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View the latest financials for this company
The following EDGAR Online
Glimpse is the Management's Discussion and Analysis section in the full
10-Q / 10-K report
Recent Glimpses: May 2002 (Qtrly Rpt) | Nov 2001 (Qtrly Rpt)
| Aug 2001 (Qtrly Rpt)
| May 2001 (Qtrly Rpt)
| All filings for MMM
MINNESOTA MINING & MANUFACTURING CO Filed on May 1 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First Quarter
--------------
Overview:
The company reported net income of $452 million, or $1.14 per share, in
the first quarter of 2002, versus $453 million, or $1.13 per share, in the
first quarter of 2001. Earnings were impacted by non-recurring pre-tax
charges of $54 million related to the company's current restructuring
program in 2002, and were also impacted by non-recurring acquisition-
related pre-tax costs of $23 million in 2001. Excluding these non-
recurring items, earnings per share were $1.23 in the first quarter of
2002, compared with $1.16 in the first quarter last year, an increase of 6
percent. Currency impacts reduced first-quarter earnings by 3 cents per
share, while the adoption of a new accounting standard resulting in the
cessation of goodwill amortization boosted earnings by 2 cents per share.
The company delivered positive earnings per share growth despite on-going
challenges in the world economies.
Goodwill and other intangible assets:
Statement on Financial Accounting Standards (SFAS) No. 142, "Goodwill and
Other Intangible Assets," was adopted effective January 1, 2002. Goodwill
and indefinite lived intangible assets are no longer amortized. Goodwill
and indefinite lived intangible assets are subject to an impairment test
at least annually. A preliminary assessment of any potential impairment
indicated that no impairment existed at January 1, 2002. Additional
information regarding SFAS No. 142 is included in the Notes to the
Consolidated Financial Statements.
Sales:
Components of Sales Change
First Quarter 2002
U.S. Intl. W.W.
Volume - core (6.3)% (4.0)% (5.0)%
Volume - acquisitions and divestitures 0.4 0.7 0.5
Price 0.8 0.8 0.8
Translation -- (5.3) (2.9)
----- ----- -----
Total (5.1)% (7.8)% (6.6)%
===== ===== =====
Worldwide sales for the first quarter totaled $3.890 billion, down 6.6
percent from the same quarter last year. Core volume (which excludes
acquisition and divestiture impacts) decreased 5 percent from the first
quarter last year. Selling prices were up eight-tenths of a percent. The
stronger U.S dollar reduced worldwide sales by 2.9 percent.
In the United States, sales totaled $1.783 billion, with core volume down
6.3 percent. International sales totaled $2.107 billion (down 7.8 percent
in dollars), with core volume down 4 percent. Core volume was impacted by
significant slowing in most major economies. In Europe, core volume
decreased 7.9 percent, with reported volume down 6.4 percent. In the Asia
Pacific area, volume increased 2.2 percent. Volume decreased 3.0 percent
in Japan, while volume increased 9.8 percent in the rest of Asia. In Latin
America, volume decreased 9.5 percent. Volume in Canada decreased 3.0
percent. Currency reduced international sales by 5.3 percent, driven by
negative translation of about 7 percent in both Asia Pacific and Latin
America, and 3 percent in Europe.
Non-recurring items:
The first quarter of 2002 includes additional restructuring charges of $54
million, principally related to accelerated depreciation charges and
employee severance and benefit costs under the company's previously
announced restructuring plan. These charges have been classified as a
component of cost of sales ($30 million); selling, general and
administrative expenses ($21 million); and research, development and
related expenses ($3 million). Of the total first quarter charge, $26
million related to accelerated depreciation (incremental charges resulting
from shortened depreciable lives, primarily related to downsizing or
consolidating manufacturing operations), $24 million related to employee
severance and benefits, and $4 million related to other exit activities.
Additional information concerning non-recurring items is provided in the
Notes to Consolidated Financial Statements and elsewhere herein.
The first quarter of 2001 includes non-recurring costs of $23 million
recorded in cost of sales. This charge primarily relates to acquisitions
of inventory that must be recorded at fair market value instead of
manufactured cost and the subsequent sale of these acquired inventories.
Supplemental Unaudited Consolidated Statement of Income Information
(Dollars in millions, except per-share amounts)
Three months ended Three months ended
March 31, 2002 March 31, 2001
---------------------------- ----------------------------
Excluding Excluding
non- Non- non- Non-
recurring recurring Reported recurring recurring Reported
items items total items items total
--------- ------- -------- --------- -------- -------
Net sales $3,890 $ -- $3,890 $4,164 $ -- $4,164
Operating expenses
Cost of sales 2,006 30 2,036 2,173 23 2,196
Selling, general and
administrative
expenses 856 21 877 953 -- 953
Research, develop-
ment and related
expenses 261 3 264 278 -- 278
Total 3,123 54 3,177 3,404 23 3,427
Operating
income (loss) 767 (54) 713 760 (23) 737
Interest expense
and (income), net 10 -- 10 26 -- 26
Income (loss) before
income taxes and
minority interest 757 (54) 703 734 (23) 711
Provision (benefit)
for income taxes 246 (19) 227 245 (7) 238
Effective tax rate 32.5% 32.2% 33.5% 33.5%
Minority interest 24 -- 24 22 (2) 20
Net income (loss) $ 487 $ (35) $ 452 $ 467 (14) $ 453
Per share-diluted $ 1.23 $(.09) $1.14 $1.16 $(.03) $ 1.13
The following discussion excludes the impact of non-recurring items in all
periods.
