REG - 3M Company - Half Yearly Report <Origin Href="QuoteRef">MMM.N</Origin> - Part 3
29/10/2014 09:34
- Part 3: For the preceding part double click ID:nRSA0731Ob
(1) 6 (60)
Total other comprehensive income (loss),
net of tax 131 121 2 (7) 247
Balance at June 30, 2014, net of tax $ (57) $ (3,594) $ - $ (15) $ (3,666)
Three months ended June 30, 2013
(Millions) Cumulative Translation Adjustment Defined Benefit Pension and Postretirement Plans Adjustment Debt and Equity Securities, Unrealized Gain (Loss) Cash Flow Hedging Instruments, Unrealized Gain (Loss) Total Accumulated Other Comprehen-sive Income (Loss)
Balance at March 31, 2013, net of tax $ (130) $ (4,870) $ (2) $ 1 $ (5,001)
Other comprehensive income (loss),
before tax:
Amounts before reclassifications (260) - (6) (79) (345)
Amounts reclassified out - 144 - 91 235
Total other comprehensive income (loss),
before tax (260) 144 (6) 12 (110)
Tax effect - (53) 2 (4) (55)
Total other comprehensive income (loss),
net of tax (260) 91 (4) 8 (165)
Balance at June 30, 2013, net of tax $ (390) $ (4,779) $ (6) $ 9 $ (5,166)
Six months ended June 30, 2013
(Millions) Cumulative Translation Adjustment Defined Benefit Pension and Postretirement Plans Adjustment Debt and Equity Securities, Unrealized Gain (Loss) Cash Flow Hedging Instruments, Unrealized Gain (Loss) Total Accumulated Other Comprehen-sive Income (Loss)
Balance at December 31, 2012, net of tax $ 230 $ (4,955) $ (2) $ (23) $ (4,750)
Other comprehensive income (loss),
before tax:
Amounts before reclassifications (584) - (6) (114) (704)
Amounts reclassified out - 287 - 164 451
Total other comprehensive income (loss),
before tax (584) 287 (6) 50 (253)
Tax effect (36) (111) 2 (18) (163)
Total other comprehensive income (loss),
net of tax (620) 176 (4) 32 (416)
Balance at June 30, 2013, net of tax $ (390) $ (4,779) $ (6) $ 9 $ (5,166)
Income taxes are not provided for foreign translation relating to permanent investments in international subsidiaries, but
tax effects within cumulative translation does include impacts from items such as net investment hedge transactions.
Reclassification adjustments are made to avoid double counting in comprehensive income items that are also recorded as part
of net income.
The previously reported before-tax amounts of other comprehensive income before reclassifications and amounts reclassified
out of other comprehensive income for thethree and six months ended June 30, 2013 relative to foreign currency forward
contracts in the table above and below were impacted by the immaterial revisions discussed in Note 9.
Reclassifications out of Accumulated Other Comprehensive Income Attributable to 3M
Amount Reclassified from
Accumulated Other Comprehensive Income
(Millions) Three months ended June 30, Six months ended June 30, Location on Income Statement
Details about Accumulated Other Comprehensive Income Components 2014 2013 2014 2013
Gains (losses) associated with, defined benefit pension and postretirement plans amortization
Transition asset $ - $ - $ - $ 1 See Note 8
Prior service benefit 15 20 30 40 See Note 8
Net actuarial loss (107) (164) (213) (328) See Note 8
Total before tax (92) (144) (183) (287)
Tax effect 32 53 62 111 Provision for income taxes
Net of tax $ (60) $ (91) $ (121) $ (176)
Debt and equity security gains (losses)
Sales or impairments of securities $ - $ - $ - $ - Selling, general and administrative expenses
Total before tax - - - -
Tax effect - - - - Provision for income taxes
Net of tax $ - $ - $ - $ -
Cash flow hedging instruments gains (losses)
Foreign currency forward/option contracts $ (6) $ (3) $ (2) $ (9) Cost of sales
Foreign currency forward contracts - (89) - (155) Interest expense
Commodity price swap contracts 1 1 3 - Cost of sales
Total before tax (5) (91) 1 (164)
Tax effect 2 32 - 59 Provision for income taxes
Net of tax $ (3) $ (59) $ 1 $ (105)
Total reclassifications for the period, net of tax $ (63) $ (150) $ (120) $ (281)
Purchase and Sale of Subsidiary Shares
In April 2014, 3M purchased the remaining noncontrolling interest in a consolidated 3M subsidiary for an immaterial amount,
which was classified as other financing activity in the consolidated statement of cash flows.
