Edgar Filing: DEERE & CO

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2008

Commission file no: 1-4121

DEERE & COMPANY

Delaware		36-2382580
(State of incorporation)		(IRS employer identification no.)

One John Deere Place

Moline, Illinois 61265

(Address of principal executive offices)

Telephone Number: (309) 765-8000

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer	x	Accelerated Filer	o
Non-Accelerated Filer	o	Smaller Reporting Company	o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

At July 31, 2008, 427,005,955 shares of common stock, $1 par value, of the registrant were outstanding.

Index to Exhibits: Page 32

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended July 31, 2008 and 2007
(In millions of dollars and shares except per share amounts) Unaudited

	2008		2007
Net Sales and Revenues
Net sales	$	7,070.2	$	5,984.9
Finance and interest income	511.6		516.9
Other income	156.9		131.9
Total	7,738.7		6,633.7

Costs and Expenses
Cost of sales	5,421.9		4,542.9
Research and development expenses	238.1		204.3
Selling, administrative and general expenses	772.0		665.8
Interest expense	270.2		291.6
Other operating expenses	167.5		126.8
Total	6,869.7		5,831.4

Income of Consolidated Group Before Income Taxes	869.0		802.3
Provision for income taxes	307.1		272.2
Income of Consolidated Group	561.9		530.1
Equity in income of unconsolidated affiliates	13.3		7.1
Net Income	$	575.2	$	537.2

Per Share Data
Net income - basic	$	1.34	$	1.20
Net income - diluted	$	1.32	$	1.18

Average Shares Outstanding
Basic	429.3		447.6
Diluted	434.4		453.6

See Condensed Notes to Interim Financial Statements.

DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Nine Months Ended July 31, 2008 and 2007
(In millions of dollars and shares except per share amounts) Unaudited

	2008		2007
Net Sales and Revenues
Net sales	$	19,069.7	$	16,065.7
Finance and interest income	1,548.8		1,489.6
Other income	418.0		386.0
Total	21,036.5		17,941.3

Costs and Expenses
Cost of sales	14,292.3		12,198.6
Research and development expenses	672.5		585.4
Selling, administrative and general expenses	2,191.4		1,866.4
Interest expense	848.9		842.2
Other operating expenses	468.3		391.7
Total	18,473.4		15,884.3

Income of Consolidated Group Before Income Taxes	2,563.1		2,057.0
Provision for income taxes	888.1		680.3
Income of Consolidated Group	1,675.0		1,376.7
Equity in income of unconsolidated affiliates	32.7		22.8
Net Income	$	1,707.7	$	1,399.5

Per Share Data
Net income - basic	$	3.94	$	3.10
Net income - diluted	$	3.89	$	3.06

Average Shares Outstanding
Basic	433.6		451.6
Diluted	439.4		457.2

See Condensed Notes to Interim Financial Statements.

DEERE & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions of dollars) Unaudited

	July 31			October 31			July 31
	2008			2007			2007
Assets
Cash and cash equivalents	$	2,822.8		$	2,278.6		$	1,773.2
Marketable securities	944.0			1,623.3			2,047.4
Receivables from unconsolidated affiliates	45.1			29.6			22.4
Trade accounts and notes receivable - net	3,982.7			3,055.0			3,753.7
Financing receivables - net	16,023.0			15,631.2			14,342.6
Restricted financing receivables - net	1,933.8			2,289.0			2,541.8
Other receivables	678.6			596.3			517.9
Equipment on operating leases - net	1,661.0			1,705.3			1,568.5
Inventories	3,474.2			2,337.3			2,473.7
Property and equipment - net	3,938.5			3,534.0			3,228.5
Investments in unconsolidated affiliates	215.1			149.5			140.0
Goodwill	1,329.8			1,234.3			1,249.4
Other intangible assets - net	183.4			131.0			71.9
Retirement benefits	2,047.5			1,976.0			2,638.1
Deferred income taxes	1,564.2			1,399.5			729.8
Other assets	844.0			605.8			531.7
Total Assets	$	41,687.7		$	38,575.7		$	37,630.6

Liabilities and Stockholders’ Equity
Short-term borrowings	$	10,114.2		$	9,969.4		$	10,179.6
Payables to unconsolidated affiliates	178.5			136.5			120.7
Accounts payable and accrued expenses	6,059.3			5,357.9			5,103.3
Accrued taxes	646.0			274.3			274.4
Deferred income taxes	207.8			183.4			105.8
Long-term borrowings	13,397.4			11,798.2			11,096.1
Retirement benefit accruals and other liabilities	3,544.5			3,700.2			2,689.6
Total liabilities	34,147.7			31,419.9			29,569.5

