1
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, 2000
Commission file number 1-3285
MINNESOTA MINING AND MANUFACTURING COMPANY
State of Incorporation: Delaware
I.R.S. Employer Identification No. 41-0417775
Executive offices: 3M Center, St. Paul, Minnesota 55144
Telephone number: (651) 733-1110
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
Common Stock, Par Value $.01 Per Share New York Stock Exchange
Pacific Exchange
Chicago Stock Exchange
Note: The common stock of the registrant is also traded on the
Swiss 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 $110.65 per share
as reported on the New York Stock Exchange-Composite Index on
January 31, 2001, was $43.8 billion.
Shares of common stock outstanding at January 31, 2001: 396,142,377.
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
2001 annual meeting, (2) Form 8-K dated December 7, 2000; Form 8-K dated
July 27, 2000; Form 8-K dated November 20, 1996, (3) Registration Nos.
333-30689, 333-42660, 333-44692, 333-48922 and 333-49830.
This document contains 82 pages.
The exhibit index is set forth on page 55.
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MINNESOTA MINING AND MANUFACTURING COMPANY
FORM 10-K
For the Year Ended December 31, 2000
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" or "company" includes Minnesota Mining and Manufacturing Company and
subsidiaries unless the context otherwise indicates.
General
3M is an integrated enterprise characterized by substantial intercompany
cooperation in research, manufacturing and marketing of products. 3M's
business has developed from its research and technology in coating and
bonding for coated abrasives, the company's original product. Coating
and bonding is the process of applying one material to another, such as
abrasive granules to paper or cloth (coated abrasives), adhesives to a
backing (pressure-sensitive tapes), 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 from products
manufactured and sold by other technically oriented companies.
At December 31, 2000, the company employed about 75,000 people.
Business Segments
Financial information and other disclosures relating to 3M's business
segments and operations in various geographic areas are provided in the
Notes to Consolidated Financial Statements. 3M's six operating segments
bring together common or related 3M technologies, enhancing the
development of innovative products and services and providing for
efficient sharing of business resources. These segments have worldwide
responsibility for virtually all 3M product lines. Certain small
businesses and staff-sponsored products, as well as various corporate
assets and unallocated corporate expenses, are not assigned to the
operating segments.
Industrial Markets: Industrial products include a wide variety of coated
and nonwoven abrasives, adhesives, pressure-sensitive tapes, and
specialty products. Industry-specialized organizations include
distribution and key account management, converter channels, automotive
aftermarkets, aerospace, marine and recreational vehicles.
Major product lines include vinyl, polyester, foil and specialty
industrial tapes and adhesives; Scotch brand masking, filament and
packaging tapes; packaging equipment; 3M brand VHB brand bonding tapes;
conductive, low surface energy, hot melt, spray and structural adhesives;
reclosable fasteners; label materials for durable goods; coated, nonwoven
and microstructured surface finishing and grinding abrasives; and
products for maintaining and repairing vehicles, boats, airplanes and
other vehicles.
3
Transportation, Graphics and Safety Markets: This segment provides
reflective sheeting, high-performance graphics, respirators, automotive
components, security products and optical films.
In transportation safety, 3M provides reflective sheetings used on
highway signs, vehicle license plates, construction workzone devices,
trucks and other vehicles. Major commercial graphic products include
equipment, films, inks and related products used to produce graphics for
vehicles and signs. The company also sells maintenance-free and reusable
respirators. 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.
Safety and security products include reflective materials that are widely
used on apparel, footwear and accessories, enhancing visibility in low-
light situations. Optical products include brightness enhancement films
for electronic displays. Other products include spill-control sorbents,
Thinsulate brand and Lite Loft brand Insulations, traffic control
devices, electronic surveillance products, and films that protect against
counterfeiting. In 2000 and early 2001, 3M acquired two touch screen
companies, which add product offerings to the Optical Systems business.
Health Care Markets: Major product categories include skin health,
medical and surgical supplies, infection prevention, microbiology, health
care information systems, pharmaceuticals, drug delivery systems, dental
and orthodontic products, and mechanical and tape closures for disposable
diapers.
In skin health, 3M is a supplier of medical tapes, dressings and wound
closures. In infection prevention, 3M markets a variety of surgical
drapes, masks and preps, as well as sterilization assurance equipment. 3M
also provides microbiology products, which make it faster and easier for
food processors to test for microbiological quality of food. In health
information systems, 3M develops and markets computer software for
hospital coding and data classification, as well as related consulting
services. The health care segment also provides other medical products,
including orthopedic casting materials, electrodes and stethoscopes.
This segment also serves the pharmaceutical and dental markets, as well
as manufacturers of disposable diapers. Among ethical pharmaceuticals are
immune response modifiers, and respiratory and women's health products.
Other products include drug-delivery systems, such as metered-dose
inhalers, transdermal skin patches and related components. Dental
products include restoratives, adhesives, finishing and polishing
products, crowns, impression material, preventive sealants, professional
tooth whiteners, prophylaxis and orthodontic appliances. Other products
include tape closures for disposable diapers, and reclosable fastening
systems and other diaper components that help diapers fit better. In
early 2001, 3M combined its German dental business with ESPE Dental AG, a
leading German supplier of crowns, bridges and other dental products. In
the second quarter of 1999, the company sold the assets of its
cardiovascular systems business.
Consumer and Office Markets: Major consumer and office products include
Scotch brand tapes; Post-it brand Note products, such as flags, memo
pads, labels, Pop-up notes and dispensers; home care products, including
Scotch-Brite brand Scouring, Sponge and High Performance Products, O-Cel-
O brand Sponges and Scotchgard brand Fabric Protectors; energy control
products; nonwoven abrasive materials for floor maintenance and
commercial cleaning; floor matting; and home improvement products,
including surface-preparation and wood-finishing materials, and Filtrete
brand Filters for furnaces and air conditioners. Visual communication
products serve the world's office and education markets with
4
overhead projectors and transparency films, plus equipment and
materials for electronic and multimedia presentations.
Electro and Communications Markets: This segment serves the electronics,
telecommunications and electrical markets. Major 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, telecommunications and
other industries. 3M brand Microflex brand Circuits utilize electronic
packaging and interconnection technology, providing more connections in
less space, and are used in inkjet print cartridges, cell phones and
other electronic devices. This segment serves the world's
telecommunications companies with a wide array of products for fiber-
optic and copper-based telecommunications systems. These include many
innovative connecting, closure and splicing systems; maintenance
products; and test equipment. In 2000, 3M acquired 91 percent of Quante
AG, a telecommunications supplier, with annual sales of approximately
$350 million. In the fourth quarter of 2000, 3M also acquired the multi-
layer integrated circuit packaging line of W.L. Gore and Associates, and
in early 2001 completed the acquisition of Robinson Nugent, a
manufacturer of electronic interconnects.
Specialty Material Markets: Major specialty materials include protective
materials for furniture and fabrics; firefighting 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. In December 1999, 3M finalized the acquisition of
the outstanding minority interest in Dyneon LLC.
In May 2000, 3M announced its intent to substantially phase-out
production by the end of 2000 of the perfluorooctanyl chemistry used to
produce certain repellents and surfactant products. These include many
products previously sold under the Scotchgard brand, such as soil, oil
and water repellent products for carpet, upholstery and fabrics; coatings
used for oil and grease resistance on paper packaging; fire-fighting
foams; and specialty components for other products. The company has
introduced alternatives for some applications and industry segments,
including carpet protection, and is working to develop replacement
chemistries for some of the other applications.
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 skilled
marketing and sales representatives, has contributed significantly to
3M's position in the marketplace and to its growth. 3M has 231 sales
offices and distribution centers worldwide, including nine major branch
offices located in principal cities throughout the United States. 3M
operates 25 sales offices and distribution centers in the United States.
Internationally, 3M has 206 sales offices and distribution centers.
5
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. Research, development and related expenses
totaled $1.101 billion, $1.056 billion and $1.028 billion in 2000, 1999
and 1998, respectively. Research and development, covering basic
scientific research and the application of scientific advances to the
development of new and improved products and their uses, totaled $727
million, $688 million and $648 million in 2000, 1999 and 1998,
respectively. Related expenses primarily include technical support
provided by the laboratories for existing products.
Corporate research laboratories support research efforts of division and
market laboratories. These corporate laboratories also engage in
research not directly related to existing 3M product lines. Most major
operating divisions have their own laboratories to improve existing
products and develop new products. 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 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 2000. It is impossible to predict
future shortages of raw materials or the impact such shortages would
have.
Executive Officers
Following is a list of the executive officers of 3M, their ages, present
positions, the years elected to their present positions and other
positions held during the past five years. 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 1996-2001
W. James McNerney, Jr. 51 Chairman of the Board 2001 President and CEO, General Electric
and Chief Executive Officer Aircraft Engines, Cincinnati, Ohio,
1997-2000
President and CEO, General Electric
Lighting, Cleveland, Ohio, 1995-1997
Harry C. Andrews 57 Executive Vice President, 1999 Vice President, Corporate Enterprise
Electro and Communications Development, 1996-1999
Markets Managing Director, Southern Europe
Region, 1996
Managing Director, 3M Italy,
1993-1996
Ronald O. Baukol 63 Executive Vice President, 1995
International Operations
Ronald R. Belschner 61 Vice President, 2000 Division Vice President, Industrial
Engineering, Manufacturing Tape and Specialties Division,
and Logistics 1995-2000
John W. Benson 56 Executive Vice President, 1998 Group Vice President, Industrial
Health Care Markets Markets Group, 1996-1997
6
Executive Officers (continued)
Year Elected
to Present
Name Age Present Position Position Other Positions Held During 1996-2001
Robert J. Burgstahler 56 Vice President, Finance 2000 President and General Manager,
and Administrative 3M Canada, 1998-2000
Services Staff Vice President, Taxes, 1995-1998
M. Kay Grenz 54 Vice President, 1998 Staff Vice President, Human Resources
Human Resources Consulting and Resource Services,
1996-1998
Staff Vice President, Human Resources
Corporate Services, 1992-1996
Paul F. Guehler 62 Vice President, 2000 Vice President, Corporate Enterprise
Research and Development Development and Optical Technologies,
1999-2000
Optical Markets and Technologies Vice
President, 1998-1999
Division Vice President, Safety and
Security Systems Division, 1992-1998
Moe S. Nozari 58 Executive Vice President, 1999 Group Vice President, Consumer and
Consumer and Office Markets Office Markets Group, 1996-1999
Division Vice President, Consumer
Markets, 1993-1996
David W. Powell 59 Vice President, Marketing 1999 Division Vice President, Stationery
and Office Supplies Division,
1996-1999
Division Vice President, Commerical
Office Supply Division, 1996
Marketing Director, 3M France, 1995-1996
Charles Reich 58 Executive Vice President, 1999 Group Vice President, Specialty Material
Specialty Material Markets Markets Group, 1999
and Corporate Services Group Vice President, Chemical Markets
Group, 1998
Division Vice President, Occupational
Health and Environmental Safety
Division, 1997-1998
Division Vice President, Dental Products
Division, 1990-1997
John J. Ursu 61 Senior Vice President, 1997 Vice President, Legal Affairs and
Legal Affairs and General Counsel, 1993-1996
General Counsel
Ronald A. Weber 59 Executive Vice President, 2000 Division Vice President, Automotive
Transportation, Graphics Division, 1996-2000
and Safety Markets Division Vice President, Automotive
Engineered Systems Division,
1995-1996
Harold J. Wiens 54 Executive Vice President, 1999 Executive Vice President, Industrial
Industrial Markets and Electro Markets, 1999
Executive Vice President, Industrial
and Consumer Markets, 1998-1999
Executive Vice President, Sumitomo
3M Limited, 1995-1997
7
Item 2. Properties.
3M's general offices, corporate research laboratories, and certain
division laboratories and manufacturing facilities are located in St.
Paul, Minnesota. In the United States, 3M has 25 sales offices and
distribution centers in 19 states and operates 54 manufacturing
facilities in 23 states. Internationally, 3M has 206 sales offices and
distribution centers. The company operates 84 manufacturing and
converting facilities in 38 countries outside the United States.
3M owns substantially all of its physical properties. 3M's physical
facilities are highly suitable for the purposes for which they were
designed.
Item 3. Legal Proceedings.
General
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 recorded
certain liabilities, which represent reasonable estimates of its probable
liabilities for these matters. The company also has recorded receivables
for the probable amount of insurance recoverable with respect to these
matters.
Some of these matters raise difficult and complex factual and legal
issues, and are subject to many uncertainties, including, but not limited
to, the facts and circumstances of each particular action, the
jurisdiction and forum in which each action is proceeding and differences
in applicable law. Accordingly, the company is not always able to
estimate the amount of its possible future liabilities with respect to
such matters.
While the company currently believes that the ultimate outcome of these
proceedings and claims, individually and in the aggregate, will not have
a material adverse effect on the consolidated financial position, results
of operations, or cash flows of the company, there can be no absolute
certainty that the company may not ultimately incur charges, whether for
governmental proceedings and claims, products liability claims, or other
actions, in excess of presently recorded liabilities.
While the company currently believes that a material adverse impact on
its consolidated financial position, results of operations, or cash flows
from any such future charges is remote, due to the inherent uncertainty
of litigation, there exists the remote possibility that a future adverse
ruling could result in future charges that could have a material adverse
impact on the company. The current estimate of the potential impact on
the company's financial position for the above legal proceedings could
change in the future.
Breast Implant Litigation
The company and certain other companies have been named as defendants in
a number of claims and lawsuits alleging damages for personal injuries of
various types resulting from breast implants formerly manufactured by the
company or a related company. The company entered the business of
manufacturing breast implants in 1977 by purchasing McGhan Medical
Corporation. In 1984, the company sold the business to a corporation that
also was named McGhan Medical Corporation.
8
As of December 31, 2000, the company is currently named as a defendant,
often with multiple co-defendants, in 1,223 lawsuits and 29 claims in
various courts, all seeking damages for personal injuries from allegedly
defective breast implants. These lawsuits and claims purport to represent
3,715 individual claimants.
3M has confirmed that 70 of the 3,715 claimants have opted out of the
Revised Settlement Program (discussed below) and have 3M implants.
Approximately 93 percent of the claimants in these confirmed cases have
alleged an unspecified amount of damages above the jurisdictional limit
of the courts in which the cases were filed. The company has one claimant
who filed a lawsuit in New York state court alleging damages of $20
million.
The company believes that most of the remaining 3,645 claimants will be
dismissed either because the claimants did not have 3M implants or the
claimants accepted benefits under the Revised Settlement Program.
