John Deere 2012 Annual Report Download - page 36

8. INCOME TAXES
The provision for income taxes by taxing jurisdiction and
by sig nificant component consisted of the following in millions
of dollars:
2012 2011 2010
Current:
U.S.:
Federal ....................................................... $ 1,277 $ 928 $ 574
State .......................................................... 119 144 50
Foreign ........................................................... 355 520 363
Total current ........................................... 1,751 1,592 987
Deferred:
U.S.:
Federal ....................................................... (76) (135) 156
State .......................................................... (7) (28) 11
Foreign ........................................................... (9) (5) 8
Total deferred ......................................... (92) (168) 175
Provision for income taxes ............................. $ 1,65 9 $ 1,424 $ 1,162
Based upon the location of the company’s operations, the
consolidated income before income taxes in the U.S. in 2012,
2011 and 2010 was $3,582 million, $2,618 million and $2,048
million, respectively, and in foreign countries was $1,152 million,
$1,605 million and $977 million, respectively. Certain foreign
operations are branches of Deere & Company and are, there-
fore, subject to U.S. as well as foreign income tax regulations.
The pretax income by location and the preceding analysis of the
income tax provision by taxing jurisdiction are, therefore, not
directly related.
A comparison of the statutory and effective income tax
provision and reasons for related differences in millions of
dollars follow:
2012 2011 2010
U.S. federal income tax provision
at a statutory rate of 35 percent ................ $ 1,657 $ 1,478 $ 1,059
Increase (decrease) resulting from:
Valuation allowance on foreign deferred taxes ....... 200 18 5
State and local income taxes, net of
federal income tax benefit ............................... 73 75 40
Nondeductible health care claims* ........................ 123
Nondeductible goodwill impairment charge ........... 6 7
Nontaxable foreign partnership earnings ............... (172)
Tax rates on foreign earnings ............................... (69) (70) (59)
Research and development tax credits ................. (10) (38) (5)
Wind energy production tax credits ...................... (30)
Other-net ............................................................ (26) (39) 22
Provision for income taxes ............................. $ 1,659 $ 1,424 $ 1,16 2
* Cumulative adjustment from change in law. Effect included in state taxes was
$7 million.
At October 31, 2012, accumulated earnings in certain
subsidiaries outside the U.S. totaled $3,209 million for which
no provision for U.S. income taxes or foreign withholding taxes
has been made, because it is expected that such earnings will be
reinvested outside the U.S. indefinitely. Determination of the
amount of unrecognized deferred tax liability on these unremit-
ted earnings is not practicable. At October 31, 2012, the
amount of cash and cash equivalents and marketable securities
held by these foreign subsidiaries was $628 million.
Deferred income taxes arise because there are certain
items that are treated differently for financial accounting than
for income tax reporting purposes. An analysis of the deferred
income tax assets and liabilities at October 31 in millions of
dollars follows:
2012 2011
______________ _______________
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
Other postretirement
benefit liabilities ....................... $ 2,136 $ 1,944
Tax over book depreciation ............ $ 606 $ 492
Accrual for sales allowances ......... 546 438
Pension liabilities - net .................. 457 279
Lease transactions ....................... 317 309
Accrual for employee benefits ....... 249 189
Tax loss and tax credit
carryforwards .......................... 249 121
Share-based compensation .......... 133 113
Inventory ...................................... 131 152
Goodwill and other
intangible assets ...................... 110 123
Allowance for credit losses ............ 92 115
Deferred gains on distributed
foreign earnings ....................... 84 83
Deferred compensation ................. 40 37
Undistributed foreign earnings ....... 11 19
Other items .................................. 443 115 348 112
Less valuation allowances ............. (285) ( 74 )
Deferred income tax
assets and liabilities ............ $ 4,275 $ 1,159 $ 3,745 $ 1, 055
Deere & Company files a consolidated federal income tax
return in the U.S., which includes the wholly-owned financial
services subsidiaries. These subsidiaries account for income taxes
generally as if they filed separate income tax returns.
At October 31, 2012, certain tax loss and tax credit
carryforwards of $249 million were available with $127 million
expiring from 2013 through 2032 and $122 million with an
indefinite carryforward period.
The Patient Protection and Affordable Care Act as
amended by the Healthcare and Education Reconciliation Act
of 2010 was signed into law in the company’s second fiscal
quarter of 2010. Under the legislation, to the extent the
company’s future health care drug expenses are reimbursed
under the Medicare Part D retiree drug subsidy program,
the expenses will no longer be tax deductible effective
November 1, 2013. Since the tax effects for the retiree health
care liabilities were reflected in the company’s financial
statements, the entire impact of this tax change relating to the
future retiree drug costs was recorded in tax expense in the
second quarter of 2010, which was the period in which the
legislation was enacted. As a result of the legislation, the
company’s tax expenses increased approximately $130 million
in 2010.
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