Costs:
Cost of sales was 51.6 percent of sales, down five-tenths of a percentage
point from the same quarter last year. Gross margins were positively
impacted by accelerated implementation of Six Sigma, indirect cost
control, and head count reductions under the current restructuring plan.
Positive sales mix impacts and lower raw material costs also positively
impacted the gross margin. Cost of sales includes manufacturing,
engineering, and freight costs.
Selling, general and administrative (SG&A) expenses were 22.0 percent of
sales, down nine-tenths of a percentage point from the first quarter of
2001. SG&A expenses were $97 million lower than in the first quarter of
2001, a reduction of 10.1 percent. This improvement in SG&A costs was the
result of Six Sigma implementation, indirect cost control and headcount
reductions under the current restructuring plan. SG&A also benefited by
$14 million due to the cessation of goodwill and other indefinite-lived
asset amortization effective January 1, 2002.
Operating income:
Operating income was 19.7 percent of sales, compared with 18.3 percent in
the first quarter last year. Although the company faced continued economic
weakness, operating income grew by $7 million, or eight-tenths of a
percent, in the first quarter of 2002 as compared to the first quarter of
2001. The cessation of goodwill amortization benefited operating income
by $14 million, while currency impacts reduced operating income by an
estimated $32 million. Operating income margins in the first quarter of
2002 were 13.3 percent in the United States and 25.1 percent
internationally.
Interest expense and income:
First-quarter interest expense of $19 million was $19 million lower than
in the same quarter last year. Declining rates on floating-rate debt
drove the reduction in expense, with some benefit also related to lower
overall average debt balances. Interest income was $9 million, compared
with $12 million in the same quarter last year, driven by lower interest
rates.
Provision for income taxes:
The worldwide effective income tax rate for the quarter was 32.5 percent,
down from 33.5 percent in the first quarter last year and 32.9 percent for
total year 2001. The tax rate decrease compared to total year 2001 is
principally due to the cessation of goodwill amortization.
Minority interest:
Minority interest in the quarter was $24 million, compared with $22
million in the first quarter of 2001, and $10 million in the fourth
quarter of 2001. The increase compared to the first quarter of 2001 was
primarily due to income generated by InterUnitek GmbH, a joint venture
with the former shareholders of Espe AG, partially offset by a decrease in
income generated at Sumitomo 3M Limited. The increase compared to the
fourth quarter of 2001 was primarily due to higher profits at Sumitomo 3M.
Net income:
Net income for the first quarter of 2002 totaled $487 million, or $1.23
per diluted share, compared with $467 million, or $1.16 per diluted share,
in the first quarter of 2001. The cessation of goodwill and other
indefinite-lived asset amortization effective January 1, 2002 boosted
earnings per share by 2 cents. The company estimates that currency
effects reduced net income for the quarter by about $13 million, or 3
cents per share, compared with the first quarter of 2001. This estimate
includes the effect of translating profits from local currencies into U.S.
dollars; the impact of currency fluctuations on the transfer of goods
between 3M operations in the United States and abroad; and transaction
gains and losses, including derivative instruments designed to reduce
exchange rate risks. These derivative instruments and other transaction
impacts increased net income by an estimated $7 million in the first
quarter of 2002.
PERFORMANCE BY BUSINESS SEGMENT
Following is a discussion of the global operating results of the company's
six business segments in the first quarter of 2002. With the exception of
Health Care and Transportation, Graphics and Safety, most of 3M's business
segments were impacted by the continuing poor global economic conditions.
In addition, U.S. dollar strength continued to negatively impact results,
driven by negative translation of about 7 percent in both Asia Pacific and
Latin America, and 3 percent in Europe.
In the Industrial Markets segment, volume declined 7.0 percent in the
first quarter of 2002 as compared to the first quarter of 2001. This
decrease is caused by the ongoing weakness in most sectors of the global
manufacturing economy.
In the Transportation, Graphics and Safety segment volume grew 5.3 percent
in the first quarter of 2002 as compared to the same period in 2001. This
increase was caused by stronger demand for automotive and respiratory
products, as well as improved volumes of optical films for flat panel
displays.
In the Health Care segment, including acquisitions, volume grew 6.9
percent in the first quarter of 2002. This growth includes approximately 2
percent due to acquisitions. All of the health care businesses posted
positive volume growth, as well as substantial operating income
improvement.
In September 2001, 3M signed an agreement with Eli Lilly and Company to
collaborate on resiquimod, a potential breakthrough treatment for genital
herpes. Resiquimod is currently in Phase 3 clinical trials, and moving
toward an anticipated 2004 submission date to the FDA. 3M received $100
million in the fourth quarter of 2001 from Eli Lilly in consideration for
research and development effort. The majority of the $100 million is
expected to be recognized as revenue in 2002 through 2004, as the majority
of the future research and development is expected to be performed during
this period. For 2002, revenue of about $10 million per quarter is
expected related to this agreement.
