________________________ Volume 3% 10% 7% 8% 10% 9% Price 1 2 2 0 0 0 Translation - 5 2 - 2 1 __________________________________________________________________________ Total 4% 17% 11% 8% 12% 10% __________________________________________________________________________ Internationally, volume rose 10 percent, matching the gain achieved in 1994. 3M companies in all major geographic areas abroad posted solid volume growth. In the United States, volume growth moderated in 1995, reflecting the slowdown in the U.S. economy. Selling prices, which were essentially flat in 1994, increased about 2 percent in 1995. These increases helped offset higher raw material costs. Changes in currency exchange rates increased sales about 2 percent in 1995, following an increase of about 1 percent the previous year. Cost of goods sold was 57.3 percent of sales, up one percentage point from 1994, but down slightly from 1993. The increase was due to a 7.5 percent rise in raw material costs, the largest in many years. In 1994, cost of goods sold benefited from solid worldwide volume growth, productivity gains and cost-control efforts. Cost of goods sold includes manufacturing, research and development, and engineering expenses. Selling, general and administrative expenses were 25.6 percent of sales, the lowest level in more than five years. This spending reflected strong emphasis on cost control and productivity improvement. In 1994, the rate of SG&A spending increased slightly due to investments to sustain rapid growth in developing countries. (Percent of sales) 1995 1994 1993 Cost of goods sold 57.3 56.3 57.4 ________________________________________________________________________ Selling, general and administrative expenses 25.6 26.5 26.4 ________________________________________________________________________ Employment increased by about 845 people worldwide in 1995. These additions were made to help support rapid growth in developing countries. Sales per employee rose more than 7 percent in local currencies. This followed an 8 percent gain in 1994. During the fourth quarter of 1995, 3M recorded one-time, pre-tax charges of $653 million related to the spin-off of the data storage and imaging systems businesses and the phase-out of the audio and video tape business. Of this amount, $79 million related to restructuring in continuing operations and is shown on a separate line of the Consolidated Statement of Income titled "Restructuring charge." The remainder related to discontinued operations. The restructuring charge and discontinued operations are discussed more fully in the Notes to Consolidated Financial Statements. Operating income totaled $2.221 billion, up 6.0 percent from 1994. Excluding the one-time charge, operating income rose 9.8 percent. Internationally, operating income rose 22 percent and profit margins were up eight-tenths of a percentage point. International results were helped by solid volume growth, productivity improvement and positive currency effects. In the United States, operating income was down about 11 percent and profit margins declined by 2.5 percentage points. U.S. results were affected by higher raw material costs, modest volume growth and the restructuring charge. In 1994, operating income rose 16.6 percent, with the gain well-balanced between U.S. and international operations. The company estimates that currency changes increased operating income by $79 million in 1995 and by $17 million in 1994. (Percent of sales) 1995 1994 1993 Operating Income 17.1* 17.2 16.2 * Excluding restructuring charge ________________________________________________________________________ Interest expense was $102 million, compared with $70 million in 1994 and $39 million in 1993. The increases in both 1995 and 1994 were due to a planned increase in debt and higher interest rates. Investment and other income was $49 million, compared with $21 million in 1994 and $94 million in 1993. The increase in 1995 was due to improved investment results, including higher interest income. In 1993, investment and other income included $36 million from the resolution of several income tax claims. It also benefited from improved investment results and other items, many of which were of a nonrecurring nature. During the first quarter of 1994, 3M recorded a pre-tax charge of $35 million related to breast implant litigation. Other income and expense in 1994 includes this amount, which is shown on a separate line of the Consolidated Statement of Income titled "Implant litigation - net." The effective tax rate was 36.2 percent of pre-tax income, about the same as in 1994 and 1993. Income from continuing operations totaled $1.306 billion, or $3.11 per share ($1.358 billion, or $3.23 a share, excluding the restructuring charge). Earnings per share from continuing operations, excluding both the 1995 restructuring charge and the 1994 implant litigation charge, increased 11.4 percent in 1995. Net income, before one-time 1995 charges, totaled $1.390 billion, or $3.31 a share, up 5.1 percent from $1.322 billion, or $3.13 a share, in 1994. Including these charges, net income was $976 million, or $2.32 a share, compared with $1.322 billion, or $3.13 a share, in 1994. Changes in the value of the U.S. dollar increased net income by an estimated $51 million, or 12 cents a share, in 1995. Currency effects increased income from continuing operations by an estimated 10 cents a share. Changes in the value of the U.S. dollar had little impact in 1994, and reduced net income by an estimated $62 million, or 14 cents a share, in 1993. These estimates include the effect of translating profits from local currencies into U.S. dollars, the costs in local currencies of transferring goods between the parent company in the United States and international companies, and transaction gains and losses in countries not considered to be highly inflationary. Return on average stockholders' equity was 19.2 percent, up from 18.2 percent in 1994. Adjusting income from continuing operations for the restructuring charge and equity for the impact of discontinued operations, return on equity was over 24 percent in 1995. Return on capital employed was 23.4 percent. Adjusting for the continuing operations restructuring charge, return on capital employed was 24.3 percent, up from 23.6 percent in 1994. In 1995, about 27 percent of sales came from products introduced within the past four years, compared with about 26 percent in 1994. Over the longer term, 3M expects to meet its aggressive financial goals. These include annual growth in earnings per share of 10 percent or better, on average; return on stockholders' equity of 20 to 25 percent; return on capital employed of 27 percent or better; and at least 30 percent of sales from products introduced within the past four years. Performance by Business Sector Industrial and Consumer Sector: Despite slowing in the U.S. economy and sharp increases in raw material costs worldwide, this sector turned in another strong performance in 1995. Sales were up 10.4 percent to $8.365 billion. Operating income increased 9.6 percent to $1.335 billion. Internationally, the sector's major businesses posted strong sales gains, with even greater growth in operating income. This sector develops, manufactures and markets innovative, high-value products for home, offices and industrial customers around the world. This sector has achieved a strong position in most of the markets it serves by leveraging 3M strengths in more than two dozen technologies, building on strong brands, expanding its international presence and increasing its manufacturing efficiency. Life Sciences Sector: In 1995, sales increased 11.4 percent to $5.018 billion. Operating income also increased 11.4 percent, to $1.065 billion. Operating income was 21.2 percent of sales. Profit margins exceeded 20 percent for the 12th year in a row. This sector contributes to better health and safety for people around the world. In the health care market, this sector is a leader in medical-surgical supplies, clinical information systems, drug-delivery technologies and dental products. In the safety area, this sector is a global leader in reflective materials for traffic safety and respirators for worker protection. This sector also is a leader in closure tapes for disposable diapers, graphics for trucks and signs, and out-of-home advertising. Performance by Geographic Area United States In the United States, volume rose about 3 percent and selling prices increased about 1 percent, for a total sales gain of about 4 percent. Operating profit margins decreased by about 2.5 percentage points from 1994. Adjusting for the restructuring charge, operating