3M 2014 Annual Report Download - page 99

Download and view the complete annual report

Please find page 99 of the 2014 3M annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

93
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. The extent of 3M’s use of forward contracts may depend on the volume of foreign currency denominated
debt already designated in net investment hedges. 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 European
subsidiaries during 2013 and 2014 varied as foreign currency denominated debt balances designated in such
relationships were dedesignated, matured or were newly issued and designated. Forward contracts in hedge relationships
with notional amounts totaling 594 million Euros matured in November 2013. Similar contracts reached approximately 1.3
billion Euros in notional amounts outstanding in November 2014.
At December 31, 2014, the total notional amount of foreign exchange forward contracts designated in net investment
hedges was 200 million Euros and the principal amount of long-term debt instruments designated in net investment
hedges totaled 1.85 billion Euros (as discussed in Note 9, specifically items C, D1, D2, and H). The maturity dates of
these derivative and nonderivative instruments designated in net investment hedges range from 2015 to 2026.
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, 2014
Derivative and Nonderivative Instruments in Net Investment Hedging
Relationships
Pretax Gain (Loss)
Recognized as
Cumulative Translation
within Other
Comprehensive Income
on Effective Portion of
Instrument
Ineffec
tive Portion of Gain (Loss) on
Instrument and Amount Excluded
from Effectiveness Testing
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
Derivative and Nonderivative Instruments in Net Investment Hedging
Relationships
Pretax Gain (Loss)
Recognized as
Cumulative Translation
within Other
Comprehensive Income
on Effective Portion of
Instrument
Ineffective Portion of Gain (Loss) on
Instrument and Amount Excluded
from Effectiveness Testing
Recognized in Income
(Millions) Amount Location
Amount
Foreign currency denominated debt $
(82) N/A $
―
Foreign currency forward contracts 12 Cost of sales ―
Total $
(70) $
―