3M 2005 Annual Report Download - page 79

53
Components of Deferred Tax Assets and Liabilities
(Millions) 2005 2004
Accruals not currently deductible
Employee benefit costs $ 163 $ 157
Product and other claims 167 219
Pension costs (742) (530)
Product and other insurance receivables (250) (323)
Accelerated depreciation (601) (614)
Other (9) 133
Net deferred tax asset (liability) $(1,272) $ (958)
Reconciliation of Effective Income Tax Rate 2005 2004 2003
Statutory U.S. tax rate 35.0% 35.0% 35.0%
State income taxes – net of federal benefit 1.3 1.1 1.0
International income taxes – net (2.2) (1.7) (1.4)
Jobs Act repatriation 1.5 ––
Foreign export sales benefit (1.0) (1.0) (0.9)
U.S. business credits (0.4) (0.4) (0.5)
All other – net (0.2) – (0.3)
Effective worldwide tax rate 34.0% 33.0% 32.9%
In 2005, the Company recorded $75 million of income tax provision, net of available foreign tax credits, related to
the American Jobs Creation Act of 2004 (the “Jobs Act”), which negatively impacted the 2005 effective worldwide
tax rate by 1.5%.
The Company made discretionary contributions to its U.S. qualified pension plan of $200 million for the quarter
ended December 31, 2005, and $300 million for the quarter ended September 30, 2005. In the quarter ended
September 30, 2004, the Company made a special pension contribution to 3M’s Japanese pension plan of
$155 million and a discretionary contribution of $300 million to its U.S. qualified pension plan. In the third quarter of
2003, 3M made a discretionary contribution of $600 million to its U.S. qualified pension plan. The current income
tax provision includes a benefit for the pension contributions; the deferred tax provision includes a cost for the related
temporary difference. Also in 2004, the Company reversed a majority of the minimum pension liability, which was
initially recorded in 2002. The change in the 2004 year-end deferred tax balance includes the effect of reversing this
minimum pension liability in addition to the annual provision for deferred income tax expense.
Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of
tax returns; however, the amount ultimately paid upon resolution of issues may differ materially from the amount
accrued.
As a result of certain employment commitments and capital investments made by 3M, income from manufacturing
activities in certain countries is subject to reduced tax rates or, in some cases, is exempt from tax for years through
2012. The income tax benefits attributable to the tax status of these subsidiaries are estimated to be $23 million
(3 cents per diluted share) in 2005, $32 million (4 cents per diluted share) in 2004 and $34 million (4 cents per diluted
share) in 2003.
The Company has not provided deferred taxes on unremitted earnings attributable to international companies that
have been considered to be reinvested indefinitely. These earnings relate to ongoing operations and were
approximately $3.5 billion as of December 31, 2005. Because of the availability of U.S. foreign tax credits, it is not
practicable to determine the income tax liability that would be payable if such earnings were not reinvested.
Deferred taxes are provided for estimated U.S. and foreign incomes taxes, less available tax credits and
deductions, which may be incurred on the remittance of the Company’s share of subsidiaries’ undistributed
earnings not deemed to be permanently reinvested.