profit margins decreased by about 1.4 percentage points. U.S. results were held back by higher raw material costs and modest volume growth. Employment was basically unchanged at year-end 1995 compared with the end of 1994. Europe and Middle East Sales grew about 19 percent in 1995. Unit sales rose 8 percent, selling prices were up more than 1 percent, and translation increased sales by almost 10 percent. Profits, aided by solid productivity gains, rose 38 percent. Sales per employee in local currencies increased nearly 10 percent. Through 3M's European Business Centers, which direct the development, manufacture and sale of 3M products across the continent, the company is meeting customer needs better, faster and more efficiently. European results were also helped by rapid growth in emerging economies. Volume gains ranging from 30 percent to 50 percent were posted in Hungary, the Czech Republic, Turkey and Poland. Asia Pacific In the Asia Pacific area, sales increased about 16 percent. Unit sales increased about 13 percent. In Japan, unit sales rose about 10 percent, helped by a strong flow of new products. Nearly 13 percent of 3M's sales came from products introduced during 1995 and more than 40 percent of sales in Japan came from products new within the past four years. In Asia outside Japan, volume grew about 20 percent. Solid volume gains were posted throughout the region, in which 3M has more than a dozen companies. To sustain rapid growth in Asia, 3M continues to add to its capabilities. The company is expanding manufacturing operations in China, Taiwan and Malaysia, and enlarging its technical support facility in Singapore. A new distribution center is being built in Korea. Canada, Latin America and Africa In Canada, the company posted good sales and profit growth, paced by industrial businesses. The company is continuing to build upon two platforms for growth. These include an efficient, responsive organization to serve Canadian customers, and a manufacturing organization to leverage 3M resources on a North American and worldwide basis. In Latin America, the company achieved healthy growth again in 1995, despite the sharp decline in economic activity in Mexico. Unit sales increased more than 10 percent, with strong gains in most countries. In Brazil, 3M's largest company in Latin America, volume increased more than 20 percent. In Mexico, the company did an excellent job of minimizing the impact of currency devaluation and overall economic weakness. In Africa, the company also showed solid growth. Volume in South Africa was up more than 10 percent. Sales there are benefiting from the lifting of trade sanctions, which has stimulated the growth of the economy, including exports to neighboring countries. Financial Position 3M's financial condition remained strong in 1995. The company's key inventory index was 3.9 months, down about 10 percent from the end of 1994. The accounts receivable index was 64 days, down two days from 1994. The current ratio was 1.7, unchanged from the end of 1994. Various assets and liabilities, including cash and short-term debt, can fluctuate significantly on a month-to-month basis depending on short- term liquidity needs. The company recorded a current liability of $379 million in the fourth quarter of 1995. Of this amount, $79 million related to the restructuring in continuing operations. The remainder was for severance and other payments relating to discontinued operations. As of December 31, 1995, no employee separations had occurred and no cash payments related to employee separations had been made. Total debt was $2.025 billion, up from $1.948 billion in 1994. Of the debt outstanding at the end of 1995, $441 million was a guarantee of debt of the 3M Employee Stock Ownership Plan. Total debt was 29 percent of stockholders' equity, the same as in 1994. The company's borrowings continued to maintain triple-A long-term ratings. At the time of the spin-off of the data storage and imaging systems businesses, stockholders' equity will be reduced by an estimated $1 billion, essentially representing the distribution of the net assets of the spin- off businesses. The company is reviewing the capital structure requirements of the spin-off company. This determination will affect the debt levels of both companies. Legal proceedings are discussed in the legal proceedings section in Part I, Item 3, of this Form 10-K. There can be no certainty that the company may not ultimately incur charges, whether for governmental proceedings and claims, products liability claims, environmental proceedings or other actions, in excess of presently established accruals. While such future charges could have a material adverse impact on the company's net income in the quarterly period in which they are recorded, the company believes that such additional charges, if any, will not have a material adverse effect on the consolidated financial position or annual results of operations of the company. Liquidity 3M meets its cash requirements primarily from operating activities. During 1995, cash flows provided by operating activities of continuing operations totaled $1.935 billion, an increase of $280 million from 1994. Cash flows from continuing operations more than covered capital expenditures and dividend payments of $1.878 billion. The increase in cash provided from continuing operations in 1995 was helped by good asset management. In 1994, working capital requirements increased due to higher sales growth, affecting cash provided by operating activities. Timing differences between payment of implant liabilities and receipt of related insurance recoveries could affect the cash flows of future periods. The amount and timing of prospective payments cannot be determined with precision at this time. In January 1996, the company paid $130 million into a court administered fund as an initial reserve against costs of claims payable by the company under the "Revised Settlement Program," which is discussed in the legal proceedings section in Part I, Item 3, of this Form 10-K. As a result of actions associated with discontinued operations and restructuring, the company will have unusually high severance payments in 1996. 3M believes that these timing differences and higher severance payments will not have a material adverse effect on the consolidated financial position or liquidity of the company. Capital spending increased 11.9 percent to $1.088 billion. This followed an increase of 8.2 percent in 1994. These investments are helping to meet growing global demand for 3M products and increase manufacturing efficiency. Stockholder dividends increased 6.8 percent to $1.88 a share in 1995. Cash dividend payments totaled $790 million. 3M has paid dividends for 80 consecutive years. On February 12, 1996, the 3M Board of Directors declared a quarterly dividend on 3M common stock of 47 cents a share, maintaining the dividend at the existing quarterly rate. The Board will reconsider the dividend later this year, and expects to continue 3M's record of annual dividend increases. The Board also authorized the repurchase of up to six million of the company's shares. This share repurchase authorization runs through February 10, 1997. The company purchased more than six million shares under a previous authorization. Repurchases of 3M common stock totaled $351 million in 1995, compared with $689 million in 1994 and $706 million in 1993. Repurchases were made to support employee stock purchase plans and for other corporate purposes. The company's strong credit rating provides ready and ample access to funds in global capital markets. 3M maintains a shelf registration with the Securities and Exchange Commission that provides the means to offer medium-term notes not to exceed $601 million. At December 31, 1995, $402 million was available for future financial needs. On January 10, 1995, the company completed a two-year, $200 million 7.75 percent Eurobond offering. The company entered into an interest rate swap that resulted in an all-in borrowing cost equal to the 30-day commercial paper rate, less 30 basis points, for two years. Future Outlook As a result of the restructuring, 3M will be better positioned for profitable growth. The company will strive to meet its financial goals by building on five key strengths: market leadership, technological innovation, customer focus, global reach and employee initiative. These strengths have always been key elements of 3M's success, but their value will become even more pronounced in a faster, stronger and more focused 3M. 3M expects solid sales and earnings growth in 1996. The company expects to benefit from a strong flow of new products, further expansion into international markets, an intense focus on customer satisfaction, and ongoing efforts to reduce costs and improve productivity. Sales per employee are expected to increase about 8 percent in 1996. While volume, productivity and selling prices are expected to help 1996 results, currency effects may moderate profit growth. Based on current exchange rates, currency could reduce 1996 earnings by about 15 cents a share. Raw material costs, which held back earnings growth in 1995, are expected to level off. The company expects to show its strongest earning gains in the second half of the year. Capital spending, which was up 12 percent in 1995, is expected to increase about 10 percent in 1996. The company's tax rate is expected to be similar to 1995, at just over 36 percent. Item 8. Financial Statements and Supplementary Data. Index to Financial Statements Reference (pages) Form 10-K Data submitted herewith: Report of Independent Accountants. ........................... 