Commitments and contingencies (Note 5)

Common stock, $1 par value (issued shares at July 31, 2008 – 536,431,204)	2,931.0			2,777.0			2,455.4
Common stock in treasury	(5,277.4		)	(4,015.4		)	(3,638.3		)
Retained earnings	10,353.8			9,031.7			8,988.1
Total	8,007.4			7,793.3			7,805.2
Accumulated other comprehensive income (loss)	(467.4		)	(637.5		)	255.9
Stockholders’ equity	7,540.0			7,155.8			8,061.1
Total Liabilities and Stockholders’ Equity	$	41,687.7		$	38,575.7		$	37,630.6

See Condensed Notes to Interim Financial Statements.

DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Nine Months Ended July 31, 2008 and 2007
(In millions of dollars) Unaudited

	2008			2007
Cash Flows from Operating Activities
Net income	$	1,707.7		$	1,399.5
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful receivables	65.1			48.1
Provision for depreciation and amortization	626.9			553.5
Share-based compensation expense	63.7			67.7
Undistributed earnings of unconsolidated affiliates	(18.2		)	(12.4		)
Credit for deferred income taxes	(143.1		)	(83.9		)
Changes in assets and liabilities:
Trade, notes and financing receivables related to sales	(656.7		)	(574.8		)
Inventories	(1,212.9		)	(465.1		)
Accounts payable and accrued expenses	509.8			356.3
Accrued income taxes payable/receivable	264.6			145.7
Retirement benefit accruals/prepaid pension costs	(115.0		)	(132.9		)
Other	(149.3		)	(16.5		)
Net cash provided by operating activities	942.6			1,285.2

Cash Flows from Investing Activities
Collections of financing receivables	9,400.0			7,883.5
Proceeds from sales of financing receivables	38.7			78.4
Proceeds from maturities and sales of marketable securities	1,415.9			1,733.4
Proceeds from sales of equipment on operating leases	354.9			268.4
Proceeds from sales of businesses, net of cash sold	41.1
Cost of financing receivables acquired	(9,648.1		)	(8,238.3		)
Purchases of marketable securities	(769.2		)	(1,953.0		)
Purchases of property and equipment	(631.2		)	(712.8		)
Cost of equipment on operating leases acquired	(306.9		)	(314.7		)
Acquisitions of businesses, net of cash acquired	(241.4		)	(144.9		)
Other	(37.1		)	75.8
Net cash used for investing activities	(383.3		)	(1,324.2		)

Cash Flows from Financing Activities
Increase in short-term borrowings	60.3			1,030.5
Proceeds from long-term borrowings	4,400.3			2,373.3
Payments of long-term borrowings	(3,032.2		)	(2,243.6		)
Proceeds from issuance of common stock	107.0			246.4
Repurchases of common stock	(1,358.0		)	(1,117.0		)
Dividends paid	(327.9		)	(288.4		)
Excess tax benefits from share-based compensation	71.7			76.7
Other	(14.2		)	(11.0		)
Net cash provided by (used for) financing activities	(93.0		)	66.9

Effect of Exchange Rate Changes on Cash and Cash Equivalents	77.9			57.8

Net Increase in Cash and Cash Equivalents	544.2			85.7
Cash and Cash Equivalents at Beginning of Period	2,278.6			1,687.5
Cash and Cash Equivalents at End of Period	$	2,822.8		$	1,773.2

See Condensed Notes to Interim Financial Statements.

Condensed Notes to Interim Financial Statements (Unaudited)

(1)	The consolidated financial statements of Deere & Company and consolidated subsidiaries have been prepared by the Company, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes that the disclosures are adequate to present fairly the financial position, results of operations and cash flows at the dates and for the periods presented. It is suggested that these interim financial statements be read in conjunction with the financial statements and the notes thereto appearing in the Company’s latest annual report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.

	On November 14, 2007, a special meeting of stockholders was held authorizing a two-for-one stock split effected in the form of a 100 percent stock dividend to holders of record on November 26, 2007, distributed on December 3, 2007. All share and per share data (except par value) have been adjusted to reflect the effect of the stock split for all periods presented. The number of shares of common stock issuable upon exercise of outstanding stock options, vesting of other stock awards, and the number of shares reserved for issuance under various employee benefit plans were proportionately increased in accordance with terms of the respective plans.

