REG - 3M Company - Annual Financial Report <Origin Href="QuoteRef">MMM.N</Origin> - Part 9
10/02/2017 17:45
- Part 9: For the preceding part double click ID:nRSJ6609Wh
$ 1 $ 10 $ 3 $ 2 $ - $ - $ 88 $ 80
Cash and Cash Equivalents
Cash and cash equivalents $ 44 $ 38 $ 3 $ - $ - $ - $ 47 $ 38
Repurchase agreements and derivative margin activity - - (22) - - - (22) -
Cash and cash equivalents, valued at net asset value* 38 30
Total Cash and Cash Equivalents $ 44 $ 38 $ (19) $ - $ - $ - $ 63 $ 68
Total $ 687 $ 687 $ 391 $ 392 $ (3) $ (4) $ 1,350 $ 1,358
Other items to reconcile to fair value of plan assets $ 6 $ 9
Fair value of plan assets $ 1,356 $ 1,367
*In accordance with ASC 820-10, certain investments that are measured at fair value using the net asset value per share (or
its equivalent) as a practical expedient have not been classified in the fair value hierarchy. The NAV is based on the fair
value of the underlying assets owned by the fund, minus its liabilities then divided by the number of units outstanding and
is determined by the investment manager or custodian of the fund. The fair value amounts presented in this table are
intended to permit reconciliation of the fair value hierarchy to the amounts presented in the fair value of plan assets.
Publicly traded equities are valued at the closing price reported in the active market in which the individual securities
are traded.
Fixed income includes derivative instruments such as credit default swaps, interest rate swaps and futures contracts.
Corporate debt includes bonds and notes, asset backed securities, collateralized mortgage obligations and private
placements. Swaps and derivative instruments are valued by the custodian using closing market swap curves and market
derived inputs. U.S. government and government agency bonds and notes are valued at the closing price reported in the
active market in which the individual security is traded. Corporate bonds and notes, asset backed securities and
collateralized mortgage obligations are valued at either the yields currently available on comparable securities of issuers
with similar credit ratings or valued under a discounted cash flow approach that utilizes observable inputs, such as
current yields of similar instruments, but includes adjustments for certain risks that may not be observable such as credit
and liquidity risks. Private placements are valued by the custodian using recognized pricing services and sources.
The private equity portfolio is a diversified mix of derivative instruments, growth equity and partnership interests.
Derivative investments are written options that are valued by independent parties using market inputs and valuation models.
Growth equity investments are valued at the closing price reported in the active market in which the individual securities
are traded.
Absolute return consists primarily of partnership interests in hedge funds, hedge fund of funds or other private fund
vehicles. Corporate debt instruments are valued at either the yields currently available on comparable securities of
issuers with similar credit ratings or valued under a discounted cash flow approach that utilizes observable inputs, such
as current yields of similar instruments, but includes adjustments for certain risks that may not be observable such as
credit and liquidity risk ratings.
Other items to reconcile to fair value of plan assets include the net of insurance receivables for WG Trading Company,
interest receivables, amounts due for securities sold, amounts payable for securities purchased and interest payable.
The balances of and changes in the fair values of the U.S. pension plans' and postretirement plans' level 3 assets for the
periods ended December 31, 2016 and 2015 were not material.
International Pension Plans Assets
Outside the U.S., pension plan assets are typically managed by decentralized fiduciary committees. The disclosure below of
asset categories is presented in aggregate for over 70 defined benefit plans in 26 countries; however, there is significant
variation in asset allocation policy from country to country. Local regulations, local funding rules, and local financial
and tax considerations are part of the funding and investment allocation process in each country. The Company provides
standard funding and investment guidance to all international plans with more focused guidance to the larger plans.
Each plan has its own strategic asset allocation. The asset allocations are reviewed periodically and rebalanced when
necessary.
