REG - 3M Company - 1st Quarter Results <Origin Href="QuoteRef">MMM.N</Origin> - Part 3
05/05/2016 07:06
- Part 3: For the preceding part double click ID:nRSE2988Xb
related to the forward starting interest rate swaps, which will be amortized over
the respective lives of the debt. Based on exchange rates as of March 31, 2016, 3M expects to reclassify approximately $38
million of the after-tax net unrealized foreign exchange cash flow hedging gains to earnings over the remainder of 2016,
approximately $9 million of the after-tax net unrealized foreign exchange cash flow hedging losses to earnings in 2017, and
approximately $15 million of the after-tax net unrealized foreign exchange cash flow hedging losses to earnings after 2017
(with the impact offset by earnings/losses from underlying hedged items). 3M expects to reclassify approximately $36
million of the after-tax net unrealized foreign exchange cash flow hedging gains to earnings over the next 12 months.
The location in the consolidated statements of income and comprehensive income and amounts of gains and losses related to
derivative instruments designated as cash flow hedges are provided in the following table.
Three months ended March 31, 2016
Pretax Gain (Loss) Recognized in
Pretax Gain (Loss) Income on Effective Portion of Ineffective Portion of Gain
Recognized in Other Derivative as a Result of (Loss) on Derivative and
Comprehensive Reclassification from Amount Excluded from
Income on Effective Accumulated Other Effectiveness Testing
Derivatives in Cash Flow Hedging Relationships Portion of Derivative Comprehensive Income Recognized in Income
(Millions) Amount Location Amount Location Amount
Foreign currency forward/option contracts $ (120) Cost of sales $ 53 Cost of sales $ -
Interest rate swap contracts (1) Interest expense (1) Interest expense -
Total $ (121) $ 52 $ -
Three months ended March 31, 2015
Pretax Gain (Loss) Recognized in
Pretax Gain (Loss) Income on Effective Portion of Ineffective Portion of Gain
Recognized in Other Derivative as a Result of (Loss) on Derivative and
Comprehensive Reclassification from Amount Excluded from
Income on Effective Accumulated Other Effectiveness Testing
Derivatives in Cash Flow Hedging Relationships Portion of Derivative Comprehensive Income Recognized in Income
(Millions) Amount Location Amount Location Amount
Foreign currency forward/option contracts $ 136 Cost of sales $ 30 Cost of sales $ -
Commodity price swap contracts - Cost of sales (2) Cost of sales -
Interest rate swap contracts - Interest expense (1) Interest expense -
Total $ 136 $ 27 $ -
Fair Value Hedges:
For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivatives as
well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings.
Fair Value Hedging - Interest Rate Swaps: The Company manages interest expense using a mix of fixed and floating 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 mark-to-market of these fair value hedges is recorded as gains
or losses in interest expense and is offset by the gain or loss of the underlying debt instrument, which also is recorded
in interest expense. These fair value hedges are highly effective and, thus, there is no impact on earnings due to hedge
ineffectiveness. Additional information regarding designated interest rate swaps can be found in Note 12 in 3M's 2015
Annual Report on Form 10-K.
The location in the consolidated statements of income and amounts of gains and losses related to derivative instruments
designated as fair value hedges and similar information relative to the hedged items are as follows:
Three months ended March 31, 2016
Gain (Loss) on Derivative Gain (Loss) on Hedged Item
Derivatives in Fair Value Hedging Relationships Recognized in Income Recognized in Income
(Millions) Location Amount Location Amount
Interest rate swap contracts Interest expense $ 29 Interest expense $ (29)
Total $ 29 $ (29)
Three months ended March 31, 2015
Gain (Loss) on Derivative Gain (Loss) on Hedged Item
Derivatives in Fair Value Hedging Relationships Recognized in Income Recognized in Income
(Millions) Location Amount Location Amount
Interest rate swap contracts Interest expense $ 6 Interest expense $ (6)
Total $ 6 $ (6)
Net Investment Hedges:
The Company may use non-derivative (foreign currency denominated debt) and derivative (foreign exchange forward contracts)
instruments to hedge portions of the Company's investment in foreign subsidiaries and manage foreign exchange risk. For
instruments that are designated and qualify as hedges of net investments in foreign operations and that meet the
effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in
cumulative translation within other comprehensive income. The remainder of the change in value of such instruments is
recorded in earnings. Recognition in earnings of amounts previously recorded in cumulative translation is limited to
circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation.
