3M 2009 Annual Report Download - page 101

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The location in the consolidated statements of income and amounts of gains and losses related to derivative
instruments not designated as hedging instruments are as follows:
Year ended Dec. 31, 2009
(Millions)
Gain (Loss) on Derivative
Recognized in Income
Derivatives Not Designated as Hedging Instruments Location Amount
Foreign currency forward/option contracts.......... Cost of sales $ (41)
Foreign currency forward contract ...................... Interest expense 20
Commodity price swap contracts ........................ Cost of sales 1
Total................................................................. $ (20)
Location and Fair Value Amount of Derivative Instruments
The following table summarizes the fair value of 3M’s derivative instruments, excluding nonderivative instruments
used as hedging instruments, and their location in the consolidated balance sheet.
December 31, 2009
(Millions) Assets Liabilities
Fair Value of Derivative Instruments Location Amount Location Amount
Derivatives designated as hedging
instruments
Foreign currency forward/option contracts Other current assets $ 17 Other current liabilities $ 41
Commodity price swap contracts........ Other current assets 1 Other current liabilities 1
Interest rate swap contracts............ Other assets 54 Other liabilities —
Total derivatives designated as
hedging instruments.............
$ 72 $ 42
Derivatives not designated as hedging
instruments
Foreign currency forward/option contracts Other current assets $ 6 Other current liabilities $ 52
Commodity price swap contracts........ Other current assets 1 Other current liabilities —
Total derivatives not designated
as hedging instruments ..........
$7 $52
Total derivative instruments............
$ 79 $ 94
Additional information with respect to the fair value of derivative instruments is included in Note 13.
Currency Effects and Credit Risk
Currency Effects: 3M estimates that year-on-year currency effects, including hedging impacts, decreased net income
attributable to 3M by approximately $220 million in 2009 and increased net income attributable to 3M by
approximately $160 million in 2008 and $150 million in 2007. This estimate includes the effect of translating profits
from local currencies into U.S. dollars; the impact of currency fluctuations on the transfer of goods between 3M
operations in the United States and abroad; and transaction gains and losses, including derivative instruments
designed to reduce foreign currency exchange rate risks and the negative impact of swapping Venezuelan bolivars
into U.S. dollars. 3M estimates that year-on-year derivative and other transaction gains and losses had an immaterial
impact in 2009, and increased net income attributable to 3M by approximately $40 million in 2008 and by
approximately $10 million in 2007.
Credit risk: The Company is exposed to credit loss in the event of nonperformance by counterparties in interest rate
swaps, currency swaps, commodity price swaps, and forward and option contracts. However, the Company’s risk is
limited to the fair value of the instruments. The Company actively monitors its exposure to credit risk through the use
of credit approvals and credit limits, and by selecting major international banks and financial institutions as
counterparties. The Company does not anticipate nonperformance by any of these counterparties. 3M has credit
support agreements in place with two of its primary derivatives counterparties. Under these agreements, either party
is required to post eligible collateral when the market value of transactions covered by these agreements exceeds
specified thresholds, thus limiting credit exposure for both parties.