Approximately 88 percent of these claimants have filed lawsuits that
either do not allege a specific amount of damages or allege an
unspecified amount of damages above the jurisdictional limit of the
court. The rest of these claimants allege damages aggregating
approximately $300 million in their lawsuits. Approximately 412 claimants
have filed lawsuits in New York state courts alleging damages in excess
of $20 million each. 3M expects that virtually all of these New York
cases will be dismissed without payment for the reasons stated above. The
company continues to work to clarify the status of these lawsuits and
claims.
Based on 3M's experience in resolving thousands of these lawsuits, 3M
believes that the amount of damages alleged in complaints is not a
reliable or meaningful measure of the potential liability that 3M may
incur in the breast implant litigation. Investors should place no
reliance on the amount of damages alleged in breast implant lawsuits
against 3M.
On December 22, 1995, the United States District Court for the Northern
District of Alabama approved a revised class action settlement program
for resolution of claims seeking damages for personal injuries from
allegedly defective breast implants (the "Revised Settlement Program").
The Court ordered that, beginning after November 30, 1995, members of the
plaintiff class may choose to participate in the Revised Settlement
Program or opt out, which would then allow them to proceed with separate
product liability actions.
The company believes that approximately 90 percent of the registrants,
including those claimants who filed current claims, have elected to
participate in the Revised Settlement Program. It is still unknown as to
what disease criteria all claimants have satisfied, and what options they
have chosen. As a result, the total amount and timing of the company's
prospective payments under the Revised Settlement Program cannot be
determined with precision at this time. As of December 31, 2000, the
company had paid $296 million into the court-administered fund as a
reserve against costs of claims payable by the company under the Revised
Settlement Program (including a $5 million administrative assessment).
Additional payments will be made as necessary. Payments to date have been
consistent with the company's estimates of the total liability for claims
under the Revised Settlement Program.
Under the Revised Settlement Program, additional opt outs are expected to
be minimal since the opt-out deadline has passed for virtually all U.S.
class members. The company's remaining obligations under the Revised
Settlement Program are limited since (i) most payments to current
claimants have already been made, (ii) no additional current claims may
be filed without court approval, and (iii) late registrants are limited
by the terms of the Revised Settlement Program.
9
The company's current best estimate of the amount to cover the cost and
expense of the Revised Settlement Program and the cost and expense of
resolving opt-out claims and recovering insurance proceeds (from
inception of the litigation through December 31, 2000) is $1.2 billion.
After subtracting cumulative payments of $1.168 billion as of December
31, 2000, for defense and other costs and settlements with litigants and
claimants, the company had remaining liabilities for the breast implant
litigation of $32 million.
The company's insurers initiated a declaratory judgment action in Ramsey
County Minnesota against the company seeking adjudication of certain
coverage and allocation issues. The jury trial phase of this action
finished on February 24, 2000. The jury returned a verdict favorable to
the company by rejecting all of the insurers' remaining defenses to
coverage for breast implant liabilities and costs. The court has
considered additional remedies requested by the company and the insurers
including eliminating, limiting or extending allocation among the
insurers providing occurrence-based coverage (before 1986), pre- and post-
judgment interest, attorneys' fees and further equitable relief.
The court's rulings in post verdict motions are considered to be
generally favorable to the company. The court awarded the company
prejudgment interest on amounts owing by insurers including reasonable
attorney fees. However, the court has yet to determine the amount of
attorneys' fees recoverable by the company. The court has indicated a
formula to be used for this calculation that would result in the company
being reimbursed for less than all of its fees. Exact amounts cannot yet
be determined. The company expects entry of judgment to occur during the
first half of 2001.
As of December 31, 2000, the company had receivables for insurance
recoveries of $519 million, representing settled but yet to be received
amounts as well as amounts contested by the insurance carriers. During
2000, the company received payments from its occurrence carriers. Various
factors could affect the timing and amount of proceeds to be received
under the company's various insurance policies, including (i) the timing
of payments made in settlement of claims; (ii) the outcome of occurrence
insurance litigation in the courts of Minnesota (as discussed above) and
Texas; (iii) potential arbitration with claims-made insurers; (iv) delays
in payment by insurers; and (v) the extent to which insurers may become
insolvent in the future. There can be no absolute assurance that the
company will collect all amounts recorded as being probable of recovery
from its insurers.
While the company currently believes that the ultimate outcome of these
proceedings and claims, individually and in the aggregate, will not have
a material adverse effect on the consolidated financial position, results
of operations, or cash flows of the company, there can be no absolute
certainty that the company may not ultimately incur charges for breast
implant claims in excess of presently recorded liabilities.
While the company currently believes that a material adverse impact on
its consolidated financial position, results of operations, or cash flows
from any such future charges is remote, due to the inherent uncertainty
of litigation, there exists the remote possibility that a future adverse
ruling could result in future charges that could have a material adverse
impact on the company. The current estimate of the potential impact on
the company's financial position for breast implant litigation could
change in the future.
10
Environmental Matters
The company's operations are subject to environmental laws and
regulations enforceable by foreign, federal, state, local authorities and
private parties in the United States and abroad, including those
pertaining to air emissions, wastewater discharges, toxic substances, and
the handling and disposal of solid and hazardous wastes. These laws and
regulations provide under certain circumstances for the remediation of
contamination, as well as personal injury and property damage claims. The
company has incurred, and will continue to incur, costs and capital
expenditures in complying with these laws and regulations, defending
potential personal injury and property damage claims, and modifying its
business operations in light of its environmental responsibilities. In
its effort to carry out its environmental responsibilities and comply
with environmental laws and regulations, the company has established, and
periodically updates, policies relating to environmental standards of
performance for its operations worldwide.
Under certain environmental laws, including the United States
Comprehensive Environmental Response, Compensation and Liability Act of
1980 and similar state laws, the company may be jointly and severally
liable for the costs of environmental contamination at current or former
facilities and at off-site locations at which the company has disposed of
hazardous waste. The company has identified numerous locations, most of
which are in the United States, at which it may have some liability for
remediating contamination. Amounts expensed for environmental remediation
activities were not material for 2000 at these locations nor have there
been material changes in the recorded liabilities for environmental
matters. Liabilities for estimated costs of environmental remediation
are, depending on the site, based primarily upon internal or third-party
environmental studies, and estimates as to the number, participation
level and financial viability of any other potentially responsible
parties, the extent of the contamination and the nature of required
remedial actions. Recorded liabilities are adjusted as further
information develops or circumstances change. The amounts recorded in the
company's consolidated financial statements for environmental liabilities
are the gross amount of such liabilities, without deductions for
insurance or third party indemnity claims. The company expects that the
amounts recorded will be paid out over the periods of remediation for the
applicable sites, currently ranging from approximately 5 to 30 years.
It is often difficult to estimate the cost of environmental compliance
and remediation and potential claims given the uncertainties regarding
the interpretation and enforcement of applicable environmental laws and
regulations, the extent of environmental contamination and the existence
of alternate cleanup methods. The company records an environmental
liability when it is probable that the company has incurred a liability
and the amount of the liability can be reasonably estimated. Where no
amount within a range of estimates is more likely, the minimum is
recorded. Otherwise, the most likely cost to be incurred is recorded.
The company's current assessment of the probable liabilities and
associated expenses related to environmental matters is based on the
facts and circumstances known at this time. New developments may occur
that could affect the company's assessment. These developments include,
but are not limited to, (i) changes in the information available
regarding the environmental impact of the company's operations and
products; (ii) changes in environmental regulations or enforcement
policies; (iii) new and evolving analytical and remediation techniques;
(iv) success in allocating liability to other potentially responsible
parties; and (v) financial viability of other potentially responsible
parties and third-party indemnitors.
11
While the company currently believes that the ultimate outcome of these
environmental matters, individually and in the aggregate, will not have a
material adverse effect on the consolidated financial position, results
of operations, or cash flows of the company, there can be no absolute
certainty that the company may not ultimately incur charges for capital
expenditures, litigation and other costs in excess of presently
established liabilities.
While the company currently believes that a material adverse impact on
its consolidated financial position, results of operations, or cash flows
from any such future charges is remote, due to the inherent uncertainty
of environmental matters or were an unfavorable development to occur
(discussed above), there exists the remote possibility that a future
adverse ruling or development could result in future charges that could
have a material adverse impact on the company. The current estimate of
the potential impact on the company's financial position for the above
environmental matters could change in the future.
12
Item 4. Submission of Matters to a Vote of Security Holders.
None in the quarter ended December 31, 2000.
Part II
Item 5. Market Price of 3M's Common Stock and Related Security Holder
Matters.
At January 31, 2001, there were 129,109 shareholders of record. 3M's
stock is listed on the New York, Pacific, Chicago and Swiss stock
exchanges. Stock price comparisons are provided in the Quarterly Data
section in the Notes to Consolidated Financial Statements.
Item 6. Selected Financial Data.
(Dollars in millions, except per-share amounts)
Years ended December 31: 2000 1999 1998 1997 1996
Net sales........................ $16,724 $15,748 $15,094 $15,133 $14,295
Income from continuing operations...1,857* 1,763* 1,213* 2,121** 1,516
Per share of common stock:
Continuing operations - basic........4.69* 4.39* 3.01* 5.14** 3.63
Continuing operations - diluted......4.64* 4.34* 2.97* 5.06** 3.59
Cash dividends declared and paid..$ 2.32 $ 2.24 $ 2.20 $ 2.12 $ 1.92
At December 31:
Total assets ....................$14,522 $13,896 $14,153 $13,238 $13,364
Long-term debt (excluding portion due
within one year)..................971 1,480 1,614 1,015 851
Certain reclassifications have been made to prior period net sales to
conform to the current period presentation. The above income and earnings
per share information exclude discontinued operations in 1996, an
extraordinary loss in 1998, and the cumulative effect of accounting
change in 2000.
*As discussed in the Notes to Consolidated Financial Statements, 2000
includes a non-recurring net loss of $23 million ($15 million after tax),
or 4 cents per diluted share. This relates to the company's phase-out of
perfluorooctanyl-based chemistry products in the Specialty Material
segment, a write-down of certain corporate and unallocated assets, gains
related to corporate and unallocated asset dispositions, a gain from the
termination of a product distribution agreement in the Health Care
segment, and other non-recurring items. 1999 includes a net gain of $100
million ($52 million after tax), or 13 cents per diluted share, relating
to gains on divestitures, litigation expense, an investment valuation
adjustment, and a change in estimate that reduced the 1998 restructuring
charge. 1998 includes a restructuring charge of $493 million ($313
million after tax), or 77 cents per diluted share.
**1997 includes a gain of $803 million ($495 million after tax), or $1.18
per diluted share, on the sale of National Advertising Company.
13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Operating Results
Sales: Sales in 2000 totaled $16.724 billion, compared with $15.748
billion in 1999 and $15.094 billion in 1998. In 2000, volume grew 10
percent, with the stronger U.S. dollar reducing sales by about 2.5
percent. Selling prices declined about 1.5 percent, mainly due to
reductions in certain 3M electronic products both in the United States
and internationally. In 1999, volume grew 5 percent, with the stronger
U.S. dollar reducing sales by about 1 percent.
In the United States, sales in 2000 totaled $7.858 billion, up 4 percent
from 1999. U.S. volume rose about 5 percent. Internationally, sales
totaled $8.866 billion, up 8 percent from 1999. International volume
increased 15 percent. The stronger U.S. dollar reduced international
sales by 5 percent. In 1999, U.S. sales increased 3 percent. Volume rose
4 percent, while selling prices were down 1 percent. Internationally,
sales rose 5 percent. Volume increased 7 percent and selling prices were
up 1 percent. The stronger U.S. dollar reduced international sales by 3
percent.
Components of Sales Change
2000 1999
U.S. Intl. W.W. U.S. Intl. W.W.
Volume 5% 15% 10% 4% 7% 5%
Price (1) (2) (1.5) (1) 1 0
Translation - (5) (2.5) - (3) (1)
Total 4% 8% 6% 3% 5% 4%
Non-recurring items: In 2000, non-recurring items include costs of $208
million (included in cost of sales) and gains of $185 million, included
in the other expense (income) line within operating income. Non-
recurring costs in 2000 include $168 million of costs in the Specialty
Material segment related to the company's phase-out of perfluorooctanyl-
based chemistry products, a $20 million write-down of corporate and
unallocated assets, and $20 million of other non-recurring expenses ($13
million related to acquisitions in the Electro and Communications
segment). Major non-cash costs included above are $73 million of
accelerated depreciation and $48 million of impairment losses, primarily
related to production equipment used to manufacture products phased out
in the Specialty Material segment. Non-recurring gains in 2000 were
largely related to asset dispositions, principally the sale of available-
for-sale equity securities, and also included $50 million from the
termination of a product distribution agreement in the Health Care
segment. A cumulative effect of accounting change related to revenue
recognition was also recorded in 2000, reducing earnings by $75 million
net of tax. Combined, these non-recurring items reduced net income by
$90 million, or 23 cents per diluted share.
In 1999, non-recurring items include a net gain of $147 million ($81
million after tax) related to gains on the divestitures of Eastern
Heights Bank and certain health care businesses, net of an investment
valuation adjustment. 1999 also includes a charge of $73 million ($46
million after tax) relating to an adverse jury verdict and legal fees
associated with a lawsuit filed by LePage's, Inc. In the third quarter
of 1999, the company recorded a change in estimate that reduced the 1998
restructuring charge by $26 million ($17 million after tax). Combined,
this net pre-tax gain of $100 million ($52 million after tax, or 13 cents
per diluted share) is included in the other expense (income) line within
operating income.
14
In 1998, 3M recorded a $493 million ($313 million after tax)
restructuring charge, with $454 million recorded in the other expense
(income) line within operating income. The inventory portion of the
restructuring charge totaling $39 million was recorded in cost of sales.
Details are discussed in the Notes to Consolidated Financial Statements.
In 1998, the company also refinanced debt relating to its Employee Stock
Ownership Plan, replacing the debt with a new bond that carries a
significantly lower interest rate. This resulted in a $38 million
extraordinary after-tax charge, or 9 cents per diluted share, from early
extinguishment of debt.
The following table shows amounts for non-recurring items in 2000, 1999
and 1998, as well as amounts excluding these items.