In the Consumer and Office segment, volume decreased 8.1 percent in the
first quarter of 2002. This decrease is due mainly to ongoing weakness in
the office supply chain. Companies have curtailed spending in many areas,
including office supplies. This reduction in spending has negatively
impacted the company's volume growth. The company was able to improve
operating income by 3.3 percent in the first quarter of 2002. This
improved margin is mainly due to the company's five corporate initiatives.
In the Electro and Communications segment volume declined 23 percent in
the first quarter of 2002, which also resulted in a significant decrease
in operating income. These decreases reflect continued weaknesses in the
telecom and electronics manufacturing industries.
In the Specialty Material Markets segment, volume declined 16.8 percent in
the first quarter of 2002, coupled with a decrease in operating income of
34.2 percent. These decreases are primarily driven by the product related
phase out discussed in previous Annual Reports on Form 10-K and Quarterly
Reports on Form 10-Q filings.
FINANCIAL CONDITION AND LIQUIDITY
The company's financial condition and liquidity remain strong. Working
capital (defined as current assets minus current liabilities) totaled
$2.261 billion at March 31, 2002, increasing $474 million from year-end
2001. This increase was largely driven by a shift in debt from short-term
to long-term when compared to year-end 2001.
The accounts receivable turnover index (defined as quarterly net sales
divided by ending accounts receivable, multiplied by 4) totaled 5.96 at
March 31, 2002, compared with 6.22 at year-end 2001 and 5.65 at March 31,
2001. Receivables increased $128 million compared to year-end, but
decreased $338 million, or 11.5 percent, versus the comparable period last
year. The inventory turnover index (defined as quarterly factory cost
divided by ending inventory, multiplied by 4) was 3.87 at March 31, 2002,
virtually unchanged from 3.88 at year-end 2001, but improved from 3.57 at
March 31, 2001. Inventories declined $91 million versus year-end, and
declined by $341 million compared to ending March 2001.
Total debt decreased $18 million from year-end 2001. As of March 31, 2002,
total debt was 32 percent of total capital, the same as year-end 2001.
The company's believes its strong credit rating provides ready and ample
access to funds in the global capital markets. The company's credit
facilities have not materially changed since year-end 2001.
Net cash provided by operating activities totaled $671 million in the
first three months of the year, down $44 million from the same period last
year. Restructuring-related cash payments totaled $95 million in the
first quarter of 2002, with approximately $200 million in additional cash
outflows expected for the remainder of 2002.
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 II, Item 1, Legal
Proceedings, of this Quarterly Report on Form 10-Q. 3M's insurance
recoveries, net of claims paid, related to the mammary implant matter
resulted in $15 million of net cash inflows in the first quarter of 2002,
compared to $3 million of net cash outflows in the first quarter of 2001.
Cash used in investing activities totaled $143 million in the first three
months of the year, compared with $440 million in the same period last
year. Capital expenditures for the first three months of 2002 were $161
million, a decrease of $120 million from the same period last year. Cash
used for acquisitions of businesses totaled $191 million in the first
three months of 2001. This cash outflow principally related to the
acquisition of MicroTouch Systems Inc., a touch screen manufacturer, for
$158 million in cash, net of cash acquired.
Financing activities in the first three months of 2002 for both short-term
and long-term debt included net cash inflows of $11 million, compared with
net cash inflows of $444 million in the same period last year. The
decrease in net short-term debt of $255 million includes the portion of
short-term debt with original maturities of 3 months or less. Repayment of
other debt of $259 million includes $256 million of commercial paper
having original maturities greater than 3 months. Proceeds from other
debt of $525 million includes $126 million of commercial paper having
original maturities greater than 3 months.
Treasury stock repurchases for the first three months of 2002 were $420
million, compared with $342 million in the same period last year. The
company repurchased about 3.7 million shares of common stock in the first
three months of 2002, compared with about 3.1 million shares in the same
period last year. In November 2001, the Board of Directors authorized the
repurchase of up to $2.5 billion of the company's stock between January 1,
2002 and December 31, 2003. As of March 31, 2002, about $2.1 billion
remained authorized for repurchase. Stock repurchases are made to support
the company's management stock option plan, its general employees' stock
purchase plan and for other corporate purposes.
A reduction in weighted average diluted shares outstanding (including the
effects of repurchases, issuances and dilution) resulted in a benefit of 2
cents per diluted compared to the first quarter of 2001.
Cash dividends paid to shareholders totaled $242 million in the first
three months of this year, compared with $239 million in the same period
last year. In February 2002, the quarterly dividend was increased to 62
cents per share.
FUTURE OUTLOOK
While the company is hopeful that the global economy will improve, its
spending plans reflect a continuing challenging economic backdrop for the
remainder of the year. The company will continue to press ahead with its
five corporate initiatives aimed at accelerating long-term top-line
growth, improving cash efficiency and lowering its total cost structure.
Through these actions, the company expects to be at a new competitive
level. Once the global economy begins to improve, the company expects to
be well positioned to leverage its strong, diverse and global business
portfolio into solid and sustainable earnings growth.
The company expects 2002 earnings to fall within a range of $4.80 to
$5.10 per share - excluding non-recurring items. This range assumes a
positive 12-cent impact due to cessation of goodwill amortization in
accordance with the adoption of a recent accounting standard. Earnings,
excluding non-recurring items, for the second quarter of 2002 are
expected to be at or above the first quarter of 2002 result of $1.23 per
share.