To the extent foreign currency denominated debt is not designated in or is dedesignated from a net investment hedge
relationship, changes in value of that portion of foreign currency denominated debt due to exchange rate changes are
recorded in earnings through their maturity date.
3M's use of foreign exchange forward contracts designated in hedges of the Company's net investment in foreign subsidiaries
can vary by time period depending on when foreign currency denominated debt balances designated in such relationships are
dedesignated, matured, or are newly issued and designated. Additionally, variation can occur in connection with the extent
of the Company's desired foreign exchange risk coverage.
At March 31, 2016, the total notional amount of foreign exchange forward contracts designated in net investment hedges was
approximately 974 million Euros and approximately 248 billion South Korean Won, along with a principal amount of long-term
debt instruments designated in net investment hedges totaling 3.6 billion Euros. The maturity dates of these derivative and
nonderivative instruments designated in net investment hedges range from 2016 to 2030.
The location in the consolidated statements of income and comprehensive income and amounts of gains and losses related to
derivative and nonderivative instruments designated as net investment hedges are as follows. There were no
reclassifications of the effective portion of net investment hedges out of accumulated other comprehensive income into
income for the periods presented in the table below.
Three months ended March 31, 2016
Pretax Gain (Loss)
Recognized as
Cumulative Translation
within Other Ineffective Portion of Gain (Loss) on
Comprehensive Income Instrument and Amount Excluded
Derivative and Nonderivative Instruments in Net Investment Hedging on Effective Portion of from Effectiveness Testing
Relationships Instrument Recognized in Income
(Millions) Amount Location Amount
Foreign currency denominated debt $ (144) N/A $ -
Foreign currency forward contracts (43) Cost of sales (2)
Total $ (187) $ (2)
Three months ended March 31, 2015
Pretax Gain (Loss)
Recognized as
Cumulative Translation
within Other Ineffective Portion of Gain (Loss) on
Comprehensive Income Instrument and Amount Excluded
Derivative and Nonderivative Instruments in Net Investment Hedging on Effective Portion of from Effectiveness Testing
Relationships Instrument Recognized in Income
(Millions) Amount Location Amount
Foreign currency denominated debt $ 240 N/A $ -
Foreign currency forward contracts 157 Cost of sales -
Total $ 397 $ -
Derivatives Not Designated as Hedging Instruments:
3M enters into foreign exchange forward contracts that are not designated in hedge relationships to offset, in part, the
impacts of certain intercompany transactions and to further mitigate short-term currency impacts. In addition, the Company
enters into commodity price swaps to offset, in part, fluctuations in costs associated with the use of certain precious
metals. These derivative instruments are not designated in hedging relationships; therefore, fair value gains and losses on
these contracts are recorded in earnings. The Company does not hold or issue derivative financial instruments for trading
purposes.
The location in the consolidated statements of income and amounts of gains and losses related to derivative instruments not
designated as hedging instruments are as follows:
Three months ended March 31, 2016
Gain (Loss) on Derivative Recognized in
Derivatives Not Designated as Hedging Instruments Income
(Millions) Location Amount
Foreign currency forward/option contracts Cost of sales $ (5)
Foreign currency forward contracts Interest expense (7)
Total $ (12)
Three months ended March 31, 2015
Gain (Loss) on Derivative Recognized in
Derivatives Not Designated as Hedging Instruments Income
(Millions) Location Amount
Foreign currency forward/option contracts Cost of sales $ 4
Foreign currency forward contracts Interest expense 89
Commodity price swap contracts Cost of sales (4)
Total $ 89
Location and Fair Value Amount of Derivative Instruments
The following tables summarize the fair value of 3M's derivative instruments, excluding nonderivative instruments used as
hedging instruments, and their location in the consolidated balance sheet. Notional amounts below are presented at period
end foreign exchange rates, except interest rate swaps, which are presented using the contract inception date's foreign
exchange rate. Additional information with respect to the fair value of derivative instruments is included in Note 11.
