REG - 3M Company - 1st Quarter Results <Origin Href="QuoteRef">MMM.N</Origin> - Part 2
05/05/2016 07:06
- Part 2: For the preceding part double click ID:nRSE2988Xa
pressurized polyurethane foam adhesive formulations and systems into the residential
roofing, commercial roofing and insulation and industrial foam segments in the United States with annual sales of
approximately $20 million.
The Company recorded a pre-tax gain of $40 million in the first quarter of 2016 as a result of the sales of these
businesses (recorded in selling, general and administrative expenses). The aggregate operating income of these businesses
included in the Company's operating results for the periods presented and the amounts of major assets and liabilities of
any associated disposal groups classified as held-for-sale as of the respective balance sheet dates presented were not
material.
Refer to Note 2 in 3M's 2015 Annual Report on Form 10-K for more information on 3M's acquisitions and divestitures.
NOTE 3. Goodwill and Intangible Assets
There were no material acquisitions that closed during the first three months of 2016. The amounts in the "Translation and
other" column in the following table primarily relate to changes in foreign currency exchange rates. The goodwill balances
by business segment as of December 31, 2015 and March 31, 2016, follow:
Goodwill
December 31, 2015 Acquisition Translation March 31, 2016
(Millions) Balance activity and other Balance
Industrial $ 2,573 $ - $ 51 $ 2,624
Safety and Graphics 3,342 3 32 3,377
Health Care 1,624 - 20 1,644
Electronics and Energy 1,510 - 14 1,524
Consumer 200 - 6 206
Total Company $ 9,249 $ 3 $ 123 $ 9,375
Accounting standards require that goodwill be tested for impairment annually and between annual tests in certain
circumstances such as a change in reporting units or the testing of recoverability of a significant asset group within a
reporting unit. At 3M, reporting units generally correspond to a division.
As described in Note 14, effective in the first quarter of 2016, the Company changed its business segment reporting in its
continuing effort to improve the alignment of its businesses around markets and customers. For any product changes that
resulted in reporting unit changes, the Company applied the relative fair value method to determine the impact on goodwill
of the associated reporting units. During the first quarter of 2016, the Company completed its assessment of any potential
goodwill impairment for reporting units impacted by this new structure and determined that no impairment existed.
Acquired Intangible Assets
The carrying amount and accumulated amortization of acquired finite-lived intangible assets, in addition to the balance of
non-amortizable intangible assets, as of March 31, 2016, and December 31, 2015, follow:
March 31, December 31,
(Millions) 2016 2015
Customer related intangible assets $ 1,985 $ 1,973
Patents 610 616
Other technology-based intangible assets 526 525
Definite-lived tradenames 423 421
Other amortizable intangible assets 218 216
Total gross carrying amount $ 3,762 $ 3,751
Accumulated amortization - customer related (706) (668)
Accumulated amortization - patents (484) (481)
Accumulated amortization - other technology based (267) (252)
Accumulated amortization - definite-lived tradenames (222) (215)
Accumulated amortization - other (172) (169)
Total accumulated amortization $ (1,851) $ (1,785)
Total finite-lived intangible assets - net $ 1,911 $ 1,966
Non-amortizable intangible assets (primarily tradenames) 640 635
Total intangible assets - net $ 2,551 $ 2,601
Certain tradenames acquired by 3M are not amortized because they have been in existence for over 55 years, have a history
of leading-market share positions, have been and are intended to be continuously renewed, and the associated products of
which are expected to generate cash flows for 3M for an indefinite period of time.
Amortization expense for acquired intangible assets for the three-month periods ended March 31, 2016 and 2015 follows:
Three months ended
March 31,
(Millions) 2016 2015
Amortization expense $ 66 $ 53
Expected amortization expense for acquired amortizable intangible assets recorded as of March 31, 2016:
Remainder
of After
(Millions) 2016 2017 2018 2019 2020 2021 2021
Amortization expense $ 188 $ 227 $ 205 $ 193 $ 183 $ 167 $ 748
The preceding expected amortization expense is an estimate. Actual amounts of amortization expense may differ from
estimated amounts due to additional intangible asset acquisitions, changes in foreign currency exchange rates, impairment
of intangible assets, accelerated amortization of intangible assets and other events. 3M expenses the costs incurred to
renew or extend the term of intangible assets.
