3M 2015 Annual Report Download - page 45
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Please find page 45 of the 2015 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.TableofContents
RefertoItem7A,“QuantitativeandQualitativeDisclosuresAboutMarketRisk”,forfurtherdiscussionofforeignexchangerates
risk,interestratesrisk,commoditypricesriskandvalueatriskanalysis.
Item7A.QuantitativeandQualitativeDisclosuresAboutMarketRisk.
InthecontextofItem7A,3Misexposedtomarketriskduetotheriskoflossarisingfromadversechangesinforeigncurrency
exchangerates,interestratesandcommodityprices.Changesinthosefactorscouldcausefluctuationsinearningsandcashflows.
Seniormanagementprovidesoversightforriskmanagementandderivativeactivities,determinescertainoftheCompany’sfinancial
riskpoliciesandobjectives,andprovidesguidelinesforderivativeinstrumentutilization.Seniormanagementalsoestablishescertain
associatedproceduresrelativetocontrolandvaluation,riskanalysis,counterpartycreditapproval,andongoingmonitoringand
reporting.
TheCompanyisexposedtocreditlossintheeventofnonperformancebycounterpartiesininterestrateswaps,currencyswaps,
commoditypriceswaps,andforwardandoptioncontracts.However,theCompany’sriskislimitedtothefairvalueofthe
instruments.TheCompanyactivelymonitorsitsexposuretocreditriskthroughtheuseofcreditapprovalsandcreditlimits,andby
selectingmajorinternationalbanksandfinancialinstitutionsascounterparties.TheCompanydoesnotanticipatenonperformanceby
anyofthesecounterparties.
ForeignExchangeRatesRisk:
ForeigncurrencyexchangeratesandfluctuationsinthoseratesmayaffecttheCompany’snetinvestmentinforeignsubsidiariesand
maycausefluctuationsincashflowsrelatedtoforeigndenominatedtransactions.3Misalsoexposedtothetranslationofforeign
currencyearningstotheU.S.dollar.TheCompanyentersintoforeignexchangeforwardandoptioncontractstohedgeagainstthe
effectofexchangeratefluctuationsoncashflowsdenominatedinforeigncurrencies.Thesetransactionsaredesignatedascashflow
hedges.3Mmaydedesignatethesecashflowhedgerelationshipsinadvanceoftheoccurrenceoftheforecastedtransaction.
Beginninginthesecondquarterof2014,3Mbeganextendingthemaximumlengthoftimeoverwhichithedgesitsexposuretothe
variabilityinfuturecashflowsoftheforecastedtransactionsfromaprevioustermof12monthstoalongertermof24months,with
certaincurrenciesbeingextendedfurtherto36monthsstartinginthefirstquarterof2015.Inaddition,3Mentersintoforeign
currencyforwardcontractsthatarenotdesignatedinhedgingrelationshipstooffset,inpart,theimpactsofcertainintercompany
activities(primarilyassociatedwithintercompanylicensingarrangementsandintercompanyfinancingtransactions).As
circumstanceswarrant,theCompanyalsousesforeigncurrencyforwardcontractsandforeigncurrencydenominateddebtashedging
instrumentstohedgeportionsoftheCompany’snetinvestmentsinforeignoperations.Thedollarequivalentgrossnotionalamount
oftheCompany’sforeignexchangeforwardandoptioncontractsdesignatedascashflowhedgesandthosenotdesignatedas
hedginginstrumentswere$2.8billionand$5.4billion,respectively,atDecember31,2015.AsofDecember31,2015,the
Companyhad974millionEurosand248billionSouthKoreanWoninnotionalamountofforeigncurrencyforwardcontracts
designatedasnetinvestmenthedgesalongwith3.6billionEurosinprincipalamountofforeigncurrencydenominateddebt
designatedasnon-derivativehedginginstrumentsincertainnetinvestmenthedgesasdiscussedinNote12inthe“NetInvestment
Hedges”section.
InterestRatesRisk:
TheCompanymaybeimpactedbyinterestratevolatilitywithrespecttoexistingdebtandfuturedebtissuances.3Mmanages
interestexpenseusingamixoffixedandfloatingratedebt.Tohelpmanageborrowingcosts,theCompanymayenterintointerest
rateswapsthataredesignatedandqualifyasfairvaluehedges.Underthesearrangements,theCompanyagreestoexchange,at
specifiedintervals,thedifferencebetweenfixedandfloatinginterestamountscalculatedbyreferencetoanagreed-uponnotional
principalamount.Thedollarequivalent(basedoninceptiondateforeigncurrencyexchangerates)grossnotionalamountofthe
Company’sinterestrateswapsatDecember31,2015was$1.8billion.Additionaldetailsabout3M’slong-termdebtcanbefoundin
Note10,includingreferencestoinformationregardingderivativesand/orhedginginstrumentsassociatedwiththeCompany’slong-
termdebt.
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