The fair values of the assets held by the international pension plans by asset class are as follows:
Fair Value Measurements Using Inputs Considered as Fair Value at
(Millions) Level 1 Level 2 Level 3 Dec. 31,
Asset Class 2016 2015 2016 2015 2016 2015 2016 2015
Equities
Growth equities $ 605 $ 718 $ 214 $ 195 $ - $ - $ 819 $ 913
Value equities 575 494 28 27 - - 603 521
Core equities 55 31 583 671 4 4 642 706
Equities, valued at net asset value* 16 17
Total Equities $ 1,235 $ 1,243 $ 825 $ 893 $ 4 $ 4 $ 2,080 $ 2,157
Fixed Income
Domestic government $ 340 $ 283 $ 202 $ 346 $ 3 $ 4 $ 545 $ 633
Foreign government 142 - 353 206 - - 495 206
Corporate debt securities 51 30 888 661 9 10 948 701
Fixed income securities, valued at net asset value* 641 770
Total Fixed Income $ 533 $ 313 $ 1,443 $ 1,213 $ 12 $ 14 $ 2,629 $ 2,310
Private Equity
Real estate $ 29 $ 1 $ 62 $ 5 $ 3 $ 4 $ 94 $ 10
Real estate, valued at net asset value* 34 126
Partnership investments* 63 24
Total Private Equity $ 29 $ 1 $ 62 $ 5 $ 3 $ 4 $ 191 $ 160
Absolute Return
Derivatives $ (4) $ (2) $ - $ 15 $ - $ - $ (4) $ 13
Insurance - - - - 455 456 455 456
Other - - - 4 6 3 6 7
Other, valued at net asset value* - 1
Hedge funds* 174 119
Total Absolute Return $ (4) $ (2) $ - $ 19 $ 461 $ 459 $ 631 $ 596
Cash and Cash Equivalents
Cash and cash equivalents $ 99 $ 126 $ 18 $ 347 $ - $ - $ 117 $ 473
Cash and cash equivalents, valued at net asset value* 4 1
Total Cash and Cash Equivalents $ 99 $ 126 $ 18 $ 347 $ - $ - $ 121 $ 474
Total $ 1,892 $ 1,681 $ 2,348 $ 2,477 $ 480 $ 481 $ 5,652 $ 5,697
Other items to reconcile to fair value of plan assets $ (35) $ (28)
Fair value of plan assets $ 5,617 $ 5,669
*In accordance with ASC 820-10, certain investments that are measured at fair value using the net asset value per share (or
its equivalent) as a practical expedient have not been classified in the fair value hierarchy. The NAV is based on the fair
value of the underlying assets owned by the fund, minus its liabilities then divided by the number of units outstanding and
is determined by the investment manager or custodian of the fund. The fair value amounts presented in this table are
intended to permit reconciliation of the fair value hierarchy to the amounts presented in the fair value of plan assets.
Equities consist primarily of mandates in public equity securities managed to various public equity indices. Publicly
traded equities are valued at the closing price reported in the active market in which the individual securities are
traded.
Fixed Income investments include domestic and foreign government, and corporate, (including mortgage backed and other debt)
securities. Governments, corporate bonds and notes and mortgage backed securities are valued at the closing price reported
if traded on an active market or at yields currently available on comparable securities of issuers with similar credit
ratings or valued under a discounted cash flow approach that utilizes observable inputs, such as current yields of similar
instruments, but includes adjustments for certain risks that may not be observable such as credit and liquidity risks.
Private equity funds consist of partnership interests in a variety of funds. Real estate consists of property funds and
REITS (Real Estate Investment Trusts). REITS are valued at the closing price reported in the active market in which it is
traded.
Absolute return consists of private partnership interests in hedge funds, insurance contracts, derivative instruments,
hedge fund of funds, and other alternative investments. Insurance consists of insurance contracts, which are valued using
cash surrender values which is the amount the plan would receive if the contract was cashed out at year end. Derivative
instruments consist of interest rate swaps that are used to help manage risks.
Other items to reconcile to fair value of plan assets include the net of interest receivables, amounts due for securities
sold, amounts payable for securities purchased and interest payable.
The balances of and changes in the fair values of the international pension plans' level 3 assets consist primarily of
insurance contracts under the absolute return asset class. The aggregate of net purchases and net unrealized gains
increased this balance by $8 million and $16 million in 2016 and 2015, respectively. Foreign currency exchange impacts
decreased this balance by $9 million and $36 million in 2016 and 2015, respectively.