	The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates.

	All cash flows from the changes in trade accounts and notes receivable are classified as operating activities in the Statement of Consolidated Cash Flows as these receivables arise from sales to the Company’s customers. Cash flows from financing receivables that are related to sales to the Company’s customers are also included in operating activities. The remaining financing receivables are related to the financing of equipment sold by independent dealers and are included in investing activities.

	The Company had the following non-cash operating and investing activities that were not included in the Statement of Consolidated Cash Flows. The Company transferred inventory to equipment on operating leases of approximately $219 million and $192 million in the first nine months of 2008 and 2007, respectively. The Company also had non-cash transactions for accounts payable related to purchases of property and equipment of approximately $90 million and $67 million at July 31, 2008 and 2007, respectively.

(2)	The information in the notes and related commentary are presented in a format which includes data grouped as follows:

	Equipment Operations – Includes the Company’s agricultural equipment, commercial and consumer equipment and construction and forestry operations with Financial Services reflected on the equity basis.

	Financial Services – Includes the Company’s credit and certain miscellaneous service operations.

	Consolidated – Represents the consolidation of the Equipment Operations and Financial Services. References to “Deere & Company” or “the Company” refer to the entire enterprise.

(3)	An analysis of the Company’s retained earnings in millions of dollars follows:

	Three Months Ended July 31						Nine Months Ended July 31
	2008			2007			2008			2007

Balance, beginning of period	$	9,898.7		$	8,549.3		$	9,031.7		$	7,886.8
Net income	575.2			537.2			1,707.7			1,399.5
Dividends declared	(120.2		)	(98.4		)	(337.6		)	(298.2		)
Adoption of FASB Interpretation No. 48 (see Note 13)							(48.0		)
Other	.1
Balance, end of period	$	10,353.8		$	8,988.1		$	10,353.8		$	8,988.1

(4)

Most inventories owned by Deere & Company and its U.S. equipment subsidiaries are valued at cost on the “last-in, first-out” (LIFO) method. If all of the Company’s inventories had been valued on a “first-in, first-out” (FIFO) method, estimated inventories by major classification in millions of dollars would have been as follows:

	July 31 2008		October 31 2007		July 31 2007
Raw materials and supplies	$	1,157	$	882	$	814
Work-in-process	507		425		427
Finished goods and parts	3,138		2,263		2,400
Total FIFO value	4,802		3,570		3,641
Less adjustment to LIFO basis	1,328		1,233		1,167
Inventories	$	3,474	$	2,337	$	2,474

(5)	Commitments and contingencies:

	The Company generally determines its total warranty liability by applying historical claims rate experience to the estimated amount of equipment that has been sold and is still under warranty (based on dealer inventories and retail sales). The historical claims rate is primarily determined by a review of five-year claims costs and current quality developments.

	The premiums for the Equipment Operations’ extended warranties are primarily recognized in income in proportion to the costs expected to be incurred over the contract period. These unamortized warranty premiums (deferred revenue) included in the following table totaled $84 million and $69 million at July 31, 2008 and 2007, respectively.

	A reconciliation of the changes in the warranty liability in millions of dollars follows:

	Three Months Ended July 31						Nine Months Ended July 31
	2008			2007			2008			2007

Balance, beginning of period	$	656		$	587		$	626		$	552
Payments	(122		)	(118		)	(355		)	(323		)
Amortization of premiums received	(9		)	(6		)	(17		)	(17		)
Accruals for warranties	173			149			427			385
Premiums received	8			8			25			23
Balance, end of period	$	706		$	620		$	706		$	620

	At July 31, 2008, the Company had approximately $240 million of guarantees issued primarily to banks outside the U.S. and Canada related to third-party receivables for the retail financing of John Deere equipment. The Company may recover a portion of any required payments incurred under these agreements from repossession of the equipment collateralizing the receivables. At July 31, 2008, the Company had an accrued liability of approximately $8 million under these agreements. The maximum remaining term of the receivables guaranteed at July 31, 2008 was approximately seven years.

