Marketable Securities

9 Months Ended

Sep. 30, 2011

Marketable Securities

Marketable Securities

NOTE 6.  Marketable Securities

The Company invests in agency securities, corporate securities, asset-backed securities, treasury securities and other securities. The following is a summary of amounts recorded on the Consolidated Balance Sheet for marketable securities (current and non-current).

(Millions)	Sept. 30, 2011		Dec. 31, 2010
U.S. government agency securities	$	257	$	246
Foreign government agency securities	—		52
Corporate debt securities	389		280
Commercial paper	138		55
Certificates of deposit/time deposits	117		29
U.S. treasury securities	—		55
U.S. municipal securities	6		20
Asset-backed securities:
Automobile loan related	388		253
Credit card related	144		79
Equipment lease related	35		24
Other	10		8
Asset-backed securities total	577		364
Other securities	2		—
Current marketable securities	$	1,486	$	1,101
U.S. government agency securities	$	132	$	63
Foreign government agency securities	3		3
Corporate debt securities	106		192
U.S. treasury securities	34		44
U.S. municipal securities	3		3
Asset-backed securities:
Automobile loan related	81		144
Credit card related	56		70
Equipment lease related	23		14
Asset-backed securities total	160		228
Auction rate securities	5		7
Non-current marketable securities	$	443	$	540
Total marketable securities	$	1,929	$	1,641

Classification of marketable securities as current or non-current is dependent upon management’s intended holding period, the security’s maturity date and liquidity considerations based on market conditions. If management intends to hold the securities for longer than one year as of the balance sheet date, they are classified as non-current. At September 30, 2011, gross unrealized losses totaled approximately $11 million (pre-tax), while gross unrealized gains totaled approximately $2 million (pre-tax). At December 31, 2010, gross unrealized losses totaled approximately $9 million (pre-tax), while gross unrealized gains totaled approximately $5 million (pre-tax). Gross realized gains and losses on sales or maturities of marketable securities for the first nine months of 2011 and 2010 were not material. Cost of securities sold use the first in, first out (FIFO) method. Since these marketable securities are classified as available-for-sale securities, changes in fair value will flow through other comprehensive income, with amounts reclassified out of other comprehensive income into earnings upon sale or “other-than-temporary” impairment.

3M reviews impairments associated with its marketable securities in accordance with the measurement guidance provided by ASC 320, Investments-Debt and Equity Securities, when determining the classification of the impairment as “temporary” or “other-than-temporary”. A temporary impairment charge results in an unrealized loss being recorded in the other comprehensive income component of shareholders’ equity. Such an unrealized loss does not reduce net income attributable to 3M for the applicable accounting period because the loss is not viewed as other-than-temporary. The factors evaluated to differentiate between temporary and other-than-temporary include the projected future cash flows, credit ratings actions, and assessment of the credit quality of the underlying collateral, as well as other factors.

The balances at September 30, 2011 for marketable securities by contractual maturity are shown below. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

(Millions)	Sept. 30, 2011
Due in one year or less	$	1,013
Due after one year through three years	805
Due after three years through five years	96
Due after five years	15
Total marketable securities	$	1,929

3M has a diversified marketable securities portfolio of $1.929 billion as of September 30, 2011. Within this portfolio, current and long-term asset-backed securities (estimated fair value of $737 million) are primarily comprised of interests in automobile loans and credit cards. At September 30, 2011, the asset-backed securities credit ratings were AAA or A-1+, with the exception of two securities rated A1 or A3 with a fair market value of $7 million.

3M’s marketable securities portfolio includes auction rate securities that represent interests in investment grade credit default swaps; however, currently these holdings comprise less than one percent of this portfolio. The estimated fair value of auction rate securities is $5 million at September 30, 2011 and $7 million at December 31, 2010. Gross unrealized losses within accumulated other comprehensive income related to auction rate securities totaled $8 million (pre-tax) at September 30, 2011 and $6 million (pre-tax) at December 31, 2010. As of September 30, 2011, auction rate securities associated with these balances have been in a loss position for more than 12 months. Since the second half of 2007, these auction rate securities failed to auction due to sell orders exceeding buy orders. Liquidity for these auction-rate securities is typically provided by an auction process that resets the applicable interest rate at pre-determined intervals, usually every 7, 28, 35, or 90 days. The funds associated with failed auctions will not be accessible until a successful auction occurs or a buyer is found outside of the auction process. Refer to Note 10 for a table that reconciles the beginning and ending balances of auction rate securities.