In the second quarter of 2001 the company announced a restructuring plan,
which is discussed in the company's 2001 Annual Report on Form 10-K.
Under the restructuring plan the company eliminated about 1,000 positions
during the quarter ended March 31, 2002, and since inception has
eliminated about 4,500 positions.
The company expects the costs associated with this restructuring plan to
total about $750 million pre-tax upon completion, including the $623
million recorded in 2001 and the first quarter of 2002. The remaining
charges will include additional employee severance and benefit costs,
additional accelerated depreciation, and other incremental restructuring-
related exit costs. Remaining employee severance and benefit costs
primarily include international voluntary separation packages that are
expected to be substantially completed in the second quarter of 2002. The
company also expects to substantially complete the process of
consolidating or downsizing certain manufacturing operations by June 30,
2002, primarily in the United States and Europe. This consolidation
results in accelerated depreciation for those facilities that will cease
operations during this period.
Selected information relating to the charges follows.
Employee
Severance
and Accelerated
(Millions) Benefits Depreciation Other Total
-------- ------------ ------- -------
Charges
Year 2001 $472 $ 80 $17 $569
First quarter 2002 24 26 4 54
----- ----- ----- -----
Total charges $496 $106 $21 $623
Restructuring liability
Current liability at
December 31, 2001 $185 $13 $198
First quarter 2002 activity
Charges 24 26 4 54
Reclass from long-term
portion of liability 47 - 47
Non-cash and long-term
portion of liability (14) (26) - (40)
Cash payments (91) (4) (95)
----- ----- -----
Current liability as of
March 31, 2002 $151 13 $164
===== ===== =====
Related to this restructuring plan, the company estimates it saved $80
million in the second half of 2001. The company expects additional
savings of approximately $300 million in 2002, with a somewhat greater
rate of savings in the second half when compared to the first half of the
year. The vast majority of the savings will be reduced employee costs.
The 2001 savings were most prominent in SG&A, with cost of sales benefits
occurring in late 2001 and into 2002. Numerous factors may create offsets
to these savings, such as the potential for continued weakness in sales
volumes, normal increases in compensation and benefits, and other
inflationary pressures.
The company is increasingly striving to move costs outside the U.S. to
naturally protect 3M from currency fluctuations. The company increased
the amount and duration of its foreign currency hedges throughout 2001 to
help dampen year-over-year effects and to improve the predictability of
future earnings. The company policy is to hedge an estimated 50 percent
of its annual income statement foreign currency risk. The company may
deviate from this 50 percent target based on uncertainty of future
exposures or market conditions. However, this hedging program will not
make 3M immune to currency impacts.
Raw material costs were down an estimated four percent in the first
quarter of 2002, and 3M expects continuing improvement for the remainder
of 2002, due both to falling prices for many key feedstocks and to 3M's
continued global sourcing and cost-reduction efforts. The company expects
a tax rate in the 32.5 percent range for the remainder of 2002. Capital
expenditures are expected to total $1 billion or less for total year 2002.
3M's longer-term prospects remain bright. The company is on track in
implementing several initiatives (Six Sigma, Global Sourcing
Effectiveness, 3M Acceleration, Indirect Cost Reduction and
e-Productivity) that will strengthen 3M and enhance its competitiveness.
In addition, through the current restructuring plan, 3M is making
structural adjustments that will help ensure consistent future earnings
performance.
THE EURO CONVERSION
There have not been any significant new developments relating to the euro
conversion since year-end 2001. Refer to the 2001 Annual Report on Form
10-K for a complete discussion of the euro conversion.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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 the United States and other countries that are
beyond its control, such as downturns in economic activity in a specific
country or region; 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.
* The company's growth objectives are largely dependent on the timing and
market acceptance of its new product offerings, including 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 purchased components and materials due to market demand, currency
exchange risks, shortages and other factors. The company depends on
various components and materials for the manufacturing of its products.
Although the company has not experienced any difficulty in obtaining
components and 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 the company. In addition, while the company
has a process to minimize volatility in component and 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 the company.
* 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. The current
estimates of the potential impact on the company's consolidated financial
position, results of operations and cash flows for its legal proceedings
and claims are predictions made by the company about the future and
should be considered forward-looking statements. These estimates could
change in the future. For a more detailed discussion of the legal
proceedings involving the company, see the discussion of "Legal
Proceedings" in Part II, Item 1 of this Quarterly Report on Form 10-Q.