NOTE 12. 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 6. Additional information with respect to the fair value of derivative instruments is
included in Note 13. References to information regarding derivatives and/or hedging instruments associated with the
Company's long-term debt are also made in Note 10.
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 commodity price swaps. 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: In the third and fourth quarters of 2014, the Company entered into forward
starting interest rate swaps with notional amounts totaling 500 million Euros as a hedge against interest rate volatility
associated with the forecasted issuance of fixed rate debt. 3M terminated these interest rate swaps upon issuance of 750
million Euros aggregate principal amount of twelve-year fixed rate notes in connection with 3M's 1.250 billion Eurobond
offering in November 2014. The termination resulted in an $8 million pre-tax ($5 million after-tax) loss within accumulated
other comprehensive income that will be amortized over the twelve-year life of the notes.
In the first six months of 2016, the Company entered into forward starting interest rate swaps that expired in December
2016 with an aggregate notional amount of $300 million as a hedge against interest rate volatility associated with a
forecasted issuance of fixed rate debt. Upon issuance of medium-term notes in September 2016, 3M terminated these interest
rate swaps. The termination resulted in an immaterial loss within accumulated other comprehensive income that will be
amortized over the respective lives of the debt.
In the fourth quarter of 2016, the Company entered into forward starting interest rate swaps with a notional amount of $200
million as a hedge against interest rate volatility associated with a forecasted issuance of fixed rate debt.
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.
As of December 31, 2016, the Company had a balance of $91 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 $6 million (after tax loss) related to forward starting interest rate swaps, which will be amortized over the
respective lives of the notes. Based on exchange rates as of December 31, 2016, 3M expects to reclassify approximately $57
million of the after-tax net unrealized foreign exchange cash flow hedging gains to earnings in 2017, approximately $26
million of the after-tax net unrealized foreign exchange cash flow hedging gains to earnings in 2018, and approximately $8
million of the after-tax net unrealized foreign exchange cash flow hedging gains to earnings after 2018 (with the impact
offset by earnings/losses from underlying hedged items).
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. Reclassifications of amounts
from accumulated other comprehensive income into income include accumulated gains (losses) on dedesignated hedges at the
time earnings are impacted by the forecasted transaction.
Year Ended December 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 $ 58 Cost of sales $ 110 Cost of sales $ -
Interest rate swap contracts (1) Interest expense (1) Interest expense -
Total $ 57 $ 109 $ -
Year Ended December 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 $ 212 Cost of sales $ 178 Cost of sales $ -
Commodity price swap contracts - Cost of sales (2) Cost of sales -
Interest rate swap contracts - Interest expense (2) Interest expense -
Total $ 212 $ 174 $ -
Year Ended December 31, 2014
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 $ 183 Cost of sales $ 3 Cost of sales $ -
Commodity price swap contracts (4) Cost of sales 2 Cost of sales -
Interest rate swap contracts (8) Interest expense (1) Interest expense -
Total $ 171 $ 4 $ -
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.
In July 2007, in connection with the issuance of a seven-year Eurobond for an amount of 750 million Euros, the Company
completed a fixed-to-floating interest rate swap on a notional amount of 400 million Euros as a fair value hedge of a
portion of the fixed interest rate Eurobond obligation. In August 2010, the Company terminated 150 million Euros of the
notional amount of this swap. As a result, a gain of 18 million Euros, recorded as part of the balance of the underlying
debt, was amortized as an offset to interest expense over this debt's remaining life. Prior to termination of the
applicable portion of the interest rate swap, the mark-to-market of the hedge instrument was recorded as gains or losses in
interest expense and was offset by the gain or loss on carrying value of the underlying debt instrument. Consequently, the
subsequent amortization of the 18 million Euros recorded as part of the underlying debt balance was not part of gains on
hedged items recognized in income in the tables below. The remaining interest rate swap of 250 million Euros (notional
amount) matured in July 2014.
In November 2013, 3M issued a Eurobond due in 2021 for a face amount of 600 million Euros. Upon debt issuance, 3M completed
a fixed-to-floating interest rate swap on a notional amount of 300 million Euros as a fair value hedge of a portion of the
fixed interest rate Eurobond obligation.
