John Deere 2015 Annual Report Download - page 46

Deere & Company files a consolidated federal income tax jurisdictions in Canada and Germany, also remain subject to
return in the U.S., which includes the wholly-owned financial examination by taxing authorities.
services subsidiaries. These subsidiaries account for income taxes The company’s policy is to recognize interest related to
generally as if they filed separate income tax returns. income taxes in interest expense and interest income, and
At October 31, 2015, certain tax loss and tax credit recognize penalties in selling, administrative and general
carryforwards of $604 million, of which $88 million are capital expenses. During 2015, 2014 and 2013, the total amount of
losses, were available with $226 million expiring from 2016 expense from interest and penalties was $23 million, $11 million
through 2035 and $378 million with an indefinite carryforward and $9 million and the interest income was $3 million, $4 million
period. and $4 million, respectively. At October 31, 2015 and 2014, the
liability for accrued interest and penalties totaled $69 million and
In March 2013, the company changed the corporate $54 million and the receivable for interest was $2 million and
structure of most of its German operations from a branch to a $2 million, respectively.
subsidiary of Deere & Company. The change provides the
company increased flexibility and efficiency in funding growth in 9. OTHER INCOME AND OTHER OPERATING EXPENSES
international operations. As a result, the tax status of these The major components of other income and other operating
operations changed. Formerly, as a branch these earnings were expenses consisted of the following in millions of dollars:
taxable in the U.S. as earned. As a subsidiary, these earnings are
2015 2014 2013
now taxable in the U.S. if they are distributed to Deere &
Company as dividends, which is the same as the company’s other Other income
foreign subsidiaries. The earnings of the new German subsidiary Insurance premiums and fees earned.......... $ 173 $ 297 $ 252
Revenues from services............................ 280 276 256
remain taxable in Germany. Due to the change in tax status and
Investment income ................................. 26 17 15
the expectation that the German subsidiary’s earnings are Other................................................... 228 234 159
indefinitely reinvested, the deferred tax assets and liabilities
related to U.S. taxable temporary differences for the previous Total............................................. $ 707 $ 824 $ 682
German branch were written off. The effect of this write-off was
Other operating expenses
a decrease in net deferred tax assets and a charge to the income Depreciation of equipment on
tax provision of $56 million during the second fiscal quarter of operating leases ................................. $ 577 $ 494 $ 389
2013. Insurance claims and expenses .................. 183 324 204
A reconciliation of the total amounts of unrecognized tax Cost of services...................................... 160 151 143
benefits at October 31 in millions of dollars follows: Other................................................... 41 124 85
Total............................................. $ 961 $1,093 $ 821
2015 2014 2013
Beginning of year balance ......................... $ 213 $ 272 $ 265 The company offers extended equipment warranties and,
Increases to tax positions taken during the prior to the divestiture of the crop insurance subsidiaries (see
current year .......................................... 32 28 30 Note 4), issued crop insurance policies. To limit losses and
Increases to tax positions taken during
reduce exposure to crop insurance claims, the company utilized
prior years ............................................ 29 20 24
Decreases to tax positions taken during reinsurance. Although reinsurance contracts permitted recovery
prior years ............................................ (15) (84) (51) of certain claims from reinsurers, the insurance subsidiary was
Decreases due to lapse of statute not relieved of its primary obligation to the policyholders. The
of limitations......................................... (11) (4) (5) premiums ceded by the crop insurance subsidiary in 2015, 2014
Settlements.............................................. (6) and 2013 were $54 million, $288 million and $337 million, and
Foreign exchange ...................................... (13) (19) 9 claims recoveries on the ceded business were $65 million,
End of year balance .................................. $ 229 $ 213 $ 272 $304 million and $294 million, respectively. The amounts from
reinsurance are netted against the insurance premiums and fees
The amount of unrecognized tax benefits at October 31, earned and the insurance claims and expenses in the table
2015 that would affect the effective tax rate if the tax benefits above.
were recognized was $79 million. The remaining liability was 10. UNCONSOLIDATED AFFILIATED COMPANIES
related to tax positions for which there are offsetting tax Unconsolidated affiliated companies are companies in which
receivables, or the uncertainty was only related to timing. The Deere & Company generally owns 20 percent to 50 percent of
company expects that any reasonably possible change in the the outstanding voting shares. Deere & Company does not
amounts of unrecognized tax benefits in the next twelve months control these companies and accounts for its investments in
would not be significant. them on the equity basis. The investments in these companies
The company files its tax returns according to the tax laws primarily consist of Bell Equipment Limited (32 percent
of the jurisdictions in which it operates, which includes the U.S. ownership), Deere-Hitachi Construction Machinery Corporation
federal jurisdiction, and various state and foreign jurisdictions. (50 percent ownership), Deere-Hitachi M´
aquinas de Constru¸c˜ ao
The U.S. Internal Revenue Service has completed the do Brasil S.A. (50 percent ownership) and SiteOne Landscapes
examination of the company’s federal income tax returns for Supply, LLC. (35 percent ownership). The unconsolidated
periods prior to 2009. The years 2009 through 2012 federal affiliated companies primarily manufacture or market equipment
income tax returns are currently under examination. Various and landscapes products. Deere & Company’s share of
state and foreign income tax returns, including major tax
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