NOTE 4. Restructuring Actions
During the fourth quarter of 2015, management approved and committed to undertake certain restructuring actions primarily
focused on structural overhead, largely in the U.S. and slower-growing markets, with particular emphasis on Europe, Middle
East, and Africa (EMEA) and Latin America. This impacted approximately 1,700 positions worldwide and resulted in a
fourth-quarter 2015 pre-tax charge of $114 million.
Components of these restructuring actions, including cash and non-cash impacts, follow:
(Millions) Employee-Related Asset-Related Total
Expense incurred $ 98 $ 16 $ 114
Non-cash changes (8) (16) (24)
Cash payments (27) - (27)
Accrued restructuring action balances as of December 31, 2015 $ 63 $ - $ 63
Cash payments (25) - (25)
Accrued restructuring action balances as of March 31, 2016 $ 38 $ - $ 38
Non-cash changes include certain pension settlements and special termination benefits recorded in accrued pension and
postretirement benefits and accelerated depreciation resulting from the cessation of use of certain long-lived assets.
Remaining activities related to the restructuring are expected to be completed in 2016.
NOTE 5. Supplemental Equity and Comprehensive Income Information
Consolidated Statement of Changes in Equity
Three months ended March 31, 2016
3M Company Shareholders
Common Accumulated
Stock and Other
Additional Comprehensive Non-
Paid-in Retained Treasury Income controlling
(Millions) Total Capital Earnings Stock (Loss) Interest
Balance at December 31, 2015 $ 11,747 $ 4,800 $ 36,575 $ (23,308) $ (6,359) $ 39
Net income 1,278 1,275 3
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment 138 139 (1)
Defined benefit pension and post-retirement plans adjustment 69 69 -
Debt and equity securities - unrealized gain (loss) - - -
Cash flow hedging instruments - unrealized gain (loss) (110) (110) -
Total other comprehensive income (loss), net of tax 97
Dividends declared (672) (672)
Stock-based compensation 125 125
Reacquired stock (1,163) (1,163)
Issuances pursuant to stock option and benefit plans 362 (393) 755
Balance at March 31, 2016 $ 11,774 $ 4,925 $ 36,785 $ (23,716) $ (6,261) $ 41
Three months ended March 31, 2015
3M Company Shareholders
Common Accumulated
Stock and Other
Additional Comprehensive Non-
Paid-in Retained Treasury Income controlling
(Millions) Total Capital Earnings Stock (Loss) Interest
Balance at December 31, 2014 $ 13,142 $ 4,388 $ 34,317 $ (19,307) $ (6,289) $ 33
Net income 1,201 1,199 2
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment (193) (193) -
Defined benefit pension and post-retirement plans adjustment 91 91 -
Debt and equity securities - unrealized gain (loss) - - -
Cash flow hedging instruments - unrealized gain (loss) 70 70 -
Total other comprehensive income (loss), net of tax (32)
Dividends declared (3) (3)
Stock-based compensation, net of tax impacts 228 228
Reacquired stock (896) (896)
Issuances pursuant to stock option and benefit plans 312 (433) 745
Balance at March 31, 2015 $ 13,952 $ 4,616 $ 35,080 $ (19,458) $ (6,321) $ 35
In December 2014, 3M's Board of Directors declared a first-quarter 2015 dividend of $1.025 per share (paid in March 2015).
This reduced 3M's stockholder equity and increased other current liabilities as of December 31, 2014, by approximately $0.6
billion.