In June 2014, 3M issued $950 million aggregate principal amount of medium-term notes. Upon debt issuance, the Company
entered into an interest rate swap to convert $600 million of a $625 million note included in this issuance to an interest
rate based on a floating three-month LIBOR index as a fair value hedge of a portion of the fixed interest rate medium-term
note obligation.
In August 2015, 3M issued $1.500 billion aggregate principal amount of medium-term notes. Upon debt issuance, the Company
entered into two interest rate swaps as fair value hedges of a portion of the fixed interest rate medium-term note
obligation. The first converted a $450 million three-year fixed rate note, and the second converted $300 million of a
five-year fixed rate note included in this issuance to an interest rate based on a floating three-month LIBOR index.
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:
Year Ended December 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 $ (2) Interest expense $ 2
Total $ (2) $ 2
Year Ended December 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 $ (2) Interest expense $ 2
Total $ (2) $ 2
Year Ended December 31, 2014
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 $ 11 Interest expense $ (11)
Total $ 11 $ (11)
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 December 31, 2016, the total notional amount of foreign exchange forward contracts designated in net investment hedges
was approximately 150 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 4.4 billion Euros. The maturity dates of these
derivative and nonderivative instruments designated in net investment hedges range from 2017 to 2031.
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.
Year ended December 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 $ 215 N/A $ -
Foreign currency forward contracts (9) Cost of sales (3)
Total $ 206 $ (3)
Year ended December 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 $ 63 N/A $ -
Foreign currency forward contracts 143 Cost of sales 11
Total $ 206 $ 11
Year ended December 31, 2014
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 $ 152 N/A $ -
Foreign currency forward contracts 94 Cost of sales 1
Total $ 246 $ 1
Derivatives Not Designated as Hedging Instruments:
Derivatives not designated as hedging instruments include dedesignated foreign currency forward and option contracts that
formerly were designated in cash flow hedging relationships (as referenced in the Cash Flow Hedges section above). In
addition, 3M enters into foreign currency forward contracts to offset, in part, the impacts of certain intercompany
activities (primarily associated with intercompany licensing arrangements) and enters into commodity price swaps to offset,
in part, fluctuations in costs associated with the use of certain commodities and 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 Company revised amounts previously presented in the table below for the gain (loss) on derivatives recognized in income
for the year ended December 31, 2015 relative to foreign currency forward contracts. This immaterial correction decreased
the previously presented amount of the loss recognized in income in the disclosure table below by $112 million for the year
ended December 31, 2015. This revision had no impact on the Company's consolidated results of operations, financial
condition, or cash flows.
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:
Gain (Loss) on Derivative Recognized in Income
Year ended Year ended Year ended
December 31, December 31, December 31,
Derivatives Not Designated as Hedging Instruments 2016 2015 2014
(Millions) Location Amount Amount Amount
Foreign currency forward/option contracts Cost of sales $ (14) $ 5 $ 10
Foreign currency forward contracts Interest expense 9 82 (40)
Commodity price swap contracts Cost of sales - (3) -
Total $ (5) $ 84 $ (30)
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 for certain interest rate swaps, which are presented using the inception date's foreign
exchange rate. Additional information with respect to the fair value of derivative instruments is included in Note 13.
Gross Assets Liabilities
December 31, 2016 Notional Fair Fair
(Millions) Amount Location Value Amount Location Value Amount
Derivatives designated as
hedging instruments
Foreign currency forward/option contracts $ 2,160 Other current assets $ 107 Other current liabilities $ 9
Foreign currency forward/option contracts 1,459 Other assets 86 Other liabilities 3
Interest rate swap contracts 1,953 Other assets 25 Other current liabilities 1
Total derivatives designated as hedging instruments $ 218 $ 13
Derivatives not designated as
hedging instruments
Foreign currency forward/option contracts $ 5,655 Other current assets $ 41 Other current liabilities $ 82
Total derivatives not designated as hedging instruments $ 41 $ 82
Total derivative instruments $ 259 $ 95
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 December 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 cash collateral had been received or pledged
related to these derivative instruments.
Offsetting of Financial Assets under Master Netting Agreements with Derivative Counterparties
December 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 $ 259 $ 39 $ - $ 220
Derivatives not subject to master netting agreements - -
Total $ 259 $ 220
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