REG - 3M Company - Annual Financial Report - Updated by Form 8-K <Origin Href="QuoteRef">MMM.N</Origin> - Part 9
19/05/2016 07:09
- Part 9: For the preceding part double click ID:nRSS6547Yh
Interest expense $ 21
Total $ (21) $ 21
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, 2015, 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.
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
Year ended December 31, 2013
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 $ (82) N/A $ -
Foreign currency forward contracts 12 Cost of sales -
Total $ (70) $ -
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 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 2015 2014 2013
(Millions) Location Amount Amount Amount
Foreign currency forward/option contracts Cost of sales $ 5 $ 10 $ 20
Foreign currency forward contracts Interest expense (30) (40) (43)
Commodity price swap contracts Cost of sales (3) - (1)
Total $ (28) $ (30) $ (24)
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, 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
Gross Assets Liabilities
December 31, 2014 Notional Fair Fair
(Millions) Amount Location Value Amount Location Value Amount
Derivatives designated as
hedging instruments
Foreign currency forward/option contracts $ 1,865 Other current assets $ 116 Other current liabilities $ 2
Foreign currency forward/option contracts 656 Other assets 47 Other liabilities 1
Commodity price swap contracts 20 Other current assets - Other current liabilities 4
Interest rate swap contracts 1,003 Other assets 27 Other liabilities 3
Total derivatives designated as hedging instruments $ 190 $ 10
Derivatives not designated as
hedging instruments
Foreign currency forward/option contracts $ 6,582 Other current assets $ 66 Other current liabilities $ 33
Total derivatives not designated as hedging instruments $ 66 $ 33
Total derivative instruments $ 256 $ 43
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, 2015, 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, 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
December 31, 2014 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 $ 256 $ 20 $ - $ 236
Derivatives not subject to master netting agreements - -
Total $ 256 $ 236
Offsetting of Financial Liabilities under Master Netting Agreements with Derivative Counterparties
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
December 31, 2014 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 $ 36 $ 20 $ - $ 16
Derivatives not subject to master netting agreements 7 7
Total $ 43 $ 23
Foreign Currency Effects
3M estimates that year-on-year foreign currency transaction effects, including hedging impacts, increased pre-tax income by
approximately $180 million and $10 million in 2015 and 2014, respectively. These estimates include transaction gains and
losses, including derivative instruments designed to reduce foreign currency exchange rate risks and the negative impact of
swapping Venezuelan bolivars into U.S. dollars.
NOTE 13. 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 most 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
2015 and 2014.
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
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 9.
Available-for-sale marketable securities -certain U.S. municipal securities only:
In the fourth quarter 2014, 3M obtained a municipal bond with the City of Nevada, Missouri, which represent 3M's only U.S.
municipal securities holding as of 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
will be 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
(Millions) Fair Value at Using Inputs Considered as
Description 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 -
Fair Value Measurements
(Millions) Fair Value at Using Inputs Considered as
Description December 31, 2014 Level 1 Level 2 Level 3
Assets:
Available-for-sale:
Marketable securities:
U.S. government agency securities $ 108 $ - $ 108 $ -
Foreign government agency securities 95 - 95 -
Corporate debt securities 619 - 619 -
Certificates of deposit/time deposits 41 - 41 -
Asset-backed securities:
Automobile loan related 282 - 282 -
Credit card related 162 - 162 -
Equipment lease related 48 - 48 -
Other 46 - 46 -
U.S. treasury securities 38 38 - -
U.S. municipal securities 15 - - 15
Investments 1 1 - -
Derivative instruments - assets:
Foreign currency forward/option contracts 229 - 229 -
Interest rate swap contracts 27 - 27 -
Liabilities:
Derivative instruments - liabilities:
Foreign currency forward/option contracts 36 - 36 -
Commodity price swap contracts 4 - 4 -
Interest rate swap contracts 3 - 3 -
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).
(Millions)
Marketable securities - certain U.S. municipal securities and auction rate
securities only 2015 2014 2013
Beginning balance $ 15 $ 11 $ 7
Total gains or losses:
Included in earnings - (1) -
Included in other comprehensive income - 2 4
Purchases and issuances - 15 -
Sales and settlements (3) (12) -
Transfers in and/or out of level 3 - - -
Ending balance 12 15 11
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.
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 2015,
2014 and 2013.
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 the 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:
December 31, 2015 December 31, 2014
Carrying Fair Carrying Fair
(Millions) Value Value Value Value
Medium-term fixed rate note due September 2016 (long-term in 2014 and short-term in 2015) $ 999 $ 1,003 $ 996 $ 1,014
Long-term debt, excluding current portion and medium-term fixed rate note due September 2016 8,753 9,101 5,709 6,189
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 December 31, 2015 and 2014 due to the low interest rates and tightening of 3M's credit spreads.