Gross Assets Liabilities
March 31, 2016 Notional Fair Fair
(Millions) Amount Location Value Amount Location Value Amount
Derivatives designated as
hedging instruments
Foreign currency forward/option contracts $ 3,159 Other current assets $ 72 Other current liabilities $ 83
Foreign currency forward/option contracts 1,192 Other assets 26 Other liabilities 26
Interest rate swap contracts 1,853 Other assets 53 Other current liabilities 1
Total derivatives designated as hedging instruments $ 151 $ 110
Derivatives not designated as
hedging instruments
Foreign currency forward/option contracts $ 4,775 Other current assets $ 19 Other current liabilities $ 46
Total derivatives not designated as hedging instruments $ 19 $ 46
Total derivative instruments $ 170 $ 156
Gross Assets Liabilities
December 31, 2015 Notional Fair Fair
(Millions) Amount Location Value Amount Location Value Amount
Derivatives designated as
hedging instruments
Foreign currency forward/option contracts $ 2,815 Other current assets $ 148 Other current liabilities $ 14
Foreign currency forward/option contracts 1,240 Other assets 61 Other liabilities 3
Interest rate swap contracts 1,753 Other assets 24 Other liabilities 1
Total derivatives designated as hedging instruments $ 233 $ 18
Derivatives not designated as
hedging instruments
Foreign currency forward/option contracts $ 5,359 Other current assets $ 63 Other current liabilities $ 51
Total derivatives not designated as hedging instruments $ 63 $ 51
Total derivative instruments $ 296 $ 69
Credit Risk and Offsetting of Assets and Liabilities of Derivative Instruments
The Company is exposed to credit loss in the event of nonperformance by counterparties in interest rate swaps, currency
swaps, commodity price swaps, and forward and option 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. 3M enters into master
netting arrangements with counterparties when possible to mitigate credit risk in derivative transactions. A master netting
arrangement may allow each counterparty to net settle amounts owed between a 3M entity and the counterparty as a result of
multiple, separate derivative transactions. As of March 31, 2016, 3M has International Swaps and Derivatives Association
(ISDA) agreements with 16 applicable banks and financial institutions which contain netting provisions. In addition to a
master agreement with 3M supported by a primary counterparty's parent guarantee, 3M also has associated credit support
agreements in place with 15 of its primary derivative counterparties which, among other things, provide the circumstances
under which either party is required to post eligible collateral (when the market value of transactions covered by these
agreements exceeds specified thresholds or if a counterparty's credit rating has been downgraded to a predetermined
rating). The Company does not anticipate nonperformance by any of these counterparties.
3M has elected to present the fair value of derivative assets and liabilities within the Company's consolidated balance
sheet on a gross basis even when derivative transactions are subject to master netting arrangements and may otherwise
qualify for net presentation. However, the following tables provide information as if the Company had elected to offset the
asset and liability balances of derivative instruments, netted in accordance with various criteria in the event of default
or termination as stipulated by the terms of netting arrangements with each of the counterparties. For each counterparty,
if netted, the Company would offset the asset and liability balances of all derivatives at the end of the reporting period
based on the 3M entity that is a party to the transactions. Derivatives not subject to master netting agreements are not
eligible for net presentation. As of the applicable dates presented below, no collateral had been received or pledged
related to these derivative instruments.