	The credit operations’ subsidiary, John Deere Risk Protection, Inc., offers crop insurance products through a managing general agency agreement (Agreement) with an insurance company (Insurance Carrier) rated “Excellent” with A.M. Best Company. As a managing general agent, John Deere Risk Protection, Inc. will receive commissions from the Insurance Carrier for selling crop insurance to producers. The credit operations have guaranteed certain obligations under the Agreement, including the obligation to pay the Insurance Carrier for any uncollected premiums. At July 31, 2008, the maximum exposure for uncollected premiums was approximately $156 million. Substantially all of the credit operations’ crop insurance risk under the Agreement has been mitigated by a syndicate of private reinsurance companies. These reinsurance companies are rated “Excellent” or higher by A.M. Best Company. In the event of a widespread catastrophic crop failure throughout the U.S. and the default of these highly rated private reinsurance companies on their reinsurance obligations, the credit operations would be required to reimburse the Insurance Carrier for exposure under the Agreement of approximately $715 million at July 31, 2008. The credit operations believe that the likelihood of the occurrence of events that give rise to the exposures under this Agreement is substantially remote and as a result, at July 31, 2008, the credit operations’ accrued liability under the Agreement was not material.

	At July 31, 2008, the Company had commitments of approximately $552 million for the construction and acquisition of property and equipment. Also at July 31, 2008, the Company had pledged assets of $126 million, primarily as collateral for borrowings. See Note 6 for additional restricted assets associated with borrowings related to securitizations.

	The Company also had other miscellaneous contingent liabilities totaling approximately $60 million at July 31, 2008, for which it believes the probability for payment is substantially remote. The accrued liability for these contingencies was not material at July 31, 2008.

(6)	Securitization of financing receivables:

	The Company, as a part of its overall funding strategy, periodically transfers certain financing receivables (retail notes) into special purpose entities (SPEs) as part of its asset-backed securities programs (securitizations). The structure of these transactions is such that the transfer of the retail notes did not meet the criteria of sales in accordance with FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, and are, therefore, accounted for as secured borrowings. SPEs utilized in securitizations of retail notes differ from other entities included in the Company’s consolidated statements because the assets they hold are legally isolated. For bankruptcy analysis purposes, the Company has sold the receivables to the SPEs in a true sale and the SPEs are separate legal entities. Use of the assets held by the SPEs is restricted by terms of the documents governing the securitization transactions. Further information related to the secured borrowings is provided below.

	In securitizations of retail notes related to secured borrowings, the retail notes are transferred to certain SPEs which in turn issue debt to investors. The resulting secured borrowings are included in short-term borrowings on the balance sheet as shown in the following table. The securitized retail notes are recorded as “Restricted financing receivables – net” on the balance sheet. The total restricted assets on the balance sheet related to these securitizations include the restricted financing receivables less an allowance for credit losses, and other assets primarily representing restricted cash as shown in the following table. The SPEs supporting the secured borrowings to which the retail notes are transferred are consolidated unless the Company is not the primary beneficiary or the SPE is a qualified special purpose entity as defined in FASB Statement No. 140.

	The components of consolidated restricted assets related to secured borrowings in securitization transactions follow in millions of dollars:

	July 31 2008			October 31 2007			July 31 2007
Restricted financing receivables (retail notes)	$	1,947		$	2,301		$	2,557
Allowance for credit losses	(13		)	(12		)	(15		)
Other assets	54			45			44
Total restricted securitized assets	$	1,988		$	2,334		$	2,586

The components of consolidated secured borrowings and other liabilities related to securitizations follow in millions of dollars:

	July 31 2008		October 31 2007		July 31 2007
Short-term borrowings	$	1,966	$	2,344	$	2,581
Accrued interest on borrowings	3		5		5
Total liabilities related to restricted securitized assets	$	1,969	$	2,349	$	2,586

	The secured borrowings related to these restricted securitized retail notes are obligations that are payable as the retail notes are liquidated. Repayment of the secured borrowings depends primarily on cash flows generated by the restricted assets. Due to the Company’s short-term debt credit rating, cash collections from these restricted assets do not need to be placed into a segregated collection account until immediately prior to the time payment is required to the secured creditors. Under FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, SPEs were consolidated that included assets (restricted retail notes) of $1,462 million, $1,494 million and $1,662 million at July 31, 2008, October 31, 2007 and July 31, 2007, respectively. These restricted retail notes are included in the restricted financing receivables related to securitizations shown in the table above. At July 31, 2008, the maximum remaining term of all restricted receivables was approximately six years.