Changes in Accumulated Other Comprehensive Income (Loss) Attributable to 3M by Component
Three months ended March 31, 2016
Total
Defined Benefit Debt and Cash Flow Accumulated
Pension and Equity Hedging Other
Cumulative Postretirement Securities, Instruments, Comprehensive
Translation Plans Unrealized Unrealized Income
(Millions) Adjustment Adjustment Gain (Loss) Gain (Loss) (Loss)
Balance at December 31, 2015, net of tax: $ (1,679) $ (4,804) $ - $ 124 $ (6,359)
Other comprehensive income (loss), before tax:
Amounts before reclassifications 60 - - (121) (61)
Amounts reclassified out - 103 - (52) 51
Total other comprehensive income (loss), before tax 60 103 - (173) (10)
Tax effect 79 (34) - 63 108
Total other comprehensive income (loss), net of tax 139 69 - (110) 98
Balance at March 31, 2016, net of tax: $ (1,540) $ (4,735) $ - $ 14 $ (6,261)
Three months ended March 31, 2015
Total
Defined Benefit Debt and Cash Flow Accumulated
Pension and Equity Hedging Other
Cumulative Postretirement Securities, Instruments, Comprehensive
Translation Plans Unrealized Unrealized Income
(Millions) Adjustment Adjustment Gain (Loss) Gain (Loss) (Loss)
Balance at December 31, 2014, net of tax: $ (1,095) $ (5,293) $ - $ 99 $ (6,289)
Other comprehensive income (loss), before tax:
Amounts before reclassifications (44) 24 - 136 116
Amounts reclassified out - 124 - (27) 97
Total other comprehensive income (loss), before tax (44) 148 - 109 213
Tax effect (149) (57) - (39) (245)
Total other comprehensive income (loss), net of tax (193) 91 - 70 (32)
Balance at March 31, 2015, net of tax: $ (1,288) $ (5,202) $ - $ 169 $ (6,321)
Income taxes are not provided for foreign translation relating to permanent investments in international subsidiaries, but
tax effects within cumulative translation does include impacts from items such as net investment hedge transactions.
Reclassification adjustments are made to avoid double counting in comprehensive income items that are also recorded as part
of net income.
Reclassifications out of Accumulated Other Comprehensive Income Attributable to 3M
Amount Reclassified from
Details about Accumulated Other Accumulated Other Comprehensive Income
Comprehensive Income Components Three months ended March 31, Location on Income
(Millions) 2016 2015 Statement
Gains (losses) associated with, defined benefit pension and postretirement plans amortization
Transition asset $ - $ - See Note 9
Prior service benefit 23 18 See Note 9
Net actuarial loss (126) (159) See Note 9
Curtailments/Settlements - 17 See Note 9
Total before tax (103) (124)
Tax effect 34 46 Provision for income taxes
Net of tax $ (69) $ (78)
Debt and equity security gains (losses)
Sales or impairments of securities $ - $ - Selling, general and administrative expenses
Total before tax - -
Tax effect - - Provision for income taxes
Net of tax $ - $ -
Cash flow hedging instruments gains (losses)
Foreign currency forward/option contracts $ 53 $ 30 Cost of sales
Commodity price swap contracts - (2) Cost of sales
Interest rate swap contracts (1) (1) Interest expense
Total before tax 52 27
Tax effect (18) (10) Provision for income taxes
Net of tax $ 34 $ 17
Total reclassifications for the period, net of tax $ (35) $ (61)
NOTE 6. Income Taxes
The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With
few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by
tax authorities for years before 2005.
The IRS has completed its field examination of the Company's U.S. federal income tax returns for the years 2005 through
2014. The Company protested certain IRS positions within these tax years and entered into the administrative appeals
process with the IRS. In December 2012, the Company received a statutory notice of deficiency for the 2006 year. The
Company filed a petition in Tax Court in the first quarter of 2013 relating to the 2006 tax year.
Currently, the Company is under examination by the IRS for its U.S. federal income tax returns for the years 2015 and 2016.
It is anticipated that the IRS will complete its examination of the Company for 2015 by the end of the first quarter of
2017 and for 2016 by the end of the first quarter of 2018. As of March 31, 2016, the IRS has not proposed any significant
adjustments to the Company's tax positions for which the Company is not adequately reserved.
Payments relating to other proposed assessments arising from the 2005 through 2016 examinations may not be made until a
final agreement is reached between the Company and the IRS on such assessments or upon a final resolution resulting from
the administrative appeals process or judicial action. In addition to the U.S. federal examination, there is also audit
activity in several U.S. state and foreign jurisdictions.
