3M 2006 Annual Report Download - page 83

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Components of Deferred Tax Assets and Liabilities
(Millions) 2006 2005
Accruals not currently deductible
Employee benefit costs $ 206 $ 163
Product and other claims 190 167
Pension costs 478 (742)
Restructuring costs 66 ± 
Stock-based compensation 33
5
295
Product and other insurance receivables (156) (250)
Accelerated depreciation (541) (601)
Other (4) (9)
Net deferred tax asset (liability) $ 57
4
$ (977
)
Reconciliation of Effective Income Tax Rate 2006 2005 2004
Statutory U.S. tax rate 35.0% 35.0% 35.0%
6WDWHLQFRPHWD[HV±QHWRIIHGHUDOEHQHILW 1.0 1.3 1.0
,QWHUQDWLRQDOLQFRPHWD[HV±QHW (1.5) (2.2) (1.7)
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Foreign export sales benefit (0.9) (1.0) (1.1)
U.S. business credits (0.3) (0.4) (0.5)
Reserves for tax contingencies/return to provision (2.7) ± ±
Gain on sale of pharmaceuticals business 0.4 ± ±
Restructuring actions (0.3) ± ±
In-process research and development write-off 0.6 ± ±
Medicare Modernization Act (0.4) (0.3) (0.2)
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Effective worldwide tax rate 30.6% 33.7% 32.5%
The Company is routinely audited by tax authorities in the countries where it conducts business and maintains a tax
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extent the Company were to prevail in matters for which reserves have been established or be required to pay
amounts in excess of reserves, the ComSDQ\¶VWD[SURYLVLRQLQDJLYHQILQDQFLDl statement period may be materially
impacted. 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.
,QDQDXGLWRIWKH&RPSDQ\¶V86WD[UHWXUQVIRr years through 2001 was completed. The Company and the
Internal Revenue Service reached a final settlement for these years, including an agreement on the amount of a
refund claim to be filed by the Company. The Company also substantially resolved audits in certain European
countries. In addition, the Company completed the preparation and filing of its 2005 U.S. federal income tax return
and the corresponding 2005 state income tax returns. The adjustments from amounts previously estimated in the U.S.
federal and state income tax returns (both positive and negative) included lower U.S. taxes on dividends received
from the Company's foreign subsidiaries. The Company also made quarterly adjustments (both positive and negative)
to its reserves for tax contingencies. Considering the developments noted above and other factors, including the
impact on open audit years of the recent resolution of issues in various audits, these reassessments resulted in a
reduction of the reserves in 2006 by $149 million, inclusive of the expected amount of certain refund claims.
In 2005, the Company announced its intent to reinvest $1.7 billion of foreign earnings in the United States pursuant to
the provisions of the American Jobs Creation Act of 2004. This Act provided the Company the opportunity to tax-
efficiently repatriate foreign earnings for U.S. qualifying investments specified in its domestic reinvestment plan. As a
consequence, in 2005, 3M recorded a charge of $75 million.
The Company made discretionary contributions to its U.S. qualified pension plan of $200 million in 2006, and
$500 million in 2005. In 2004, the Company made a special SHQVLRQFRQWULEXWLRQWR0¶V-DSDQHVHSHQVLRQSODQRI
$155 million and a discretionary contribution of $300 million to its U.S. qualified pension plan. The current income tax