24 Consolidated Statement of Income for the years ended December 31, 1995, 1994 and 1993 ........................... 25 Consolidated Balance Sheet at December 31, 1995 and 1994 ....................................................... 26 Consolidated Statement of Cash Flows for the years ended December 31, 1995, 1994 and 1993 ......................................... 27 Notes to Consolidated Financial Statements ...................28-42 Report of Independent Accountants To the Stockholders of Minnesota Mining and Manufacturing Company: We have audited the consolidated financial statements of Minnesota Mining and Manufacturing Company and Subsidiaries as listed in Item 8 of this Form 10-K. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Minnesota Mining and Manufacturing Company and Subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. COOPERS & LYBRAND L.L.P. St. Paul, Minnesota February 12, 1996 Consolidated Statement of Income Minnesota Mining and Manufacturing Company and Subsidiaries For the Years Ended December 31 1995 1994 1993 (Amounts in millions, except per-share amounts) Net Sales $13,460 $12,148 $11,053 _______________________________________________________________________________ Operating Expenses Cost of goods sold 7,720 6,829 6,336 Selling, general and administrative expenses 3,440 3,224 2,921 Restructuring charge 79 -- -- _______________________________________________________________________________ Total 11,239 10,053 9,257 _______________________________________________________________________________ Operating Income 2,221 2,095 1,796 _______________________________________________________________________________ Other Income and Expense Interest expense 102 70 39 Investment and other income - net (49) (21) (94) Implant litigation - net -- 35 -- _______________________________________________________________________________ Total 53 84 (55) _______________________________________________________________________________ Income From Continuing Operations Before Income Taxes and Minority Interest 2,168 2,011 1,851 Provision for Income Taxes 785 731 673 Minority Interest 77 73 45 _______________________________________________________________________________ Income From Continuing Operations 1,306 1,207 1,133 Discontinued Operations Income from operations of discontinued businesses, net of income taxes 43 115 130 Loss on disposal of discontinued businesses, net of income taxes (373) -- -- _______________________________________________________________________________ Net Income $ 976 $1,322 $ 1,263 Per-Share Amounts: Continuing Operations $ 3.11 $2.85 $ 2.61 Discontinued Operations (.79) .28 .30 _______________________________________________________________________________ Net Income $ 2.32 $3.13 $ 2.91 _______________________________________________________________________________ Average Shares Outstanding 419.8 423.0 434.3 The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. Consolidated Balance Sheet Minnesota Mining and Manufacturing Company and Subsidiaries At December 31 1995 1994 (Dollars in millions) Assets Current Assets Cash and cash equivalents $ 485 $297 Other securities 287 194 Accounts receivable - net 2,398 2,328 Inventories 2,206 2,138 Other current assets 1,019 651 ___________________________________________________________________________ Total current assets 6,395 5,608 Investments 565 532 Property, Plant and Equipment - net 4,638 4,362 Other Assets 1,177 897 Net Assets of Discontinued Operations 1,408 1,669 ___________________________________________________________________________ Total $14,183 $13,068 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 762 $ 820 Payroll 298 279 Income taxes 214 110 Short-term debt 822 917 Other current liabilities 1,628 1,130 ___________________________________________________________________________ Total current liabilities 3,724 3,256 Other Liabilities 2,372 2,047 Long-Term Debt 1,203 1,031 Stockholders' Equity - net 6,884 6,734 Shares outstanding - 1995: 418,702,754 1994: 419,793,702 ___________________________________________________________________________ Total $14,183 $13,068 The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. Consolidated Statement of Cash Flows Minnesota Mining and Manufacturing Company and Subsidiaries For the Years Ended December 31 1995 1994 1993 (Dollars in millions) Cash Flows from Operating Activities Net income $ 976 $1,322 $1,263 Less income (loss) from discontinued operations (330) 115 130 Income from continuing operations 1,306 1,207 1,133 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation 795 793 768 Amortization 64 79 84 Accounts receivable (90) (225) (306) Inventories (51) (240) (169) Working capital and other changes (89) 41 285 ______________________________________________________________________________ Net cash provided by continuing operations 1,935 1,655 1,795 Net cash provided by discontinued operations 325 274 296 Net cash provided by operating activities 2,260 1,929 2,091 Cash Flows from Investing Activities Capital expenditures (1,088) (972) (898) Proceeds from sale of property, plant and equipment 54 54 48 Acquisitions and other investments (49) (92) (70) Proceeds from divestitures and investments 82 22 37 Discontinued operations, net (207) (183) (209) ______________________________________________________________________________ Net cash used in investing activities (1,208) (1,171) (1,092) Cash Flows from Financing Activities Net change in short-term debt (41) 216 48 Repayment of long-term debt (156) (62) (80) Proceeds from long-term debt 223 401 150 Purchases of treasury stock (351) (689) (706) Reissuances of treasury stock 214 138 181 Payment of dividends (790) (744) (721) ______________________________________________________________________________ Net cash used in financing activities (901) (740) (1,128) Effect of exchange rate changes on cash 37 5 21 ______________________________________________________________________________ Net increase (decrease) in cash and cash equivalents 188 23 (108) Cash and cash equivalents at beginning of year 297 274 382 ______________________________________________________________________________ Cash and cash equivalents at end of year $ 485 $ 297 $ 274 ______________________________________________________________________________ The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. Notes to Consolidated Financial Statements Accounting Policies Consolidation: All significant subsidiaries are consolidated. Unconsolidated subsidiaries and affiliates are included on the equity basis. Foreign Currency Translation: Local currencies are generally considered the functional currencies outside the United States, except in countries treated as highly inflationary. Assets and liabilities for operations in local currency environments are translated at year-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the year. Cumulative translation adjustments, recorded as a component of stockholders' equity, reduced stockholders' equity by $102 million, $163 million and $331 million at December 31, 1995, 1994 and 1993, respectively. For operations in countries treated as highly inflationary, certain financial statement amounts are translated at historical exchange rates, with all other assets and liabilities translated at year-end exchange rates. These translation adjustments are reflected in the results of operations. They decreased net income by $4 million in 1995, $20 million in 1994 and by $12 million in 1993. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Cash and Cash Equivalents: Cash and cash equivalents consist of cash and temporary investments with maturities of three months or less when purchased. Other Securities and Investments: Other securities consist of marketable securities and interest-bearing bank deposits with varied maturity dates. These securities are employed in the company's banking, captive insurance and cash management operations. Investments primarily include debt securities held by captive insurance and banking operations, individual and commercial loans receivable held by banking operations, the cash surrender value of life insurance policies, and real estate and venture capital investments. Other Securities and Investments At December 31 (Millions) 1995 1994 Held-to-maturity (amortized cost) $168 $120 Available-for-sale (fair value) 225 160 Other (cost, which approximates fair value) 459 446 Unrealized gains and losses relating to other securities and investments classified as available-for-sale are included as a component of stockholders' equity. Realized gains and losses in 1995 and 1994 were not material. Inventories: Inventories are stated at lower of cost or market, with cost generally determined on a first-in, first-out basis. Other Assets: Other assets include goodwill, patents, other intangibles, product and other insurance claims, deferred taxes and other noncurrent assets. Intangible assets are periodically reviewed for impairment based on an assessment of future operations to ensure that they are appropriately valued. Goodwill is generally amortized on a straight-line basis over 10 years. Other intangible items are amortized on a straight-line basis over their estimated economic lives. In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement requires that long- lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. The impact of this statement on the company is immaterial. The company will adopt this standard effective January 1, 1996. Deferred Income Taxes: Deferred income taxes arise from differences in bases between tax reporting and financial reporting. Revenue Recognition: Revenue is recognized upon shipment of goods to customers and upon performance of services. The company sells a wide range of products to a diversified base of customers around the world and, therefore, believes there is no material concentration of credit risk. Depreciation: Depreciation of property, plant and equipment is generally computed on a straight-line basis over the estimated useful lives of these assets. Research and Development: Research and development costs are charged to operations as incurred and totaled $883 million in 1995, $828 million in 1994 and $794 million in 1993. Advertising Costs: Advertising costs are generally charged to operations in the year incurred and totaled $423 million in 1995, $422 million in 1994 and $353 million in 1993. Derivatives: Derivative financial instruments are utilized by the company to manage risks generally associated with foreign exchange rate and interest rate market volatility. The company does not hold or issue derivative financial instruments for trading purposes. The company is not a party to leveraged derivatives. Realized and unrealized gains and losses are deferred until the underlying transactions are realized. These gains and losses are recognized either as interest expense over the borrowing period for interest rate and currency swaps, as an adjustment to cost of goods sold for inventory-related hedge transactions, or in stockholders' equity for hedges of net investments in international companies. Cash flows attributable to these financial instruments are included with the cash flows from the associated hedged items. Accounting for Stock-Based Compensation: In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation." This statement establishes financial accounting and reporting standards for stock-based employee compensation plans. The company intends to follow the option that permits entities to continue to apply current accounting standards to stock-based employee compensation arrangements. Effective with year-end 1996 reporting, the company will disclose pro forma net income and earnings per share amounts as if Statement No. 123 accounting were applied. Supplemental Balance Sheet Information ________________________________________________________________________ (Millions) 1995 1994 Accounts receivable Accounts receivable $ 2,492 $2,414 Less allowances 94 86 Accounts receivable - net $ 2,398 $2,328 Inventories Finished goods $ 1,164 $1,081 Work in process 565 583 Raw materials and supplies 477 474 Total inventories $ 2,206 $2,138 Other current assets Product and other insurance claims $ 334 $ 158 Deferred taxes 307 177 Other 378 316 Total other current assets $ 1,019 $ 651 Property, plant and equipment - at cost Land $ 296 $ 284 Buildings and leasehold improvements 2,814 2,595 Machinery and equipment 7,673 7,065 Construction in progress 451 358 $11,234 $10,302 Less accumulated depreciation 6,596 5,940 Property, plant and equipment - net $ 4,638 $ 4,362 Other assets Product and other insurance claims $ 781 $ 466 Deferred taxes 105 124 Other 291 307 Total other assets $ 1,177 $ 897 Other current liabilities Product and other liabilities $ 369 $ 183 Severance and other restructuring liabilities 379 -- Deposits - banking operations 290 270 Deferred taxes 10 10 Other 580 667 Total other current liabilities $ 1,628 $ 1,130 Other liabilities Product and other liabilities $ 923 $ 682 Minority interest in subsidiaries 483 460 Nonpension postretirement benefits 423 404 Deferred taxes 90 97 Other 453 404 Total other liabilities $ 2,372 $ 2,047 Deposits - banking operations - are primarily demand deposits and, as such, the carrying amount approximates fair value. Discontinued Operations In November 1995, the Board of Directors approved a plan to launch the company's data storage and imaging systems businesses as an independent, publicly owned company. This transaction will be effected through the distribution of shares in a newly formed company to 3M shareholders. The transaction is expected to be tax free to 3M and to shareholders. The distribution is expected to occur around July 1, 1996. 3M will contribute the net assets of the data storage and imaging systems businesses to the newly formed company, reducing stockholders' equity by an estimated $1 billion. In November 1995, the Board of Directors also approved the discontinuance of 3M's audio and video tape business within 12 months. As a result of the plans to spin off the data storage and imaging systems businesses and to discontinue the audio and video tape business, the company's consolidated financial statements and notes report these businesses as discontinued operations. Prior years' consolidated financial statements and notes have been restated accordingly. The 1995 income from operations of the discontinued businesses include results through November 30, 1995. Income from operations of the discontinued businesses includes interest expense allocations (based on the ratio of net assets of discontinued operations to consolidated net assets plus debt) of $15 million, $17 million, and $11 million in 1995, 1994 and 1993, respectively. The loss on disposal of $373 million includes the estimated future results of operations through the estimated date of spin-off or closure. Major components of the loss on disposal include $300 million of severance cost and $265 million of asset write-downs, net of deferred income taxes of $232 million. Included in the calculation of the loss on disposal was $13 million in interest expense. Net cash provided by discontinued operations in 1995 differs from the loss from discontinued operations principally due to two factors -- the loss on disposal for which no cash had been expended at December 31, 1995, and depreciation. Discontinued Operations (Millions) 1995 1994 1993 Net Sales $2,645 $2,931 $2,967 Income Before Income Taxes and Minority Interest 59 143 151 Provision for Income Taxes 23 40 34 Minority Interest (7) (12) (13) Income from Operations, Net of Income Taxes 43 115 130 Loss on Disposal, Net of Income Taxes (373) -- -- Total Discontinued Operations, Net of Income Taxes (330) 115 130 Net Assets of Discontinued Operations At December 31 (Millions) 1995 1994 Current Assets $1,212 $1,320 Property, Plant and Equipment - net 456 692 Other Assets 192 85 Current Liabilities (357) (349) Other Liabilities (95) (79) Net Assets of Discontinued Operations $1,408 $1,669 Restructuring Charge Related to the spin-off of the data storage and imaging businesses and the phase-out of the audio and video tape business, the company recorded a restructuring charge of $79 million in 1995. Major components of this charge include $50 million of employee severance costs and $17 