3M anticipates changes to the Company's uncertain tax positions due to the closing and resolution of audit issues for
various audit years mentioned above and closure of statutes. The Company is not currently able to reasonably estimate the
amount by which the liability for unrecognized tax benefits will increase or decrease during the next 12 months as a result
of the ongoing income tax authority examinations. The total amounts of unrecognized tax benefits that, if recognized, would
affect the effective tax rate as of March 31, 2016 and December 31, 2015 are $375 million and $369 million, respectively.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company
recognized in the consolidated statement of income on a gross basis approximately $4 million of benefit and $2 million of
expense for the three months ended March 31, 2016 and March 31, 2015, respectively. At March 31, 2016 and December 31,
2015, accrued interest and penalties in the consolidated balance sheet on a gross basis were $39 million and $45 million,
respectively. Included in these interest and penalty amounts are interest and penalties related to tax positions for which
the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.
Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter
deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing
authority to an earlier period.
The effective tax rate for the first quarter of 2016 was 26.8 percent, compared to 29.5 percent in the first quarter of
2015, a decrease of 2.7 percentage points. Primary factors that decreased the Company's effective tax rate on a combined
basis by 5.3 percentage points for the first three months of 2016 when compared to the same period for 2015 included the
recognition of excess tax benefits beginning in 2016 related to employee share-based payments (resulting from the adoption
of ASU No. 2016-09, as discussed in Note 1), the reinstatement of the R&D tax credit, and other items. This decrease was
partially offset by a 2.6 percentage point year-on-year increase, which included international taxes that were impacted by
changes to both the geographic mix of income before taxes and additional tax expense related to global cash optimization
actions, plus remeasurements of 3M's uncertain tax positions.
The provision for income taxes is determined using the asset and liability approach. Under this approach, deferred income
taxes represent the expected future tax consequences of temporary differences between the carrying amounts and tax basis of
assets and liabilities. The Company records a valuation allowance to reduce its deferred tax assets when uncertainty
regarding their realizability exits. As of March 31, 2016 and December 31, 2015, the Company had valuation allowances of
$32 million and $31 million on its deferred tax assets, respectively.
NOTE 7. Marketable Securities
The Company invests in asset-backed securities, certificates of deposit/time deposits, commercial paper, and other
securities. The following is a summary of amounts recorded on the Consolidated Balance Sheet for marketable securities
(current and non-current).
March 31, December 31,
(Millions) 2016 2015
Foreign government agency securities $ 10 $ 10
Corporate debt securities 10 10
Commercial paper 36 12
Certificates of deposit/time deposits 46 26
U.S. municipal securities 3 3
Asset-backed securities:
Automobile loan related 44 26
Credit card related 19 10
Equipment lease related 1 2
Other 7 19
Asset-backed securities total 71 57
Current marketable securities $ 176 $ 118
U.S. municipal securities $ 15 $ 9
Non-current marketable securities $ 15 $ 9
Total marketable securities $ 191 $ 127
Classification of marketable securities as current or non-current is based on the nature of the securities and availability
for use in current operations. At March 31, 2016 and December 31, 2015, gross unrealized gains and/or losses (pre-tax) were
not material. Refer to Note 5 for a table that provides the net realized gains (losses) related to sales or impairments of
debt and equity securities, which includes marketable securities. The gross amounts of the realized gains or losses were
not material. Cost of securities sold use the first in, first out (FIFO) method. Since these marketable securities are
classified as available-for-sale securities, changes in fair value will flow through other comprehensive income, with
amounts reclassified out of other comprehensive income into earnings upon sale or "other-than-temporary" impairment.
3M reviews impairments associated with its marketable securities in accordance with the measurement guidance provided by
ASC 320, Investments-Debt and Equity Securities, when determining the classification of the impairment as "temporary" or
"other-than-temporary". A temporary impairment charge results in an unrealized loss being recorded in the other
comprehensive income component of shareholders' equity. Such an unrealized loss does not reduce net income attributable to
3M for the applicable accounting period because the loss is not viewed as other-than-temporary. The factors evaluated to
differentiate between temporary and other-than-temporary include the projected future cash flows, credit ratings actions,
and assessment of the credit quality of the underlying collateral, as well as other factors.
The balances at March 31, 2016 for marketable securities by contractual maturity are shown below. Actual maturities may
differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without
prepayment penalties.