Offsetting of Financial Assets under Master Netting Agreements with Derivative Counterparties
March 31, 2016 Gross Amounts not Offset in the
Consolidated Balance Sheet that are Subject
Gross Amount of to Master Netting Agreements
Derivative Assets Gross Amount of
Presented in the Eligible Offsetting
Consolidated Recognized Cash Collateral Net Amount of
(Millions) Balance Sheet Derivative Liabilities Received Derivative Assets
Derivatives subject to master netting agreements $ 170 $ 86 $ - $ 84
Derivatives not subject to master netting agreements - -
Total $ 170 $ 84
December 31, 2015 Gross Amounts not Offset in the
Consolidated Balance Sheet that are Subject
Gross Amount of to Master Netting Agreements
Derivative Assets Gross Amount of
Presented in the Eligible Offsetting
Consolidated Recognized Cash Collateral Net Amount of
(Millions) Balance Sheet Derivative Liabilities Received Derivative Assets
Derivatives subject to master netting agreements $ 296 $ 37 $ - $ 259
Derivatives not subject to master netting agreements - -
Total $ 296 $ 259
Offsetting of Financial Liabilities under Master Netting Agreements with Derivative Counterparties
March 31, 2016 Gross Amounts not Offset in the
Consolidated Balance Sheet that are Subject
Gross Amount of to Master Netting Agreements
Derivative Liabilities Gross Amount of
Presented in the Eligible Offsetting
Consolidated Recognized Cash Collateral Net Amount of
(Millions) Balance Sheet Derivative Assets Pledged Derivative Liabilities
Derivatives subject to master netting agreements $ 156 $ 86 $ - $ 70
Derivatives not subject to master netting agreements - -
Total $ 156 $ 70
December 31, 2015 Gross Amounts not Offset in the
Consolidated Balance Sheet that are Subject
Gross Amount of to Master Netting Agreements
Derivative Liabilities Gross Amount of
Presented in the Eligible Offsetting
Consolidated Recognized Cash Collateral Net Amount of
(Millions) Balance Sheet Derivative Assets Pledged Derivative Liabilities
Derivatives subject to master netting agreements $ 64 $ 37 $ - $ 27
Derivatives not subject to master netting agreements 5 5
Total $ 69 $ 32
Currency Effects
3M estimates that year-on-year foreign currency transactions effects, including hedging impacts, increased pre-tax income
by approximately $10 million for the three months ended March 31, 2016. These estimates include transaction gains and
losses, including derivative instruments designed to reduce foreign currency exchange rate risks and any impacts from
swapping Venezuelan bolivars into U.S. dollars.
NOTE 11. Fair Value Measurements
3M follows ASC 820, Fair Value Measurements and Disclosures, with respect to assets and liabilities that are measured at
fair value on a recurring basis and nonrecurring basis. Under the standard, fair value is defined as the exit price, or the
amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants as of the measurement date. The standard also establishes a hierarchy for inputs used in measuring fair value
that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most
observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset
or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are
inputs that reflect the Company's assumptions about the factors market participants would use in valuing the asset or
liability developed based upon the best information available in the circumstances. The hierarchy is broken down into three
levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs
include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or
liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or
liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Categorization
within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis:
For 3M, assets and liabilities that are measured at fair value on a recurring basis primarily relate to available-for-sale
marketable securities, available-for-sale investments (included as part of investments in the Consolidated Balance Sheet)
and certain derivative instruments. Derivatives include cash flow hedges, interest rate swaps and net investment hedges.
The information in the following paragraphs and tables primarily addresses matters relative to these financial assets and
liabilities. Separately, there were no material fair value measurements with respect to nonfinancial assets or liabilities
that are recognized or disclosed at fair value in the Company's financial statements on a recurring basis for the three
months ended March 31, 2016 and 2015.
3M uses various valuation techniques, which are primarily based upon the market and income approaches, with respect to
financial assets and liabilities. Following is a description of the valuation methodologies used for the respective
financial assets and liabilities measured at fair value.
Available-for-sale marketable securities - except certain U.S. municipal securities:
Marketable securities, except certain U.S. municipal securities, are valued utilizing multiple sources. A weighted average
market price is used for these securities. Market prices are obtained for these securities from a variety of industry
standard data providers, security master files from large financial institutions, and other third-party sources. These
multiple prices are used as inputs into a distribution-curve-based algorithm to determine the daily fair value to be used.
3M classifies U.S. treasury securities as level 1, while all other marketable securities (excluding certain U.S. municipal
securities) are classified as level 2. Marketable securities are discussed further in Note 7.
Available-for-sale marketable securities - certain U.S. municipal securities only:
In the fourth quarter of 2014 and first quarter of 2016, 3M obtained municipal bonds from the City of Nevada, Missouri,
which represent 3M's only U.S. municipal securities holding as of March 31, 2016 and December 31, 2015. Due to the nature
of this security, the valuation method utilized will include the financial health of the City of Nevada, any recent
municipal bond issuances by Nevada, and macroeconomic considerations related to the direction of interest rates and the
health of the overall municipal bond market, and as such has been classified as a level 3 security.
