3M 2011 Annual Report Download - page 96

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90
As of December 31, 2011, the Company had a balance of $22 million associated with the after tax net unrealized
gain associated with cash flow hedging instruments recorded in accumulated other comprehensive income. This
includes a $4 million balance (loss) related to a floating-to-fixed interest rate swap (discussed in the preceding
paragraph), which will be amortized over the five-year life of the note. 3M expects to reclassify a majority of the
remaining balance to earnings over the next 12 months (with the impact offset by cash flows from underlying hedged
items).
The location in the consolidated statements of income and comprehensive income and amounts of gains and losses
related to derivative instruments designated as cash flow hedges are provided in the following table.
Reclassifications of amounts from accumulated other comprehensive income into income include accumulated gains
(losses) on dedesignated hedges at the time earnings are impacted by the forecasted transaction.
Year ended December 31, 2011
(Millions)
Derivatives in Cash Flow Hedging
Pretax Gain (Loss)
Recognized in Other
Comprehensive Income
On Effective Portion of
Derivative
Pretax Gain (Loss) Recognized
in Income on Effective Portion
of Derivative as a Result of
Reclassification from
Accumulated Other
Comprehensive Income
Ineffective Portion of Gain
(Loss) on Derivative and
Amount Excluded from
Effectiveness Testing
Recognized in Income
Relationships Amount Location Amount Location Amount
Foreign currency forward/option contracts $ 3 Cost of sales $ (87 ) Cost of sales $ —
Foreign currency forward contracts . . . (42) Interest expense (41) Interest expense
—
Commodity price swap contracts ........... (4) Cost of sales (6) Cost of sales
—
Interest rate swap contracts . . . . . . . . (7) Interest expense
—
Interest expense
—
Total ........................ $ (50 ) $ (134 ) $ —
Year ended December 31, 2010
(Millions)
Derivatives in Cash Flow Hedging
Pretax Gain (Loss)
Recognized in Other
Comprehensive Income
on Effective Portion of
Derivative
Pretax Gain (Loss) Recognized
in Income on Effective Portion
of Derivative as a Result of
Reclassification from
Accumulated Other
Comprehensive Income
Ineffective Portion of Gain
(Loss) on Derivative and
Amount Excluded from
Effectiveness Testing
Recognized in Income
Relationships Amount Location Amount Location Amount
Foreign currency forward/option contracts $ (30 ) Cost of sales $ (39 ) Cost of sales $ —
Foreign currency forward contracts . . . . . 34 Interest expense 33 Interest expense —
Commodity price swap contracts . . . . . . (13 ) Cost of sales (9 ) Cost of sales —
Total .......................... $ (9 ) $ (15 ) $ —
Year ended December 31, 2009
(Millions)
Derivatives in Cash Flow Hedging
Pretax Gain (Loss)
Recognized in Other
Comprehensive Income
on Effective Portion of
Derivative
Pretax Gain (Loss) Recognized
in Income on Effective Portion
of Derivative as a Result of
Reclassification from
Accumulated Other
Comprehensive Income
Ineffective Portion of Gain
(Loss) on Derivative and
Amount Excluded from
Effectiveness Testing
Recognized in Income
Relationships Amount Location Amount Location Amount
Foreign currency forward/option contracts $ (58 ) Cost of sales $ 96 Cost of sales $
—
Foreign currency forward contracts . . . . 55 Interest expense 47 Interest expense
—
Commodity price swap contracts . . . . . (18 ) Cost of sales (34 ) Cost of sales
—
Total ......................... $ (21 ) $ 109 $
—
Fair Value Hedges:
For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivatives as
well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current
earnings.
Fair Value Hedging - Interest Rate Swaps: The Company manages interest expense using a mix of fixed and floating
rate debt. To help manage borrowing costs, the Company may enter into interest rate swaps. Under these
arrangements, the Company agrees to exchange, at specified intervals, the difference between fixed and floating
interest amounts calculated by reference to an agreed-upon notional principal amount. The mark-to-market of these
fair value hedges is recorded as gains or losses in interest expense and is offset by the gain or loss of the underlying
debt instrument, which also is recorded in interest expense. These fair value hedges are highly effective and, thus,
there is no impact on earnings due to hedge ineffectiveness. The dollar equivalent (based on inception date foreign
currency exchange rates) gross notional amount of the Company’s interest rate swaps at December 31, 2011 was
$342 million.