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Tax
 9 Months Ended
Sep. 30, 2012
Tax

8. Tax

The effective tax rate for the three and nine months ended September 30, 2012 was 30.3% and 31.1%, respectively, compared to 32.3% and 32.1% for the same period in 2011. Compared to the U.S. statutory rate, the effective tax rate was positively impacted in the period by the effect of lower tax rates on income earned in foreign jurisdictions, reduced non-deductible expenses, the deduction in the U.S. for manufacturing activities and foreign exchange losses for tax reporting in Norway.

The difference between the effective tax rate reflected in the provision for income taxes and the U.S. federal statutory rate of 35% was as follows (in millions):

 

     Three Months Ended
September 30,		     Nine Months Ended
September 30,		  
     2012     2011     2012     2011  

Federal income tax at U.S. federal statutory rate

    $ 306      $ 273      $ 922      $ 728   

Foreign income tax rate differential

      (29 )      (42 )      (109 )      (108 ) 

State income tax, net of federal benefit

      7        6        24        17   

Nondeductible expenses

      —          9        23        33   

Tax benefit of manufacturing deduction

      (12 )      (14 )      (30 )      (26 ) 

Foreign dividends, net of foreign tax credits

      2        33        22        43   

Tax impact of foreign exchange

      (15 )      13        (33 )      14   

Tax rate change on temporary differences

      —          (5 )      —          (18 ) 

Other

      6        (21 )      —          (16 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Provision for income taxes

    $ 265      $ 252      $ 819      $ 667   
  

 

 

    

 

 

    

 

 

    

 

 

  

The balance of unrecognized tax benefits at September 30, 2012 was $127 million. The Company recognized no material changes in the balance of unrecognized tax benefits for the three and nine months ended September 30, 2012.

The Company does not anticipate that its total unrecognized tax benefits will significantly change due to the settlement of audits or the expiration of statutes of limitation within 12 months of this reporting date.

The Company is subject to taxation in the U.S., various states and foreign jurisdictions. The Company has significant operations in the U.S., Canada, the U.K., the Netherlands and Norway. Tax years that remain subject to examination by major tax jurisdiction vary by legal entity, but are generally open in the U.S. for tax years after 2008 and outside the U.S. for tax years after 2005.

To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts have been classified as a component of income tax expense in the financial statements.