Supplemental Consolidated Statement of Income Information
Years ended December 31
Total (Excluding
(Millions, except Non-recurring items non-recurring items)
per-share amounts) 2000 1999 1998 2000 1999 1998
Operating
income (loss) $(23) $ 100 $(493) $3,081 $2,856 $2,532
Other (income) expense -- -- -- 84 76 87
Income (loss) before
income taxes, minority
interest, extraordinary
loss and
cumulative effect (23) 100 (493) 2,997 2,780 2,445
Provision (benefit)
for income taxes (8) 48 (180) 1,033 984 865
Effective tax rate 32.4% 47.8% 36.5% 34.5% 35.4% 35.4%
Minority interest -- -- -- 92 85 54
Income (loss) before
extraordinary loss
and cumulative effect $(15) 52 (313) $1,872 $1,711 $1,526
Extraordinary loss -- -- (38) -- -- --
Cumulative effect (75) -- -- -- -- --
Net income (loss) $(90) $ 52 $(351) $1,872 $1,711 $1,526
Per share - diluted (.23) .13 (.86) 4.68 4.21 3.74
The following discussion excludes the impact of non-recurring items in
all years, except where indicated.
Costs: Cost of sales was 51.3 percent of sales, down three-tenths of a
percentage point from 1999. In 2000, gross margins benefited from volume
growth, productivity gains and lower employee benefit costs, but were
negatively affected by raw material costs and currency effects. In 1999,
gross margins benefited from volume gains, restructuring actions and
slightly lower raw material costs, but were negatively affected by the
stronger U.S. dollar. Cost of sales includes manufacturing, engineering
expenses, and freight costs.
Selling, general and administrative (SG&A) expenses were 23.7 percent of
sales in 2000, 23.6 percent in 1999 and 23.5 percent in 1998. In both
2000 and 1999 these expenses reflected increased new product investments.
SG&A spending in 2000 benefited from lower employee benefit costs. In
1999, this spending benefited from productivity gains related to
restructuring actions.
15
(Percent of sales) 2000 1999 1998
Cost of sales 51.3 51.6 52.9
Selling, general and administrative expenses 23.7 23.6 23.5
Research, development and related expenses 6.6 6.7 6.8
Operating income 18.4 18.1 16.8
Operating income: Operating income totaled $3.081 billion, up 7.9
percent from 1999. Operating income was 18.4 percent of sales, up from
18.1 percent in 1999 and 16.8 percent in 1998. In 2000, volume growth and
productivity gains drove most of the improvement in operating income.
Lower employee benefit costs resulting from lower pension expense,
primarily in the United States, increased operating profit margins in
2000 by an estimated five-tenths of a percentage point. This benefit was
more than offset by higher payroll costs and other inflationary impacts.
In 1999, unit volume growth and productivity gains helped results. During
1998, economic contractions in many international markets, softness in a
few key U.S. markets and negative currency effects impacted operating
profit margins. The company estimates that currency effects reduced
operating income by about $78 million in 2000, $18 million in 1999, and
$235 million in 1998.
In the United States, operating income in 2000 decreased 3 percent and
profit margins were down one percentage point. In 1999, operating income
increased 1 percent and profit margins were down four-tenths of a
percentage point.
Internationally, operating income increased 16 percent and profit margins
increased 1.4 percentage points. In 1999, operating income increased 23
percent and profit margins increased by 3 percentage points.
Other income and expense: Interest expense was $111 million, compared
with $109 million in 1999 and $139 million in 1998. The 1999 decrease
reflected lower debt balances due to increased operating cash flow and
reduced capital expenditures.
Interest and other income was $27 million, compared with $33 million in
1999 and $52 million in 1998, with the declines in both years due to
lower interest income. In 1998, interest and other income included a $10
million gain from a divestiture.
Provision for income taxes: The worldwide effective income tax rate was
34.5 percent in 2000 and 35.4 percent in both 1999 and 1998. Including
non-recurring items, 3M's effective tax rate was 34.5 percent in 2000,
compared with 35.8 percent in 1999 and 35.1 percent in 1998. The
decrease in the 2000 worldwide effective income tax rate was primarily
due to a decrease in the average effective tax rate for international
operations.
Minority interest: Minority interest was $92 million, compared with $85
million in 1999 and $54 million in 1998. Minority interest represents the
elimination of the non-3M ownership interests, primarily in Sumitomo 3M
Limited and Dyneon LLC (in 1999 and 1998 only). These companies' results
are fully consolidated in 3M's financial statements, and then partially
eliminated on the minority interest line to reflect 3M's net position.
The increase in 2000 reflects higher profits in Sumitomo 3M Limited,
partially offset by a decrease as a result of 3M's acquisition of the 46
percent minority interest in Dyneon in December of 1999. This acquisition
is discussed in the Notes to Consolidated Financial Statements. The 1999
increase in minority interest was driven by higher profits in Sumitomo 3M
Limited and Dyneon LLC.
16
Net income: Net income totaled $1.872 billion, or $4.68 per diluted
share, compared with $1.711 billion, or $4.21 per diluted share, in 1999,
and $1.526 billion, or $3.74 per diluted share, in 1998. Per-share
income was up 11.2 percent in 2000 and 12.6 percent in 1999.
In 2000, 1999 and 1998, changes in the value of the U.S. dollar reduced
net income by an estimated $55 million, $23 million and $141 million,
respectively. Currency effects reduced earnings by 14 cents per share, 6
cents per share and 35 cents per share in 2000, 1999 and 1998,
respectively. These estimates include the effect of translating profits
from local currencies into U.S. dollars; the impact of currency
fluctuations on the value of goods transferred between 3M operations in
the United States and abroad; and foreign currency transaction gains and
losses, including derivative instruments designed to reduce exchange rate
risks. Derivative transactions resulted in a net, pre-tax gain of $19
million (included in cost of sales) for 2000, primarily related to
terminated foreign exchange forward contracts used to hedge euro
exposures.
Other indices: Excluding non-recurring items, economic profit totaled
$974 million in 2000, up from $855 million in 1999 and $604 million in
1998, and return on invested capital was 19.3 percent in 2000, up from
18.6 percent in 1999 and 15.9 percent in 1998. Economic profit equals
after-tax operating income less a charge for operating capital employed
in 3M's businesses. Return on invested capital is after-tax operating
income divided by average operating capital.
At December 31, 2000, employment totaled about 75,000 people, an increase
of about 4,500 from year-end 1999, with about 3,400 of the increase
related to acquisitions. At December 31, 1999, employment totaled about
70,500, a decrease of about 3,000 from year-end 1998. The 1999 decline
was due both to restructuring actions and attrition. Sales per employee
in local currencies increased about 7 percent in 2000, about 10 percent
in 1999 and about 3 percent in 1998.
Restructuring charge: To reduce costs and improve productivity, the
company initiated a restructuring program in the second half of 1998 to
streamline corporate structure, consolidate manufacturing operations and
exit certain product lines. These product lines, discontinued primarily
in 1998, had combined annual sales of less than $100 million. In 1999,
the company also divested Eastern Heights Bank and the cardiovascular
systems and other health care businesses that together had annual sales
of approximately $200 million.
The company recorded a restructuring charge in 1998, and subsequently
recorded a change in estimate that reduced the restructuring charge in
1999. As of the end of 1999, the restructuring program was substantially
complete. The company experienced a net reduction of about 2,200
positions in the second half of 1998, with a total net reduction of more
than 5,000 positions by December 31, 1999. This decline was due to both
restructuring actions and attrition. Of the employment reductions, about
one-third were in the United States and about one-third were in Europe,
with the remainder split about equally between the Asia Pacific
geographic area and the Latin America, Africa and Canada geographic area.
Each business segment of the company was affected by this restructuring
plan.
The restructuring plan provided annual pre-tax savings of about $250
million upon completion of the plan. The incremental benefit in 2000
versus 1999 was an estimated $60 million, primarily in the first half.
Implementation costs associated with this restructuring plan totaled
about $30 million in 1999. These costs, which are not included in the
restructuring charge, included expenses for relocating employees,
inventory and equipment; unfavorable overhead variances; and other
expenses.
17
Performance by Business Segment
Disclosures relating to 3M's business segments are provided in this Form
10-K, Item 1, Business Segments. Financial information and other
disclosures, including discussion about non-recurring items, are provided
in the Notes to Consolidated Financial Statements.
Industrial Markets (21 percent of consolidated sales):
Sales totaled $3.525 billion, up 3.4 percent from 1999. Operating income
increased 4.7 percent to $641 million. Outpacing market growth with a
volume gain of nearly 6 percent, this segment increased profit margins to
18.2 percent, despite negative currency effects. This segment experienced
continued strong growth in precision polishing abrasives for electronics
and telecommunications applications, and in products for the marine
trades. This segment maintained leadership in tapes, abrasives, and
specialty adhesives, while newly established business organizations
maximized 3M opportunities for serving the appliance, electronics,
commercial transportation, and recreational vehicle markets.
Transportation, Graphics and Safety Markets (21 percent of consolidated
sales):
Sales totaled $3.518 billion, up 8.8 percent from 1999. Operating income
increased 16.0 percent to $783 million. This segment increased volume
13.5 percent and boosted profit margins to 22.3 percent from 20.9 percent
in 1999. Growth was particularly strong in optical films for computers,
personal digital assistants, cell phones, and other electronic devices.
3M's optical films business broadened its horizons with the acquisition
of two touch screen companies in 2000 and early 2001. This market also
achieved good volume gains in automotive, safety and security, and
respiratory protection products.
Health Care Markets (19 percent of consolidated sales):
Sales totaled $3.135 billion, down slightly from 1999 (up more than 2
percent adjusted for divestitures). Despite accelerated investments to
support large new 3M pharmaceutical opportunities, the Health Care
segment strengthened core businesses and increased profit margins to the
20-percent level. Health information systems reported continued
outstanding growth in 2000, while the skin health and dental businesses
also continued to excel and grow. In early 2001, 3M combined its German
dental business with ESPE Dental AG, a leading German supplier of crowns,
bridges, and other dental products. As controlling shareholder, 3M will
be consolidating this company into its results.
Non-recurring items in 2000 include a $50 million gain in Health Care
from the termination of a product distribution agreement. A new co-
promotion and distribution agreement for this product was entered into in
the fourth quarter of 2000. Non-recurring items in 1999 include gains on
divestitures of $62 million. Excluding non-recurring items, operating
income improved in 2000.
Consumer and Office Markets (17 percent of consolidated sales):
Sales totaled $2.848 billion, up 5.3 percent from 1999. Operating income
increased 8.2 percent to $434 million. Operating income was 15.3 percent
of sales in 2000, compared to 14.8 percent in 1999. A volume gain of
nearly nine percent allowed this sector to outpace market growth. Among
achievements were posting double-digit volume increases in home
improvement and construction-related businesses, and good gains in office
and home care products. 3M's deep relationships with customers, including
industry leaders, supported the continued extension of the 3M brand,
Scotch brand, Post-it brand, Scotch-Brite brand and O-Cel-O brands, and
bolstered the building of newer brands like Filtrete brand and Command
brand. In 2000, 3M also confirmed its trademark protection of the canary-
yellow color for Post-it brand Notes.
18
Electro and Communications Markets (15 percent of consolidated sales):
Sales totaled $2.467 billion, up 22.3 percent from 1999 (up about 8.5
percent after adjusting for acquisitions). Operating income increased to
$404 million. Operating income was 16.4 percent of sales, compared with
19.9 percent in 1999. This segment increased volume nearly 35 percent on
a reported basis, and more than 20 percent excluding acquisitions.
Profits grew more slowly than sales due to volume-related price decreases
in certain 3M electronic products and costs associated with acquisitions.
Both the electronics and telecommunications businesses achieved strong
volume gains. This market expanded its industry market penetration
through new-product development, as well as through acquisitions. 3M
acquired 91 percent of Quante AG, a German-based telecommunications
supplier, and purchased the multi-layer integrated circuit packaging line
of W. L. Gore and Associates. In early 2001, 3M also completed the
acquisition of Robinson Nugent, a U.S.-based manufacturer of electronic
interconnects. Strong customer relationships continue throughout the
business segment.
Specialty Material Markets (7 percent of consolidated sales):
Sales totaled $1.197 billion, up slightly from 1999. Dyneon LLC
manufactures and markets fluoropolymers for transportation, electronics
and other high-growth industries. In May 2000, 3M announced its intent to
substantially phase- out production by the end of 2000 of the
perfluorooctanyl chemistry used to produce certain repellents and
surfactant products. The affected product lines represent about $300
million in annual sales with an operating income margin around 20
percent. Overall sales were affected by this phase-out. The company has
introduced alternatives for some applications and industry segments,
including carpet protection, and is working to develop replacement
chemistries for some of the other applications. 3M believes that it
will retain a significant portion of this business. Operating income in
2000 includes non-recurring costs of $168 million related to the
company's decision to phase-out the perfluorooctanyl chemistry based
products.
Excluding non-recurring items in 2000, this market saw an improvement in
operating profit margin to 18.9 percent, versus 15.5 percent in 1999.
Benefiting from strong demand for 3M brand Novec brand and Dyneon brand
high-performance materials used in the electronics, semiconductor, and
telecommunications markets, this market increased sales of performance
materials by more than 14 percent. Having fulfilled its commitment to
make the transition from the perfluorooctanyl chemistry as smooth as
possible for its customers, this market has moved aggressively to develop
alternative repellants and surfactant technology for several important
customer applications. This market also continues to invest in the
development of the valuable Scotchgard brand using replacements with
improved performance and environmental properties.
Performance by Geographic Area
Financial information relating to 3M operations in various geographic
areas, including discussion of non-recurring items, is provided in the
Notes to Consolidated Financial Statements.
United States (47 percent of consolidated sales):
Sales in the United States totaled $7.858 billion, up about 4 percent
from 1999. Unit sales increased 5 percent, while selling prices
decreased about 1 percent. Operating income, excluding non-recurring
items, was down about 3 percent. In 2000, good unit volume growth and
productivity gains helped results, but increased new product investments
held back overall profit growth. Operating income was 14.8 percent of
sales, down from 15.8 percent in 1999.
19
Europe and Middle East (24 percent of consolidated sales):
Sales in Europe and the Middle East totaled $3.946 billion, up nearly 4
percent from 1999. Local-currency sales increased about 15 percent on a
reported basis, and about 8 percent excluding the Quante acquisition.
Currency translation reduced sales by about 11 percent. Despite
significant unfavorable currency effects, operating income increased
nearly 3 percent. Operating income was 14.9 percent of sales, compared
with 15.1 percent of sales in 1999. Acquisition effects negatively
impacted 2000 profit margins.
Asia Pacific (20 percent of consolidated sales):
Sales in Asia Pacific totaled $3.329 billion, up about 15 percent from
1999. Unit sales in the Asia Pacific area increased about 18 percent in
2000. Selling prices decreased about 4 percent, while currency
translation increased sales by about 1.5 percent. Operating income was
28.9 percent of sales, up from 26.6 percent in 1999, led by volume growth
and productivity gains. In Japan, home of 3M's largest international
company, volume increased about 13.5 percent. Unit sales in Asia outside
Japan increased nearly 28 percent in 2000.