In March 2013, 3M sold shares in 3M India Limited, a subsidiary of the Company, in return for $8 million. The
noncontrolling interest shares of this subsidiary trade on a public exchange in India. This sale of shares complied with an
amendment to Indian securities regulations that required 3M India Limited, as a listed company, to achieve a minimum public
shareholding of at least 25 percent. As a result of this transaction, 3M's ownership in 3M India Limited was reduced from
76 percent to 75 percent. The $8 million received in the first quarter of 2013 was classified as other financing activity
in the consolidated statement of cash flows. Because the Company retained its controlling interest, the sales resulted in
an increase in 3M Company shareholder's equity of $7 million and an increase in noncontrolling interest of $1 million.
In July 2014, 3M announced that it will acquire (via Sumitomo 3M Limited) Sumitomo Electric Industries, Ltd.'s 25 percent
interest in 3M's consolidated Sumitomo 3M Limited subsidiary for 90 billion Japanese Yen (approximately $885 million at
announcement date exchange rates). Upon completion of the transaction, 3M will own 100 percent of Sumitomo 3M Limited. The
transaction is expected to close on September 1, 2014 and will be reflected as a financing activity in the consolidated
statement of cash flows.
NOTE 5. Income Taxes
The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With
few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by
tax authorities for years before 2005.
The IRS completed its field examination of the Company's U.S. federal income tax returns for the years 2005 through 2007 in
the fourth quarter of 2009. The Company protested certain IRS positions within these tax years and entered into the
administrative appeals process with the IRS during the first quarter of 2010. During the first quarter of 2010, the IRS
completed its field examination of the Company's U.S. federal income tax return for the 2008 year. The Company protested
certain IRS positions for 2008 and entered into the administrative appeals process with the IRS during the second quarter
of 2010. During the first quarter of 2011, the IRS completed its field examination of the Company's U.S. federal income tax
return for the 2009 year. The Company protested certain IRS positions for 2009 and entered into the administrative appeals
process with the IRS during the second quarter of 2011. During the first quarter of 2012, the IRS completed its field
examination of the Company's U.S. federal income tax return for the 2010 year. The Company protested certain IRS positions
for 2010 and entered into the administrative appeals process with the IRS during the second quarter of 2012. In December
2012, the Company received a statutory notice of deficiency for the 2006 year. The Company filed a petition in Tax Court in
the first quarter of 2013 relating to the 2006 tax year. During the first quarter of 2014, the IRS completed its field
examination of the Company's U.S. federal income tax return for the 2011 and 2012 years. The Company protested certain IRS
positions for 2011 and 2012 and entered into the administrative appeals process with the IRS during the first quarter of
2014.
Currently, the Company is under examination by the IRS for its U.S. federal income tax returns for the years 2013 and 2014.
It is anticipated that the IRS will complete its examination of the Company for 2013 by the end of the first quarter of
2015 and for 2014 by the end of the first quarter of 2016. As of June 30, 2014, the IRS has not proposed any significant
adjustments to the Company's tax positions for which the Company is not adequately reserved.
During the first quarter of 2010, the Company paid the agreed upon assessments for the 2005 tax year. During the second
quarter of 2010, the Company paid the agreed upon assessments for the 2008 tax year. During the second quarter of 2011, the
Company received a refund from the IRS for the 2004 tax year. During the first quarter of 2012, the Company paid the agreed
upon assessments for the 2010 tax year. During the first quarter of 2014, the Company received refunds from the IRS for
the 2005, 2007, 2008, and 2009 tax years. In addition, during the first quarter of 2014, the Company paid the agreed upon
assessments for the 2011 and 2012 tax years. Payments or refunds relating to other proposed assessments arising from the
2005 through 2014 examinations may not be made until a final agreement is reached between the Company and the IRS on such
assessments or upon a final resolution resulting from the administrative appeals process or judicial action. In addition to
the U.S. federal examination, there is also limited audit activity in several U.S. state and foreign jurisdictions.
