XML 29 R18.htm IDEA: XBRL DOCUMENT v3.22.1
Derivatives
3 Months Ended
Mar. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives Derivatives
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. Note 14 to the Consolidated Financial Statements in 3M's 2021 Annual Report on Form 10-K explains the types of derivatives and financial instruments used by 3M, how and why 3M uses such instruments, and how such instruments are accounted for. It also contains information regarding previously initiated contracts or instruments.
Additional information with respect to derivatives is included elsewhere as follows:
Impact on other comprehensive income of nonderivative hedging and derivative instruments is included in Note 7.
Fair value of derivative instruments is included in Note 13.
Derivatives and/or hedging instruments associated with the Company’s long-term debt are described in Note 12 to the Consolidated Financial Statements in 3M’s 2021 Annual Report on Form 10-K.
Refer to the section below titled Statement of Income Location and Impact of Cash Flow and Fair Value Derivative Instruments and Derivatives Not Designated as Hedging Instruments for details on the location within the consolidated statements of income for amounts of gains and losses related to derivative instruments designated as cash flow or fair value hedges (along with similar information relative to the hedged items) and derivatives not designated as hedging instruments. Additional information relative to cash flow hedges, fair value hedges, net investment hedges and derivatives not designated as hedging instruments is included below as applicable.
Cash Flow Hedges:
As of March 31, 2022, the Company had a balance of $55 million associated with the after-tax net unrealized loss associated with cash flow hedging instruments recorded in accumulated other comprehensive income. This includes a remaining balance of $98 million (after-tax loss) related to the forward starting interest rate swap and treasury rate lock contracts, which will be amortized over the respective lives of the notes. Based on exchange rates as of March 31, 2022, of the total after-tax net unrealized balance as of March 31, 2022, 3M expects to reclassify approximately $19 million after-tax net unrealized gain over the next 12 months (with the impact offset by earnings/losses from underlying hedged items).
The amount of pretax gain (loss) recognized in other comprehensive income related to derivative instruments designated as cash flow hedges is provided in the following table.
Pretax Gain (Loss) Recognized in Other Comprehensive Income on Derivative
Three months ended
March 31,
(Millions)20222021
Foreign currency forward/option contracts $6 $66 
Interest rate contracts
Total $6 $66 
Fair Value Hedges:
The following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustments for fair value hedges:
(Millions)Carrying Value of the
Hedged Liabilities
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Value of the Hedged Liabilities
Location on the Consolidated Balance SheetMarch 31,
2022
December 31,
2021
March 31,
2022
December 31,
2021
Short-term borrowings and current portion of long-term debt$$$$
Long-term debt949997(52)(4)
Total $949$997$(52)$(4)
Net Investment Hedges:
At March 31, 2022, the total notional amount of foreign exchange forward contracts designated in net investment hedges was approximately 150 million euros, along with a principal amount of long-term debt instruments designated in net investment hedges totaling 2.4 billion euros. The maturity dates of these derivative and nonderivative instruments designated in net investment hedges range from 2022 to 2031.
The amount of gain (loss) excluded from effectiveness testing recognized in income relative to instruments designated in net investment hedge relationships is not material. The amount of pretax gain (loss) recognized in other comprehensive income related to derivative and nonderivative instruments designated as net investment hedges are as follows.
Pretax Gain (Loss) Recognized as Cumulative Translation within Other Comprehensive Income
Three months ended
March 31,
(Millions)20222021
Foreign currency denominated debt $59 $167 
Foreign currency forward contracts2 
Total $61 $169 
Statement of Income Location and Impact of Cash Flow and Fair Value Derivative Instruments and Derivatives Not Designated as Hedging Instruments
The location in the consolidated statement of income and pre-tax amounts recognized in income related to derivative instruments designated in cash flow or fair value hedging relationships and for derivatives not designated as hedging instruments are as follows:
Location and Amount of Gain (Loss) Recognized in Income
Three months ended March 31,
Cost of salesOther expense (income), net
(Millions)2022202120222021
Information regarding cash flow and fair value hedging relationships:
Total amounts of income and expense line items presented in the consolidated statement of income in which the effects of derivatives are recorded$4,826$4,525$38$49
Gain or (loss) on cash flow hedging relationships:
Foreign currency forward/option contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income9 (7)
Interest rate contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income(2)(2)
Gain or (loss) on fair value hedging relationships:
Interest rate contracts:
Hedged items48 
Derivatives designated as hedging instruments(48)(2)
Information regarding derivatives not designated as hedging instruments:
Gain or (loss) on derivatives not designated as instruments:
Foreign currency forward/option contracts (20)— 2522 
Location, Fair Value, and Gross Notional Amounts of Derivative Instruments
The following tables summarize the fair value of 3M’s derivative instruments, excluding nonderivative instruments used as hedging instruments, and their location in the consolidated balance sheet. Notional amounts below are presented at period end foreign exchange rates, except for certain interest rate swaps, which are presented using the inception date’s foreign exchange rate.