Latin America, Canada and Africa (9 percent of consolidated sales):
Sales in Latin America, Canada and Africa combined totaled $1.564
billion, up nearly 7 percent from 1999. In Latin America, unit sales
increased 10 percent. Currency reduced Latin America sales by about 2.5
percent. In Canada, unit sales increased about 5 percent. In Africa,
volume increased about 9 percent. Operating income for Latin America,
Canada and Africa was 24.0 percent of sales, up from 23.7 percent in
1999.
Financial Condition and Liquidity
3M's financial condition remained strong in 2000. The company's key
inventory index was 3.4 months, up about 10 percent from year-end 1999.
This increase was partially attributable to lower-than-expected sales in
the United States due to the significant slowdown in economic growth late
in 2000. The accounts receivable index was 60 days, down 1 day from 1999.
The current ratio was 1.3, down from 1.6 at the end of 1999. The lower
current ratio is principally due to a shift in debt financing from long-
term to short-term at year-end 2000 compared with the end of 1999.
Total debt was $2.837 billion, up from $2.610 billion at year-end 1999.
Total debt was 30 percent of total capital, compared with 29 percent in
1999. In September 2000, the company completed a three-year, 16 billion
yen (approximately $150 million), 1.0 percent yen Eurobond offering. In
December 2000, the company issued a $350 million security, remarketable
annually, which is classified as short-term debt. On October 30, 2000,
the company filed a shelf registration statement with the Securities and
Exchange Commission providing the means to offer debt securities of up to
$1.5 billion. 3M plans to use the net proceeds from future issuances of
debt securities under this shelf registration for general corporate
purposes, including the repayment of debt, investments in or extensions
of credit to the company's subsidiaries, or the financing of possible
acquisitions. As of December 31, 2000, no debt securities had been issued
under this shelf registration. Of total debt outstanding at the end of
2000, $333 million represented a guarantee of debt of the 3M Employee
Stock Ownership Plan.
Various assets and liabilities, including cash and short-term debt, can
fluctuate significantly from month to month depending on short-term
liquidity needs. Investments decreased $177 million from year-end 1999,
impacted by the sale of a portion of the available-for-sale equity
securities and decreases in the market value of the remaining equity
securities.
20
During 2000, cash flows provided by operating activities totaled $2.326
billion, compared with $3.081 billion in 1999 and $2.417 billion in 1998.
In 2000, certain working capital increases, partially driven by the 10
percent increase in sales volume, reduced cash provided by operating
activities. In 1999, the increase in net income, along with certain
working capital improvements, drove the increase. Working capital changes
in 1999 include a $205 million use of cash for the impact of employee
termination benefits paid in connection with restructuring activities.
Purchases of property, plant and equipment totaled $1.115 billion, an
increase of about 6 percent from 1999. This followed a decrease of about
28 percent in 1999 compared with 1998. These investments are helping to
meet global demand for new products and increase manufacturing
efficiency.
Cash used for acquisitions of businesses totaled $472 million, $374
million and $200 million in 2000, 1999 and 1998, respectively.
Acquisitions in 2000 included the purchase of 91 percent of Quante AG (a
telecommunications supplier), the purchase of the multi-layer integrated
circuit packaging line of W.L. Gore and Associates, and the acquisition
of seven smaller businesses. Acquisitions in 1999 included about $340
million related to the acquisition of the outstanding minority interest
in Dyneon LLC. Acquisitions in 1998 were primarily in the occupational
health and safety, and telecommunications areas.
Cash proceeds from the sale of businesses totaled $1 million, $249
million and $57 million in 2000, 1999 and 1998, respectively. The
company received cash proceeds in 1999 related to divestitures of Eastern
Heights Bank and the cardiovascular systems and other health care
businesses.
Purchases of investments totaled $12 million, $56 million and $42 million
in 2000, 1999 and 1998, respectively. These purchases include patents,
and equity and cost basis investments.
Cash dividends paid to stockholders in 2000 totaled $918 million, or
$2.32 per share. 3M has paid dividends since 1916. In February 2001, the
Board of Directors increased the quarterly dividend on 3M common stock to
60 cents per share, equivalent to an annual dividend of $2.40 per share.
This marks the 43rd consecutive year of dividend increases.
Repurchases of 3M common stock totaled $814 million in 2000, compared
with $825 million in 1999 and $618 million in 1998. Repurchases were made
to support the company's stock-based compensation plans, its employee
stock purchase plans and for other corporate purposes. In 2000 and 1999,
a reduction in weighted average shares outstanding resulted in a benefit
to earnings of 8 cents and 2 cents per diluted share, respectively. In
1998, the combination of a reduction in weighted average shares
outstanding and higher interest expense resulted in a net benefit to
earnings of 3 cents per diluted share.
In November 2000, the Board of Directors authorized the repurchase of up
to 10 million of the company's shares of common stock. This share
repurchase authorization is effective from January 1, 2001, through
December 31, 2001. In 2000, under a preceding authorization, the company
purchased about 9.1 million shares.
The company's strong credit rating provides ready and ample access to
funds in global capital markets. At year-end 2000, the company had
available short-term lines of credit totaling about $694 million.
21
Most of the company's implant liabilities have been paid; accordingly,
receipt of related insurance recoveries will increase future cash flows.
For a more detailed discussion, refer to Part I, Item 3, Legal
Proceedings, of this Form 10-K.
Future Outlook
The following discussion excludes the impact of non-recurring items.
While fourth quarter earnings were up only slightly, 2000 was a very good
year for 3M. 3M increased earnings per share 11 percent, and volume more
than 10 percent.
3M expects to achieve at least 10 percent earnings growth in an
environment of slower economic growth with the assumption that currency
effects will continue at current or slightly more negative levels in
2001.
3M is moving forward with a more conservative set of growth assumptions
for 2001, while maintaining its growth objectives over the longer term.
This more conservative plan assumes organic volume growth of about 6
percent with another 2.5 to 3 percentage points of growth provided by
acquisitions. 3M expects pricing to be down about 1 percent. 3M assumes
that currency, for planning purposes, would reduce 2001 worldwide sales
by about 3 percent.
3M is sizing costs to achieve its 2001 earnings target with significantly
lower sales growth than originally anticipated.
3M has in place strict cost controls to hold selling, general and
administrative expenses flat compared with the first quarter of 2000.
This represents a running rate improvement of $50 million, or 5 percent,
compared with the fourth quarter of 2000.
3M expects mid-single-digit growth in first-quarter 2001 earnings as
these accelerated cost-reduction efforts begin to take effect. 3M will
aggressively address selling, general and administrative expenses for the
balance of 2001 with follow through on cost controls and initial traction
from several longer-term programs that are in the initial stages of
implementation.
These include:
* An initiative to more effectively prioritize 3M's significant research
and development commercialization investments across all businesses to
further strengthen returns.
* Adoption and concentration of Six Sigma across the company - one way of
doing business across all of 3M that will particularly help direct costs
and cash.
* E-Productivity - taking full advantage of web-based IT systems
investments to increase productivity.
* Leveraging the critical mass of 3M to achieve significant savings in
sourcing and procurement.
3M believes that aggressive and sustained implementation of these
additional initiatives over time will help ensure that 3M consistently
meets its financial objectives, while simultaneously funding 3M's
existing growth initiatives such as: re-deploying resources into higher
growth areas; selective and targeted acquisitions; and driving global
market penetration to its full potential. 3M expects these growth
initiatives, already in place, to gain momentum as economic conditions
improve.
22
3M believes its future prospects are enhanced by the fundamental
strengths of the company: A strong business portfolio; leading market
positions; an efficient and increasingly competitive infrastructure;
unequalled international capabilities; and an underlying emphasis on
innovation, creation and new product generation. 3M plans to continue to
convert these strengths into market success and accelerated earnings
growth.
3M believes that all of these elements - combined with an enhanced level
of accountability across the entire organization - will help meet its
short- and long-term expectations.
In early 2001, 3M completed the acquisition of MicroTouch Systems, Inc.,
a manufacturer of touch-screen products, and also combined its German
dental business with ESPE Dental AG, a leading German supplier of crowns,
bridges and other dental products. In early 2001, 3M also completed its
acquisition of Robinson Nugent, a manufacturer of electronic
interconnects. 3M is actively considering other acquisitions.
The company expects capital spending to total about $1.0 billion to $1.1
billion in 2001. The company does not expect a significant change in its
tax rate in 2001.
Financial Instruments
The company enters into contractual derivative arrangements in the
ordinary course of business to manage foreign currency exposure, interest
rate risks and commodity price risks. A financial risk management
committee, composed of senior management, provides oversight for risk
management and derivative activities. This committee determines the
company's financial risk policies and objectives, and provides guidelines
for derivative instrument utilization. This committee also establishes
procedures for control and valuation, risk analysis, counterparty credit
approval, and ongoing monitoring and reporting.
The company enters into forward contracts and swaps to hedge certain
intercompany financing transactions, and purchases options to hedge
against the effect of exchange rate fluctuations on cash flows
denominated in foreign currencies. The company manages interest expense
using a mix of fixed, floating and variable rate debt. To help manage
borrowing costs, the company may enter into interest rate swaps. Under
these arrangements, the company agrees to exchange, at specified
intervals, the difference between fixed and floating interest amounts
calculated by reference to an agreed-upon notional principal amount. The
company manages commodity price risks through negotiated supply
contracts, price protection swaps and forward physical contracts.
A variance/co-variance value-at-risk model was used to test the company's
exposure to changes in currency and interest rates. An historical value-
at-risk model was used to assess commodity risks. All models used a 95
percent confidence level over a one-month time horizon. The Riskmetrics
dataset was used for the variance/co-variance analysis. Both models
assessed the risk of loss in market value of outstanding financial
instruments and derivatives. Based on a value-at-risk analysis of the
company's foreign exchange, interest rate and commodity derivative
instruments outstanding at December 31, 2000, 3M believes that probable
near-term changes in exchange rates, interest rates or commodity prices
would not materially affect the company's consolidated financial
position, results of operations or cash flows. However, over a one-year
period, exchange rates can significantly impact results (for example, in
1998, currency effects reduced net income by an estimated $141 million,
or 35 cents per diluted share).
23
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended, was adopted by the company on January 1, 2001. Based on the
company's analysis of its current derivative positions, this standard
will not materially affect its financial position or results of
operations.
Year 2000 Update
From December 31, 1999, to January 14, 2000, the company operated global
information centers to monitor the company's facilities and operations
during the Year 2000 transition. No material problems were reported in
any of the company's facilities or operations during this period. During
2000, the company did not experience any material Year 2000 problems with
its IT or non-IT systems or products, nor did the company experience any
material problems with any of its key customers or suppliers.
The Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
(EU) established fixed conversion rates through the European Central Bank
(ECB) between existing local currencies and the euro, the EU's new single
currency. The participating countries had agreed to adopt the euro as
their common legal currency on that date. From that date, the euro has
been traded on currency exchanges and available for non-cash
transactions. The EU agreed in June 2000 that Greece will join the
European Monetary Union (EMU) and will fix its conversion rate on January
1, 2001, adopting the physical euro currency on January 1, 2002
(simultaneously with the previous 11 countries).
Local currencies will remain legal tender until December 31, 2001. Goods
and services may be paid for with the euro or the local currency under
the EU's "no compulsion, no prohibition" principle. If cross-border
payments are made in a local currency during this transition period, the
amount will be converted into euros and then converted from euros into
the second local currency at rates fixed by the ECB. The participating
countries will issue new euro-denominated bills and coins for use in cash
transactions on or about December 31, 2001. By no later than July 1,
2002, participating countries will withdraw all bills and coins
denominated in local currencies.
In February 1997, the company created a EMU Steering Committee and
project teams representing all company business and staff units in
Europe. The objective of these teams is to ensure a smooth transition to
EMU for the company and its constituencies. The scope of the teams'
efforts includes (i) assessing the euro's impact on the company's
business and pricing strategies for customers and suppliers, and (ii)
ensuring that the company's business processes and information technology
(IT) systems can process transactions in euros and local currencies
during the transition period and achieve the conversion of all relevant
local currency data to the euro by December 31, 2001, in the
participating countries.
The Europe and Middle East market contributed 24 percent of consolidated
sales and 19 percent of consolidated operating income in 2000. The
participating countries accounted for 67 percent of the company's sales
in the Europe and Middle East market in 2000. The company believes that
the euro will, over time, increase price competition for the company's
products across Europe due to cross-border price transparency. The
company also believes that the adverse effects of increased price
competition will be offset somewhat by new business opportunities and
efficiencies. The company, however, is not able to estimate the net long-
term impact of the euro introduction on the company.
24
The company has made significant investments in IT systems in Europe and
these investments already enable the company to manage customer orders,
invoices, payments and accounts in euros and in local currencies
according to customer needs. The company anticipates spending
approximately $35 million to $40 million to complete the conversion of
all its IT systems in Europe to the euro by December 31, 2001. The
company is developing appropriate contingency plans in order that the
euro adoption does not jeopardize the operations of the company.
The euro introduction is not expected to have a material impact on the
company's overall currency risk. Although the company engages in
significant trade within the EU, the impact to date of changes in
currency exchange rates on trade within the EU has not been material.
The company anticipates the euro will simplify financial issues related
to cross-border trade in the EU and reduce the transaction costs and
administrative time necessary to manage this trade and related risks.
The company believes that the associated savings will not be material to
corporate results.
The company has derivatives outstanding beyond December 31, 2000, in
several European currencies. Under the EU's "no compulsion, no
prohibition" principle, the outstanding derivative positions will either
mature as local currency contracts or convert to euro contracts at no
additional economic cost to the company. The company has modified systems
to track derivatives in euros. The company believes the impact of the
euro introduction on the company's derivative positions will not be
material.
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of
1995. These statements may be identified by the use of words like
"plan," "expect," "aim," "believe," "project," "anticipate," "intend,"
"estimate," "will," "should," "could" and other expressions that indicate
future events and trends. All statements that address expectations or
projections about the future, including statements about the company's
strategy for growth, product development, market position, expenditures
and financial results, are forward-looking statements.
Forward-looking statements are based on certain assumptions and
expectations of future events that are subject to risks and
uncertainties. Actual future results and trends may differ materially
from historical results or those projected in any such forward-looking
statements depending on a variety of factors, including but not limited
to the following:
* The effects of, and changes in, worldwide economic conditions. The
company operates in more than 60 countries and derives more than half of
its revenues from outside the United States. The company 's business may
be affected by factors in other countries that are beyond its control,
such as downturns in economic activity in a specific country or region
(the economic difficulties that occurred in Asia in 1998 as an example);
social, political or labor conditions in a specific country or region; or
potential adverse foreign tax consequences.