3M Company and Subsidiaries
PART II. Other Information
Recent Glimpses: May 2002 (Qtrly Rpt) | Nov 2001 (Qtrly Rpt)
| Aug 2001 (Qtrly Rpt)
| May 2001 (Qtrly Rpt)
| All filings for MMM
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AFLAC INC FILES FORM 3 (AFL) 14 May 2002, 4:49pm ET
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AFLAC INC FILES FORM 3 (AFL) 14 May 2002, 4:49pm ET
(EDGAR Online) AFLAC INC FILES FORM 3 (AFL) 14 May 2002, 4:47pm ET
(EDGAR Online) AFLAC Ranked #57 On Computerworld Magazine's Listing Of the '100 Best Places To Work In IT' 14 May 2002, 3:43pm ET
(PR Newswire) AFLAC Incorporated to Webcast 2002 Financial Analysts Briefing 14 May 2002, 3:17pm ET
(PR Newswire) AFLAC INC FILES FORM 10-Q (AFL) 13 May 2002, 4:39pm ET
(EDGAR Online) AFLAC INC FILES FORM 4 (AFL) 9 May 2002, 12:33pm ET
(EDGAR Online) New Rating for CCMP, AFL, ISIL, GILD, GDT, UMC, PLCM, CL,
CREE, PAYX 8 May 2002, 09:08am ET
(Stock Pick Report) Robert B. 'Ben' Johnson Joins AFLAC Incorporated Board of Directors 6 May 2002, 12:14pm ET
(PR Newswire) New Rating for IP, UTX, AES, FISV, MMM, USAI, CCL, SBL,
CCMP, AFL 2 May 2002, 08:09am ET
(Stock Pick Report) AFLAC Takes Patients From the AFLAC Cancer Center At Children's Healthcare of Atlanta out to the Ballgame 1 May 2002, 11:23am ET
(PR Newswire) FACTBOX-Earnings week ends with more hits than misses 29 Apr 2002, 09:37am ET
(Reuters) Bull Market Report recommends the following: ANH, AFL, and FB 26 Apr 2002, 06:00am ET
(PR Newswire) Paul Kangas' Wall Street Wrap Up 24 Apr 2002, 9:26pm ET
(Nightly Business Report) New Rating for AFL, ISIL, GILD, GDT, UMC, PLCM, CL, CREE,
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(Stock Pick Report) New Rating for AFL, ISIL, GILD, GDT, UMC, PLCM, CL, CREE,
PAYX, THQI 24 Apr 2002, 08:15am ET
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Yahoo! Finance - MINNESOTA MINING & MANUFACTURING CO - Quarterly Report (SEC form 10-Q)
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Financials Recent filings: Apr 23, 2001 (form8-K) | May 01, 2001 (Qtrly Rpt) | May 10, 2001 (form8-K) | May 11, 2001 (form8-K) | Aug 01, 2001 (Qtrly Rpt) | Sep 17, 2001 (form8-K) | Nov 13, 2001 (Qtrly Rpt) | Nov 19, 2001 (form8-K) | Apr 09, 2002 (form8-K) | May 01, 2002 (Qtrly Rpt) More filings for MMM available from EDGAR Online | Get a Free Trial to Edgar Online Premium
May 01, 2001 MINNESOTA MINING & MANUFACTURING CO (MMM) Quarterly Report (SEC form 10-Q) MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First Quarter
Worldwide sales for the first quarter totaled $4.170 billion, up 2.3 percent
from the same quarter last year. Volume increased nearly 7 percent from the
first quarter last year. Selling prices were unchanged, versus a decline of 1.6
percent in 2000 in total. Currency, driven by a stronger U.S dollar, reduced
worldwide sales by 4.5 percent. Acquisitions provided about 4 percentage points
of growth on a global basis.
In the United States, sales totaled $1.885 billion, with sales down 2 percent on
a reported basis and down about 4 percent excluding acquisitions, impacted by
the effects of the weak economy.
Internationally, sales totaled $2.285 billion, up about 6 percent in dollars.
Volume increased over 14 percent on a reported basis and 8 percent excluding
acquisitions. In the Asia Pacific area, volume increased 13 percent, with unit
sales up 11 percent in Japan and 17 percent in the rest of Asia. In Europe,
volume increased 18 percent on a reported basis and more than 6 percent
excluding acquisitions. In Latin America, volume increased about 8 percent.
Volume also increased about 8 percent in Canada. Currency reduced international
sales by 8 percent, driven by negative translation of 10 percent in the Asia
Pacific area and 7 percent in both Europe and Latin America.
Cost of sales includes non-recurring costs of $23 million, primarily the
increased valuation of inventory acquired in two acquisitions and a joint
venture completed during the quarter. Excluding these costs, cost of sales was
52.1 percent of sales, up eight-tenths of a percentage point from the first
quarter last year. Gross margins were negatively affected by soft U.S. market
demand and by higher energy and raw material costs. Cost of sales includes
manufacturing, engineering expenses, and freight costs.
Selling, general and administrative (SG&A) expenses were 23.0 percent of sales,
down nearly 1.5 percentage points from the fourth quarter of 2000 and down
five-tenths of a percentage point from the first quarter last year, benefiting
from aggressive cost-control actions. 3M held SG&A dollar spending basically
flat compared with the first quarter of 2000, and reduced this spending by $50
million from the fourth quarter of 2000. This spending was reduced by over $60
million excluding the SG&A added as a result of two first-quarter acquisitions
and a joint venture.
SG&A also includes amortization of intangibles, which has been increasing due to
recent 3M acquisitions. Goodwill amortization, which is a component of
intangible amortization, totaled about $10 million for the first quarter of
2001, compared with approximately $26 million for the year 2000, or an average
of about $6.5 million per quarter.