NOTE 14. Commitments and Contingencies
Capital and Operating Leases:
Rental expense under operating leases was $316 million in 2015, $332 million in 2014 and $330 million in 2013. It is 3M's
practice to secure renewal rights for leases, thereby giving 3M the right, but not the obligation, to maintain a presence
in a leased facility. 3M has three primary capital leases. First, 3M has a capital lease, which became effective in April
2003, that involves a building in the United Kingdom (with a lease term of 22 years). During the second quarter of 2003, 3M
recorded a capital lease asset and obligation of approximately 33.5 million British Pound (GBP), or approximately $50
million at December 31, 2015, exchange rates. Second, during the fourth quarter of 2009, 3M recorded a capital lease asset
and obligation of approximately $50 million related to an IT investment with an amortization period of seven years. Third,
in the fourth quarter of 2014, 3M recorded a capital lease asset and obligation of approximately $15 million, which is
discussed in more detail in Note 7.
Minimum lease payments under capital and operating leases with non-cancelable terms in excess of one year as of December
31, 2015, were as follows:
Operating
(Millions) Capital Leases Leases
2016 $ 11 $ 234
2017 6 191
2018 4 134
2019 3 86
2020 3 72
After 2020 32 226
Total $ 59 $ 943
Less: Amounts representing interest 5
Present value of future minimum lease payments 54
Less: Current obligations under capital leases 8
Long-term obligations under capital leases $ 46
Unconditional Purchase Obligations:
Unconditional purchase obligations are defined as an agreement to purchase goods or services that is enforceable and
legally binding (non-cancelable, or cancelable only in certain circumstances). The Company estimates its total
unconditional purchase obligation commitment (for those contracts with terms in excess of one year) as of December 31,
2015, at $596 million. Payments by year are estimated as follows: 2016 ($193 million), 2017 ($160 million), 2018 ($102
million), 2019 ($54 million), 2020 ($56 million) and after 2020 ($31 million). Many of these commitments relate to take or
pay contracts, in which 3M guarantees payment to ensure availability of products or services that are sold to customers.
The Company expects to receive consideration (products or services) for these unconditional purchase obligations. The
purchase obligation amounts do not represent the entire anticipated purchases in the future, but represent only those items
for which the Company is contractually obligated. The majority of 3M's products and services are purchased as needed, with
no unconditional commitment. For this reason, these amounts will not provide an indication of the Company's expected future
cash outflows related to purchase obligations.
Warranties/Guarantees:
3M's accrued product warranty liabilities, recorded on the Consolidated Balance Sheet as part of current and long-term
liabilities, are estimated at approximately $28 million at December 31, 2015, and $30 million at December 31, 2014. 3M does
not consider this amount to be material. The fair value of 3M guarantees of loans with third parties and other guarantee
arrangements are not material.
Related Party Activity:
3M does not have any material related party activity.
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.
Process for Disclosure and Recording of Liabilities and Insurance Receivables Related to Legal Proceedings
Many lawsuits and claims involve highly complex issues relating to causation, scientific evidence, and whether there are
actual damages and are otherwise subject to substantial uncertainties. Assessments of lawsuits and claims can involve a
series of complex judgments about future events and can rely heavily on estimates and assumptions. The Company complies
with the requirements of ASC 450, Contingencies, and related guidance, and records liabilities for legal proceedings in
those instances where it can reasonably estimate the amount of the loss and where liability is probable. Where the
reasonable estimate of the probable loss is a range, the Company records the most likely estimate of the loss, or the low
end of the range if there is no one best estimate. The Company either discloses the amount of a possible loss or range of
loss in excess of established accruals if estimable, or states that such an estimate cannot be made. The Company discloses
significant legal proceedings even where liability is not probable or the amount of the liability is not estimable, or
both, if the Company believes there is at least a reasonable possibility that a loss may be incurred.
The Company estimates insurance receivables based on an analysis of its numerous policies, including their exclusions,
pertinent case law interpreting comparable policies, its experience with similar claims, and assessment of the nature of
the claim and remaining coverage, and records an amount it has concluded is likely to be recovered. For those insured
matters where the Company has taken an accrual, the Company also records receivables for the amount of insurance that it
expects to recover under the Company's insurance program. For those insured matters where the Company has not taken an
accrual because the liability is not probable or the amount of the liability is not estimable, or both, but where the
Company has incurred an expense in defending itself, the Company records receivables for the amount of insurance that it
expects to recover for the expense incurred.
Because litigation is subject to inherent uncertainties, and unfavorable rulings or developments could occur, there can be
no certainty that the Company may not ultimately incur charges in excess of presently recorded liabilities. A future
adverse ruling, settlement, or unfavorable development could result in future charges that could have a material adverse
effect on the Company's results of operations or cash flows in the period in which they are recorded. Although the Company
cannot estimate its exposure to all legal proceedings, it currently believes that such future charges, if any, would not
have a material adverse effect on the consolidated financial position of the Company. Based on experience and developments,
the Company reexamines its estimates of probable liabilities and associated expenses and receivables each period, and
whether it is able to estimate a liability previously determined to be not estimable and/or not probable. Where
appropriate, the Company makes additions to or adjustments of its estimated liabilities. As a result, the current estimates
of the potential impact on the Company's consolidated financial position, results of operations and cash flows for the
legal proceedings and claims pending against the Company could change in the future.
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 December 31, 2015, the Company is a named defendant, with multiple co-defendants, in numerous lawsuits in various
courts that purport to represent approximately 2,130 individual claimants, compared to approximately 2,220 individual
claimants with actions pending at December 31, 2014.
The vast majority of
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