million related to the write-down of certain assets to their net realizable value. The company expects to reduce approximately 1,000 positions by the end of 1996, mainly in corporate service functions supporting 3M businesses in the United States and Europe. As of December 31, 1995, no employee separations had occurred and no cash payments related to employee separations had been made. Debt Short-Term Debt Effective (Millions) Interest Rate* 1995 1994 Commercial paper 4.91% $ 574 $ 593 Long-term debt - current portion 8.19% 47 174 Other borrowings 8.70% 201 150 __________________________________________________________________________ Total short-term debt $ 822 $ 917 __________________________________________________________________________ Long-Term Debt Effective Maturity (Millions) Interest Rate* Date 1995 1994 ESOP debt guarantee 8.21% 1997-2004 $ 412 $ 444 U.S. 7.75% Eurobond 5.50% 1997 200 -- U.S. 6.375% Eurobond 5.02% 1997 200 200 Canadian 6.5% Eurobond 4.81% 1998 114 114 Medium-term 6.25% note 5.11% 1999 100 100 Swiss Franc 5.5% note 5.50% 1997 98 98 Other borrowings 7.67% 1997-2025 79 75 __________________________________________________________________________ Total long-term debt $1,203 $1,031 *Effective interest rates, which reflect the effects of interest rate and currency swaps, at December 31, 1995. Debt with fixed interest rates include the ESOP, Canadian Eurobond and a portion of other borrowings. Other borrowings consist primarily of borrowings of 3M's international companies and industrial bond issues in the United States. Maturities of long-term debt for the next five years are as follows: 1996, $47 million; 1997, $558 million; 1998, $162 million; 1999, $144 million; and 2000, $45 million. Interest payments included in the Consolidated Statement of Cash Flows totaled $104 million in 1995, $72 million in 1994 and $42 million in 1993. The ESOP debt is being serviced by dividends on stock held by the ESOP and by company contributions. These contributions are reported as a benefit expense. The company estimates that the fair value of short-term and long-term debt approximates the carrying amount of this debt. Payment of dividends is not restricted by debt covenants. Other Financial Instruments Interest Rate and Currency Swaps: To manage interest rate and foreign exchange rate risk and to lower its cost of borrowing, the company has entered into interest rate and currency swaps. The notional amounts set forth in the table below serve solely as a basis for the calculation of payment streams to be exchanged. These notional amounts are not a measure of the exposure of the company through its use of derivatives. These instruments mature in relationship to their underlying debt and have maturities extending to 1999. Unrealized gains and losses and exposure to changes in market conditions were not material at December 31, 1995 and 1994. Notional Amounts (Millions) 1995 1994 Interest rate swaps $836 $489 Currency swaps 306 256 Foreign Exchange Forward and Options Contracts: The company has entered into foreign exchange forward and options contracts, all having maturities of less than one year. The face amounts represent contracted U.S. dollar equivalents of non-U.S. dollar denominated forward and options contracts. The amounts at risk are not material because the company is not required to exercise options purchased and has the ability to generate offsetting foreign currency cash flows. The unrealized gains and losses at December 31, 1995 and 1994, were not material. Face Amounts (Millions) 1995 1994 Forward contracts $1,178 $772 Options purchased 196 65 Options sold 137 109 The company engages in foreign currency hedging activities to reduce exchange risks arising from cross-border, non-U.S. dollar denominated cash flows. The company operates on a global basis, generating more than half of its revenues from international customers and engaging in substantial product and financial transfers among geographic areas. The major forward contracts at December 31, 1995, were denominated in Italian lira, French francs, Japanese yen, German marks, Swiss francs, British pound sterling and Canadian dollars. Credit Risk: The company is exposed to credit loss in the event of nonperformance by counterparties in interest rate swaps, currency swaps and foreign exchange contracts, but does not anticipate nonperformance by any of these counterparties. The company actively monitors its exposure to credit risk through the use of credit approvals and credit limits, and by selecting major international banks and financial institutions as counterparties. Leases Rental expense under operating leases was $154 million in 1995, $140 million in 1994 and $132 million in 1993. The table below sets forth minimum payments under operating leases with noncancelable terms in excess of one year, as of year-end 1995. ________________________________________________________________________ After (Millions) 1996 1997 1998 1999 2000 2000 Total Minimum lease payments $71 $57 $36 $28 $22 $83 $297 Income Taxes ___________________________________________________________________________ Income From Continuing Operations Before Income Taxes and Minority Interest (Millions) 1995 1994 1993 U.S. $1,274 $1,284 $1,264 International 894 727 587 Total $2,168 $2,011 $1,851 ___________________________________________________________________________ Provision for Income Taxes (Millions) 1995 1994 1993 Currently payable Federal $ 346 $ 306 $ 382 State 58 60 68 International 380 306 298 Deferred Federal 21 48 (55) State 2 4 (5) International (22) 7 (15) ___________________________________________________________________________ Total $ 785 $ 731 $ 673 Components of Deferred Tax Assets and Liabilities (Millions) 1995 1994 Accruals not currently deductible: Benefit costs $265 $273 Severance and other restructuring costs 144 -- Product and other liabilities 492 330 Product and other insurance claims (425) (238) Accelerated depreciation (350) (342) Other 186 171 Net Deferred Tax Asset $312 $194 Income tax payments included in the Consolidated Statement of Cash Flows totaled $793 million in 1995, $865 million in 1994 and $754 million in 1993. At December 31, 1995, approximately $3.377 billion of retained earnings attributable to international companies were considered to be permanently invested. No provision has been made for taxes that might be payable if these earnings were remitted to the United States. It is not practical to determine the amount of incremental tax that might arise were these earnings to be remitted. ____________________________________________________________________________ Reconciliation of Effective Income Tax Rate 1995 1994 1993 Statutory U.S. tax rate 35.0% 35.0% 35.0% State income taxes - net 1.8 2.1 2.2 International taxes 2.1 2.9 4.2 Adjusted prior years' export sales benefit -- (1.5) -- All other - net (2.7) (2.1) (5.0) Effective worldwide tax rate 36.2% 36.4% 36.4% Stockholders' Equity Common stock, without par value, of 500,000,000 shares is authorized, with 472,016,528 shares issued in 1995, 1994 and 1993. Treasury shares at year-end totaled 53,313,774 in 1995, 52,222,826 in 1994 and 42,537,890 in 1993. This stock is reported at cost. Preferred stock, without par value, of 10,000,000 shares is authorized but unissued. All share and per-share data reflect a two-for-one common stock split effective March 15, 1994.
_______________________________________________________________________________________ Translation and Fair ESOP Common Retained Value Unearned Treasury (Dollars in millions) Stock Earnings Adjustments Compensation Stock Total _______________________________________________________________________________________ Balance, December 31, 1992 $296 $8,012 $(198) $(498) $(1,013) $6,599 Net income 1,263 1,263 Dividends paid ($1.66 per share) (721) (721) Reacquired stock (13,161,736 shares) (706) (706) Issuances pursuant to stock option and benefit plans (4,572,274 shares) (54) 245 191 Amortization of unearned compensation 19 19 Translation adjustments (133) (133) Balance, December 31, 1993 $296 $8,500 $(331) $(479) $(1,474) $6,512 Net income 1,322 1,322 Dividends paid ($1.76 per share) (744) (744) Reacquired stock (13,136,376 shares) (689) (689) Issuances pursuant to stock option and benefit plans (3,451,440 shares) (39) 188 149 Amortization of unearned compensation 19 19 Translation and fair value adjustments 165 165 Balance, December 31, 1994 $296 $9,039 $(166) $(460) $(1,975) $6,734 Net income 976 976 Dividends paid ($1.88 per share) (790) (790) Reacquired stock (5,879,092 shares) (351) (351) Issuances pursuant to stock option and benefit plans (4,788,144 shares) (61) 273 212 Amortization of unearned compensation 23 23 Translation and fair value adjustments 80 80 Balance, December 31, 1995 $296 $9,164 $ (86) $(437) $(2,053) $6,884
Business Segments As a result of the restructuring plan, the company's businesses now are organized into two sectors. The company's electro and communications businesses now are included in the Industrial and Consumer Sector. Accordingly, all prior data have been restated. 