Goodwill amortization, after tax, totaled about $9 million in the first quarter
of 2001, or 2 cents per share, compared with $21 million in the year 2000, or 5
cents per share. It is estimated that goodwill amortization will impact earnings
by about 3 cents per share in each of the remaining quarters of 2001, excluding
the impact of any additional acquisitions. The Financial Accounting Standards
Board is currently deliberating over the accounting treatment for goodwill and
other intangibles.
Operating income in the first quarter of 2000 reflects a pre-tax benefit of $50
million, or 8 cents per share, associated with the termination of a product
marketing and distribution agreement in the health care segment.
Supplemental Unaudited Consolidated Statement of Income Information
(Dollars in millions, except per-share amounts)
Three months ended Three months ended
March 31, 2001 March 31, 2000
---------------------------- ----------------------------
Excluding Excluding
non- Non- non- Non-
recurring recurring Reported recurring recurring Reported
items items total items items total
--------- ------- -------- -------- -------- --------
Operating
income (loss) $ 760 $ (23) $ 737 $ 765 $ 50 $ 815
Other expense 26 -- 26 20 -- 20
Income (loss) before
income taxes and
minority interest $ 734 $ (23) $ 711 $ 745 $ 50 $ 795
Provision (benefit)
for income taxes 245 (7) 238 263 19 282
Effective tax rate 33.5% 33.5% 35.3% 35.5%
Minority interest 22 (2) 20 26 -- 26
Net income (loss) $ 467 $ (14) $ 453 $ 456 $ 31 $ 487
Per share-diluted $1.16 $(.03) $1.13 $1.13 $ .08 $1.21
The following discussion excludes the impact of first quarter 2001 and 2000
non-recurring items.
Operating income was 18.2 percent of sales, compared with 18.8 percent in the
first quarter last year. Worldwide operating income benefited from good
international volume growth and the company's aggressive actions to reduce SG&A
spending, but was negatively affected by soft U.S. market demand and by higher
energy and raw material costs.
First-quarter interest expense of $38 million was $12 million higher than the
same quarter last year, reflecting higher borrowings. Investment and other
income was $12 million, compared with $6 million in the same quarter last year,
reflecting higher interest income.
The worldwide effective income tax rate for the quarter was 33.5 percent, down
from 35.3 percent in the first quarter last year and 34.5 percent for total year
2000. 3M's tax rate continues to benefit from lower overall international tax
rates.
Minority interest was $22 million, compared with $26 million in the first
quarter of 2000. The decrease is primarily due to lower profits in Sumitomo 3M
Limited.
Net income for the first quarter of 2001 totaled $467 million, or $1.16 per
diluted share, compared with $456 million, or $1.13 per diluted share, in the
first quarter of 2000. The company estimates that changes in the value of the
U.S. dollar decreased earnings for the quarter by about 7 cents per share
compared with the first quarter of 2000. This estimate includes the effect of
translating profits from local currencies into U.S. dollars; the impact of
currency fluctuations on the transfer of goods between 3M operations in the
United States and abroad; and transaction gains and losses, including derivative
instruments designed to reduce exchange rate risks.
PERFORMANCE BY BUSINESS SEGMENT
Following is a discussion of the global operating results of the company's six
business segments in the first quarter of 2001.
In the Industrial Markets segment, a leader in tapes and abrasives, volume
declined close to 3 percent, reflecting the weakness in the manufacturing part
of the economy. Operating income margins were down five-tenths of a percentage
point from the first quarter last year, but were up 1.5 percentage points
compared with total year 2000.
In the Transportation, Graphics and Safety segment, volume grew 4 percent
excluding acquisitions. Operating income margins were down due to soft overall
sales and acquisition impacts. Optical films for liquid-crystal displays for
computers, electronic organizers, mobile phones and other electronic devices
continued to register strong growth, and overall growth in this product line was
further boosted by two recent acquisitions. The occupational health and
environmental safety businesses showed good sales increases. The reflective
sheeting business showed a small local currency sales increase, while the
automotive and commercial graphics businesses experienced lower local currency
sales.
In the Health Care segment, volume grew about 7 percent after adjusting for
acquisitions. This segment showed strong growth in pharmaceuticals, health
information systems and dental products. Health care profits, excluding a $50
million pre-tax benefit in 2000 and $10 million of one-time acquisition costs in
2001, were up more than 20 percent from the same quarter last year.
In the Consumer and Office segment, volume increased about 3 percent. Operating
income margins were up about 1 percentage point from both the first quarter and
total year 2000. Profits rose 8 percent in dollars from the first quarter last
year.
In the Electro and Communications segment, volume increased about 7 percent
after adjusting for acquisitions. This market experienced strong growth in
telecommunications product lines,
but experienced weakness in product lines serving the electronics manufacturing
and semiconductor industries. Operating margins of the segment were negatively
impacted by slowing sales, acquisition impacts and a less favorable product mix.
In the Specialty Material Markets segment, volume declined nearly 7 percent,
impacted by the product line phase out of perfluorooctanyl chemistry announced
in May 2000. Tight cost control resulted in operating income margins increasing
by six-tenths of a percentage point. However, due to the decline in sales,
operating income dollars decreased about 7 percent from the first quarter last
year.
FINANCIAL CONDITION AND LIQUIDITY
The company's financial condition and liquidity remain strong. Working capital
totaled $1.391 billion at March 31, 2001, down from $1.625 billion at year-end
2000. The accounts receivable average days' sales outstanding was 58 days, down
from 60 days at year-end. The company's inventory index was 3.4 months, the same
as at year-end. The company's current ratio was 1.3, also the same as at
year-end.
