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Fair Value Measurements
6 Months Ended
Jun. 30, 2020
Fair Value Measurements  
Fair Value Measurements

NOTE 13. Fair Value Measurements

3M follows ASC 820, Fair Value Measurements and Disclosures, with respect to assets and liabilities that are measured at fair value on a recurring basis and nonrecurring basis. The Company adopted ASU No. 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement, as of January 1, 2020. This ASU primarily amended the disclosures around Level 3 investments, of which the Company had an immaterial amount for all periods presented. Refer to Note 1 for additional details.

In addition to the information above, refer to Note 15 in 3M’s 2019 Annual Report on Form 10-K for a qualitative discussion of the assets and liabilities that are measured at fair value on a recurring and nonrecurring basis, a description of the valuation methodologies used by 3M, and categorization within the valuation framework of ASC 820.

The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis.

Fair Value Measurements

 

Description

Fair Value at

Using Inputs Considered as

 

(Millions)

    

June 30, 2020

    

Level 1

    

Level 2

    

Level 3

 

Assets:

Available-for-sale:

Marketable securities:

Commercial paper

$

195

$

$

195

$

Certificates of deposit/time deposits

 

27

 

 

27

 

U.S. municipal securities

 

59

 

 

22

 

37

Investments

21

21

Derivative instruments — assets:

Foreign currency forward/option contracts

 

133

 

 

133

 

Interest rate contracts

 

16

 

 

16

 

Liabilities:

Derivative instruments — liabilities:

Foreign currency forward/option contracts

 

32

 

 

32

 

Fair Value Measurements

 

Description

Fair Value at

Using Inputs Considered as

 

(Millions)

    

December 31, 2019

    

Level 1

    

Level 2

    

Level 3

 

Assets:

Available-for-sale:

Marketable securities:

Commercial paper

$

85

$

$

85

$

Certificates of deposit/time deposits

 

10

 

 

10

 

U.S. municipal securities

 

46

 

 

 

46

Investments

25

25

Derivative instruments — assets:

Foreign currency forward/option contracts

 

125

 

 

125

 

Interest rate contracts

 

17

 

 

17

 

Liabilities:

Derivative instruments — liabilities:

Foreign currency forward/option contracts

 

20

 

 

20

 

The following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis in the table above that used significant unobservable inputs (level 3).

    

Three months ended 

    

Six months ended 

 

Marketable securities — certain U.S. municipal securities only

June 30,

June 30,

 

(Millions)

2020

    

2019

2020

    

2019

 

Beginning balance

$

37

$

49

$

46

$

40

Total gains or losses:

Included in earnings

 

 

 

 

Included in other comprehensive income

 

 

 

 

Purchases and issuances

 

 

 

10

 

9

Sales and settlements

 

 

 

(19)

 

Transfers in and/or out of level 3

 

 

 

 

Ending balance

$

37

$

49

$

37

$

49

Change in unrealized gains or losses for the period included in earnings for securities held at the end of the reporting period

 

 

 

 

In addition, the plan assets of 3M’s pension and postretirement benefit plans are measured at fair value on a recurring basis (at least annually). Refer to Note 13 in 3M’s 2019 Annual Report on Form 10-K.

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis:

Disclosures are required for certain assets and liabilities that are measured at fair value, but are recognized and disclosed at fair value on a nonrecurring basis in periods subsequent to initial recognition. For 3M, such measurements of fair value relate primarily to indefinite-lived and long-lived asset impairments, goodwill impairments, and adjustment in carrying value of equity securities for which the measurement alternative of cost less impairment plus or minus observable price changes is used. 3M reflected an immaterial charge related to impairment of certain indefinite-lived assets and a net charge of $22 million related to adjustment to the carrying value of equity securities using the measurement alternative during the first quarter of 2020. There were no material impairments of assets or adjustments to equity securities using the measurement alternative for the three months ended June 30, 2020 in addition to the three and six months ended June 30, 2019.

Fair Value of Financial Instruments:

The Company’s financial instruments include cash and cash equivalents, marketable securities, held-to-maturity debt securities, accounts receivable, certain investments, accounts payable, borrowings, and derivative contracts. The fair values of cash equivalents, accounts receivable, held-to-maturity debt securities, accounts payable, and short-term borrowings and current portion of long-term debt approximated carrying values because of the short-term nature of these instruments. Available-for-sale marketable securities, in addition to certain derivative instruments, are recorded at fair values as indicated in the preceding disclosures. To estimate fair values (classified as level 2) for its long-term debt, the Company utilized third-party quotes, which are derived all or in part from model prices, external sources, market prices, or the third-party’s internal records. Information with respect to the carrying amounts and estimated fair values of these financial instruments follow:

June 30, 2020

December 31, 2019

 

    

Carrying

    

Fair

    

Carrying

    

Fair

 

(Millions)

Value

Value

Value

Value

 

Long-term debt, excluding current portion

$

19,276

$

21,479

$

17,518

$

18,475

The fair values reflected above consider the terms of the related debt absent the impacts of derivative/hedging activity. The carrying amount of long-term debt referenced above is impacted by certain fixed-to-floating interest rate swaps that are designated as fair value hedges and by the designation of certain fixed rate Eurobond securities issued by the Company as hedging instruments of the Company’s net investment in its European subsidiaries. A number of 3M’s fixed-rate bonds were trading at a premium at June 30, 2020 and December 31, 2019 due to lower interest rates compared to issuance levels.