3M anticipates changes to the Company's uncertain tax positions due to the closing of various audit years mentioned above.
Currently, the Company is not able to reasonably estimate the amount by which the liability for unrecognized tax benefits
will increase or decrease during the next 12 months as a result of the ongoing income tax authority examinations. The total
amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of June 30, 2014 and
December 31, 2013, respectively, are $202 million and $262 million.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company
recognized in the consolidated statement of income on a gross basis approximately $2 million of expense and $1 million of
expense for the three months ended June 30, 2014 and June 30, 2013, respectively, and approximately $13 million in benefit
and $5 million of expense for the six months ended June 30, 2014 and June 30, 2013, respectively. At June 30, 2014 and
December 31, 2013, accrued interest and penalties in the consolidated balance sheet on a gross basis were $45 million and
$62 million, respectively. Included in these interest and penalty amounts are interest and penalties related to tax
positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of
such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance
of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash
to the taxing authority to an earlier period.
The effective tax rate for the second quarter of 2014 was 29.5 percent, compared to 27.4 percent in the second quarter of
2013, an increase of 2.1 percentage points. Factors that increased the Company's effective tax rate on a combined basis by
2.1 percentage points year-on-year included the 2013 restoration of tax basis on certain assets for which depreciation was
previously limited, international taxes as a result of changes to the geographic mix of income before taxes, lapse of the
U.S. research and development credit as of January 1, 2014, adjustments to the Company's income tax reserves, and other
items.
The effective tax rate for the first six months of 2014 was 28.5 percent, compared to 28.2 percent in the first six months
of 2013, an increase of 0.3 percentage points. Factors which increased the Company's effective tax rate by 1.1 percentage
points for the first six months of 2014 when compared to the same period for 2013 included the lapse of the U.S. research
and development credit as of January 1, 2014, and international taxes as a result of changes to the geographic mix of
income before taxes. This increase was partially offset by a 0.8 percentage point decrease as the result of adjustments to
the Company's reserves and the restoration of tax basis on certain assets for which depreciation was previously limited.
The provision for income taxes is determined using the asset and liability approach. Under this approach, deferred income
taxes represent the expected future tax consequences of temporary differences between the carrying amounts and tax basis of
assets and liabilities. The Company records a valuation allowance to reduce its deferred tax assets when uncertainty
regarding their realizability exists. As of June 30, 2014 and December 31, 2013, the Company had valuation allowances of
$28 million and $23 million on its deferred tax assets, respectively.
NOTE 6. Marketable Securities
The Company invests in agency securities, corporate securities, asset-backed securities, treasury securities and other
securities. The following is a summary of amounts recorded on the Consolidated Balance Sheet for marketable securities
(current and non-current).
June 30, December 31,
(Millions) 2014 2013
U.S. government agency securities $ 78 $ 103
Foreign government agency securities 70 30
Corporate debt securities 182 143
Commercial paper - 60
Certificates of deposit/time deposits 38 20
U.S. municipal securities - 2
Asset-backed securities:
Automobile loan related 297 287
Credit card related 137 52
Equipment lease related 63 30
Other 19 29
Asset-backed securities total 516 398
Current marketable securities $ 884 $ 756
U.S. government agency securities $ 70 $ 131
Foreign government agency securities 50 95
Corporate debt securities 614 638
Certificates of deposit/time deposits 10 20
U.S. treasury securities 49 49
Auction rate securities 12 11
Asset-backed securities:
Automobile loan related 240 298
Credit card related 85 128
Equipment lease related 25 37
Other 49 46
Asset-backed securities total 399 509
Non-current marketable securities $ 1,204 $ 1,453
Total marketable securities $ 2,088 $ 2,209
Classification of marketable securities as current or non-current is dependent upon management's intended holding period,
the security's maturity date and liquidity considerations based on market conditions. If management intends to hold the
securities for longer than one year as of the balance sheet date, they are classified as non-current. At June 30, 2014,
gross unrealized losses totaled approximately $1 million (pre-tax), while gross unrealized gains totaled approximately $1
million (pre-tax). At December 31, 2013, gross unrealized losses totaled approximately $5 million (pre-tax), while gross
unrealized gains totaled approximately $1 million (pre-tax). Refer to Note 4 for a table that provides the net realized
gains (losses) related to sales or impairments of debt and equity securities, which includes marketable securities. The
gross amounts of the realized gains or losses were not material. Cost of securities sold use the first in, first out (FIFO)
method. Since these marketable securities are classified as available-for-sale securities, changes in fair value will flow
through other comprehensive income, with amounts reclassified out of other comprehensive income into earnings upon sale or
"other-than-temporary" impairment.
