3M 2008 Annual Report Download - page 85

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79
The following table provides the estimated pension and postretirement benefit payments that are payable from the
plans to participants, and also provides the medicare subsidy receipts expected to be received.
Qualified and Non-qualified
Pension Benefits Postretirement
Medicare
Subsidy
(Millions) United States International Benefits Receipts
2009 Benefit Payments . $ 621 $ 168 $ 125 $ 14
2010 Benefit Payments . 635 138 133 16
2011 Benefit Payments . 653 143 138 17
2012 Benefit Payments . 674 158 142 19
2013 Benefit Payments . 695 167 148 21
Following five years....... 3,831 986 839 122
NOTE 12. 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, 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, 2008, 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 2008, 2007 and 2006.
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 2009. No significant
commodity cash flow hedges were discontinued and hedge ineffectiveness was not material during the years 2008,
2007 and 2006.
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) 2008 2007 2006
Beginning balance.................................................... $(28)
$ (18 ) $ 38
Changes in fair value of derivatives ......................... 50 (17 ) (53 )
Reclassifications to earnings from equity................. 22 7 (3 )
Total activity ............................................................. 72 (10 ) (56 )
Ending balance......................................................... $44
$ (28 ) $ (18 )