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Derivatives | 9 Months Ended
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Sep. 30, 2021
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 in 3M's 2020 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 in 3M’s 2020 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 September 30, 2021, the Company had a balance of $78 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 $102 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 September 30, 2021, of the total after-tax net unrealized balance as of September 30, 2021, 3M expects to reclassify approximately $4 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 September 30, |  | Nine months ended September 30,
(Millions) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Foreign currency forward/option contracts |  | $ | 44 |  |  | $ | (72) |  |  | $ | 84 |  | $ | (8)
Interest rate contracts |  | — |  | — |  | — |  | (2) |
Total |  | $ | 44 |  |  | $ | (72) |  |  | $ | 84 |  | $ | (10)
Fair Value Hedges: During the second and third quarters of 2021, 3M entered into interest rate swaps with an aggregate notional amount of $800 million. These swaps converted $500 million and $300 million of 3M’s $1.0 billion and $650 million principal amount of fixed rate notes due 2049 and 2050, respectively, into floating rate debt for the portion of their terms through mid-2028 with an interest rate based on a three-month LIBOR index as a hedge of its exposure to changes in fair value that are attributable to interest rate risk. 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 Sheet |  | September 30, 2021 |  | December 31, 2020 |  | September 30, 2021 |  | December 31, 2020
Short-term borrowings and current portion of long-term debt |  | $ | 353 |  | $ | 373 |  | $ | 1 |  | $ | 5
Long-term debt |  | 1,008 |  | 225 |  | 8 |  | 6
Total |  | $ | 1,361 |  | $ | 598 |  | $ | 9 |  | $ | 11
Net Investment Hedges: At September 30, 2021, 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 3.5 billion euros. The maturity dates of these derivative and nonderivative instruments designated in net investment hedges range from 2021 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 September 30, |  | Nine months ended September 30,
(Millions) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Foreign currency denominated debt |  | $ | 83 |  |  | $ | (154) |  |  | $ | 195 |  | $ | (150)
Foreign currency forward contracts |  | 3 |  |  | (3) |  | 4 |  | 2
Total |  | $ | 86 |  |  | $ | (157) |  |  | $ | 199 |  | $ | (148)
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 September 30, |  | Nine months ended September 30,
|  | Cost of sales |  | Other expense (income), net |  | Cost of sales |  | Other expense (income), net
(Millions) |  | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020
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 |  | $ | 4,853 |  | $ | 4,303 |  | $ | 31 |  | $ | 83 |  | $ | 14,097 |  | $ | 12,217 |  | $ | 113 |  | $ | 248
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 income |  | (15) |  |  | 23 |  | — |  | — |  | (32) |  |  | 74 |  | — |  | —
Interest rate contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income |  | — |  | — |  | (3) |  |  | (2) |  |  | — |  | — |  | (7) |  |  | (6) |
Gain or (loss) on fair value hedging relationships: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hedged items |  | — |  | — |  | 1 |  |  | 3 |  |  | — |  | — |  | 3 |  | 3 |
Derivatives designated as hedging instruments |  | — |  | — |  | (1) |  | (3) |  |  | — |  | — |  | (3) |  | (3)
Information regarding derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gain or (loss) on derivatives not designated as instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward/option contracts |  | — |  | 1 |  |  | (35) |  | 29 |  |  | — |  | 3 |  |  | (7) |  | 2 |
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 Amount |  | Assets |  | Liabilities
September 30, 2021 (Millions) |  |  | Location |  | Fair Value Amount |  | Location |  | Fair Value Amount
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Foreign currency forward/option contracts |  | 1,796 |  |  | Other current assets |  | $ | 41 |  |  | Other current liabilities |  | $ | 17 |
Foreign currency forward/option contracts |  | 792 |  |  | Other assets |  | 31 |  |  | Other liabilities |  | 3 |
Interest rate contracts |  | 403 |  |  | Other current assets |  | 1 |  |  | Other current liabilities |  | — |
Interest rate contracts |  | 800 |  |  | Other assets |  | 3 |  |  | Other liabilities |  | — |