3M reviews impairments associated with its marketable securities in accordance with the measurement guidance provided by
ASC 320, Investments-Debt and Equity Securities, when determining the classification of the impairment as "temporary" or
"other-than-temporary". A temporary impairment charge results in an unrealized loss being recorded in the other
comprehensive income component of shareholders' equity. Such an unrealized loss does not reduce net income attributable to
3M for the applicable accounting period because the loss is not viewed as other-than-temporary. The factors evaluated to
differentiate between temporary and other-than-temporary include the projected future cash flows, credit ratings actions,
and assessment of the credit quality of the underlying collateral, as well as other factors.
The balances at June 30, 2014 for marketable securities by contractual maturity are shown below. Actual maturities may
differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without
prepayment penalties.
(Millions) June 30, 2014
Due in one year or less $ 329
Due after one year through five years 1,737
Due after five years through ten years 22
Due after ten years -
Total marketable securities $ 2,088
3M has a diversified marketable securities portfolio with a fair market value of $2.088 billion as of June 30, 2014. Within
this portfolio, current and long-term asset-backed securities (estimated fair value of $915 million) primarily include
interests in automobile loans, credit cards and equipment leases. 3M's investment policy allows investments in asset-backed
securities with minimum credit ratings of Aa2 by Moody's Investors Service or AA by Standard & Poor's or Fitch Ratings or
DBRS. Asset-backed securities must be rated by at least two of the aforementioned rating agencies, one of which must be
Moody's Investors Service or Standard & Poor's. At June 30, 2014, all asset-backed security investments were in compliance
with this policy. Approximately 96.5 percent of all asset-backed security investments were rated AAA or A-1+ by Standard &
Poor's and/or Aaa or P-1 by Moody's Investors Service.
3M's marketable securities portfolio includes auction rate securities that represent interests in investment grade credit
default swaps; however, currently these holdings comprise less than one percent of this portfolio. The estimated fair value
of auction rate securities was $12 million at June 30, 2014 and $11 million at December 31, 2013. Gross unrealized losses
within accumulated other comprehensive income related to auction rate securities totaled $1 million (pre-tax) at June 30,
2014 and $2 million (pre-tax) at December 31, 2013. As of June 30, 2014, auction rate securities associated with these
balances have been in a loss position for more than 12 months. Since the second half of 2007, these auction rate securities
failed to auction due to sell orders exceeding buy orders. Liquidity for these auction-rate securities is typically
provided by an auction process that resets the applicable interest rate at pre-determined intervals, usually every 7, 28,
35, or 90 days. The funds associated with failed auctions will not be accessible until a successful auction occurs or a
buyer is found outside of the auction process. Refer to Note 10 for a table that reconciles the beginning and ending
balances of auction rate securities.
NOTE 7. Long-Term Debt and Short-Term Borrowings
The Company has a "well-known seasoned issuer" shelf registration statement, effective May 16, 2014, which registers an
indeterminate amount of debt or equity securities for future sales. This replaced 3M's previous shelf registration dated
August 5, 2011. In June 2014, in connection with the May 16, 2014 shelf registration, 3M re-commenced its medium-term notes
program (Series F) under which 3M may issue, from time to time, up to $9 billion aggregate principal amount of notes.
