3M 2010 Annual Report Download - page 25

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19
Interest Income: In 2010, interest income was basically unchanged from 2009, with higher average cash and cash
equivalent balances largely offset by lower interest rates. Interest income declined in 2009 when compared to 2008,
primarily due to lower yields on investments.
Provision for Income Taxes:
(Percent of pre-tax income)
2010
2009
2008
Effective tax rate ............................................................................
27.7
%
30.0
%
31.1
%
The effective tax rate for 2010 was 27.7 percent, compared with 30.0 percent in 2009 and 31.1 percent in 2008. The
most significant item that decreased the effective tax rate in both 2010 and 2009 related to international taxes. In
2010, this was due primarily to the 2010 tax benefits resulting from the corporate alignment transactions that allowed
the Company to increase its ownership of a foreign subsidiary. The transactions are described in the section of Note
6 entitled “Purchase of Subsidiary Shares and Transfers of Ownership Interest Involving Non-Wholly Owned
Subsidiaries.”
The effective tax rate for 2010 also includes a one-time income tax charge of $84 million as a result of the
March 2010 enactment of the Patient Protection and Affordable Care Act, including modifications made in the Health
Care and Education Reconciliation Act of 2010. Adjustments to income tax reserves and the Domestic
Manufacturer’s deduction also benefited year-on-year effective tax rates.
On December 17, 2010, the provision for the research and development credit was extended by the “2010 Tax Relief
Act” for expenditures incurred up to December 31, 2012. The provision for the credit had expired on December 31,
2009. The Company recognized the full year benefit of the credit in the fourth quarter of 2010. The benefit of the
credit for the full year in 2010 is not materially different from the full year benefit in 2009.
The company currently expects that its effective tax rate for total year 2011 will be approximately 29.5 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 8 for further discussion of income taxes.
Net Income Attributable to Noncontrolling Interest:
(Millions)
2010
2009
2008
Net Income Attributable to Noncontrolling Interest .......................
$
78
$
51
$
60
Net income attributable to noncontrolling interest represents the elimination of the income or loss attributable to non-
3M ownership interests in 3M consolidated entities. The changes in noncontrolling interest amounts are primarily
related to Sumitomo 3M Limited (Japan), which is 3M’s most significant consolidated entity with non-3M ownership
interests. As of December 31, 2010, 3M’s effective ownership in Sumitomo 3M Limited is 75 percent.
Currency Effects:
Currency Effects: 3M estimates that year-on-year currency effects, including hedging impacts, increased net income
attributable to 3M by approximately $15 million in 2010 and decreased net income attributable to 3M by
approximately $220 million in 2009. This estimate includes the effect of translating profits from local currencies into
U.S. dollars; the impact of currency fluctuations on the transfer of goods between 3M operations in the United States
and abroad; and transaction gains and losses, including derivative instruments designed to reduce foreign currency
exchange rate risks and the negative impact of swapping Venezuelan bolivars into U.S. dollars. 3M estimates that
year-on-year derivative and other transaction gains and losses decreased net income attributable to 3M by
approximately $115 million in 2010 and had an immaterial impact in 2009.