3M's two business sectors have worldwide responsibility for virtually all of the company's product lines. These product lines serve a wide range of markets, including automotive, communication, consumer, electronic, health care, industrial, office, personal care and safety. 3M's business is not dependent upon any single product or market. Financial information relating to the company's business sectors for the years ended December 31, 1995, 1994 and 1993 appears below. 3M is an integrated enterprise characterized by substantial intersector cooperation, cost allocations and inventory transfers. Therefore, management does not represent that these sectors, if operated independently, could earn the operating income shown. Industrial Life Corporate & Total (Millions) and Consumer Sciences Unallocated Company Net Sales 1995 $8,365 $5,018 $ 77 $13,460 1994 7,578 4,504 66 12,148 1993 6,897 4,092 64 11,053 Operating 1995 $1,335 $1,065 $ (179)* $ 2,221 Income 1994 1,218 956 (79)* 2,095 1993 1,041 850 (95)* 1,796 Identifiable 1995 $5,482 $3,276 $5,425 $14,183 Assets ** 1994 5,242 3,038 4,788 13,068 1993 4,718 2,768 4,309 11,795 Depreciation 1995 $ 471 $ 253 $ 71 $ 795 1994 475 261 57 793 1993 451 249 68 768 Capital 1995 $ 627 $ 438 $ 23 $ 1,088 Expenditures 1994 605 351 16 972 1993 557 327 14 898 * Operating income for 1995 includes a $79 million restructuring charge. For all years presented, operating income includes unallocated corporate overhead expenses, most of which historically were allocated to discontinued operations. ** Identifiable assets for business sectors primarily include accounts receivable; inventory; net property, plant and equipment; and other miscellaneous assets. Assets included in the Corporate and Unallocated column are principally cash and cash equivalents; other securities; insurance receivables; deferred income taxes; certain investments and other assets; net assets of discontinued operations; and certain unallocated property, plant and equipment. Revenue by Classes of Similar Products or Services (Unaudited) (Millions) 1995 1994 1993 Tape Products $ 2,042 $1,801 $1,617 Abrasive Products 1,220 1,117 1,002 Automotive and Chemical Products 1,328 1,195 1,176 Connecting and Insulating Products 1,470 1,362 1,252 Consumer and Office Products 2,272 2,069 1,844 Health Care Products 2,221 2,002 1,876 Safety and Personal Care Products 1,220 1,067 974 All Other Products 1,687 1,535 1,312 Total $13,460 $12,148 $11,053 Geographic Areas Information in the table below is presented on the same basis utilized by the company to manage the business. Export sales and certain income and expense items are reported in the geographic area where the final sale to customers is made, rather than where the transaction originates. United Europe and Asia Other Elimina- Total (Millions) States Middle East Pacific Areas * tions Company and Other Net Sales to 1995 $6,207 $3,489 $2,549 $1,215 $13,460 Customers 1994 5,944 2,937 2,191 1,076 12,148 1993 5,531 2,706 1,870 946 11,053 Transfers 1995 $1,382 $ 153 $ 43 $ 188 $(1,766) -- Between 1994 1,227 149 31 152 (1,559) -- Geographic 1993 1,026 85 24 141 (1,276) -- Areas Operating 1995 $ 925 $ 436 $ 626 $ 234 $ 2,221 Income 1994 1,035 317 535 208 2,095 1993 898 262 444 192 1,796 Identifiable 1995 $7,337 $ 2,782 $ 1,802 $ 854 $ 1,408 $14,183 Assets ** 1994 6,462 2,420 1,734 783 1,669 13,068 1993 5,795 2,201 1,459 720 1,620 11,795 * Includes Canada, Latin America and Africa. ** Net Assets of Discontinued Operations are reported in the Eliminations and Other column. Retirement Plans 3M has various company-sponsored retirement plans covering substantially all U.S. employees and many employees outside the United States. Pension benefits are based principally on an employee's years of service and compensation near retirement. Plan assets are invested in common stocks, fixed-income securities, real estate and other investments. The company's funding policy is to deposit with an independent trustee amounts at least equal to those required by law. A trust fund is maintained to provide pension benefits to plan participants and their beneficiaries. In addition, a number of plans are maintained by deposits with insurance companies. The charge to income relating to these plans was $152 million in 1995, $153 million in 1994 and $170 million in 1993. Net pension cost is reported on a continuing operations basis, whereas the funded status of pension plans includes both continuing and discontinued operations. The company is in the process of determining the benefit arrangements of the spin-off company and, thus, the funded status of pension plans is subject to change based on these determinations. Net Pension Cost U.S. Plan International Plans (Millions) 1995 1994 1993 1995 1994 1993 Service cost $ 96 $117 $110 $86 $ 85 $86 Interest cost 304 280 276 92 89 80 Return on plan assets - actual (846) 70 (430) (124) (2) (185) Net amortization and deferral 532 (377) 154 39 (79) 112 Discontinued operations (14) (16) (18) (13) (14) (15) Net pension cost $ 72 $ 74 $ 92 $80 $ 79 $78 Funded Status of Pension Plans U.S. Plan International Plans (Millions) 1995 1994 1995 1994 Plan assets at fair value $4,134 $3,343 $1,293 $1,333 Accrued pension cost 97 161 110 97 Amount provided for future benefits $4,231 $3,504 $1,403 $1,430 Actuarial present value of: Vested benefit obligation 3,666 2,889 1,051 1,022 Non-vested benefit obligation 521 423 108 100 Accumulated benefit obligation $4,187 $3,312 $1,159 $1,122 Amount provided for future benefits less accumulated benefit obligation 44 192 244 308 Projected benefit obligation 4,696 3,721 1,482 1,514 Plan assets at fair value less projected benefit obligation $ (562) $ (378) $ (189) $ (181) Unrecognized net transition (asset) obligation (149) (187) 22 22 Other unrecognized items 614 404 57 62 Accrued pension cost $ (97) $ (161) $ (110) $ (97) U.S. Plan International Plans Assumptions at Year-End 1995 1994 1993 1995 1994 1993 Discount rate 7.00% 8.25% 7.25% 7.10% 7.45% 7.26% Compensation rate increase 5.00% 5.00% 5.00% 5.38% 5.71% 5.31% Long term rate of return on assets 9.00% 9.00% 9.00% 7.59% 7.65% 7.64% Net pension cost is determined using assumptions at the beginning of the year. Funded status is determined using assumptions at year-end. Other Postretirement Benefits The company provides health care and life insurance benefits for substantially all of its U.S. employees who reach retirement age while employed by the company. The company has set aside funds with an independent trustee for these postretirement benefits and makes periodic contributions to the plan. The assets held by the trustee are invested in common stocks and fixed-income securities. Employees outside the United States are covered principally by government-sponsored plans. The cost of company-provided plans for these employees is not material. Net periodic postretirement benefit cost is reported on a continuing operations basis, whereas the funded status of the postretirement benefit plan includes both continuing and discontinued operations. The company is in the process of determining the benefit arrangements of the spin-off company and, thus, the funded status of the postretirement benefit plan is subject to change based on these determinations. The table below sets forth the components of the net periodic postretirement benefit cost and a reconciliation of the funded status of the postretirement benefit plan for U.S. employees. Net Periodic Postretirement Benefit Cost (Millions) 1995 1994 1993 Service cost $ 26 $ 28 $ 23 Interest cost 63 55 53 Return on plan assets - actual (76) 16 (23) Net amortization and deferral 51 (40) 1 Discontinued operations (11) (10) (9) Total $ 53 $ 49 $ 45 Funded Status of Postretirement Benefit Plan (Millions) 1995 1994 Fair value of plan assets $ 398 $ 319 Accumulated postretirement benefit obligation: Retirees $ 286 $ 256 Fully eligible active plan participants 201 167 Other active plan participants 468 367 Benefit obligation $ 955 $ 790 Plan assets less benefit obligation $ (557) $(471) Adjustments and unrecognized items 134 67 Accrued postretirement cost $ (423) $(404) The accumulated postretirement benefit obligation and related benefit costs are determined through