Included in this $9 billion are $2.25 billion of notes previously issued in 2011 and 2012 as part of Series F. In June
2014, 3M issued $625 million aggregate principal amount of five-year fixed rate medium-term notes due 2019 with a coupon
rate of 1.625%. Upon debt issuance, the Company entered into an interest rate swap to convert $600 million of this amount
to an interest rate based on a floating LIBOR index. In addition, in June 2014, 3M issued $325 million aggregate principal
amount of thirty-year fixed rate medium-term notes due 2044 with a coupon rate of 3.875%. Both June 2014 debt issuances
were from the medium-term notes program (Series F). In addition, subsequent to quarter-end, in July 2014, 3M repaid 1.025
billion Euros of maturing Eurobond notes funded primarily through the issuances of commercial paper.
NOTE 8. Pension and Postretirement Benefit Plans
Net periodic benefit cost is recorded in cost of sales, selling, general and administrative expenses, and research,
development and related expenses. Components of net periodic benefit cost and other supplemental information for the three
and six months ended June 30, 2014 and 2013 follow:
Benefit Plan Information
Three months ended June 30,
Qualified and Non-qualified
Pension Benefits Postretirement
United States International Benefits
(Millions) 2014 2013 2014 2013 2014 2013
Net periodic benefit cost (benefit)
Service cost $ 60 $ 64 $ 35 $ 36 $ 17 $ 20
Interest cost 169 149 65 61 24 22
Expected return on plan assets (261) (261) (80) (75) (23) (23)
Amortization of transition (asset) obligation - - - - - -
Amortization of prior service cost (benefit) 1 1 (4) (5) (12) (16)
Amortization of net actuarial (gain) loss 61 100 31 40 15 24
Net periodic benefit cost (benefit) $ 30 $ 53 $ 47 $ 57 $ 21 $ 27
Settlements, curtailments, special termination benefits and other - - - - - -
Net periodic benefit cost (benefit) after settlements, curtailments,
special termination benefits and other $ 30 $ 53 $ 47 $ 57 $ 21 $ 27
Six months ended June 30,
Qualified and Non-qualified
Pension Benefits Postretirement
United States International Benefits
(Millions) 2014 2013 2014 2013 2014 2013
Net periodic benefit cost (benefit)
Service cost $ 120 $ 128 $ 71 $ 72 $ 33 $ 40
Interest cost 338 299 129 122 48 44
Expected return on plan assets (522) (522) (159) (150) (45) (45)
Amortization of transition (asset) obligation - - - (1) - -
Amortization of prior service cost (benefit) 2 2 (8) (9) (24) (33)
Amortization of net actuarial (gain) loss 122 200 62 80 29 48
Net periodic benefit cost (benefit) $ 60 $ 107 $ 95 $ 114 $ 41 $ 54
Settlements, curtailments, special termination benefits and other - - - - - -
Net periodic benefit cost (benefit) after settlements, curtailments,
special termination benefits and other $ 60 $ 107 $ 95 $ 114 $ 41 $ 54
For the six months ended June 30, 2014, contributions totaling $74 million were made to the Company's U.S. and
international pension plans and $3 million to its postretirement plans. For total year 2014, the Company expects to
contribute approximately $100 million to $200 million of cash to its global pension and postretirement plans. The Company
does not have a required minimum cash pension contribution obligation for its U.S. plans in 2014. Therefore, the amount of
future discretionary pension contributions could vary significantly depending on the U.S. plans' funded status and the
anticipated tax deductibility of the contributions. Future contributions will also depend on market conditions, interest
rates and other factors. 3M's annual measurement date for pension and postretirement assets and liabilities is December 31
each year, which is also the date used for the related annual measurement assumptions.