* Foreign currency exchange rates and fluctuations in those rates may
affect the company's ability to realize projected growth rates in its
sales and net earnings and its results of operations. Because the company
derives more than half its revenues from outside the United States, its
ability to realize projected growth rates in sales and net earnings and
results of operations could be adversely affected if the United States
dollar strengthens significantly against foreign currencies.
25
* The company's growth objectives are largely dependent on the timing and
market acceptance of its new product offerings. The company's growth
objectives are largely dependent on its ability to renew its pipeline of
new products and to bring those products to market. This ability may be
adversely affected by difficulties or delays in product development, such
as the inability to: identify viable new products; successfully complete
clinical trials and obtain regulatory approvals; obtain adequate
intellectual property protection; or gain market acceptance of new
products.
* The company's future results are subject to fluctuations in the costs
of raw materials due to market demand, currency exchange risks, shortages
and other factors. The company depends on various raw materials for the
manufacturing of its products. Although the company has not experienced
any difficulty in obtaining raw materials, it is possible that any of its
supplier relationships could be terminated in the future. Any sustained
interruption in the company's receipt of adequate supplies could have a
material adverse effect on it. In addition, while the company has a
process to minimize volatility in raw material pricing, no assurance can
be given that the company will be able to successfully manage price
fluctuations due to market demand, currency risks, or shortages or that
future price fluctuations will not have a material adverse effect on it.
* The possibility that acquisitions, divestitures and strategic alliances
may not meet sales and/or profit expectations. As part of the company's
strategy for growth, the company has made and may continue to make
acquisitions, divestitures and strategic alliances. However, there can
be no assurance that these will be completed or beneficial to the
company.
* The company is the subject of various legal proceedings. For a more
detailed discussion of the legal proceedings involving the company, see
the discussion of "Legal Proceedings" in Part I, Item 3 of this Form 10-K.
26
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Reference (pages)
Form 10-K
Data submitted herewith:
Report of Independent Auditors ............................... 27
Consolidated Statement of Income for the years ended
December 31, 2000, 1999 and 1998 ........................... 28
Consolidated Balance Sheet at December 31, 2000 and
1999 ....................................................... 29
Consolidated Statement of Changes in Stockholders'
Equity and Comprehensive Income for the years ended
December 31, 2000, 1999 and 1998............................ 30
Consolidated Statement of Cash Flows
for the years ended December 31,
2000, 1999 and 1998 ........................................ 31
Notes to Consolidated Financial Statements ................... 32-52
27
Report of Independent Auditors
To the Stockholders and Board of Directors of Minnesota Mining and
Manufacturing Company:
In our opinion, the consolidated financial statements listed in Item 8 of
this Form 10-K present fairly, in all material respects, the consolidated
financial position of Minnesota Mining and Manufacturing Company and
Subsidiaries at December 31, 2000 and 1999, and the consolidated results
of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. 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 of these statements in
accordance with auditing standards generally accepted in the United
States of America, which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Paul, Minnesota
February 12, 2001
28
Consolidated Statement of Income
Minnesota Mining and Manufacturing Company and Subsidiaries
Years ended December 31
(Amounts in millions, except per-share amounts) 2000 1999 1998
Net sales $16,724 $15,748 $15,094
Operating expenses
Cost of sales 8,787 8,126 8,020
Selling, general and administrative expenses 3,963 3,712 3,553
Research, development and related expenses 1,101 1,056 1,028
Other expense (income) (185) (102) 454
Total 13,666 12,792 13,055
Operating income 3,058 2,956 2,039
Other income and expense
Interest expense 111 109 139
Interest and other income (27) (33) (52)
Total 84 76 87
Income before income taxes, minority interest,
extraordinary loss and cumulative effect
of accounting change 2,974 2,880 1,952
Provision for income taxes 1,025 1,032 685
Minority interest 92 85 54
Income before extraordinary loss and
cumulative effect of accounting change 1,857 1,763 1,213
Extraordinary loss from early extinguishment
of debt -- -- (38)
Cumulative effect of accounting change (75) -- --
Net income $ 1,782 $ 1,763 $ 1,175
Weighted average common shares outstanding - basic 395.7 402.0 403.3
Earnings per share - basic
Income before extraordinary loss and
cumulative effect of accounting change $ 4.69 $ 4.39 $ 3.01
Extraordinary loss -- -- (.10)
Cumulative effect of accounting change (.19) -- --
Net income $ 4.50 $ 4.39 $ 2.91
Weighted average common shares outstanding - diluted 399.9 406.5 408.0
Earnings per share - diluted
Income before extraordinary loss and
cumulative effect of accounting change $ 4.64 $ 4.34 $ 2.97
Extraordinary loss -- -- (.09)
Cumulative effect of accounting change (.19) -- --
Net income $ 4.45 $ 4.34 $ 2.88
The accompanying Notes to Consolidated Financial Statements are an
integral part of this statement.
29
Consolidated Balance Sheet
Minnesota Mining and Manufacturing Company and Subsidiaries
At December 31
(Dollars in millions) 2000 1999
Assets
Current assets
Cash and cash equivalents $ 302 $ 387
Accounts receivable - net 2,891 2,778
Inventories 2,312 2,030
Other current assets 874 871
Total current assets 6,379 6,066
Investments 310 487
Property, plant and equipment - net 5,823 5,776
Other assets 2,010 1,567
Total $14,522 $13,896
Liabilities and Stockholders' Equity
Current liabilities
Short-term debt $ 1,866 $ 1,130
Accounts payable 1,081 1,008
Payroll 382 361
Income taxes 462 464
Other current liabilities 963 856
Total current liabilities 4,754 3,819
Long-term debt 971 1,480
Other liabilities 2,266 2,308
Stockholders' equity
Common stock, par value $.01 per share in 2000 5 236
Shares outstanding - 2000: 396,085,348
1999: 398,710,817
Capital in excess of par value 291 60
Retained earnings 11,517 10,741
Treasury stock (4,065) (3,833)
Unearned compensation - ESOP (303) (327)
Accumulated other comprehensive income (loss) (914) (588)
Stockholders' equity - net 6,531 6,289
Total $14,522 $13,896
The accompanying Notes to Consolidated Financial Statements are an
integral part of this statement.
30
Consolidated Statement of Changes in
Stockholders' Equity and Comprehensive Income
Minnesota Mining and Manufacturing Company and Subsidiaries
Accumulated
Common Other
Stock and Unearned Compre-
Capital in Compen- hensive
(Dollars in millions, Excess Retained Treasury sation Income
except per-share amounts) Total of Par Earnings Stock ESOP (Loss)
Balance at December 31, 1997 $5,926 $296 $9,848 $(3,300) $(379) $(539)
Net income 1,175 1,175
Cumulative translation adjustment - net 29 29
Debt and equity securities, unrealized
gain - net of tax of $1 million 2 2
Total comprehensive income 1,206
Dividends paid ($2.20 per share) (887) (887)
Amortization of unearned compensation 29 29
Reacquired stock (7.4 million shares) (618) (618)
Issuances pursuant to stock option
and benefit plans (4.6 million shares) 280 (156) 436
Balance at December 31, 1998 $5,936 $296 $9,980 $(3,482) $(350) $(508)
Net income 1,763 1,763
Cumulative translation adjustment - net (176) (176)
Minimum pension liability adjustment - net
of tax of $36 million (30) (30)
Debt and equity securities, unrealized
gain - net of tax of $77 million 126 126
Total comprehensive income 1,683
Dividends paid ($2.24 per share) (901) (901)
Amortization of unearned compensation 23 23
Reacquired stock (9.0 million shares) (825) (825)
Issuances pursuant to stock option
and benefit plans (5.7 million shares) 373 (101) 474
Balance at December 31, 1999 $6,289 $296 $10,741 $(3,833) $(327) $(588)
Net income 1,782 1,782
Cumulative translation adjustment - net (191) (191)
Minimum pension liability adjustment - net
of tax of $37 million (28) (28)
Debt and equity securities, unrealized
loss - net of tax of $65 million (107) (107)
Total comprehensive income 1,456
Dividends paid ($2.32 per share) (918) (918)
Amortization of unearned compensation 24 24
Reacquired stock (9.1 million shares) (814) (814)
Issuances pursuant to stock option
and benefit plans (6.3 million shares) 483 (88) 571
Issuances pursuant to acquisitions
(129 thousand shares) 11 11
Balance at December 31, 2000 $6,531 $296 $11,517 $(4,065) $(303) $(914)
The accompanying Notes to Consolidated Financial Statements are an
integral part of this statement.
31
Consolidated Statement of Cash Flows
Minnesota Mining and Manufacturing Company and Subsidiaries
Years ended December 31 2000 1999 1998
(Dollars in millions)
Cash Flows from Operating Activities
Net income $ 1,782 $ 1,763 $ 1,175
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 1,025 900 866
Asset impairment and restructuring 48 (31) 182
Deferred income tax provision 89 95 139
Implant litigation - net 49 93 (255)
Changes in assets and liabilities
Accounts receivable (171) (186) (160)
Inventories (261) 96 195
Other current assets (172) (256) 11
Other assets - net of amortization (145) 119 (255)
Income taxes payable 27 196 21
Accounts payable and other current liabilities 119 89 462
Other liabilities (92) 173 36
Other - net 28 30 --
Net cash provided by operating activities 2,326 3,081 2,417
Cash Flows from Investing Activities
Purchases of property, plant and equipment (1,115) (1,050) (1,453)
Proceeds from sale of property, plant and equipment 104 108 25
Acquisitions of businesses (472) (374) (200)
Proceeds from sale of businesses 1 249 57
Purchases of investments (12) (56) (42)
Proceeds from sale of investments 121 9 41
Net cash used in investing activities (1,373) (1,114) (1,572)
Cash Flows from Financing Activities
Change in short-term debt - net (236) (164) 55
Repayment of long-term debt (23) (179) (129)
Proceeds from remarketable securities
and long-term debt 495 2 645
Purchases of treasury stock (814) (825) (618)
Reissuances of treasury stock 425 347 249
Dividends paid to stockholders (918) (901) (887)
Distributions to minority interests (60) (51) (96)
Net cash used in financing activities (1,131) (1,771) (781)
Effect of exchange rate changes on cash 93 (20) (83)
Net increase (decrease) in cash and cash equivalents (85) 176 (19)
Cash and cash equivalents at beginning of year 387 211 230
Cash and cash equivalents at end of year $ 302 $ 387 $ 211
The accompanying Notes to Consolidated Financial Statements are an
integral part of this statement.
32
Notes to Consolidated Financial Statements
Significant Accounting Policies
Consolidation: All significant subsidiaries are consolidated. All
significant intercompany transactions are eliminated. As used herein, the
term "3M" or "company" refers to Minnesota Mining and Manufacturing
Company and subsidiaries unless the context indicates otherwise.
Foreign currency translation: Local currencies generally are 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 are
recorded as a component of accumulated other comprehensive income in
stockholders' equity.
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 income and are not
material.
Reclassifications: Certain prior period amounts have been reclassified to
conform with the current year presentation. Research, development and
related expenses have been reclassified from cost of sales and are now
presented separately. Pursuant to FASB Emerging Issues Task Force Issue
No. 00-10, Accounting for Shipping and Handling Fees and Costs, the
company has also reclassified freight billed to customers from selling,
general and administrative expenses to net sales, and has reclassified
related freight costs from selling, general and administrative expenses
to cost of sales.
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.
Investments: Investments primarily include debt securities held by
captive insurance operations; the cash surrender value of life insurance
policies; and real estate and venture capital investments. Unrealized
gains and losses relating to investments classified as available-for-sale
are recorded as a component of accumulated other comprehensive income in
stockholders' equity.
Inventories: Inventories are stated at lower of cost or market, with
cost generally determined on a first-in, first-out basis.
Property, plant and equipment: Depreciation of property, plant and
equipment generally is computed using the straight-line method based on
estimated useful lives of the assets. Estimated useful lives range from 5
to 40 years for buildings and improvements and 3 to 20 years for
machinery and equipment. Fully depreciated assets are retained in
property and accumulated depreciation accounts until removed from
service. Upon disposal, assets and related accumulated depreciation are
removed from the accounts and the net amount, less proceeds from
disposal, is charged or credited to operations.
Other assets: Other assets include product and other insurance
receivables, goodwill, patents, other intangible assets, deferred income
taxes and other
33
noncurrent assets. Goodwill is amortized on a straight-line basis over
the periods benefited, ranging from 5 to 40 years. Other intangible
assets are amortized on a straight-line basis over their estimated
economic lives.
Impairment of long-lived assets: Long-lived assets, including
identifiable intangibles and goodwill, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. An impairment loss would be
recognized when the carrying amount of an asset exceeds the estimated
undiscounted future cash flows expected to result from the use of the
asset and its eventual disposition. The amount of the impairment loss to
be recorded is calculated by the excess of the assets carrying value over
its fair value. Fair value is determined using a discounted cash flow
analysis.
Revenue recognition: Revenue is recognized when the risks and rewards of
ownership have substantively transferred to customers, regardless of
whether legal title has transferred. This condition is normally met when
the product has been delivered or 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. Prior to 2000, the company recognized
revenue upon shipment of goods to customers and upon performance of
services (refer to "Accounting Change" that follows).
Advertising and merchandising: These costs are charged to operations in
the year incurred.
Internal-use software: The company capitalizes direct costs of materials
and services used in the development of internal-use software. Amounts
capitalized are amortized on a straight-line basis over a period of 3 to
5 years and are reported as a component of machinery and equipment within
property, plant and equipment.
Environmental: Environmental expenditures relating to existing conditions
caused by past operations that do not contribute to current or future
revenues are expensed. Liabilities for remediation costs are recorded on
an undiscounted basis when they are probable and reasonably estimable,
generally no later than the completion of feasibility studies or the
company's commitment to a plan of action.
Derivatives and hedging activities: The company uses interest rate
swaps, currency swaps, and forward and option contracts to manage risks
generally associated with foreign exchange rate, interest rate and
commodity market volatility. All hedging instruments are designated and
effective as hedges, in accordance with U.S. generally accepted
accounting principles. Instruments that do not qualify for hedge
accounting are marked to market with changes recognized in current
earnings. The company does not hold or issue derivative financial
instruments for trading purposes and is not a party to leveraged
derivatives.