(Millions) March 31, 2016
Due in one year or less $ 95
Due after one year through five years 95
Due after five years through ten years 1
Due after ten years -
Total marketable securities $ 191
3M has a diversified marketable securities portfolio of $191 million as of March 31, 2016. Within this portfolio,
asset-backed securities primarily include interests in automobile loans, credit cards and equipment leases. 3M's investment
policy allows investments in asset-backed securities with minimum credit ratings of Aa2 by Moody's Investors Service or AA
by Standard & Poor's or Fitch Ratings or DBRS. Asset-backed securities must be rated by at least two of the aforementioned
rating agencies, one of which must be Moody's Investors Service or Standard & Poor's. At March 31, 2016, all asset-backed
security investments were in compliance with this policy. Approximately 81.1 percent of all asset-backed security
investments were rated AAA or A-1+ by Standard & Poor's and/or Aaa or P-1 by Moody's Investors Service and/or AAA or F1+ by
Fitch Ratings. Interest rate risk and credit risk related to the underlying collateral may impact the value of investments
in asset-backed securities, while factors such as general conditions in the overall credit market and the nature of the
underlying collateral may affect the liquidity of investments in asset-backed securities. 3M does not currently expect risk
related to its holding in asset-backed securities to materially impact its financial condition or liquidity.
NOTE 8. Long-Term Debt and Short-Term Borrowings
In March 2016, 3M amended and restated its existing $2.25 billion five-year revolving credit facility expiring in August
2019 to a $3.75 billion five-year revolving credit facility expiring in March 2021. This credit agreement includes a
provision under which 3M may request an increase of up to $1.25 billion (at lender's discretion), bringing the total
facility up to $5.0 billion. This revolving credit facility is undrawn at March 31, 2016. Under the $3.75 billion credit
agreement, the Company is required to maintain its EBITDA to Interest Ratio as of the end of each fiscal quarter at not
less than 3.0 to 1. This is calculated (as defined in the agreement) as the ratio of consolidated total EBITDA for the four
consecutive quarters then ended to a total interest expense on all funded debt for the same period. At March 31, 2016, this
ratio was approximately 51 to 1. Debt covenants do not restrict the payment of dividends.
NOTE 9. Pension and Postretirement Benefit Plans
Net periodic benefit cost is recorded in cost of sales, selling, general and administrative expenses, and research,
development and related expenses. Components of net periodic benefit cost and other supplemental information for the three
months ended March 31, 2016 and 2015 follow:
Benefit Plan Information
Three months ended March 31,
Qualified and Non-qualified
Pension Benefits Postretirement
United States International Benefits
(Millions) 2016 2015 2016 2015 2016 2015
Net periodic benefit cost (benefit)
Service cost $ 65 $ 73 $ 33 $ 42 $ 13 $ 21
Interest cost 143 164 43 55 20 25
Expected return on plan assets (260) (267) (78) (81) (23) (22)
Amortization of transition (asset) obligation - - - - - -
Amortization of prior service cost (benefit) (6) (6) (3) (4) (14) (8)
Amortization of net actuarial (gain) loss 88 102 22 38 16 19
Net periodic benefit cost (benefit) $ 30 $ 66 $ 17 $ 50 $ 12 $ 35
Settlements, curtailments, special termination benefits and other - - - (17) - -
Net periodic benefit cost (benefit) after settlements, curtailments, special termination benefits and other $ 30 $ 66 $ 17 $ 33 $ 12 $ 35
For the three months ended March 31, 2016, contributions totaling $55 million were made to the Company's U.S. and
international pension plans and $1 million to its postretirement plans. For total year 2016, the Company expects to
contribute between approximately $200 million to $400 million of cash to its global defined benefit pension and
postretirement plans. The Company does not have a required minimum cash pension contribution obligation for its U.S. plans
in 2016. Future contributions will depend on market conditions, interest rates and other factors. 3M's annual measurement
date for pension and postretirement assets and liabilities is December 31 each year, which is also the date used for the
related annual measurement assumptions.