3M was informed during the first quarter of 2009 that the general partners of WG Trading Company, in which 3M's benefit
plans hold limited partnership interests, are the subject of a criminal investigation as well as civil proceedings by the
SEC and CFTC (Commodity Futures Trading Commission). In March 2011, over the objections of 3M and six other limited
partners of WG Trading Company, the district court judge ruled in favor of the court appointed receiver's proposed
distribution plan (and in April 2013, the United States Court of Appeals for the Second Circuit affirmed the district
court's ruling). The benefit plan trustee holdings of WG Trading Company interests were adjusted to reflect the decreased
estimated fair market value, inclusive of estimated insurance proceeds, as of the annual measurement dates. The Company has
insurance that it believes, based on what is currently known, will result in the recovery of a portion of the decrease in
original asset value. As of the 2013 measurement date these holdings represented less than one percent of 3M's fair value
of total plan assets. 3M currently believes that the resolution of these events will not have a material adverse effect on
the consolidated financial position of the Company.
In addition, the Company also sponsors employee savings plans under Section 401(k) of the Internal Revenue Code, as
discussed in Note 10 in 3M's Form 8-K dated May 15, 2014 (which updated 3M's 2013 Annual Report on Form 10-K).
NOTE 9. 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 4. Additional information with respect to the fair value of derivative instruments is
included in Note 10. References to information regarding derivatives and/or hedging instruments associated with the
Company's long-term debt are also made in Note 9 to the Consolidated Financial Statements in 3M's Current Report on Form
8-K dated May 15, 2014 (which updated 3M's 2013 Annual Report on Form 10-K).
Types of Derivatives/Hedging Instruments and Inclusion in Income/Other Comprehensive Income
Cash Flow Hedges:
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss
on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same
period during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge
ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.
Cash Flow Hedging - Foreign Currency Forward and Option Contracts: The Company enters into foreign exchange forward and
option contracts to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies
and certain intercompany financing transactions. 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. Generally, 3M dedesignates 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. Hedge ineffectiveness and the amount excluded from effectiveness testing recognized in income on cash flow hedges
were not material for the three and six months ended June 30, 2014 and 2013. 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. At June 30, 2014, the majority of
the Company's open foreign exchange forward and option contracts had maturities of one year or less. The dollar equivalent
gross notional amount of the Company's foreign exchange forward and option contracts designated as cash flow hedges at June
30, 2014 was approximately $1.9 billion.
Cash Flow Hedging - Commodity Price Management: The Company manages commodity price risks through negotiated supply
contracts, price protection agreements and forward physical contracts. The Company uses commodity price swaps relative to
natural gas as cash flow hedges of forecasted transactions to manage price volatility. The related mark-to-market gain or
loss on qualifying hedges is included in other comprehensive income to the extent effective, and reclassified into cost of
sales in the period during which the hedged transaction affects earnings. Generally, the length of time over which 3M
hedges its exposure to the variability in future cash flows for its forecasted natural gas transactions is 12 months. No
significant commodity cash flow hedges were discontinued and hedge ineffectiveness was not material for the three and six
months ended June 30, 2014 and 2013. The dollar equivalent gross notional amount of the Company's natural gas commodity
price swaps designated as cash flow hedges at June 30, 2014 was $22 million.
Cash Flow Hedging - Forecasted Debt Issuance: In August 2011, in anticipation of the September 2011 issuance of $1 billion
in five-year fixed rate notes, 3M executed a pre-issuance cash flow hedge on a notional amount of $400 million by entering
into a forward-starting five-year floating-to-fixed interest rate swap. Upon debt issuance in September 2011, 3M terminated
the floating-to-fixed interest rate swap. The termination of the swap resulted in a $7 million pre-tax loss ($4 million
after-tax) that is amortized over the five-year life of the note and, when material, is included in the tables below as
part of the loss recognized in income on the effective portion of derivatives as a result of reclassification from
accumulated other comprehensive income.
As of June 30, 2014, the Company had a balance of $15 million associated with the after-tax net unrealized loss associated
with cash flow hedging instruments recorded in accumulated other comprehensive income. This net loss includes a $2 million
balance(loss) related to a floating-to-fixed interest rate swap (discussed in the preceding paragraph), which is being
amortized over the five-year life of the note. 3M expects to reclassify a majority of the remaining balance to earnings
over the next 12 months (with the impact offset by cash flows 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.
The Company revised amounts previously presented in the tables below for the pretax gain
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