John Deere 2011 Annual Report Download - page 37

9. OTHER INCOME AND OTHER OPERATING EXPENSES
The major components of other income and other operating
expenses consisted of the following in millions of dollars:
2011 2010 2009
Other income
Revenues from services ............................. $ 217 $ 276 $ 236
Insurance premiums and fees earned ......... 236 198 182
Investment income .................................... 11 10 9
Other ........................................................ 160 122 87
Total ..................................................... $ 624 $ 606 $ 514
Other operating expenses
Depreciation of equipment on
operating leases .................................... $ 306 $ 288 $ 288
Cost of services ......................................... 115 198 190
Insurance claims and expenses .................. 193 146 167
Other ........................................................ 102 116 73
Total ..................................................... $ 716 $ 748 $ 718
The company issues insurance policies for crop insurance
and extended equipment warranties. In 2011, the crop insur-
ance subsidiary utilized reinsurance to limit its losses and reduce
its exposure to claims. Prior to 2011, the crop insurance
business was conducted through managing general agency
agreements with external insurance companies. Although
reinsurance contracts permit recovery of certain claims from
reinsurers, the insurance subsidiary is not relieved of its primary
obligation to the policyholders. The premiums ceded by the
crop insurance subsidiary in 2011 and claims recoveries on
the ceded business were $246 million and $271 million,
respectively. These amounts from reinsurance are netted against
the insurance premiums and fees earned and the insurance
claims and expenses in the table above.
10. UNCONSOLIDATED AFFILIATED COMPANIES
Unconsolidated affiliated companies are companies in which
Deere & Company generally owns 20 percent to 50 percent
of the outstanding voting shares. Deere & Company does not
control these companies and accounts for its investments in
them on the equity basis. The investments in these companies
primarily consist of Bell Equipment Limited (32 percent
ownership), Deere-Hitachi Construction Machinery
Corporation (50 percent ownership), Xuzhou XCG
John Deere Machinery Manufacturing Co., Ltd. (50 percent
ownership) and John Deere Tiantuo Company, Ltd. (51 percent
ownership). The unconsolidated affiliated companies primarily
manufacture or market equipment. Deere & Company’s share
of the income or loss of these companies is reported in the
consolidated income statement under “Equity in income (loss)
of unconsolidated affiliates.” The investment in these companies
is reported in the consolidated balance sheet under “Investments
in unconsolidated affiliates.”
A reconciliation of the total amounts of unrecognized tax
benefits at October 31 in millions of dollars follows:
2011 2010 2009
Beginning of year balance ....................... $ 218 $ 260 $ 236
Increases to tax positions taken during
the current year ....................................... 23 36 29
Increases to tax positions taken during
prior years............................................... 13 83 12
Decreases to tax positions taken during
prior years............................................... (42) (133) (28)
Decreases due to lapse of statute of
limitations ............................................... (13) (2) (3)
Settlements ................................................. (1) (19 ) (5)
Foreign exchange ........................................ 1 (7) 19
End of year balance ................................. $ 199 $ 218 $ 260
The amount of unrecognized tax benefits at October 31,
2011 that would affect the effective tax rate if the tax benefits
were recognized was $49 million. The remaining liability was
related to tax positions for which there are offsetting tax
receivables, or the uncertainty was only related to timing.
The company expects that any reasonably possible change in
the amounts of unrecognized tax benefits in the next twelve
months would not be significant.
The company files its tax returns according to the tax laws
of the jurisdictions in which it operates, which includes the
U.S. federal jurisdiction, and various state and foreign jurisdic-
tions. The U.S. Internal Revenue Service has completed the
examination of the company’s federal income tax returns for
periods prior to 2009. The years 2009 and 2010 federal income
tax returns are currently under examination. Various state and
foreign income tax returns, including major tax jurisdictions in
Canada and Germany, also remain subject to examination by
taxing authorities.
The company’s policy is to recognize interest related to
income taxes in interest expense and interest income, and
recognize penalties in selling, administrative and general
expenses. During 2011, 2010 and 2009, the total amount of
expense from interest and penalties was $3 million, $3 million
and $4 million and the interest income was $3 million,
$5 million and $3 million, respectively. At October 31, 2011
and 2010, the liability for accrued interest and penalties totaled
$39 million and $41 million and the receivable for interest was
$7 million and $5 million, respectively.
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