Beginning in 2016, 3M changed the method used to estimate the service and interest cost components of the net periodic
pension and other postretirement benefit costs. The new method measures service cost and interest cost separately using the
spot yield curve approach applied to each corresponding obligation. Service costs are determined based on duration-specific
spot rates applied to the service cost cash flows. The interest cost calculation is determined by applying
duration-specific spot rates to the year-by-year projected benefit payments. The spot yield curve approach does not affect
the measurement of the total benefit obligations as the change in service and interest costs offset in the actuarial gains
and losses recorded in other comprehensive income. The Company changed to the new method to provide a more precise measure
of service and interest costs by improving the correlation between the projected benefit cash flows and the discrete spot
yield curve rates. The Company accounted for this change as a change in estimate prospectively beginning in the first
quarter of 2016. As a result of the change to the spot yield curve approach, 2016 annual defined benefit pension and
postretirement net periodic benefit cost has decreased approximately $180 million.
Using this methodology, the Company determined discount rates for its plans as follows:
U.S. Qualified Pension International Pension (weighted average) U.S. Postretirement Medical
December 31, 2015 Liability:
Benefit obligation 4.47 % 3.12 % 4.32 %
2016 Net Periodic Benefit Cost Components:
Service cost 4.72 % 2.84 % 4.60 %
Interest cost 3.77 % 2.72 % 3.44 %
The Company also sponsors employee savings plans under Section 401(k) of the Internal Revenue Code, as discussed in Note 11
in 3M's 2015 Annual Report on Form 10-K. Beginning on January 1, 2016, for U.S. employees, the Company reduced its match on
employee 401(k) contributions. For eligible employees hired prior to January 1, 2009, employee 401(k) contributions of up
to 5% of eligible compensation are matched in cash at rates of 45% or 60%, depending on the plan in which the employee
participates. Employees hired on or after January 1, 2009, receive a cash match of 100% for employee 401(k) contributions
of up to 5% of eligible compensation and also continue to receive an employer retirement income account cash contribution
of 3% of the participant's total eligible compensation.
In August 2015, 3M modified the 3M Retiree Welfare Benefit Plan postretirement medical benefit reducing the future benefit
for participants not retired as of January 1, 2016. Current retirees and employees who retired on or before January 1,
2016, were not impacted by these changes. The Retiree Medical Savings Account (RMSA) is no longer credited with interest,
and the indexation on both the RMSA and the Medicare Health Reimbursement Arrangement was reduced from 3 percent to 1.5
percent per year (for those employees who are eligible for these accounts). Also effective January 1, 2016, 3M no longer
offered 3M Retiree Health Care Accounts to new hires. Due to these changes the plan was re-measured in the third quarter of
2015, resulting in a decrease to the projected benefit obligation liability of approximately $233 million, and a related
increase to shareholders' equity, specifically accumulated other comprehensive income.
In March 2015, 3M Japan modified the Japan Limited Defined Benefit Corporate Pension Plan (DBCPP). Beginning July 1, 2015,
eligible employees receive a company provided contribution match of 6.12% of their eligible salary to their defined
contribution plan. Employees no longer earn additional service towards their defined benefit pension plans after July 1,
2015, except for eligible salaries above the statutory defined contribution limits. As a result of this plan modification,
the Company re-measured the DBCPP, which resulted in a $17 million pre-tax curtailment gain for the three months ended
March 31, 2015.
3M was informed during the first quarter of 2009, that the general partners of WG Trading Company, in which 3M's benefit
plans hold limited partnership interests, are the subject of a criminal investigation as well as civil proceedings by the
SEC and CFTC (Commodity Futures Trading Commission). In March 2011, over the objections of 3M and six other limited
partners of WG Trading Company, the district court judge ruled in favor of the court appointed receiver's proposed
distribution plan (and in April 2013, the United States Court of Appeals for the Second Circuit affirmed the district
court's ruling). The benefit plan trustee holdings of WG Trading Company interests were adjusted to reflect the decreased
estimated fair market value, inclusive of estimated insurance proceeds, as of the annual measurement dates. The Company has
insurance that it believes, based on what is currently known, will result in the probable recovery of a portion of the
decrease in original asset value. In the first quarter of 2014, 3M and certain 3M benefit plans filed a lawsuit in the U.S.
