John Deere 2013 Annual Report Download - page 41

and 2012, the liability for accrued interest and penalties totaled
$49 million and $39 million and the receivable for interest was
$2 million and $1 million, respectively.
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:
2013 2012 2011
Other income
Revenues from services ............................. $ 256 $ 233 $ 217
Insurance premiums and fees earned ......... 252 248 236
Investment income .................................... 15 14 11
Other ........................................................ 159 180 160
Total ..................................................... $ 682 $ 675 $ 624
Other operating expenses
Depreciation of equipment on
operating leases .................................... $ 389 $ 339 $ 306
Insurance claims and expenses .................. 204 245 193
Cost of services ......................................... 143 122 115
Other ........................................................ 85 76 102
Total ..................................................... $ 821 $ 782 $ 716
The company issues insurance policies for crop insurance
and extended equipment warranties. The crop insurance
subsidiary utilizes reinsurance to limit its losses and reduce its
exposure to claims. 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 2013, 2012 and 2011 were $337 million, $251
million and $246 million, and claims recoveries on the ceded
business were $294 million, $493 million and $271 million,
respectively. The 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) and Ashok Leyland John Deere Construction
Equipment Company Private Limited (50 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 unconsoli-
dated affiliates.” The investment in these companies is reported
in the consolidated balance sheet under “Investments in
unconsolidated affiliates.”
company increased flexibility and efficiency in funding growth
in international operations. As a result, the tax status of these
operations has changed. Formerly, as a branch these earnings
were taxable in the U.S. as earned. As a subsidiary, these
earnings will now be taxable in the U.S. if they are distributed
to Deere & Company as dividends, which is the same as the
company’s other foreign subsidiaries. The earnings of the new
German subsidiary remain taxable in Germany. Due to the
change in tax status and the expectation that the German
subsidiary’s earnings are indefinitely reinvested, the deferred tax
assets and liabilities related to U.S. taxable temporary differences
for the previous German branch were written off. The effect of
this write-off was a decrease in net deferred tax assets and a
charge to the income tax provision of $56 million during the
second fiscal quarter of 2013.
A reconciliation of the total amounts of unrecognized tax
benefits at October 31 in millions of dollars follows:
2013 2012 2011
Beginning of year balance ....................... $ 265 $ 199 $ 218
Increases to tax positions taken during
the current year ....................................... 30 46 23
Increases to tax positions taken during
prior years............................................... 24 54 13
Decreases to tax positions taken during
prior years............................................... (51) (14) (42)
Decreases due to lapse of statute of
limitations ............................................... (5) (9) (13)
Settlements ................................................. (1)
Foreign exchange ........................................ 9 (11) 1
End of year balance ................................. $ 272 $ 265 $ 199
The amount of unrecognized tax benefits at October 31,
2013 that would affect the effective tax rate if the tax benefits
were recognized was $59 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
jurisdictions. 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 2013, 2012 and 2011, the total amount of
expense from interest and penalties was $9 million, $6 million
and $3 million and the interest income was $4 million,
$1 million and $3 million, respectively. At October 31, 2013
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