Total derivatives designated as hedging instruments |  |  |  |  |  | 76 |  |  |  |  | 20 |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Foreign currency forward/option contracts |  | 5,269 |  |  | Other current assets |  | 8 |  |  | Other current liabilities |  | 20 |
Total derivatives not designated as hedging instruments |  |  |  |  |  | 8 |  |  |  |  | 20 |
Total derivative instruments |  |  |  |  |  | $ | 84 |  |  |  |  | $ | 40 |
|  | Gross Notional Amount |  | Assets |  | Liabilities
December 31, 2020 (Millions) |  |  | Location |  | Fair Value Amount |  | Location |  | Fair Value Amount
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Foreign currency forward/option contracts |  | 1,630 |  |  | Other current assets |  | $ | 14 |  |  | Other current liabilities |  | $ | 67 |
Foreign currency forward/option contracts |  | 669 |  |  | Other assets |  | 10 |  |  | Other liabilities |  | 25 |
Interest rate contracts |  | 403 |  |  | Other current assets |  | 7 |  |  | Other current liabilities |  | — |
Total derivatives designated as hedging instruments |  |  |  |  |  | 31 |  |  |  |  | 92 |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Foreign currency forward/option contracts |  | 3,166 |  |  | Other current assets |  | 13 |  |  | Other current liabilities |  | 14 |
Total derivatives not designated as hedging instruments |  |  |  |  |  | 13 |  |  |  |  | 14 |
Total derivative instruments |  |  |  |  |  | $ | 44 |  |  |  |  | $ | 106 |
Credit Risk and Offsetting of Assets and Liabilities of Derivative Instruments 3M enters into master netting arrangements with counterparties when possible to mitigate credit risk in derivative transactions. These arrangements may allow each counterparty to net settle amounts owed between a 3M entity and the counterparty as a result of multiple, separate derivative transactions. 3M also has associated credit support agreements in place with its primary derivative counterparties which, among other things, provide the circumstances under which either party is required to post eligible collateral (when the market value of transactions covered by these agreements exceeds specified thresholds or if a counterparty’s credit rating has been downgraded to a predetermined rating). 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 Amount of Derivative Assets Presented in the Consolidated Balance Sheet |  | Gross Amounts not Offset in the Consolidated Balance Sheet that are Subject to Master Netting Agreements |
September 30, 2021 (Millions) |  |  | Gross Amount of Eligible Offsetting Recognized Derivative Liabilities |  | Cash Collateral Received |  | Net Amount of Derivative Assets
Derivatives subject to master netting agreements |  | $ | 84 |  | $ | 20 |  | $ | — |  | $ | 64
Derivatives not subject to master netting agreements |  | — |  |  |  |  |  | —
Total |  | $ | 84 |  |  |  |  |  | $ | 64
December 31, 2020 (Millions) |  |  |  |  |  |  |  |
Derivatives subject to master netting agreements |  | $ | 44 |  | $ | 11 |  | $ | — |  | $ | 33
Derivatives not subject to master netting agreements |  | — |  |  |  |  |  | —
Total |  | $ | 44 |  |  |  |  |  | $ | 33
Offsetting of Financial Liabilities under Master Netting Agreements with Derivative Counterparties
|  | Gross Amount of Derivative Liabilities Presented in the Consolidated Balance Sheet |  | Gross Amounts not Offset in the Consolidated Balance Sheet that are Subject to Master Netting Agreements |  |
September 30, 2021 (Millions) |  |  | Gross Amount of Eligible Offsetting Recognized Derivative Assets |  | Cash Collateral Pledged |  | Net Amount of Derivative Liabilities
Derivatives subject to master netting agreements |  | $ | 40 |  |  | $ | 20 |  |  | $ | — |  |  | $ | 20 |
Derivatives not subject to master netting agreements |  | — |  |  |  |  |  |  | — |
Total |  | $ | 40 |  |  |  |  |  |  | $ | 20 |
December 31, 2020 (Millions) |  |  |  |  |  |  |  |
Derivatives subject to master netting agreements |  | $ | 106 |  |  | $ | 11 |  |  | $ | — |  |  | $ | 95 |
Derivatives not subject to master netting agreements |  | — |  |  |  |  |  |  | — |
Total |  | $ | 106 |  |  |  |  |  |  | $ | 95 |
Currency Effects 3M estimates that year-on-year foreign currency transaction effects, including hedging impacts, decreased pre-tax income by approximately $36 million and $94 million for the three and nine months ended September 30, 2021, respectively. These estimates include transaction gains and losses, including derivative instruments designed to reduce foreign currency exchange rate risks.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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