Total debt increased $420 million from year-end 2000 to $3.257 billion,
primarily reflecting short-term borrowing relating to acquisitions and treasury
stock repurchases. As of March 31, 2001, total debt was 33 percent of total
capital.
The company's strong credit rating provides ready and ample access to funds in
global capital markets. At March 31, 2001, the company had available short-term
lines of credit totaling about $734 million.
Net cash provided by operating activities totaled $715 million in the first
three months of the year, up $134 million from the same period last year. 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 II, Item 1, Legal Proceedings, of this
Quarterly Report on Form 10-Q.
Cash used in investing activities totaled $440 million in the first three months
of the year, compared with $233 million in the same period last year. Capital
expenditures for the first three months of 2001 were $281 million, an increase
of $10 million from the same period last year. The primary increase in investing
activities was due to cash used for acquisitions of businesses that totaled $191
million in the first quarter of 2001, reflecting three notable business
combinations. 3M acquired MicroTouch Systems Inc., a touch screen manufacturer,
for $158 million in cash, net of cash acquired. 3M acquired Robinson Nugent, a
telecommunications supplier, in exchange for 1,124,135 shares of 3M common
stock. 3M also combined its German dental business (3M Inter-Unitek GmbH, an
existing 3M subsidiary) with ESPE Dental AG, a dental products manufacturer. 3M
Inter-Unitek GmbH acquired 100 percent of the outstanding shares of ESPE Dental
AG in exchange for 43 percent ownership in 3M Inter-Unitek and $25 million, net
of cash acquired.
Financing activities in the first three months of 2001 for both short-term and
long-term debt included net cash inflows of $444 million, compared with net cash
outflows of $48 million in the same period last year. The change in net
short-term debt of $415 million includes the portion of short-term debt with
original maturities of 3 months or less. Repayment of other short-term and
long-term debt of $179 million includes $113 million of commercial paper having
original maturities greater than 3 months. Proceeds from other short-term and
long-term debt of $208 million includes $152 million of commercial paper having
original maturities greater than 3 months.
Treasury stock repurchases for the first three months of 2001 were $342 million,
compared with $341 million in the same period last year. The company repurchased
about 3.1 million shares of common stock in the first three months of 2001,
compared with about 3.9 million shares in the same period last year. In November
2000, the Board of Directors authorized the repurchase of up to 10 million
shares of 3M common stock through December 31, 2001. As of March 31, 2001, 6.9
million shares remained authorized for repurchase. Stock repurchases are made to
support the company's stock-based compensation plans, its employee stock
purchase plans and for other corporate purposes.
Cash dividends paid to shareholders totaled $239 million in the first three
months of this year, compared with $231 million in the same period last year. In
February 2001, the quarterly dividend was increased to 60 cents per share.
FUTURE OUTLOOK
The company is intensely focused on driving down costs to deliver positive
earnings growth in an uncertain global economic environment. Unusually
unpredictable market and currency trends produce an estimated range of $4.75 to
$5.00 per share for 2001 earnings in total (excluding non-recurring items), with
3M expecting the negative market and currency trends to be more than offset in
any scenario by 3M's aggressive cost plan.
The range of 2001 earnings is based on a model that, on the top end of the
range, assumes organic volume growth of about 3 percent, similar to 3M's
first-quarter growth rate. This scenario assumes some U.S. economic recovery in
the latter part of 2001, offset by slowdown in growth abroad. The low end of the
earnings range cited assumes 1 percent organic sales growth for 2001 in total,
which would mean virtually no growth during the balance of 2001. This scenario
is based on a U.S economy that remains weak, and assumes that international
economic growth declines rapidly for the rest of 2001. In both scenarios, it is
assumed that exchange rates will stay at current levels.
3M is developing a plan to consolidate operations and streamline the
organization to increase speed and productivity. This strategic and selective
restructuring is expected to reduce 3M's global workforce by about 5,000
positions, or about 7 percent, over the next 12 months. About half of the
employment reductions are expected to occur outside the United States.
Business units, functional groups and geographic areas across the company will
drive the restructuring. In particular, much of the streamlining will be
targeted at parts of the company facing the greatest economic challenges, and
where the greatest opportunities exist to eliminate unnecessary structure and
improve productivity, efficiency and the supply chain. This action is consistent
with 3M's resolve to achieve solid growth, make the whole organization faster,
and advance 3M to an even higher level.
The company expects to incur non-recurring charges of approximately $600 million
over the next few quarters as a result of this action. The restructuring is
expected to provide annual pre-tax savings of approximately $300 million upon
completion of the plan. Not included in the charge are previously recorded
liabilities related to elimination of some jobs stemming from the ongoing
integration of recently acquired businesses.
3M continues its significant investment in technology and product development.
The company also has launched five initiatives, including a major Six Sigma
push, to drive long-term growth, profitability and cash flow. 3M believes it is
well-positioned to resume strong growth once economic conditions improve.