Realized and unrealized gains and losses for qualifying hedge instruments
are deferred until offsetting gains and losses on the underlying
transactions are recognized in earnings. These gains and losses
generally are recognized either as interest expense over the borrowing
period for interest rate and currency swaps; as an adjustment to cost of
sales for inventory-related hedge transactions; or as a component of
accumulated other comprehensive income in stockholders' equity for hedges
of net investments in international companies. If the underlying hedged
transaction ceases to exist, all changes in fair value of the related
derivatives that have not been settled are recognized in earnings. Cash
flows attributable to these financial instruments are included with the
cash flows of the associated hedged items.
34
Accounting for stock-based compensation: The company uses the intrinsic
value method for the Management Stock Ownership Program (MSOP). The
General Employees' Stock Purchase Plan is considered noncompensatory.
Comprehensive income: Total comprehensive income and the components of
accumulated other comprehensive income are presented in the Consolidated
Statement of Changes in Stockholders' Equity and Comprehensive Income.
Accumulated other comprehensive income is composed of foreign currency
translation effects, including hedges of net investments in international
companies, minimum pension liability adjustments, and unrealized gains
and losses on available-for-sale debt and equity securities.
Earnings per share: The difference in the weighted average shares
outstanding for calculating basic and diluted earnings per share is
attributable to the assumed exercise of MSOP stock options, if dilutive.
New accounting pronouncements: In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133, as amended, was adopted by the company on January 1, 2001.
Based on the company's analysis of its current derivative positions, this
standard will not materially affect its financial position or results of
operations.
Accounting Change
During the fourth quarter of 2000, the company changed its revenue
recognition policy. Essentially, the new policies recognize that the
risks and rewards of ownership in many transactions do not substantively
transfer to customers until the product has been delivered, regardless of
whether legal title has transferred. In addition to this change in
accounting that affects a substantial portion of its product sales, the
company has revised aspects of its accounting for services provided in
several of its smaller businesses. These new policies are consistent with
the guidance contained in SEC Staff Accounting Bulletin No. 101. The
effect of these changes in revenue recognition policies, as of January 1,
2000, are reported as the cumulative effect of an accounting change in
the fourth quarter of 2000. This change did not have a significant effect
on previously reported 2000 quarters or on prior years.
Restructuring Charge
To reduce costs and improve productivity, the company initiated a
restructuring program in the second half of 1998 to streamline corporate
structure, consolidate manufacturing operations and exit certain product
lines. Related to this, the company recorded a restructuring charge of
$493 million ($313 million after tax). A portion of this restructuring
charge ($39 million) has been classified as a component of cost of sales.
In 1999, the company recorded a change in estimate that reduced the
restructuring charge by $28 million. The restructuring charge does not
include the write-down of goodwill or other intangible assets. As of
December 31, 1999, this restructuring program was substantially complete.
Of the total restructuring charge, $275 million related to employee
termination benefits for personnel reductions in each business segment
and geographic area of the company and in all major functions. Under the
plan, the company terminated 1,225 employees in the second half of 1998
and 3,288 employees in 1999, of whom about one-third were in the United
States and two-thirds were abroad. Because certain employees can defer
receipt of termination benefits, cash payments lag job eliminations.
After subtracting payments of $268 million made through December 31,
2000, the company had a remaining liability of $7 million related to
employee termination benefits at year-end. This amount is classified in
current liabilities (payroll) on the Consolidated Balance Sheet.
35
The company has consolidated or downsized manufacturing operations,
including actions in seven locations in the United States, nine in
Europe, four in the Asia Pacific area and two in Latin America. As part
of the restructuring plan, the company has discontinued product lines
that had combined annual sales of less than $100 million and marginal
operating income.
The restructuring charge included $112 million, net of salvage value, for
the write-down of assets included in property, plant and equipment. These
assets primarily included specialized 3M manufacturing machinery and
equipment. Estimated salvage values are based on estimates of proceeds
upon sale of certain affected assets.
The restructuring charge also included $78 million for losses on
inventory write-downs and other exit costs. The company has taken an
inventory write-down of $39 million, which has been classified as a
component of cost of sales, for certain product lines that were
discontinued primarily in 1998. Other exit costs included $39 million in
incremental costs and contractual obligations for items such as leasehold
termination payments and other facility exit costs incurred as a direct
result of the plan. After subtracting $35 million in payments made
through December 31, 2000, the company had a remaining balance of $4
million in other current liabilities for these exit costs at December 31,
2000.
Restructuring Employee Write-down of
Information Termination Property, Plant
(Millions) Benefits and Equipment Inventory Other Total
1998 restructuring charge
Third quarter $102 $161 $29 $40 $332
Fourth quarter 169 -- 10 -- 179
Fourth quarter
change in estimate -- (18) -- -- (18)
Total-year 1998 $271 $143 $39 $40 $493
1999 change in estimate 4 (31) -- (1) (28)
Total restructuring charge $275 $112 $39 $39 $465
Restructuring Employee
Liability Termination
(Millions) Benefits Other Total
September 30, 1998 liability $102 $40 $142
Fourth-quarter 1998 employee
termination benefits charge 169 -- 169
Fourth-quarter 1998 cash payments (39) (8) (47)
December 31, 1998 liability $232 $32 $264
1999 cash payments (205) (23) (228)
1999 change in estimate 4 (1) 3
December 31, 1999 liability $ 31 $ 8 $39
2000 cash payments (24) (4) (28)
December 31, 2000 liability $ 7 $ 4 $ 11
36
Acquisitions and Divestitures
Year 2000 acquisitions: During 2000, 3M acquired 91 percent of Quante AG
(a telecommunications supplier), 100 percent of the multi-layer
integrated circuit packaging line of W.L. Gore and Associaties, and seven
smaller businesses for a total purchase price of $472 million in cash
(net of cash acquired) plus 128,994 shares of 3M common stock. The stock
had a fair market value of $11 million at the acquisition date and was
previously held as 3M treasury stock. All of these transactions were
accounted for using the purchase method of accounting. The preliminary
estimated fair values of assets acquired and liabilities assumed relating
to these acquisitions are summarized in the table below:
Millions Asset (Liability)
Accounts receivable $ 86
Inventories 112
Other working capital - net (80)
Property, plant and equipment 179
Purchased intangible assets 326
Other assets 30
Interest bearing debt (123)
Long-term liabilities (47)
Net assets acquired $483
The 2000 purchased intangible assets, including goodwill, are being
amortized on a straight-line basis over the periods benefited, ranging
from 3 to 20 years. In-process research and development charges
associated with these acquisitions were not significant. Proforma
information related to these acquisitions is not included because
the impact of these acquisitions on the company's results of operations
is not considered to be significant.
Year 1999 acquisition: On December 28, 1999, 3M finalized the
acquisition of the outstanding 46 percent minority interest in Dyneon LLC
from Celanese AG for approximately $340 million in cash, primarily
financed by debt. The purchase method of accounting was used for this
acquisition. The purchase price exceeded the fair value of the minority
interest net assets by approximately $267 million, of which approximately
$242 million represents goodwill and other intangible assets that will be
amortized over 20 years or less. Dyneon's assets, liabilities, revenues
and expenses were already fully consolidated in 3M's financial
statements, with the 46 percent minority interest eliminated on the
minority interest line to reflect 3M's net position. If this acquisition
had occurred at the beginning of 1999, the effect on results of
operations would not have been material.
Year 1999 divestitures: On June 30, 1999, the company closed on the sale
of Eastern Heights Bank, a subsidiary banking operation, and on the sale
of the assets of its cardiovascular systems business. These divestitures
generated cash proceeds of $203 million and, net of an investment
valuation adjustment, resulted in a pre-tax gain of $104 million ($55
million after tax) in the second quarter of 1999. 3M also recorded a pre-
tax gain of $43 million ($26 million after tax) related to divestitures,
mainly in the Health Care segment, in the third quarter of 1999. These
pre-tax gains are recorded in the other expense (income) line within
operating income.
37
Supplemental Statement of Income Information
(Millions) 2000 1999 1998
Research, development and related expenses $1,101 $1,056 $1,028
Advertising and merchandising costs 544 484 448
Research and development expenses, covering basic scientific research and
the application of scientific advances to the development of new and
improved products and their uses, totaled $727 million, $688 million and
$648 million in 2000, 1999 and 1998, respectively. Related expenses
primarily include technical support provided by the laboratories for
existing products.
Supplemental Balance Sheet Information
(Millions) 2000 1999
Accounts receivable
Accounts receivable $ 2,975 $ 2,860
Less allowances 84 82
Accounts receivable - net $ 2,891 $ 2,778
Inventories
Finished goods $ 1,231 $ 1,103
Work in process 663 544
Raw materials 418 383
Total inventories $ 2,312 $ 2,030
Other current assets
Product and other insurance receivables $ 267 $ 291
Deferred income taxes 152 172
Other 455 408
Total other current assets $ 874 $ 871
Investments
Available-for-sale (fair value) 72 254
Other (cost, which approximates fair value) 238 233
Total investments $ 310 $ 487
Property, plant and equipment - at cost
Land $ 249 $ 265
Buildings and leasehold improvements 3,477 3,429
Machinery and equipment 9,958 9,356
Construction in progress 486 602
14,170 13,652
Less accumulated depreciation 8,347 7,876
Property, plant and equipment - net $ 5,823 $ 5,776
38
Supplemental Balance Sheet Information (continued)
(Millions) 2000 1999
Other assets
Intangible assets - net $ 852 $ 537
Product and other insurance receivables 541 634
Prepaid pension benefits 412 265
Deferred income taxes 143 88
Other 62 43
Total other assets $ 2,010 $ 1,567
Other current liabilities
Product and other claims $ 107 $ 141
Nonfunded pension and postretirement benefits 93 72
Other 763 643
Total other current liabilities $ 963 $ 856
Other liabilities
Nonfunded pension and postretirement benefits $ 754 $ 761
Product and other claims 339 397
Minority interest in subsidiaries 346 371
Deferred income taxes 362 332
Other 465 447
Total other liabilities $ 2,266 $ 2,308
Supplemental Stockholders' Equity and Comprehensive Income Information
Common stock ($.01 par value per share; $.50 par value at December 31,
1999 and 1998) of 1.5 billion shares is authorized (1 billion shares at
December 31, 1999), with 472,016,528 shares issued in 2000, 1999 and
1998. Common stock and capital in excess of par includes $231 million
transferred from common stock to capital in excess of par value during
2000 in connection with the change in par value of the company's common
stock to $.01 per share. Preferred stock, without par value, of 10
million shares is authorized but unissued.
The following table shows the ending balances of the components of
accumulated other comprehensive income (loss).
Accumulated Other Comprehensive Income (Loss)
(Millions) 2000 1999 1998
Cumulative translation - net $(885) $(694) $(518)
Minimum pension liability adjustments - net (58) (30) --
Debt and equity securities, unrealized gain - net 29 136 10
Total accumulated other comprehensive income (loss) $(914) $(588) $(508)
Reclassification adjustments in 2000 for realized gains included in net
income totaled $62 million ($101 million before tax). These gains related
to the sale of appreciated equity securities. Reclassification
adjustments in 1999 for realized gains included in net income totaled $25
million ($41 million before tax). These gains related to appreciated
equity securities donated to the 3M Foundation in December 1999. In 2000,
1999 and 1998, other reclassification adjustments were not material.
Income tax effects for cumulative translation are not material since no
tax provision has been made for the translation of foreign currency
financial statements into U.S. dollars.
39
Supplemental Cash Flow Information
(Millions) 2000 1999 1998
Income tax payments $ 852 $ 653 $ 467
Interest payments 104 114 130
Depreciation 915 822 798
Amortization of software 45 39 28
Amortization of patents, other identifiable
acquisition intangibles, and goodwill 65 39 40
As required by a third-quarter 2000 Emerging Issues Task Force concensus,
stock option tax benefits have been classified as a component of cash
flows from operating activities. Prior period Consolidated Statement of
Cash Flows amounts have been restated to conform with this presentation.
Individual amounts on the Consolidated Statement of Cash Flows exclude
the effects of acquisitions, divestitures and exchange rate impacts,
which are presented separately. The net impact of cumulative effect of
accounting changes is recorded in "Other - net" within operating
activities.
In 1999, 3M exchanged assets used in the business, but not held for sale,
with a fair market value of $61 million plus cash of $12 million, for
similar assets having a fair market value of $73 million. No gain was
recognized on this nonmonetary exchange of productive assets. Also in
1999, 3M donated to the 3M Foundation appreciated equity securities with
a market value of $66 million, resulting in $8 million of pre-tax
expense, which represented the company's cost of the securities.
In 1998, the 3M Employee Stock Ownership Plan (ESOP) refinanced its
existing debt by issuing new debt of $385 million. Because the company
has guaranteed repayment of the ESOP debt, the debt and related unearned
compensation are recorded on the Consolidated Balance Sheet. The
repayment of principal and proceeds of long-term debt relating to the
ESOP have been excluded from the financing activities of the company in
the Consolidated Statement of Cash Flows because the funds involved were
received and disbursed by the ESOP trust.
40
Debt
Short-Term Debt Effective
(Millions) Interest Rate* 2000 1999
Commercial paper 6.49% $ 655 $ 786
Long-term debt - current portion 5.94% 646 36
6.325% dealer remarketable securities 5.67% 352 --
Other borrowings 7.79% 213 308
Total short-term debt $1,866 $1,130
Long-Term Debt Effective Maturity
(Millions) Interest Rate* Date 2000 1999
ESOP debt guarantee 5.62% 2002-2009 $ 303 $ 333
U.S. dollar 6.375% note 6.38% 2028 330 330
Japanese Yen 1% Eurobond 1.00% 2003 139 --
Sumitomo 3M Limited 0.795% note 0.80% 2003 87 98
Other borrowings 6.11% 2002-2037 112 719
Total long-term debt $ 971 $1,480
*Reflects the effects of interest rate and currency swaps at December 31,
2000.
At December 31, 2000, debt with fixed interest rates includes the ESOP,
U.S. dollar 6.375 percent note, Japanese yen Eurobond, Sumitomo 3M
Limited note and a portion of other borrowings. The ESOP debt is
serviced by dividends on stock held by the ESOP and by company
contributions. These contributions are reported as an employee benefit
expense in the Consolidated Statement of Income. At December 31, 2000,
debt not denominated in U.S. dollars includes the Japanese yen Eurobond,
the Sumitomo 3M Limited note, and most of other borrowings. Other
borrowings includes debt held by 3M's international companies, and
floating rate notes and industrial bond issues in the United States.
Other borrowings in long-term debt significantly decreased in 2000 as a
result of certain debt securities becoming due in 2001, with the
corresponding increase reflected in the current portion of long-term
debt.