(7)	Dividends declared and paid on a per share basis were as follows:

	Three Months Ended July 31				Nine Months Ended July 31
	2008		2007 *		2008		2007 *
Dividends declared	$	.28	$	.22	$	.78	$	.66
Dividends paid	$	.25	$	.22	$	.75	$	.63	½

* Adjusted for two-for-one stock split (see Note 1).

(8)	Worldwide net sales and revenues, operating profit and identifiable assets by segment in millions of dollars follow:

	Three Months Ended July 31							Nine Months Ended July 31
	2008			2007			% Change	2008			2007			% Change
Net sales and revenues:
Agricultural equipment *	$	4,544		$	3,355		+35	$	12,002		$	8,934		+34
Commercial and consumer equipment	1,332			1,346			-1	3,498			3,305			+6
Construction and forestry *	1,194			1,284			-7	3,570			3,827			-7
Total net sales **	7,070			5,985			+18	19,070			16,066			+19
Credit revenues *	550			533			+3	1,632			1,527			+7
Other revenues	119			116			+3	334			348			-4
Total net sales and revenues **	$	7,739		$	6,634		+17	$	21,036		$	17,941		+17

Operating profit: ***
Agricultural equipment	$	634		$	431		+47	$	1,748		$	1,055		+66
Commercial and consumer equipment	91			127			-28	253			315			-20
Construction and forestry	93			150			-38	376			437			-14
Credit	111			141			-21	376			404			-7
Other	5			1			+400	12			2			+500
Total operating profit **	934			850			+10	2,765			2,213			+25
Interest, corporate expenses – net and income taxes	(359		)	(313		)	+15	(1,057		)	(813		)	+30
Net income	$	575		$	537		+7	$	1,708		$	1,400		+22
Identifiable assets:
Agricultural equipment								$	5,900		$	4,184		+41
Commercial and consumer equipment								1,727			1,744			-1
Construction and forestry								2,528			2,412			+5
Credit								25,203			22,821			+10
Other								215			181			+19
Corporate								6,115			6,289			-3
Total assets								$	41,688		$	37,631		+11

*	Additional intersegment sales and revenues
	Agricultural equipment sales	$	17	$	28	-39	$	50	$	82	-39
	Construction and forestry sales	2		2			7		7
	Credit revenues	57		76		-25	191		205		-7

**	Includes equipment operations outside the U.S. and Canada as follows:
	Net sales	$	3,072	$	2,221	+38	$	7,942	$	5,645	+41
	Operating profit	332		229		+45	925		562		+65

***

Operating profit is income from continuing operations before external interest expense, certain foreign exchange gains and losses, income taxes and certain corporate expenses. However, operating profit of the credit segment includes the effect of interest expense and foreign exchange gains or losses.

(9)	A reconciliation of basic and diluted net income per share in millions, except per share amounts, follows:

	Three Months Ended July 31				Nine Months Ended July 31
	2008		2007 *		2008		2007 *
Net income	$	575.2	$	537.2	$	1,707.7	$	1,399.5
Average shares outstanding	429.3		447.6		433.6		451.6
Basic net income per share	$	1.34	$	1.20	$	3.94	$	3.10

Average shares outstanding	429.3		447.6		433.6		451.6
Effect of dilutive stock options	5.1		6.0		5.8		5.6
Total potential shares outstanding	434.4		453.6		439.4		457.2
Diluted net income per share	$	1.32	$	1.18	$	3.89	$	3.06

	* Adjusted for two-for-one stock split (see Note 1).

	Out of the total stock options outstanding during the third quarter and first nine months of 2008, options to purchase 2.0 million shares were excluded because the incremental shares related to the exercise of these options under the treasury stock method would have caused an antidilutive effect on net income per share. During the same periods in 2007, no options were excluded.

(10)	Comprehensive income, which includes all changes in the Company’s equity during the period except transactions with stockholders, was as follows in millions of dollars:

	Three Months Ended July 31						Nine Months Ended July 31
	2008			2007			2008			2007
Net income	$	575.2		$	537.2		$	1,707.7		$	1,399.5

Other comprehensive income (loss), net of tax:
Retirement benefits adjustment	19.7						70.3
Cumulative translation adjustment	25.5			76.6			107.5			181.2
Unrealized gain (loss) on investments	(1.4		)	.6			(2.7		)	(.2		)
Unrealized gain (loss) on derivatives	12.3			(.8		)	(5.0		)	.6
Comprehensive income	$	631.3		$	613.6		$	1,877.8		$	1,581.1

(11)

The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos related liability), retail credit, software licensing, patent and trademark matters. Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss, the Company believes these unresolved legal actions will not have a material effect on its financial statements.

