3M 2015 Annual Report Download - page 46

TableofContents
CommodityPricesRisk:
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TheCompanymanagescommoditypricerisksthroughnegotiatedsupplycontracts,priceprotectionagreementsandforward
contracts.3Musedcommoditypriceswapsascashflowhedgesofforecastedcommoditytransactionstomanagepricevolatility,but
discontinuedthispracticeinthefirstquarterof2015.Therelatedmark-to-marketgainorlossonqualifyinghedgeswasincludedin
othercomprehensiveincometotheextenteffective,andreclassifiedintocostofsalesintheperiodduringwhichthehedged
transactionaffectedearnings.
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ValueAtRisk:
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ThevalueatriskanalysisisperformedannuallytoassesstheCompany’ssensitivitytochangesincurrencyrates,interestrates,and
commodityprices.AMonteCarlosimulationtechniquewasusedtotesttheimpactonafter-taxearningsrelatedtofinancial
instruments(primarilydebt),derivativesandunderlyingexposuresoutstandingatDecember31,2015.Themodel(third-partybank
dataset)useda95percentconfidencelevelovera12-monthtimehorizon.Theexposuretochangesincurrencyratesmodelused18
currencies,interestratesrelatedtothreecurrencies,andcommoditypricesrelatedtofivecommodities.Thismodeldoesnotpurport
torepresentwhatactuallywillbeexperiencedbytheCompany.Thismodeldoesnotincludecertainhedgetransactions,becausethe
Companybelievestheirinclusionwouldnotmateriallyimpacttheresults.Theriskoflossorbenefitassociatedwithexchangerates
washigherin2015duetoagreatermixoffloatingratedebtandarisinginterestrateenvironmentintheU.S.Interestratevolatility
increasedin2015,basedonahighermixoffloatingratedebtandtheuseofforwardrates.Thefollowingtablesummarizesthe
possibleadverseandpositiveimpactstoafter-taxearningsrelatedtotheseexposures.
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Adverseimpactonafter-tax Positiveimpactonafter-tax 
earnings earnings 
(Millions)  2015  2014  2015  2014 
Foreignexchangerates  $ (254) $ (164) $ 273  $ 173 
Interestrates   (13)  (4)  9   3 
Commodityprices   (1)  (1)  1   1 
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Inadditiontothepossibleadverseandpositiveimpactsdiscussedintheprecedingtablerelatedtoforeignexchangerates,recent
historicalinformationisasfollows.3Mestimatesthatyear-on-yearcurrencyeffects,includinghedgingimpacts,hadthefollowing
effectsonpre-taxincome:2015($390milliondecrease)and2014($100milliondecrease).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thefollowingeffectsonpre-taxincome:2015($180million
increase)and2014($10millionincrease).
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Ananalysisoftheglobalexposuresrelatedtopurchasedcomponentsandmaterialsisperformedateachyear-end.Aonepercent
pricechangewouldresultinapre-taxcostorsavingsofapproximately$70millionperyear.Theglobalenergyexposureissuchthat
atenpercentpricechangewouldresultinapre-taxcostorsavingsofapproximately$40millionperyear.Globalenergyexposure
includesenergycostsusedin3Mproductionandotherfacilities,primarilyelectricityandnaturalgas.
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