Income Taxes

12 Months Ended

Oct. 31, 2012

Income Taxes

Income Taxes

Note 16.  Income Taxes

The taxable income of the Company is included in the consolidated U.S. income tax return of Deere & Company. Provisions for income taxes are made generally as if John Deere Capital Corporation and each of its subsidiaries filed separate income tax returns.

The provision for income taxes by taxing jurisdiction and by significant component consisted of the following (in millions of dollars):

	2012			2011		2010
Current:
U.S.:
Federal	$	173.6		$	66.5	$	50.3
State	10.1			14.4		1.0
Foreign	34.0			25.0		21.2
Total current	217.7			105.9		72.5
Deferred:
U.S.:
Federal	4.4			98.1		88.6
State	1.6			2.8		(1.4		)
Foreign	(5.9		)	2.4		(.3		)
Total deferred	.1			103.3		86.9
Provision for income taxes	$	217.8		$	209.2	$	159.4

A comparison of the statutory and effective income tax provision and reasons for related differences follows (in millions of dollars):

	2012			2011			2010
U.S. federal income tax provision at a statutory rate of 35 percent	$	209.7		$	200.1		$	167.3
Increase (decrease) resulting from:
Municipal lease income not taxable	(1.5		)	(1.6		)	(1.6		)
Tax rates on foreign earnings	(6.3		)	(5.5		)	(3.8		)
State and local income taxes, net of federal income tax benefit	7.6			11.2			(.3		)
Other — net	8.3			5.0			(2.2		)
Provision for income taxes	$	217.8		$	209.2		$	159.4

At October 31, 2012, accumulated earnings in certain subsidiaries outside the U.S. totaled $198.5 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 practical. At October 31, 2012, the amount of cash and cash equivalents held by these foreign subsidiaries was $51.6 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 deferred income tax assets and liabilities at October 31 was as follows (in millions of dollars):

	2012					2011
	Deferred Tax Assets			Deferred Tax Liabilities		Deferred Tax Assets		Deferred Tax Liabilities
Lease transactions				$	345.6			$	340.1
Tax over book depreciation				2.0				7.6
Deferred retail note finance income				3.0				3.0
Allowance for credit losses	$	45.9				$	53.2
Unrealized gain/loss on derivatives	6.1					4.3
Accrual for retirement and other benefits	8.0					9.4
Federal taxes on deferred state tax deductions	12.2					8.8
Tax loss and tax credit carryforwards	3.9					4.4
Miscellaneous accruals and other	.2							5.8
Less valuation allowances	(.4		)
Deferred income tax assets and liabilities	$	75.9		$	350.6	$	80.1	$	356.5

At October 31, 2012, certain tax loss and tax credit carryforwards of $3.9 million were available, with $3.5 million expiring from 2013 through 2031 and $.4 million with an indefinite carryforward period.

A reconciliation of the total amounts of unrecognized tax benefits at October 31 was as follows (in millions of dollars):

	2012			2011			2010
Beginning of year balance	$	30.0		$	30.3		$	38.5
Increases to tax positions taken during the current year	12.0			10.6			8.9
Increases to tax positions taken during prior years	.8			5.9			.4
Decreases to tax positions taken during prior years	(6.6		)	(14.7		)	(14.4		)
Decreases due to lapse of statute of limitations	(3.6		)	(2.1		)	(1.4		)
Settlements				(.1		)	(1.5		)
Foreign exchange	(.1		)	.1			(.2		)
End of year balance	$	32.5		$	30.0		$	30.3

The amount of unrecognized tax benefits at October 31, 2012 that would affect the effective tax rate if the tax benefits were recognized was $17.3 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 Company is included in the consolidated U.S. income tax return and various state returns of Deere & Company. The U.S. Internal Revenue Service has completed the examination of Deere & 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 also remain subject to examination by taxing authorities.

The Company’s policy is to recognize interest related to income taxes in interest expense and other income, and recognize penalties in administrative and operating expenses. During 2012, 2011 and 2010, the total amount of expense (credit) from interest and penalties was $.2 million, $3.8 million and ($1.6) million and the interest income was not material for any of the periods. During 2010, the expense from interest and penalties includes reversals of interest and penalties of $2.3 million due to audit settlements. At October 31, 2012 and 2011, the liability for accrued interest and penalties totaled $12.4 million and $12.5 million, respectively.