John Deere 2014 Annual Report Download - page 44

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, 2014, certain tax loss and tax credit
carryforwards of $514 million, of which $101 million are capital
losses, were available with $207 million expiring from 2015
through 2034 and $307 million with an indefinite carryforward
period.
In March 2013, the company changed the corporate
structure of most of its German operations from a branch to a
subsidiary of Deere & Company. The change provides the
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:
2014 2013 2012
Beginning of year balance ....................... $ 272 $ 265 $ 199
Increases to tax positions taken during
the current year ....................................... 28 30 46
Increases to tax positions taken during
prior years............................................... 20 24 54
Decreases to tax positions taken during
prior years............................................... (84) (51) (14)
Decreases due to lapse of statute of
limitations ............................................... (4) (5) (9)
Foreign exchange ........................................ (19) 9 (11)
End of year balance ................................. $ 213 $ 272 $ 265
The amount of unrecognized tax benefits at October 31,
2014 that would affect the effective tax rate if the tax benefits
were recognized was $71 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.
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A comparison of the statutory and effective income tax
provision and reasons for related differences in millions of
dollars follow:
2014 2013 2012
U.S. federal income tax provision
at a statutory rate of 35 percent ............... $ 1,679 $ 1,919 $ 1,657
Increase (decrease) resulting from:
State and local income taxes, net of
federal income tax benefit ............................... 75 87 73
German branch deferred tax write-off .................. 56
Nontaxable foreign partnership (earnings) losses .. (305) 43 (172)
Nondeductible impairment charges ..................... 32 29 6
Research and business tax credits ...................... (99) (56) (10)
Tax rates on foreign earnings .............................. (71) (34) (69)
Valuation allowance on foreign deferred taxes ...... 363 (14) 200
Other-net ........................................................... (47) (84) (26)
Provision for income taxes ............................ $ 1,627 $ 1,946 $ 1,659
At October 31, 2014, accumulated earnings in certain
subsidiaries outside the U.S. totaled $4,677 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
unremitted earnings is not practicable. At October 31, 2014,
the amount of cash and cash equivalents and marketable
securities held by these foreign subsidiaries was $1,025 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:
2014 2013
______________ _______________
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
Other postretirement
benefit liabilities ....................... $ 1,968 $ 1,777
Tax over book depreciation ............ $ 542 $ 582
Accrual for sales allowances ......... 654 602
Lease transactions ....................... 404 424
Tax loss and tax credit
carryforwards .......................... 514 371
Accrual for employee benefits ....... 229 234
Pension liability - net..................... 160
Pension asset - net ....................... 137
Share-based compensation .......... 145 142
Inventory ...................................... 22 161
Goodwill and other
intangible assets ...................... 89 100
Allowance for credit losses ............ 73 69
Deferred gains on distributed
foreign earnings ....................... 32 26
Deferred compensation ................. 47 44
Undistributed foreign earnings ....... 26 26
Other items .................................. 586 116 419 157
Less valuation allowances ............. (637) (254)
Deferred income tax
assets and liabilities ............ $ 3,793 $ 1,177 $ 3,591 $ 1,426