Gross Notional AmountAssetsLiabilities
 (Millions)LocationFair Value AmountLocationFair Value Amount
March 31,
2022
December 31,
2021
March 31,
2022
December 31,
2021
March 31,
2022
December 31,
2021
Derivatives designated as hedging instruments
Foreign currency forward/option contracts1,835 1,768 Other current assets$58 $54 Other current liabilities$25 $19 
Foreign currency forward/option contracts807 800 Other assets41 41 Other liabilities3 
Interest rate contracts 800 800 Other assets — Other liabilities57 
Total derivatives designated as hedging instruments 99 95 85 29 
Derivatives not designated as hedging instruments
Foreign currency forward/option contracts 4,465 3,731 Other current assets13 24 Other current liabilities27 
Total derivatives not designated as hedging instruments 13 24 27 
Total derivative instruments$112 $119 $112 $33 
Credit Risk and Offsetting of Assets and Liabilities of Derivative Instruments
The Company is exposed to credit loss in the event of nonperformance by counterparties in interest rate swaps, currency 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. 3M enters into master netting arrangements with counterparties when possible to mitigate credit risk in derivative transactions. A master netting arrangement may allow each counterparty to net settle amounts owed between a 3M entity and the counterparty as a result of multiple, separate derivative transactions. The Company does not anticipate nonperformance by any of these counterparties.
3M has elected to present the fair value of derivative assets and liabilities within the Company’s consolidated balance sheet on a gross basis even when derivative transactions are subject to master netting arrangements and may otherwise qualify for net presentation. However, the following tables provide information as if the Company had elected to offset the asset and liability balances of derivative instruments, netted in accordance with various criteria in the event of default or termination as stipulated by the terms of netting arrangements with each of the counterparties. For each counterparty, if netted, the Company would offset the asset and liability balances of all derivatives at the end of the reporting period based on the 3M entity that is a party to the transactions. Derivatives not subject to master netting agreements are not eligible for net presentation.
Offsetting of Financial Assets under Master Netting Agreements with Derivative Counterparties
Gross Amounts not Offset in the
Consolidated Balance Sheet that are Subject to Master Netting Agreements
 Gross Amount of Derivative Assets Presented in the Consolidated Balance Sheet Gross Amount of Eligible Offsetting Recognized Derivative LiabilitiesCash
Collateral Received
Net Amount of
Derivative Assets
 (Millions)March 31, 2022December 31, 2021March 31, 2022December 31, 2021March 31, 2022December 31, 2021March 31,
2022
December 31, 2021
Derivatives subject to master netting agreements$112$119$40$25$$— $72$94 
Derivatives not subject to master netting agreements— 
Total$112$119$72$94 
Offsetting of Financial Liabilities under Master Netting Agreements with Derivative Counterparties
Gross Amounts not Offset in the
Consolidated Balance Sheet that are Subject to Master Netting Agreements
 Gross Amount of Derivative Liabilities Presented in the Consolidated Balance Sheet Gross Amount of Eligible Offsetting Recognized Derivative AssetsCash
Collateral Received
Net Amount of
Derivative Liabilities
 (Millions)March 31, 2022December 31, 2021March 31, 2022December 31, 2021March 31, 2022December 31, 2021March 31, 2022December 31, 2021
Derivatives subject to master netting agreements$110$33$40$25$$— $70$
Derivatives not subject to master netting agreements22— 
Total$112$33$72$
Currency Effects
3M estimates that year-on-year foreign currency transaction effects, including hedging impacts, increased pre-tax income by approximately $17 million and decreased pre-tax income by approximately $10 million for the three months ended March 31, 2022 and 2021, respectively. These estimates include transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risks.