The company estimates, based on currency rates as of March 31, 2001, that
currency would reduce earnings for the year by about 25 cents per share. The
company expects raw material costs to be slightly lower for the total year, with
the benefits weighted towards the second half of the year. The company expects
to maintain the 33.5 percent worldwide tax rate throughout the year, helped by
lower overall international tax rates. Capital expenditures are expected to
total less than $1 billion for total year 2001.
THE EURO CONVERSION
There have not been any significant new developments relating to the euro
conversion since year-end 2000. Refer to the 2000 Form 10-K for a complete
discussion of the euro conversion.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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.
* 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
PURCHASED COMPONENTS AND MATERIALS DUE TO MARKET DEMAND, CURRENCY EXCHANGE
RISKS, SHORTAGES AND OTHER FACTORS. The company depends on various components
and materials for the manufacturing of its products. Although the company has
not experienced any difficulty in obtaining components and 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 component and 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 II, Item 1 of this Quarterly Report on Form 10-Q.
Minnesota Mining and Manufacturing Company and Subsidiaries
Recent filings: Apr 23, 2001 (form8-K) | May 01, 2001 (Qtrly Rpt) | May 10, 2001 (form8-K) | May 11, 2001 (form8-K) | Aug 01, 2001 (Qtrly Rpt) | Sep 17, 2001 (form8-K) | Nov 13, 2001 (Qtrly Rpt) | Nov 19, 2001 (form8-K) | Apr 09, 2002 (form8-K) | May 01, 2002 (Qtrly Rpt) More filings for MMM available from EDGAR Online | Get a Free Trial to EDGAR Online Premium
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Yahoo - After the Bell - AT&T slips, Intel gains
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More Reuters ] Related Quotes AMTD INTC JHF T WCOM 5.78 30.15 38.43 13.56 1.24 +0.32 +1.63 +0.63 -0.14 -0.20 delayed 20 mins - disclaimer Quote Data provided by Reuters Friday April 5, 5:40 pm Eastern Time Reuters Business After the Bell - AT&T slips, Intel gains
NEW YORK, April 5 (Reuters) - Shares of AT&T Corp. and
Ameritrade Holding Corp. dipped after the bell on Friday but
extended-hours trading was quiet as traders and fund managers
slipped away after a mostly down week on Wall Street.
AT&T Corp(NYSE: T - news ) slipped in extended trading after the No. 1
U.S. long-distance telephone company said it plans to sell some
cable TV systems to Bresnan Communications for $735 million in
cash in a move to shed assets outside of major cities.
Shares slipped to $14.95 on electronic trading system
Instinet, from their close of $15.02.
Ameritrade Holding Corp.(NasdaqNM: AMTD - news ) was down slightly in trading
of about about 2,700 shares after the electronic stock trader said
earnings will be at the low end of its forecast amid a slowdown in
online trading activity.
Ameritrade slipped to $6 from its close of $6.30.
Among the most-active issues traded on Instinet, WorldCom
Group (NasdaqNM: WCOM - news ) slipped to $6.21 from its close of $6.26, while
chipmaker Intel Corp. (NasdaqNM: INTC - news ) inched up to $20.09 from its close
of $30.05.
There was no news immediately available that explained these
after-hours moves.
The Nasdaq 100 after-hours indicator, which represents trading
in a basket of Nasdaq stocks, rose 1 point, or 0.07 percent, to
1,377 after a dismal regular session for tech issues.
Shares of John Hancock Financial Services Inc. (NYSE: JHF - news ) had not
traded on Instinet after the company said TRC Capital Corp.
commenced an unsolicited mini-tender offer to purchase up to 10
million shares, or about 3.4 percent, of Hancock's outstanding
common shares.
Hancock recommended to shareholders that they reject the offer
of $37.00 per share. Hancock stock closed on the New York Stock
Exchange up 57 cents at $39.00 on Friday.
During the regular trading session, technology stocks slumped,
but blue-chip stocks held higher ground as an upbeat forecast from
diversified manufacturer Minnesota Mining & Manufacturing Co.
(NYSE: MMM - news ) sent investors flocking to the relative safety of
large-cap industrial stocks and away from volatile technology
issues.
Techs were hard hit after McData Corp.(NasdaqNM: MCDTA - news ; NasdaqNM: MCDT - news ), which
makes switches for data storage networks, became the latest
high-tech firm this week to warn that profits will miss forecasts
as businesses cut orders.
The Dow Jones industrial average( ^DJI - news ) was up for the
second-straight session, rising 36.47 points, or 0.36 percent, to
10,271.64, while the broader Standard & Poor's 500 Index ( ^SPX - news )
was down 3.61 points, or 0.32 percent, at 1,122.73. The
technology-laced Nasdaq Composite Index ( ^IXIC - news ) was down 19.72
points, or 1.1 percent, at 1,770.03.
For the week, the Dow fell 1.3 percent, while the Nasdaq
dropped 4.1 percent. The S&P 500 gave up 2.1 percent.
Email this story - Most-emailed articles - Most-viewed articles
More Quotes and News: AmeriTrade Holding Corp (NasdaqNM: AMTD - news ) AT&T Corp (NYSE: T - news ) Intel Corp (NasdaqNM: INTC - news ) John Hancock Financial Services Inc (NYSE: JHF - news ) WorldCom Inc-WorldCom Group (NasdaqNM: WCOM - news ) Related News Categories: banking ,
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