the application of relevant actuarial assumptions. The company anticipates its health care cost trend rate to slow from 6.9 percent in 1996 to 5.0 percent in 2003, after which the trend rate is expected to stabilize. The effect of a one percentage point increase in the assumed health care cost trend rate for each future year would increase the benefit obligation by $78 million and the current year benefit expense by $9 million. Other actuarial assumptions include an expected long-term rate of return on plan assets of 9.0 percent (before taxes applicable to a portion of the return on plan assets), and a discount rate of 7.0 percent. Employee Savings and Stock Ownership Plans The company sponsors employee savings plans under Section 401(k) of the Internal Revenue Code. These plans are offered to substantially all regular U.S. employees. The company matches employee contributions of up to 6 percent of compensation at rates ranging from 10 to 85 percent, depending upon company performance. The company maintains an Employee Stock Ownership Plan (ESOP) for substantially all regular U.S. employees not covered by collective bargaining agreements. This plan was established in 1989 as a cost- effective way of funding certain employee retirement savings benefits, including the company's matching contributions under 401(k) employee savings plans. The ESOP borrowed $548 million and used the proceeds to purchase 15.4 million shares of the company's common stock, previously held in treasury. Because the company has guaranteed repayment of the ESOP debt, the debt and related unearned compensation are recorded in the Consolidated Balance Sheet. Dividends on shares held by the ESOP are paid to the ESOP trust and, together with company contributions, are used by the ESOP to repay principal and interest on the outstanding notes. Shares are released for allocation to participants based upon the ratio of the current year's debt service to the sum of total principal and interest payments over the life of the notes. Annual expenses related to the ESOP generally represent total debt service on the notes, less dividends, and totaled $30 million in 1995, $32 million in 1994 and $34 million in 1993. Unearned compensation, shown as a reduction of stockholders' equity, is reduced by the higher of principal payments or the cost of shares allocated. Interest incurred on the ESOP's notes amounted to $37 million in 1995, $39 million in 1994 and $41 million in 1993. The company paid dividends on the stock held by the ESOP of $28 million in 1995, $26 million in 1994 and $25 million in 1993. Company contributions to the ESOP were $40 million in 1995, $35 million in 1994 and $34 million in 1993. These contributions are reported as a benefit expense. ESOP Shares 1995 1994 1993 Allocated shares 5,116,265 4,236,925 3,447,668 Committed to be released -- -- -- Unreleased shares 9,892,575 10,941,944 11,875,928 Total shares held by the ESOP 15,008,840 15,178,869 15,323,596 General Employees' Stock Purchase Plan Substantially all regular U.S. employees are eligible to participate in the General Employees' Stock Purchase Plan. Participants are granted options at 85 percent of market value at the date of grant. Options must be exercised within 27 months from date of grant. Shares Price Range Under option- January 1, 1995 369,200 $41.76-48.30 Granted 1,778,647 43.89-55.41 Exercised (1,741,794) 41.76-55.41 Canceled (55,248) 41.76-55.41 Under option- December 31, 1995 350,805 $41.76-55.41 Shares available for grant- December 31, 1995 14,236,150 Management Stock Ownership Program Management stock options are granted at market value at the date of grant. At year-end, there were 4,545 participants in the plan. All outstanding options expire between May 1996 and May 2005. Shares Price Range Under option- January 1, 1995 22,715,941 $19.44-58.08 Granted 4,300,298 50.95-61.50 Exercised (3,001,292) 19.44-59.60 Canceled (40,232) 19.44-59.60 Under option- December 31, 1995 23,974,715 $24.94-61.50 Options exercisable- December 31, 1995 20,219,581 $24.94-61.50 Shares available for grant- December 31, 1995 13,323,715 Quarterly Data (Unaudited) (Millions, except per-share data) First Second Third Fourth Year Net Sales 1995 $3,361 $3,424 $3,370 $3,305 $13,460 1994 2,911 3,040 3,107 3,090 12,148 Cost of Goods Sold 1995 $1,886 $1,949 $1,942 $1,943 $7,720 1994 1,649 1,700 1,746 1,734 6,829 Income from Continuing Operations* 1995 $355 $346 $339 $ 266 $1,306 1994 270 314 329 294 1,207 Discontinued Operations 1995 $ 21 $ 7 $ 5 $(363) $ (330) 1994 36 29 12 38 115 Net Income (Loss) 1995 $376 $353 $344 $ (97) $ 976 1994 306 343 341 332 1,322 Per-Share - Continuing Operations* 1995 $.85 $.82 $.81 $.63 $3.11 1994 .63 .74 .78 .70 2.85 Per-Share - Discontinued Operations 1995 $.05 $.02 $.01 $(.87) $(.79) 1994 .09 .07 .03 .09 .28 Per-Share 1995 $.90 $.84 $.82 $(.24) $2.32 1994 .72 .81 .81 .79 3.13 * First quarter 1994 includes a pre-tax implant litigation charge of $35 million, or 5 cents a share. Fourth quarter 1995 includes a pre-tax restructuring charge of $79 million, or 12 cents a share. Stock Price Comparisons (NYSE Composite Transactions) 1995 High $58.88 $62.13 $60.13 $69.88 $69.88 1995 Low 50.75 56.50 53.88 55.13 50.75 1994 High 56.38 52.38 57.13 56.63 57.13 1994 Low 49.00 46.38 49.25 50.38 46.38 Legal Proceedings Discussion of legal matters is cross-referenced to Part I, Item 3, of this Form 10-K, and should be considered an integral part of the Consolidated Financial Statements and Notes. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. Item 11. Executive Compensation. Item 12. Security Ownership of Certain Beneficial Owners and Management. Item 13. Certain Relationships and Related Transactions. The information required by Items 10 through 13 are incorporated by reference from the registrant's definitive proxy statement pursuant to general instruction G(3). The registrant will file with the Commission a definitive proxy statement pursuant to Regulation 14A before April 29, 1996. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) The financial statements filed as part of this report are listed in the index to financial statements on page 23. All financial statement schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or the notes thereto. (b) Reports on Form 8-K: The company filed two reports on Form 8-K during the fourth quarter of 1995. November 14, 1995: Item 5, Other Events, which incorporates by reference the press release issued by the company on November 14, 1995. This press release reports that the company intends to launch its data storage and imaging systems business as an independent, publicly owned company, and will discontinue its audio and video tape business within 12 months. December 22, 1995: Item 5, Other Events, which provides information about approval by the U.S. District Court, Northern District of Alabama, of a revised class action settlement program for resolution of claims seeking damages for personal injuries from allegedly defective breast implants. (c) Exhibits: Incorporated by Reference: Incorporated by Reference in the Report From (3) Restated certificate of incorporation Exhibit (3) to and bylaws, amended to and Form 10-Q including amendments of for period ended May 12, 1987. June 30, 1987. (4) Instruments defining the rights of security holders, including debentures: (a) common stock. Exhibit (3) above (b) medium-term notes. Registration No. 33-48089 on Form S-3. (10) Material contracts, management remuneration: (a) management stock ownership program. Exhibit 4 of Registration Nos. 33-49842 and 33-58767 on Form S-8 (b) profit sharing plan, performance Written description contained unit plan and other compensation in issuer's proxy statement arrangements. for the 1996 annual shareholders' meeting. Reference (pages) Form 10-K Submitted herewith: (11) Computation of per share earnings. 45 (12) Calculation of ratio of earnings to fixed charges. 46 (21) Subsidiaries of the registrant. 47 (23) Consent of experts. 48 (24) Power of attorney. 