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INCOME TAXES | 12 Months Ended
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Oct. 31, 2014
INCOME TAXES |
INCOME TAXES | 8. INCOME TAXES The provision for income taxes by taxing jurisdiction and by significant component consisted of the following in millions of dollars:
|  | 2014 |  | 2013 |  | 2012
Current: |  |  |  |  |  |
U.S.: |  |  |  |  |  |
Federal |  | $ | 1,217 |  | $ | 1,405 |  | $ | 1,277
State |  | 126 |  | 145 |  | 119
Foreign |  | 564 |  | 569 |  | 355
Total current |  | 1,907 |  | 2,119 |  | 1,751
Deferred: |  |  |  |  |  |
U.S.: |  |  |  |  |  |
Federal |  | (189) |  | (117) |  | (76)
State |  | (11) |  | (11) |  | (7)
Foreign |  | (80) |  | (45) |  | (9)
Total deferred |  | (280) |  | (173) |  | (92)
Provision for income taxes |  | $ | 1,627 |  | $ | 1,946 |  | $ | 1,659
Based upon the location of the company’s operations, the consolidated income before income taxes in the U.S. in 2014, 2013 and 2012 was $3,219 million, $4,124 million and $3,582 million, respectively, and in foreign countries was $1,578 million, $1,359 million and $1,152 million, respectively. Certain foreign operations are branches of Deere & Company and are 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 not directly related. 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 Tax Assets |  | Deferred Tax Liabilities |  | Deferred Tax Assets |  | Deferred Tax 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
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. 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 through 2012 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 2014, 2013 and 2012, the total amount of expense from interest and penalties was $11 million, $9 million and $6 million and the interest income was $4 million, $4 million and $1 million, respectively. At October 31, 2014 and 2013, the liability for accrued interest and penalties totaled $54 million and $49 million and the receivable for interest was $2 million and $2 million, respectively.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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