Maturities of long-term debt for the next five years are: 2001, $646
million; 2002, $33 million; 2003, $261 million; 2004, $36 million; and
2005, $38 million.
The company estimates that the fair value of short-term debt approximates
the carrying amount of this debt. The fair value of long-term debt,
based on third-party quotes, is estimated at $950 million. Debt
covenants do not restrict the payment of dividends. At year-end 2000,
the company had available short-term lines of credit totaling about $694
million.
41
Other Financial Instruments
Interest rate and currency swaps: The company uses interest rate and
currency swaps to manage interest rate risk related to borrowings. The
notional amounts shown in the table that follows serve solely as a basis
for the calculation of payment streams to be exchanged. These notional
amounts are not a measure of the company's exposure through its use of
derivatives. These instruments generally mature in relationship to their
underlying debt and have maturities extending to 2001. Unrealized gains
and losses and exposure to changes in market conditions were not material
at December 31, 2000 and 1999, for interest rate swaps. Currency swaps
at December 31, 2000, had unrealized gains of $29 million and unrealized
losses of $47 million. Currency swaps at December 31, 1999, had
unrealized gains of $13 million and unrealized losses of $61 million. In
both years, unrealized gains and losses relating to underlying debt
instruments largely offset these unrealized amounts.
Notional Amounts
(Millions) 2000 1999
Interest rate swaps $615 $550
Currency swaps 365 465
Foreign exchange forward and option contracts: The company has entered
into foreign exchange forward and option contracts, the majority of which
have maturities of less than one year. The face amounts represent
contracted U.S. dollar equivalents of forward and option contracts
denominated in foreign currencies. The amounts at risk are not material
because the company has the ability to generate offsetting foreign
currency cash flows. Unrealized gains and losses at December 31, 2000
and 1999, were not material. In 2000, realized gains totaled $132 million
and realized losses totaled $45 million, with most of this net impact
offset by underlying hedged items.
Face Amounts
(Millions) 2000 1999
Forward contracts $ 442 $ 997
Options purchased 113 140
The company engages in hedging activities to reduce exchange rate risks
arising from cross-border cash flows denominated in foreign currencies.
The company operates on a global basis, generating more than half its
revenues internationally and engaging in substantial product and
financial transfers among geographic areas. Major forward contracts at
December 31, 2000, were denominated in European euros and Japanese yen.
Credit risk: The company is exposed to credit loss in the event of
nonperformance by counterparties in interest rate swaps, currency swaps,
and option and foreign exchange contracts. However, the company's risk is
limited to the fair value of the instruments. 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. The company does not anticipate
nonperformance by any of these counterparties.
42
Income Taxes
At December 31, 2000, about $2.6 billion of retained earnings
attributable to international companies were considered to be
indefinitely 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 taxes that might
arise were these earnings to be remitted.
In 2000, the company recorded a cumulative effect of accounting change,
reducing earnings by $75 million net of tax. The provision for income
taxes excludes a $42 million tax benefit related to this cumulative
effect.
In 1998, the company refinanced debt related to its Employee Stock
Ownership Plan. The provision for income taxes excludes a $21 million tax
benefit (classified as part of the extraordinary loss) related to this
refinancing.
Income Before Income Taxes, Minority Interest,
Extraordinary Loss and Cumulative Effect
of accounting change
(Millions) 2000 1999 1998
United States $1,580 $2,020 $1,326
International 1,394 860 626
Total $2,974 $2,880 $1,952
Provision for income taxes
(Millions) 2000 1999 1998
Currently payable
Federal $ 385 $ 494 $ 186
State 64 72 52
International 487 371 308
Deferred
Federal 92 100 149
State 7 9 13
International (10) (14) (23)
Total $1,025 $1,032 $ 685
Components of Deferred Tax Assets
and Liabilities
(Millions) 2000 1999
Accruals currently not deductible
Employee benefit costs $278 $288
Product and other claims 170 205
Product and other insurance receivables (308) (353)
Accelerated depreciation (436) (423)
Other 221 206
Net deferred tax asset (liability) $(75) $(77)
Reconciliation of Effective Income Tax Rate 2000 1999 1998
Statutory U.S. tax rate 35.0% 35.0% 35.0%
State income taxes - net 1.6 1.8 2.4
International income taxes - net (.8) .2 .8
All other - net (1.3) (1.2) (3.1)
Effective worldwide tax rate 34.5% 35.8% 35.1%
43
Business Segments
Net sales in prior periods have been reclassified to conform with the
current year presentation. In the first quarter of 2000, business
segment operating income for 1999 was restated for minor amounts to be
consistent with year 2000 management reporting practices. Certain costs
previously included in Corporate and Unallocated were allocated to the
individual business segments. 3M's businesses are organized, managed and
internally reported as six operating segments based on differences in
products, technologies and services. These segments are Industrial;
Transportation, Graphics and Safety; Health Care; Consumer and Office;
Electro and Communications; and Specialty Material. These segments have
worldwide responsibility for virtually all of the company's product
lines. 3M is not dependent on any single product or market.
Transactions among reportable segments are recorded at cost. 3M is an
integrated enterprise characterized by substantial intersegment
cooperation, cost allocations and inventory transfers. Therefore,
management does not represent that these segments, if operated
independently, would report the operating income and other financial
information shown. The allocations resulting from the shared utilization
of assets are not necessarily indicative of the underlying activity for
segment assets, depreciation and amortization, and capital expenditures.
Operating income in 2000 includes a non-recurring net loss of $23
million. Non-recurring costs include $168 million in the Specialty
Material segment related to the company's phase-out of perfluorooctanyl-
based chemistry products. This $168 million includes $56 million of
accelerated depreciation (included in the Specialty Material segment
depreciation and amortization), $48 million of impairment losses, and
severance and other costs. Other non-recurring costs include a $20
million write-down of corporate and unallocated assets, and $20 million
of other non-recurring expenses ($13 million related to acquisitions in
the Electro and Communications segment). Non-recurring operating income
gains in 2000 of $135 million were largely related to corporate and
unallocated asset dispositions, principally the sale of available-for-
sale equity securities. Operating income in 2000 also included a $50
million gain from the termination of a product distribution agreement in
the Health Care segment.
Operating income in 1999 includes a non-recurring net gain of $100
million. This relates to divestitures of certain health care businesses
and Eastern Heights Bank, litigation expense, an investment valuation
adjustment, and a change in estimate that reduced the 1998 restructuring
charge. Of this $100 million gain, $62 million was recorded in Health
Care and $38 million in Corporate and Unallocated. Operating income in
1998 includes a restructuring charge of $493 million in Corporate and
Unallocated.
44
Business segments (continued):
Business Segments Major Products
Industrial Tapes, coated and nonwoven abrasives, and
specialty adhesives
Transportation, Graphics Reflective sheeting, commercial graphics
and Safety systems, respirators, automotive components,
safety and security products, and optical films
Health Care Medical and surgical supplies, skin
health products, infection prevention,
pharmaceuticals, drug delivery systems,
dental and orthondontic products,
health information systems, microbiology
products, and closures for disposable
diapers
Consumer and Office Sponges, scour pads, high performance cloths,
consumer and office tapes, repositionable notes,
carpet and fabric protectors, energy control
products, home improvement products, floor
matting and commercial cleaning products,
and visual systems
Electro and Communications Packaging and interconnection devices,
insulating and splicing solutions
for the electronics, telecommunications and
electrical industries
Specialty Material Specialty materials for automotive, electronics,
telecommunications, textile, and other
industries, and roofing granules
45
Business segments (continued):
Business Segment Information Depr. Capital
Net Operating and Expendi-
(Millions) Sales Income Assets** Amort. tures
Industrial 2000 $ 3,525 $ 641 $ 2,392 $ 213 $ 214
1999 3,409 612 2,357 220 202
1998 3,372 561 2,394 199 281
Transportation, 2000 3,518 783 2,741 186 239
Graphics and Safety 1999 3,234 675 2,673 140 199
1998 3,025 532 2,652 170 336
Health Care 2000 3,135 675 2,025 188 189
1999 3,138 680 2,076 203 189
1998 3,102 571 2,168 161 225
Consumer and Office 2000 2,848 434 1,711 101 134
1999 2,705 401 1,589 118 123
1998 2,624 398 1,614 136 182
Electro and 2000 2,467 404 1,961 158 208
Communications 1999 2,017 402 1,359 130 194
1998 1,743 263 1,177 111 225
Specialty Material 2000 1,197 57 1,230 144 131
1999 1,194 185 1,323 79 143
1998 1,133 194 1,112 66 188
Corporate and 2000 34 64 2,462 35 --
Unallocated* 1999 51 1 2,519 10 --
1998 95 (480) 3,036 23 16
Total Company 2000 $16,724 $3,058 $14,522 $1,025 $1,115
1999 15,748 2,956 13,896 900 1,050
1998 15,094 2,039 14,153 866 1,453
*Corporate and Unallocated operating income principally includes
corporate investment gains and losses, certain derivative gains and
losses, insurance-related gains and losses, banking operating results
(divested June 30, 1999), certain litigation expenses, restructuring
charges and other miscellaneous items. Because this category includes a
variety of miscellaneous items, it is subject to fluctuation on a
quarterly and annual basis.
**Segment assets primarily include accounts receivable; inventory;
property, plant and equipment - net; and other miscellaneous assets.
Assets included in Corporate and Unallocated principally are cash and
cash equivalents; insurance receivables; deferred income taxes; certain
investments and other assets; and certain unallocated property, plant
and equipment.
46
Geographic Areas
Information in the table below is presented on the basis the company uses
to manage its businesses. Export sales and certain income and expense
items are reported within the geographic area where the final sales to
customers are made. Prior year amounts have been retroactively restated
to conform to the current-year presentation.
In 1999, operating income for eliminations and other includes a $100
million non-recurring net benefit related to gains on divestitures,
litigation expense, an investment valuation adjustment, and a change in
estimate that reduced the 1998 restructuring charge. In 1998, operating
income for eliminations and other includes a $493 million restructuring
charge.
Geographic Area Information Latin
Europe America, Elimina-
and Africa tions
United Middle Asia and and Total
(Millions) States East Pacific Canada Other Company
Net sales to 2000 $7,858 $3,946 $3,329 $1,564 $ 27 $16,724
customers 1999 7,559 3,808 2,887 1,467 27 15,748
1998 7,297 3,863 2,375 1,539 20 15,094
Operating 2000 $1,160 $ 589 $ 961 $ 376 $ (28) $3,058
Income 1999 1,198 574 768 348 68 2,956
1998 1,185 515 512 339 (512) 2,039
Property, 2000 $3,699 $1,046 $ 711 $ 367 $ -- $5,823
plant and 1999 3,647 1,017 757 355 -- 5,776
equipment - 1998 3,504 1,116 718 376 -- 5,714
net
Retirement and Postretirement Benefit 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. In addition to providing pension benefits,
the company provides certain postretirement health care and life
insurance benefits for substantially all of its U.S. employees who reach
retirement age while employed by the company. Most international
employees and retirees are covered by government health care programs.
The cost of company-provided health care plans for these international
employees is not material.
The company's pension funding policy is to deposit with independent
trustees amounts at least equal to accrued liabilities, to the extent
allowed by law. Trust funds and deposits with insurance companies are
maintained to provide pension benefits to plan participants and their
beneficiaries. In addition, the company has set aside funds for its U.S.
postretirement plan with an independent trustee and makes periodic
contributions to the plan.
47
The company's U.S. non-qualified pension plan had an unfunded accumulated
benefit obligation of $187 million at December 31, 2000, and $171 million
at December 31, 1999. There are no plan assets in the non-qualified plan
due to its nature.
Certain international pension plans were underfunded as of year-end 2000
and 1999. The accumulated benefit obligations of these plans were $499
million in 2000 and $467 million in 1999. The assets of these plans were
$300 million in 2000 and $353 million in 1999. The net underfunded
amounts are included in current and other liabilities on the Consolidated
Balance Sheet.
Benefit Plan Information Qualified and Non-qualified Postretirement
Pension Benefits Benefits
United States International
(Millions) 2000 1999 2000 1999 2000 1999
Reconciliation of benefit obligation
Beginning balance $5,597 $6,201 $2,234 $2,153 $1,016 $1,030
Service cost 125 150 83 88 39 42
Interest cost 416 387 98 98 82 69
Participant contributions - - 6 7 11 9
Foreign exchange rate changes - - (199) (34) - 1
Plan amendments 1 8 - 3 - -
Actuarial(gain)loss 117 (823) 199 (21) 109 (56)
Benefit payments (351) (326) (53) (60) (91) (79)
Ending balance $5,905 $5,597 $2,368 $2,234 $1,166 $1,016
Reconciliation of plan assets at fair value
Beginning balance $6,813 $6,233 $2,155 $2,028 $ 537 $ 523
Actual return on plan assets 384 807 5 173 4 19
Company contributions 90 86 60 51 139 64
Participant contributions - - 6 7 11 9
Foreign exchange rate changes - - (157) (45) - -
Benefit payments (333) (313) (58) (59) (90) (78)
Ending balance $6,954 $6,813 $2,011 $2,155 $ 601 $ 537
Funded status of plans
Plan assets at fair value
less benefit obligation $1,049 $1,216 $ (357) $ (79) $ (565) $ (480)
Unrecognized transition
(asset) obligation - - 16 21 - -
Unrecognized prior service cost 129 142 25 36 (26) 12
Unrecognized (gain) loss (1,012) (1,325) 311 13 160 (37)
Net amount recognized $ 166 $ 33 $ (5) $ (9) $ (431) $ (505)
Amounts recognized in the
Consolidated Balance Sheet
consist of:
Prepaid assets $ 319 $ 184 $ 80 $ 74 - -
Accrued liabilities (187) (171) (229) (157) $ (431) $ (505)
Intangible assets 5 6 8 1 - -
Accumulated other comprehensive
income - pre-tax 29 14 136 73 - -
Net amount recognized $ 166 $ 33 $ (5) $ (9) $ (431) $ (505)
48
Benefit Plan Information Qualified and Non-qualified Postretirement
Pension Benefits Benefits
United States International
(Millions) 2000 1999 1998 2000 1999 1998 2000 1999 1998
Components of net periodic
benefit cost
Service cost $125 $150 $130 $ 83 $ 88 $ 80 $ 39 $ 42 $ 36
Interest cost 416 387 377 98 98 95 82 69 62
Expected return on assets (565) (501) (440) (117) (108) (103) (47) (34) (32)
Amortization of transition
(asset) obligation - (37) (37) 2 2 (1) - - -
Amortization of prior service
cost or benefit 13 45 38 8 8 8 (11) (11) (11)
Recognized net actuarial
(gain) loss (14) 14 - 7 2 3 3 - -
Net periodic benefit cost $(25) $ 58 $ 68 $ 81 $ 90 $ 82 $ 66 $ 66 $ 55
Weighted average assumptions
Discount rate 7.50% 7.50% 6.50% 5.40% 5.67% 5.58% 7.50% 7.50% 6.50%
Expected return on assets 9.00% 9.00% 9.00% 7.14% 6.69% 6.72% 8.19% 8.19% 6.25%
Compensation rate increase 4.65% 4.65% 4.65% 4.28% 4.12% 4.02% 4.65% 4.65% 4.65%
The company expects its health care cost trend rate for postretirement
benefits to slow from 5.8 percent in 2001 to 5.0 percent in 2004, after
which the rate is expected to stabilize. A one percentage point change in
the assumed health care cost trend rates would have the effects shown in
the following table.
