3M 2007 Annual Report Download - page 77

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71
The following estimated benefit payments are payable from the plans to participants:
Qualified and Non-qualified Postretirement Medicare Subsidy
Pension Benefits Benefits Receipts
(Millions) United States International
2008 Benefit Payments $ 574 $ 188 $117 $ 13
2009 Benefit Payments 588 192 124 15
2010 Benefit Payments 607 197 130 17
2011 Benefit Payments 628 209 138 18
2012 Benefit Payments 665 222 143 20
Following five years 3,626 1,259 799 128
NOTE 12. Derivatives and Other Financial Instruments
The Company uses interest rate swaps, currency 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, and includes a table that recaps cash flow hedging
amounts.
Cash Flow Hedging - Foreign Currency Forward and Option Contracts: The Company enters into foreign exchange
forward contracts, options and swaps 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. At December 31, 2007, the Company had various open foreign exchange forward and option
contracts, the majority of which had maturities of one year or less. The settlement or extension of these derivatives will
result in reclassifications to earnings in the period during which the hedged transactions affect earnings (from other
comprehensive income). The maximum length of time over which 3M is hedging its exposure to the variability in future
cash flows for a majority of the forecasted transactions is 12 months. Hedge ineffectiveness was not material for the years
2007, 2006 and 2005.
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 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. 3M has hedged its exposure to the variability of future
cash flows for certain forecasted transactions through 2008. No significant commodity cash flow hedges were
discontinued and hedge ineffectiveness was not material during the years 2007, 2006 and 2005.
Cash Flow Hedging - Forecasted Debt Issuance: In June 2007, the Company executed a pre-issuance cash flow
hedge by entering into a floating-to-fixed interest rate swap on a notional amount of 350 million Euros related to the
anticipated July 2007 Eurobond issuance of 750 million Euros. Upon debt issuance in July 2007, 3M terminated the
floating-to-fixed swap. The termination of the swap resulted in an immaterial gain, which is being amortized over the
seven year life of the Eurobond.
Amounts recorded in accumulated other comprehensive income (loss) related to cash flow hedging instruments follow.
Cash Flow Hedging Instruments Twelve months ended
Net of Tax December 31
(Millions) 2007 2006 2005
Beginning balance $(18) $ 38 $(42)
Changes in fair value of derivatives (17) (53) 70
Reclassifications to earnings from equity 7 (3) 10
Total activity (10) (56) 80
Ending balance $(28) $(18) $ 38