Available-for-sale investments:
Investments include equity securities that are traded in an active market. Closing stock prices are readily available from
active markets and are used as being representative of fair value. 3M classifies these securities as level 1.
Derivative instruments:
The Company's derivative assets and liabilities within the scope of ASC 815, Derivatives and Hedging, are required to be
recorded at fair value. The Company's derivatives that are recorded at fair value include foreign currency forward and
option contracts, commodity price swaps, interest rate swaps, and net investment hedges where the hedging instrument is
recorded at fair value. Net investment hedges that use foreign currency denominated debt to hedge 3M's net investment are
not impacted by the fair value measurement standard under ASC 820, as the debt used as the hedging instrument is marked to
a value with respect to changes in spot foreign currency exchange rates and not with respect to other factors that may
impact fair value.
3M has determined that foreign currency forwards, commodity price swaps, currency swaps, foreign currency options, interest
rate swaps and cross-currency swaps will be considered level 2 measurements. 3M uses inputs other than quoted prices that
are observable for the asset. These inputs include foreign currency exchange rates, volatilities, and interest rates.
Derivative positions are primarily valued using standard calculations/models that use as their basis readily observable
market parameters. Industry standard data providers are 3M's primary source for forward and spot rate information for both
interest rates and currency rates, with resulting valuations periodically validated through third-party or counterparty
quotes and a net present value stream of cash flows model.
The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring
basis.
Fair Value Measurements
Description Fair Value at Using Inputs Considered as
(Millions) March 31, 2016 Level 1 Level 2 Level 3
Assets:
Available-for-sale:
Marketable securities:
Foreign government agency securities $ 10 $ - $ 10 $ -
Corporate debt securities 10 - 10 -
Commercial paper 36 - 36 -
Certificates of deposit/time deposits 46 - 46 -
Asset-backed securities:
Automobile loan related 44 - 44 -
Credit card related 19 - 19 -
Equipment lease related 1 - 1 -
Other 7 - 7 -
U.S. municipal securities 18 - - 18
Derivative instruments - assets:
Foreign currency forward/option contracts 117 - 117 -
Interest rate swap contracts 53 - 53 -
Liabilities:
Derivative instruments - liabilities:
Foreign currency forward/option contracts 155 - 155 -
Interest rate swap contracts 1 - 1 -
Fair Value Measurements
Description Fair Value at Using Inputs Considered as
(Millions) December 31, 2015 Level 1 Level 2 Level 3
Assets:
Available-for-sale:
Marketable securities:
Foreign government agency securities $ 10 $ - $ 10 $ -
Corporate debt securities 10 - 10 -
Commercial paper 12 - 12 -
Certificates of deposit/time deposits 26 - 26 -
Asset-backed securities:
Automobile loan related 26 - 26 -
Credit card related 10 - 10 -
Equipment lease related 2 - 2 -
Other 19 - 19 -
U.S. municipal securities 12 - - 12
Derivative instruments - assets:
Foreign currency forward/option contracts 272 - 272 -
Interest rate swap contracts 24 - 24 -
Liabilities:
Derivative instruments - liabilities:
Foreign currency forward/option contracts 68 - 68 -
Interest rate swap contracts 1 - 1 -
The following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a
recurring basis in the table above that used significant unobservable inputs (Level 3).
Three months ended
Marketable securities - certain U.S. municipal securities only March 31,
(Millions) 2016 2015
Beginning balance $ 12 $ 15
Total gains or losses:
Included in earnings - -
Included in other comprehensive income - -
Purchases and issuances 6 -
Sales and settlements - -
Transfers in and/or out of level 3 - -
Ending balance $ 18 $ 15
Change in unrealized gains or losses for the period included in earnings for securities held at the end of the reporting period - -
In addition, the plan assets of 3M's pension and postretirement benefit plans are measured at fair value on a recurring
basis (at least annually). Refer to Note 11 in 3M's 2015 Annual Report on Form 10-K.
Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis:
Disclosures are required for certain assets and liabilities that are measured at fair value, but are recognized and
disclosed at fair value on a nonrecurring basis in periods subsequent to initial recognition. For 3M, such measurements of
fair value relate primarily to long-lived asset impairments. There were no material long-lived asset impairments for the
three months ended March 31, 2016 and 2015.
Fair Value of Financial Instruments:
The Company's financial instruments include cash and cash equivalents, marketable securities, accounts receivable, certain
investments, accounts payable, borrowings, and derivative contracts. The fair values of cash and cash equivalents, accounts
receivable, accounts payable, and short-term borrowings and current portion of long-term debt (except medium-term fixed
rate notes totaling $1 billion, which will mature in September 2016 and are shown separately in the table below)
approximated carrying values because of the short-term nature of these instruments. Available-for-sale marketable
securities and investments, in addition to certain derivative instruments, are recorded at fair values as indicated in the
preceding disclosures. For its long-term debt, the Company utilized third-party quotes to estimate fair values (classified
as level 2). Information with respect to the carrying amounts and estimated fair values of these financial instruments
follow:
March 31, 2016 December 31, 2015
Carrying Fair Carrying Fair
(Millions) Value Value Value Value
Medium-term fixed rate notes due September 2016 $ 999 $ 1,002 $ 999 $ 1,003
Long-term debt, excluding current portion and medium-term fixed rate notes due September 2016 8,927 9,559 8,753 9,101
The fair values reflected above consider the terms of the related debt absent the impacts of derivative/hedging activity.
The carrying amount of long-term debt referenced above is impacted by certain fixed-to-floating interest rate swaps that
are designated as fair value hedges and by the designation of fixed rate Eurobond securities issued by the Company as
hedging instruments of the Company's net investment in its European subsidiaries. Many of 3M's fixed-rate bonds were
trading at a premium at March 31, 2016 and December 31, 2015 due to the low interest rates and tightening of 3M's credit
spreads.
NOTE 12. Commitments and Contingencies
Legal Proceedings:
The Company and some of its subsidiaries are involved in numerous claims and lawsuits, principally in the United States,
and regulatory proceedings worldwide. These include various products liability (involving products that the Company now or
formerly manufactured and sold), intellectual property, and commercial claims and lawsuits, including those brought under
the antitrust laws, and environmental proceedings. Unless otherwise stated, the Company is vigorously defending all such
litigation. Additional information about the Company's process for disclosure and recording of liabilities and insurance
receivables related to legal proceedings can be found in Note 14 "Commitments and Contingencies" in the Company's Annual
Report on Form 10-K for the year ended December 31, 2015.
The following sections first describe the significant legal proceedings in which the Company is involved, and then describe
the liabilities and associated insurance receivables the Company has accrued relating to its significant legal
proceedings.
Respirator Mask/Asbestos Litigation
As of March 31, 2016, the Company is a named defendant, with multiple co-defendants, in numerous lawsuits in various courts
that purport to represent approximately 2,110 individual claimants, compared to approximately 2,130 individual claimants
with actions pending at December 31, 2015.
The vast majority of the lawsuits and claims resolved by and currently pending against the Company allege use of some of
the Company's mask and respirator products and seek damages from the Company and other defendants for alleged personal
injury from workplace exposures to asbestos, silica, coal mine dust or other occupational dusts found in products
manufactured by other defendants or generally in the workplace. A minority of the lawsuits and claims resolved by and
currently pending against the Company generally allege personal injury from occupational exposure to asbestos from products
previously manufactured by the Company, which are often unspecified, as well as products manufactured by other defendants,
or occasionally at Company premises.
The Company's current volume of new and pending matters is substantially lower than it experienced at the peak of filings
in 2003. The Company expects that filing of claims by unimpaired claimants in the future will continue to be at much lower
levels than in the past. Accordingly, the number of claims alleging more serious injuries, including mesothelioma and other
malignancies, will represent a greater percentage of total claims than in the past. The Company has prevailed in all ten
cases taken to trial, including eight of the nine cases tried to verdict (such trials occurred in 1999, 2000, 2001, 2003,
2004, 2007, and 2015), and an appellate reversal in
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