Health Care Cost One Percentage One Percentage
(Millions) Point Increase Point Decrease
Effect on current year's benefit expense $ 16 $(13)
Effect on benefit obligation 119 (103)
Leases
Rental expense under operating leases was $119 million in 2000, $113
million in 1999 and $125 million in 1998. The table below shows minimum
payments under operating leases with non-cancelable terms in excess of
one year, as of December 31, 2000.
After
(Millions) 2001 2002 2003 2004 2005 2005 Total
Minimum lease payments $83 $67 $50 $29 $20 $83 $332
49
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. Employee contributions of up to 6 percent of
compensation are matched at rates ranging from 20 to 35 percent, with
additional company contributions depending upon company performance.
The company maintains an Employee Stock Ownership Plan (ESOP). This plan
was established in 1989 as a cost-effective way of funding the majority
of the company's contributions under 401(k) employee savings plans.
Total ESOP shares are considered to be shares outstanding for earnings
per share calculations.
In 1998, the ESOP refinanced its existing debt by issuing new debt of
$385 million at an interest rate of 5.62 percent. This refinancing
extended the life of the original ESOP from 2004 to 2009. The company
incurred a one-time charge of $59 million ($38 million net of tax), or 9
cents per diluted share, which is reported as an extraordinary loss from
early extinguishment of debt.
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. Over the life of the
notes, shares are released for allocation to participants based on the
ratio of the current year's debt service to the remaining debt service
prior to the current payment.
The ESOP has been the primary funding source for the company's employee
savings plans. Expenses related to the ESOP include total debt service
on the notes, less dividends. The company contributes treasury shares,
accounted for at fair value, to employee savings plans to cover
obligations not funded by the ESOP. These amounts are reported as an
employee benefit expense. Unearned compensation, shown as a reduction of
stockholders' equity, is reduced symmetrically as the ESOP makes
principal payments on the debt.
Employee Savings and Stock Ownership Plans
(Millions) 2000 1999 1998
Dividends on shares held by the ESOP $ 31 $ 31 $ 31
Company contributions to the ESOP 15 7 44
Interest incurred on ESOP notes 19 21 29
Expenses related to ESOP debt service 12 14 37
Expenses related to treasury shares 35 50 2
ESOP Debt Shares 2000 1999 1998
Allocated 6,898,666 6,596,898 6,586,192
Committed to be released 194,187 280,615 85,153
Unreleased 6,116,961 6,709,549 7,457,885
Total ESOP debt shares 13,209,814 13,587,062 14,129,230
50
General Employees' Stock Purchase Plan
In May 1997, shareholders approved 15 million shares for issuance under
the company's General Employees' Stock Purchase Plan (GESPP).
Substantially all employees are eligible to participate in the plan.
Participants are granted options at 85 percent of market value at the
date of grant. There are no GESPP shares under option at the beginning
or end of each year because options are granted on the first business day
and exercised on the last business day of the same month.
General Employees' 2000 1999 1998
Stock Purchase Plan Exercise Exercise Exercise
Shares Price* Shares Price* Shares Price*
Options granted 1,206,262 77.40 1,210,189 72.25 1,271,120 69.91
Options exercised (1,206,262) 77.40 (1,210,189) 72.25 (1,271,120) 69.91
Shares available for grant-
December 31 10,563,726 11,769,988 12,980,177
*Weighted average
Management Stock Ownership Program
In May 1997, shareholders approved 35 million shares for issuance under
the Management Stock Ownership Program (MSOP). Management stock options
are granted at market value at the date of grant. These options generally
are exercisable one year after the date of grant and expire 10 years from
the date of grant. In May 2000, at the time of the grant, there were
11,073 participants in the plan.
Management Stock 2000 1999 1998
Ownership Program Exercise Exercise Exercise
Shares Price* Shares Price* Shares Price*
Under option-
January 1 30,702,415 $74.67 29,330,549 $67.72 26,831,852 $59.75
Granted 6,612,707 89.20 5,697,333 94.32 5,872,537 92.78
Exercised (4,684,779) 62.19 (4,201,886) 52.50 (3,300,215) 47.76
Canceled (283,087) 86.77 (123,581) 93.35 (73,625) 93.35
December 31 32,347,256 $79.34 30,702,415 $74.67 29,330,549 $67.72
Options exercisable-
December 31 26,159,345 $77.02 25,213,683 $70.27 24,031,395 $62.09
Shares available for grant-
December 31 11,738,624 18,088,285 23,780,604
*Weighted average
51
Management Stock Ownership Program (continued)
Options Outstanding and Exercisable at December 31, 2000
Options Outstanding Options Exercisable
Range of Remaining
Exercise Contractual Exercise Exercise
Prices Shares Life (months)* Price* Shares Price*
$42.50-54.42 4,542,274 34 $47.96 4,542,274 $47.96
54.47-82.91 6,855,135 60 62.02 6,855,135 62.02
86.70-119.60 20,949,847 101 91.86 14,761,936 93.01
*Weighted average
Stock-Based Compensation
No compensation cost has been recognized for the General Employees' Stock
Purchase Plan (GESPP) or the Management Stock Ownership Program (MSOP).
Pro forma amounts based on the options' estimated fair value, net of tax,
at the grant dates for awards under the GESPP and MSOP are presented
below.
Pro Forma Net Income and Earnings Per Share
(Millions) 2000 1999 1998
Net income
As reported $1,782 $1,763 $1,175
Pro forma 1,668 1,652 1,072
Earnings per share - basic
As reported $ 4.50 $ 4.39 $ 2.91
Pro forma 4.22 4.11 2.66
Earnings per share - diluted
As reported $ 4.45 $ 4.34 $ 2.88
Pro forma 4.17 4.06 2.63
The weighted average fair value per option granted during 2000, 1999 and
1998 was $13.65, $12.75 and $12.34, respectively, for the GESPP, and
$22.45, $22.86 and $20.41, respectively, for the incentive MSOP grants.
The weighted average fair value was calculated by using the fair value of
each option on the date of grant. The fair value of GESPP options was
based on the 15 percent purchase discount. For MSOP options, the fair
value was calculated utilizing the Black-Scholes option-pricing model and
the weighted average assumptions that follow.
MSOP Assumptions 2000 1999 1998
Risk-free interest rate 6.7% 5.4% 5.7%
Dividend growth rate 4.3% 5.0% 5.8%
Volatility 22.3% 22.3% 17.6%
Expected life (months) 68 66 69
The MSOP options, if exercised, would have the following dilutive effect
on shares outstanding for 2000, 1999 and 1998, respectively: 4.2 million,
4.5 million and 4.7 million shares. Certain MSOP options outstanding for
years 2000, 1999 and 1998 (11.5, 8.7 and 10.8 million shares,
respectively) were not included in the computation of diluted earnings
per share because they would not have a dilutive effect.
52
Legal Proceedings - Discussion of legal matters is incorporated by
reference from the subcaptions "General" and "Breast Implant Litigation"
under Legal Proceedings, Part I, Item 3, of this Form 10-K, and should be
considered an integral part of the Consolidated Financial Statements and
Notes.
Quarterly Data (Unaudited)
(Millions, except per-share amounts)
First Second Third Fourth Year
Net sales*
2000 $ 4,075 $ 4,243 $ 4,270 $ 4,136 $16,724
1999 3,795 3,885 4,021 4,047 15,748
Cost of sales*
2000 $ 2,091 $ 2,181 $ 2,295 $ 2,220 $ 8,787
1999 1,991 2,010 2,072 2,053 8,126
Income before cumulative effect of accounting change*
2000 $ 487 $ 470 $ 499 $ 401 $ 1,857
1999 384 476 459 444 1,763
Net income*
2000 $ 487 $ 470 $ 499 $ 326 $ 1,782
1999 384 476 459 444 1,763
Basic earnings per share - income before cumulative effect*
2000 $ 1.22 $ 1.19 $ 1.26 $ 1.02 $ 4.69
1999 .95 1.18 1.14 1.11 4.39
Basic earnings per share - net income*
2000 $ 1.22 $ 1.19 $ 1.26 $ .83 $ 4.50
1999 .95 1.18 1.14 1.11 4.39
Diluted earnings per share - income before cumulative effect*
2000 $ 1.21 $ 1.18 $ 1.25 $ 1.00 $ 4.64
1999 .95 1.17 1.13 1.10 4.34
Diluted earnings per share - net income*
2000 $ 1.21 $ 1.18 $ 1.25 $ .82 $ 4.45
1999 .95 1.17 1.13 1.10 4.34
Stock price comparisons (NYSE composite transactions)
2000 High $103.81 $ 98.31 $ 97.44 $122.94 $122.94
2000 Low 78.19 80.44 80.50 83.94 78.19
1999 High 81.38 96.38 100.00 103.38 103.38
1999 Low 69.31 70.06 85.00 87.44 69.31
* Net sales in prior periods have been reclassified to conform to the
current period presentation. Fourth-quarter and third-quarter 2000
operating income include non-recurring costs of $90 million and $118
million, respectively, included in cost of sales, and non-recurring gains
of $16 million and $119 million, respectively, primarily relating to the
sale of equity securities. Non-recurring costs in both quarters primarily
relate to the company's phase-out of perfluorooctanyl-based chemistry
products. Fourth-quarter 2000 non-recurring items include an operating
loss of $74 million ($46 million after tax) and a cumulative effect of
accounting change reduced earnings by $75 million net of tax, or 30 cents
per diluted share on a combined basis. First quarter 2000 includes a gain
from termination of a product distribution agreement of $50 million ($31
million after tax), or 8 cents per diluted share. Third quarter 1999
includes gains on divestitures of $43 million, litigation expense of $73
million and a change in estimate that reduced the 1998 restructuring
charge by $26 million. These items resulted in a net loss of $4 million
($3 million after tax), or 1 cent per diluted share. Second quarter 1999
includes gains on divestitures, net of an investment valuation
adjustment, of $104 million ($55 million after tax), or 14 cents per
diluted share.
53
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), with the exception of the executive officers
section of Item 10, which is included in Item 1 of this Form 10-K. The
registrant will file with the Commission a definitive proxy statement
pursuant to Regulation 14A by April 30, 2001.
54
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 26.
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:
3M filed three Form 8-K's in January 2001 and four Form 8-K's for the
quarter ended December 31, 2000.
The Form 8-K dated January 24, 2001, contained unaudited consolidated
financial information for the quarters and years 2000 and 1999. This
filing did not contain certain information included in the company's 2000
Annual Report on Form 10-K.
The Form 8-K dated January 17, 2001, reported 3M's unaudited consolidated
financial results for the fourth quarter of 2000.
The Form 8-K dated January 11, 2001, announced completion of the
MicroTouch Systems, Inc. tender offer.
The Form 8-K dated December 7, 2000, contains the indenture dated
November 17, 2000, concerning senior debt securities.
The Form 8-K dated December 6, 2000, announced W. James McNerney, Jr. has
been elected chairman and chief executive officer, effective January 1,
2001, succeeding L. D. DeSimone.
The Form 8-K dated November 20, 2000, announced that the 3M Board of
Directors authorized the repurchase of up to 10 million shares of the
company's stock, effective January 1, 2001 to December 31, 2001.
The Form 8-K dated October 23, 2000, announced 3M's unaudited quarterly
consolidated sales and earnings for the third quarter of 2000.
(c) Exhibits:
Incorporated by Reference:
Incorporated by Reference in the
Report From
(3.1) Certificate of incorporation, Form 8-K dated
as amended as of May 9, 2000. July 27, 2000.
(3.2) Bylaws, as amended as of November 11, 1996. Form 8-K dated
November 20, 1996.
55
(c) Exhibits (continued):
Incorporated by Reference:
Incorporated by Reference in the
Report From
(4) Instruments defining the rights of security
holders, including debentures:
(4.1) common stock. Registration No. 333-49830
on Form S-4/A filed on
January 11, 2001.
Registration No. 333-42660
on Form S-3/A filed on
August 18, 2000.
(4.2) debt securities. Form 8-K dated December 7,
2000 and Registration No.
333-48922 on Form S-3/A
filed on January 12, 2001.
(10) Material contracts, management
remuneration:
(10.1) management stock ownership program. Exhibit 4 of
Registration No. 333-30689
on Form S-8.
(10.2) profit sharing plan, performance Written description contained
unit plan and other compensation in issuer's proxy statement
arrangements. for the 2001 annual
shareholders' meeting.
(10.3) director stock ownership program Exhibit 4 of Registration
Statement No. 333-44692
on Form S-8 filed on
August 29, 2000.
Reference (pages)
Form 10-K
Submitted herewith:
(10) Employment agreement dated December 4, 2000
between Registrant and W. James McNerney, Jr. 57 - 76
(12) Calculation of ratio of earnings
to fixed charges. 77
(21) Subsidiaries of the registrant. 78
(23) Consent of independent auditors. 79
(24.1) Power of attorney. 80
(24.2) Power of attorney. 81
(24.3) Power of attorney. 82
(Exhibits 24.2 and 24.3 both supplement the Power
of Attorney filed as Exhibit 24 on October 30, 2000
as part of the Registration Statement on Form S-3
(File Number 333-48922).
(27) Financial data schedule for the year ended
December 31, 2000 (EDGAR filing only).
56
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of l934, 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/ Robert J. Burgstahler
Robert J. Burgstahler, Vice President
Principal Financial and Accounting Officer
February 20, 2001
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 February 20, 2001.
Signature Title
W. James McNerney, Jr. Chairman of the Board and
Chief Executive Officer, Director
Linda G. Alvarado Director
Ronald O. Baukol Director
Edward A. Brennan Director
Livio D. DeSimone Director
Edward M. Liddy Director
Aulana L. Peters Director
Rozanne L. Ridgway Director
Frank Shrontz 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