3M 2012 Annual Report Download - page 26

20
Interest Expense and Income:
(Millions)
2012
2011
2010
Interest expense
$
171
$
186
$
201
Interest income
(39)
(39)
(38)
Total
$
132
$
147
$
163
Interest Expense: Interest expense decreased in both 2012 and 2011. The 2012 decrease was driven by lower average
international debt balances, while the 2011 decrease was attributable to lower U.S. debt balances. Both years were
favorably impacted by lower interest rates on U.S. debt.
Interest Income: In 2012, lower U.S. cash balances and lower interest rates internationally were offset by higher
international cash balances and higher interest rates in the U.S. In 2011, interest income increased slightly, as higher
international cash balances and better investment yields were largely offset by a lower U.S. cash balance.
Provision for Income Taxes:
(Percent of pre-tax income)
2012
2011
2010
Effective tax rate
29.0
%
27.8
%
27.7
%
The effective tax rate for 2012 was 29.0 percent, compared to 27.8 percent in 2011, an increase of 1.2 percentage points.
Various factors increased or decreased the effective tax rate when compared to the same periods last year. The primary
factors that increased the Company’s effective tax rate year-on-year include international taxes, specifically with respect
to the corporate reorganization of a wholly owned international subsidiary (which benefited 2011), state income taxes,
lower domestic manufacturer’s deduction, and the lapse of the U.S. research and development credit. These and other
factors, when compared to 2011, increased the 2012 effective tax rate by 2.1 percentage points. Factors that decreased
the Company’s effective tax rate year-on-year include international taxes as a result of changes to the geographic mix of
income before taxes and adjustments to its income tax reserves. These factors, when compared to last year, decreased
the effective tax rate 0.9 percentage points.
The effective tax rate for 2011 was 27.8 percent, compared to 27.7 percent in 2010, an increase of 0.1 percentage points.
The year-on-year change in international income taxes increased the effective tax rate for 2011 when compared to 2010
by approximately 2.5 percentage points, which includes a partial offsetting benefit from the corporate reorganization of a
wholly owned international subsidiary in 2011. This 2.5 percentage point net increase was due primarily to certain 2010
tax benefits, which did not repeat in 2011, related to net operating losses partially offset by a valuation allowance resulting
from the 2010 corporate alignment transactions that allowed the Company to increase its ownership of a foreign
subsidiary. These transactions are described in the section of Note 5 entitled "Purchase and Sale of Subsidiary Shares
and Transfers of Ownership Interest Involving Non-Wholly Owned Subsidiaries". Other significant items impacting the
year-on-year comparison include a one-time 2010 income tax charge of $84 million, which benefited the 2011 tax rate
when compared to 2010 by 1.5 percentage points, as this charge did not repeat in 2011. The Company's effective tax rate
also benefited during 2011 when compared to 2010 by approximately 0.7 percentage points from adjustments to its
income tax reserves.
On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law. Included in this Act was the
extension of the research and development credit for years 2012 and 2013. As this Act was enacted during 2013, the
impacts of this law are not included in the 2012 financial results. The Company anticipates a beneficial impact on the
effective tax rate in 2013 for both the 2012 and 2013 research and development credit.
The Company currently expects that its effective tax rate for total year 2013 will be approximately 29.5 to 30.0 percent.
The rate can vary from quarter to quarter due to discrete items, such as the settlement of income tax audits and changes
in tax laws, as well as recurring factors, such as the geographic mix of income before taxes.
Refer to Note 7 for further discussion of income taxes.