49 (27) Financial data schedule for the year ended December 31, 1995 (EDGAR filing only). (27) Restated financial data schedule for the year ended December 31, 1994 (EDGAR filing only). SIGNATURES Pursuant to the requirements of Section 13 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 By /s/ Giulio Agostini Giulio Agostini, Senior Vice President Principal Financial and Accounting Officer March 11, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 11, 1996. Signature Title LIVIO D. DeSIMONE Chairman of the Board and Chief Executive Officer, Director EDWARD A. BRENNAN Director LAWRENCE E. EATON Director HARRY A. HAMMERLY Director ALLEN. F. JACOBSON Director JERRY R. JUNKINS Director RONALD A. MITSCH Director ALLEN E. MURRAY Director AULANA L. PETERS Director ROZANNE L. RIDGWAY Director FRANK SHRONTZ Director F. ALAN SMITH Director LOUIS W. SULLIVAN Director Roger P. Smith, by signing his name hereto, does hereby sign this document pursuant to powers of attorney duly executed by the other persons named, filed with the Securities and Exchange Commission on behalf of such other persons, all in the capacities and on the date stated, such persons constituting a majority of the directors of the company. By /s/ Roger P. Smith Roger P. Smith, Attorney-in-Fact EX-11 2 EXHIBIT 11 EXHIBIT 11 MINNESOTA MINING AND MANUFACTURING COMPANY AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF PER SHARE EARNINGS OF COMMON STOCK Year ended December 31 1995 1994 1993 (Millions) Income from continuing operations $1,306 $1,207 $1,133 Discontinued operations, net of income taxes (330) 115 130 Net income $ 976 $1,322 $1,263 Primary earnings per share: Continuing operations $ 3.11 $ 2.85 $ 2.61 Discontinued operations (.79) .28 .30 Earnings per share $ 2.32 $ 3.13 $ 2.91 Weighted average number of common shares outstanding 419,823,549 422,955,241 434,312,393 Fully diluted earnings per share: (1) Continuing operations $ 3.06 $ 2.83 $ 2.58 Discontinued operations (.77) .27 .30 Earnings per share $ 2.29 $ 3.10 $ 2.88 Weighted average number of common shares outstanding 419,823,549 422,955,241 434,312,393 Common equivalent shares 6,749,060 3,706,298 4,331,742 Average number of common shares outstanding and equivalents 426,572,609 426,661,539 438,644,135 All share and per-share data reflect a two-for-one stock split effective March 15, 1994. Primary earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for each period. The calculation excludes the effect of common equivalent shares resulting from stock options using the treasury stock method as the effect would not be material. Fully diluted earnings per share are computed based on the weighted average number of common shares and common equivalent shares outstanding for each period. (1) This calculation is submitted in accordance with Regulation S-K item 601(b)(11), despite not being required by APB Opinion No. 15 because it results in dilution of less than 3 percent. EX-12 3 EXHIBIT 12 EXHIBIT 12 MINNESOTA MINING AND MANUFACTURING COMPANY AND SUBSIDIARIES CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions) 1995 1994 1993 1992 1991 EARNINGS Income from continuing operations before income taxes and minority interest $2,168 $2,011 $1,851 $1,779 $1,620 Add: Interest on debt 102 70 39 61 78 Interest component of the ESOP benefit expense 37 39 41 42 44 Portion of rent under operating leases representative of the interest component 51 46 44 44 44 Less: Equity in undistributed income of 20-50 percent owned companies 1 2 - (1) (6) TOTAL EARNINGS AVAILABLE FOR FIXED CHARGES $2,357 $2,164 $1,975 $1,927 $1,792 FIXED CHARGES Interest on debt 102 70 39 61 78 Interest component of the ESOP benefit expense 37 39 41 42 44 Portion of rent under operating leases representative of the interest component 51 46 44 44 44 TOTAL FIXED CHARGES $ 190 $ 155 $ 124 $ 147 $ 166 RATIO OF EARNINGS TO FIXED CHARGES 12.41 13.96 15.93 13.11 10.80 EX-21 4 EXHIBIT 21 EXHIBIT 21 MINNESOTA MINING AND MANUFACTURING COMPANY AND CONSOLIDATED SUBSIDIARIES PARENT AND SUBSIDIARIES Percentage of Voting Securities Organized Under Beneficially Owned Name of Company Laws of by Registrant Registrant: Minnesota Mining and Manufacturing Company Delaware Consolidated subsidiaries of the registrant: Eastern Heights Bank Minnesota 99 Media Networks, Inc. Delaware 100 National Advertising Company Delaware 100 3M Unitek Corporation California 100 3M Argentina S.A.C.I.F.I.A. Argentina 100 3M Australia Pty. Limited Australia 100 3M Oesterreich GmbH Austria 100 3M Belgium S.A./N.V. Belgium 100 Seaside Insurance Limited Bermuda 100 3M do Brasil Limitada Brazil 100 3M Canada Limited Canada 100 3M A/S Denmark 100 Suomen 3M Oy Finland 100 3M France, S.A. France 100 3M Deutschland GmbH Germany 100 3M Hong Kong Limited Hong Kong 100 3M Italia Finanziaria S.p.A. Italy 100 Sumitomo 3M Limited Japan 50 3M Health Care Limited Japan 75 3M Korea Limited Korea 60 3M Mexico, S.A. de C.V. Mexico 100 Distribution Services International B.V. Netherlands 100 3M Nederland B.V. Netherlands 100 3M (New Zealand) Limited New Zealand 100 3M Norge A/S Norway 100 3M Puerto Rico, Inc. Puerto Rico 100 3M Singapore Private Limited Singapore 100 3M South Africa (Proprietary) Limited South Africa 100 3M Espana, S.A. Spain 100 3M Svenska AB Sweden 100 3M (East) A.G. Switzerland 100 3M (Schweiz) A.G. Switzerland 100 3M Taiwan Limited Taiwan 100 3M Thailand Limited Thailand 100 3M United Kingdom Holdings P.L.C. United Kingdom 100 3M Venezuela, S.A. Venezuela 100 NOTE: Subsidiary companies excluded from the above listing, if considered in the aggregate, would not constitute a significant subsidiary. EX-23 5 EXHIBIT 23 EXHIBIT 23 CONSENT TO INCORPORATION BY REFERENCE We consent to the incorporation by reference in the Registration Statements of Minnesota Mining and Manufacturing Company on Form S-8 (Registration Nos. 33-14791, 33-48690, 33-58763, 33-49842, 33-58767 and 2-78422) and Form S-3 (Registration No. 33-48089), of our report dated February 12, 1996, on our audits of the consolidated financial statements of Minnesota Mining and Manufacturing Company and Subsidiaries as of December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995, which report is included in this Annual Report on Form 10-K. /s/ COOPERS & LYBRAND L.L.P. COOPERS & LYBRAND L.L.P. St. Paul, Minnesota March 8, 1996 EX-24 6 EXHIBIT 24 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That the undersigned directors and the Principal Financial and Accounting Officer of MINNESOTA MINING AND MANUFACTURING COMPANY, a Delaware corporation, hereby constitute and appoint Livio D. DeSimone, Giulio Agostini, John J. Ursu, Roger P. Smith, Janet L. Yeomans and Gregg M. Larson or any of them, their true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for them and in their name, place, and stead, in any and all capacities, to do any and all acts and things and execute any and all instruments which said attorneys and agents may deem necessary or desirable to enable MINNESOTA MINING AND MANUFACTURING COMPANY to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing with said Commission of its annual report Form 10-K for the fiscal year ended December 31, 1995, including specifically, but without limiting the generality of the foregoing, power and authority to sign the name of MINNESOTA MINING AND MANUFACTURING COMPANY, and the names of the undersigned directors and Principal Financial and Accounting Officer to the Form 10-K and to any instruments and documents filed as part of or in connection with said Form 10-K or amendments thereto; and the undersigned hereby ratify and confirm all that said attorneys and agents shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have subscribed these presents this 12th day of February, 1996. /s/ Livio D. DeSimone /s/ Giulio Agostini Livio D. DeSimone, Chairman Giulio Agostini of the Board and Chief Executive Senior Vice President Officer, Director Principal Financial Officer Principal Accounting Officer /s/ Edward A. Brennan /s/ Allen E. Murray Edward A. Brennan, Director Allen E. Murray, Director /s/ Lawrence E. Eaton /s/ Aulana L. Peters Lawrence E. Eaton, Director Aulana L. Peters, Director /s/ Harry A. Hammerly /s/ Rozanne L. Ridgway Harry A. Hammerly, Director Rozanne L. Ridgway, Director /s/ Allen F. Jacobson /s/ Frank Shrontz Allen F. Jacobson, Director Frank Shrontz, Director /s/ Jerry R. Junkins /s/ F. Alan Smith Jerry R. Junkins, Director F. Alan Smith, Director /s/ Ronald A. Mitsch /s/ Louis W. Sullivan Ronald A. Mitsch, Director Louis W. Sullivan, Director EX-27 7 ARTICLE 5 FINANCIAL DATA SCHEDULE FOR 10-K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS AND NOTES. 1,000,000 12-MOS DEC-31-1995 DEC-31-1995 485 287 2,398 0 2,206 6,395 11,234 6,596 14,183 3,724 1,203 0 0 296 6,588 14,183 13,460 13,460 7,720 7,720 0 0 102 2,168 785 1,306 (330) 0 0 976 2.32 2.32
EX-27 8 RESTATED FINANCIAL DATA SCHEDULE FOR 12-MOS 1994
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES FOR THE YEAR ENDED DECEMBER 31, 1995. THIS SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS AND NOTES. 1,000,000 12-MOS DEC-31-1994 DEC-31-1994 297 194 2,328 0 2,138 5,608 10,302 5,940 13,068 3,256 1,031 0 0 296 6,438 13,068 12,148 12,148 6,829 6,829 0 0 70 2,011 731 1,207 115 0 0 1,322 3.13 3.13
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