District Court for the District of Minnesota against five insurers seeking insurance coverage for the WG Trading Company
claim. In September 2015, the court ruled in favor of the defendant insurance companies on a motion for summary judgment
and dismissed the lawsuit. In October 2015, 3M and the 3M benefit plans filed a notice of appeal to the United States Court
of Appeals for the Eighth Circuit. As of the 2015 measurement date, these holdings represented less than one half of one
percent of 3M's fair value of total plan assets. 3M currently believes that the resolution of these events will not have a
material adverse effect on the consolidated financial position of the Company.
NOTE 10. Derivatives
The Company uses interest rate swaps, currency swaps, commodity price swaps, and forward and option contracts to manage
risks generally associated with foreign exchange rate, interest rate and commodity price fluctuations. The information that
follows explains the various types of derivatives and financial instruments used by 3M, how and why 3M uses such
instruments, how such instruments are accounted for, and how such instruments impact 3M's financial position and
performance.
Additional information with respect to the impacts on other comprehensive income of nonderivative hedging and derivative
instruments is included in Note 5. Additional information with respect to the fair value of derivative instruments is
included in Note 11. References to information regarding derivatives and/or hedging instruments associated with the
Company's long-term debt are also made in Note 10 in 3M's 2015 Annual Report on Form 10-K.
Types of Derivatives/Hedging Instruments and Inclusion in Income/Other Comprehensive Income
Cash Flow Hedges:
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss
on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same
period during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge
ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.
Cash Flow Hedging - Foreign Currency Forward and Option Contracts: The Company enters into foreign exchange forward and
option contracts to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies.
These transactions are designated as cash flow hedges. The settlement or extension of these derivatives will result in
reclassifications (from accumulated other comprehensive income) to earnings in the period during which the hedged
transactions affect earnings. 3M may dedesignate these cash flow hedge relationships in advance of the occurrence of the
forecasted transaction. The portion of gains or losses on the derivative instrument previously accumulated in other
comprehensive income for dedesignated hedges remains in accumulated other comprehensive income until the forecasted
transaction occurs. Changes in the value of derivative instruments after dedesignation are recorded in earnings and are
included in the Derivatives Not Designated as Hedging Instruments section below. Beginning in the second quarter of 2014,
3M began extending the maximum length of time over which it hedges its exposure to the variability in future cash flows of
the forecasted transactions from a previous term of 12 months to a longer term of 24 months, with certain currencies being
extended further to 36 months starting in the first quarter of 2015.
Cash Flow Hedging - Commodity Price Management: The Company manages commodity price risks through negotiated supply
contracts, price protection agreements and forward contracts. 3M discontinued the use of commodity price swaps as cash flow
hedges of forecasted commodity transactions in the first quarter of 2015. The Company used commodity price swaps as cash
flow hedges of forecasted commodity transactions to manage price volatility. The related mark-to-market gain or loss on
qualifying hedges was included in other comprehensive income to the extent effective, and reclassified into cost of sales
in the period during which the hedged transaction affected earnings.
Cash Flow Hedging - Interest Rate Contracts: The Company may use forward starting interest rate contracts to hedge exposure
to variability in cash flows from forecasted debt issuances. The amortization of gains and losses on forward starting
interest rate swaps is included in the tables below as part of the gain/(loss) recognized in income on the effective
portion of derivatives as a result of reclassification from accumulated other comprehensive income. Additional information
regarding previously issued and terminated interest rate contracts can be found in Note 12 in 3M's 2015 Annual Report on
Form 10-K.
In February 2016, the Company entered into a forward starting interest rate swap expiring in December 2016 with a notional
amount of $100 million as a hedge against interest rate volatility associated with a forecasted issuance of fixed rate
debt.
As of March 31, 2016, the Company had a balance of $14 million associated with the after-tax net unrealized gain
associated with cash flow hedging instruments recorded in accumulated other comprehensive income. This includes a remaining
balance of $5 million (after tax loss)
- More to follow, for following part double click ID:nRSE2988XcRecent news on 3M Co
See all newsREG - Stock Exch Notice - Admission to ISM - 30/11/2023
AnnouncementRCS - 3M Company - StageZero Announces COC Protocol in Europe
AnnouncementREG - Official List - Removal: 3M Company
AnnouncementREG - Stock Exch Notice - Cancellation - 3M Company
AnnouncementREG - 3M Company - 3rd Quarter Results
Announcement