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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2018
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. Under the standard, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The standard also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Assets and Liabilities that are Measured at Fair Value on a Recurring Basis: Refer to Note 14 in the Current Report on Form 8-K dated May 8, 2018 (which updated 3M’s 2017 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) |  | September 30, 2018 |  | Level 1 |  | Level 2 |  | Level 3 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |
Marketable securities: |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial paper |  | $ | 304 |  | $ | — |  | $ | 304 |  | $ | — |
Certificates of deposit/time deposits |  |  | 31 |  |  | — |  |  | 31 |  |  | — |
U.S. municipal securities |  |  | 30 |  |  | — |  |  | — |  |  | 30 |
Derivative instruments — assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward/option contracts |  |  | 113 |  |  | — |  |  | 113 |  |  | — |
Interest rate swap contracts |  |  | 25 |  |  | — |  |  | 25 |  |  | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative instruments — liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward/option contracts |  |  | 95 |  |  | — |  |  | 95 |  |  | — |
Interest rate swap contracts |  |  | 16 |  |  | — |  |  | 16 |  |  | — |
|  |  |  |  | Fair Value Measurements |
Description |  | Fair Value at |  | Using Inputs Considered as |
(Millions) |  | December 31, 2017 |  | Level 1 |  | Level 2 |  | Level 3 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |
Marketable securities: |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate debt securities |  | $ | 14 |  | $ | — |  | $ | 14 |  | $ | — |
Commercial paper |  |  | 899 |  |  | — |  |  | 899 |  |  | — |
Certificates of deposit/time deposits |  |  | 76 |  |  | — |  |  | 76 |  |  | — |
Asset-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |
Automobile loan related |  |  | 16 |  |  | — |  |  | 16 |  |  | — |
Credit card related |  |  | 68 |  |  | — |  |  | 68 |  |  | — |
U.S. municipal securities |  |  | 30 |  |  | — |  |  | — |  |  | 30 |
Derivative instruments — assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward/option contracts |  |  | 57 |  |  | — |  |  | 57 |  |  | — |
Interest rate swap contracts |  |  | 21 |  |  | — |  |  | 21 |  |  | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative instruments — liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward/option contracts |  |  | 190 |  |  | — |  |  | 190 |  |  | — |
Interest rate swap contracts |  |  | 7 |  |  | — |  |  | 7 |  |  | — |
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 |  | Nine months ended |
Marketable securities — certain U.S. municipal securities only |  | September 30, |  | September 30, |
(Millions) |  | 2018 |  | 2017 |  | 2018 |  | 2017 |
Beginning balance |  | $ | 30 |  | $ | 20 |  | $ | 30 |  | $ | 20 |
Total gains or losses: |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings |  |  | — |  |  | — |  |  | — |  |  | — |
Included in other comprehensive income |  |  | — |  |  | — |  |  | — |  |  | — |
Purchases and issuances |  |  | — |  |  | — |  |  | — |  |  | — |
Sales and settlements |  |  | — |  |  | — |  |  | — |  |  | — |
Transfers in and/or out of level 3 |  |  | — |  |  | — |  |  | — |  |  | — |
Ending balance |  | $ | 30 |  | $ | 20 |  | $ | 30 |  | $ | 20 |
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 12 in 3M’s Current Report on Form 8-K dated May 8, 2018 (which updated 3M’s 2017 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 long-lived asset 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. There were no material long-lived asset impairments or adjustments to equity securities using the measurement alternative for the three and nine months ended September 30, 2018 and three months ended September 30, 2017. During the nine months ended September 30, 2017, the Company recognized approximately $40 million in long-lived asset impairments related to its Electronics and Energy business segment, with the complete carrying amount of such assets written off and included in operating income results. Fair Value of Financial Instruments: The Company’s financial instruments include cash and cash equivalents, marketable securities, accounts receivable, certain investments, accounts payable, borrowings, and derivative contracts. The fair values of cash equivalents, accounts receivable, 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. For its long-term debt, the Company utilized third-party quotes to estimate fair values (classified as level 2). Information with respect to the carrying amounts and estimated fair values of these financial instruments follow:
|  | September 30, 2018 |  | December 31, 2017 |
|  | Carrying |  | Fair |  | Carrying |  | Fair |
(Millions) |  | Value |  | Value |  | Value |  | Value |
Long-term debt, excluding current portion |  | $ | 13,539 |  | $ | 13,666 |  | $ | 12,096 |  | $ | 12,535 |
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 September 30, 2018 and December 31, 2017 due to lower interest rates and tighter credit spreads compared to issuance levels.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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