(12)	The Company has several defined benefit pension plans covering its U.S. employees and employees in certain foreign countries. The Company also has several defined benefit health care and life insurance plans for retired employees in the U.S. and Canada.

	The components of net periodic pension cost consisted of the following in millions of dollars:

	Three Months Ended July 31						Nine Months Ended July 31
	2008			2007			2008			2007
Service cost	$	40		$	39		$	122		$	117
Interest cost	129			122			387			364
Expected return on plan assets	(186		)	(173		)	(559		)	(512		)
Amortization of actuarial loss	9			28			36			84
Amortization of prior service cost	7			7			20			21
Special early-retirement benefits	1						2
Net cost	$	—		$	23		$	8		$	74

The components of other net periodic postretirement benefits cost (health care and life insurance) consisted of the following in millions of dollars:

	Three Months Ended July 31						Nine Months Ended July 31
	2008			2007			2008			2007
Service cost	$	13		$	17		$	37		$	52
Interest cost	81			80			242			240
Expected return on plan assets	(45		)	(39		)	(133		)	(117		)
Amortization of actuarial loss	21			55			62			162
Amortization of prior service cost	(5		)	(33		)	(13		)	(100		)
Net cost	$	65		$	80		$	195		$	237

	During the first nine months of 2008, the Company contributed $55 million to its pension plans and $254 million to its other postretirement benefit plans. The Company presently anticipates contributing an additional amount of approximately $88 million to its pension plans and $27 million to its other postretirement benefit plans in the remainder of fiscal year 2008. These contributions include payments from Company funds to either increase plan assets or to make direct payments to plan participants.

(13)	New accounting standard adopted in the first quarter of 2008 was as follows:

	The Company adopted FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes, at the beginning of the first fiscal quarter of 2008. This Interpretation clarifies that the recognition for uncertain tax positions should be based on a more-likely-than-not threshold that the tax position will be sustained upon audit. The tax position is measured as the largest amount of benefit that has a greater than 50 percent probability of being realized upon settlement. As a result of adoption, the Company recorded an increase in its liability for unrecognized tax benefits of $170 million, an increase in accrued interest and penalties payable of $30 million, an increase in deferred tax liabilities of $6 million, a reduction in the beginning retained earnings balance of $48 million, an increase in tax receivables of $136 million, an increase in deferred tax assets of $11 million and an increase in interest receivable of $11 million.

	After adoption at the beginning of the first quarter, the Company had a total liability for unrecognized tax benefits of $207 million. Approximately $65 million of this balance would affect the effective tax rate if the tax benefits were recognized. The remaining liability was related to tax positions for which

	there are offsetting tax receivables, or the uncertainty was only related to timing. These items would not affect the effective tax rate due to offsetting changes to the receivables or deferred taxes. The liability for unrecognized tax benefits at July 31, 2008 was $246 million, of which approximately $64 million would affect the effective tax rate if the tax benefits were recognized. The increase in the liability from the beginning of the year was primarily due to the effects of transfer pricing and currency translation. The Company does not have any tax positions for which it expects that the liability for unrecognized tax benefits would change significantly within the next 12 months.

	The Company’s continuing policy is to recognize interest related to uncertain tax positions in interest expense and interest income, and recognize penalties in selling, administrative and general expenses. After adoption at the beginning of the first quarter of 2008, the liability for accrued interest and penalties totaled $33 million and the receivable for interest was $14 million, which have not changed materially during the first nine months of 2008.

	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 its examination of the Company’s federal income tax returns for periods prior to 2001, and for the years 2002, 2003 and 2004. The year 2001, and 2005 through 2007 federal income tax returns are either currently under examination or remain subject to examination. Various state and foreign income tax returns, including major tax jurisdictions in Canada and Germany, also remain subject to examination by taxing authorities.

	New accounting standards to be adopted are as follows:

	In December 2007, the FASB issued Statement No. 141 (revised 2007), Business Combinations, and Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. Statement No. 141 (revised 2007) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. Statement No. 160 requires that a noncontrolling interest in a subsidiary be reported as equity in the consolidated financial statements. Consolidated net income should include the net income for both the parent and the noncontrolling interest with disclosure of both amounts on the consolidated statement of income. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. The effective date for both Statements is the beginning of fiscal year 2010. The Company has currently not determined the potential effects of adoption on the consolidated financial statements.

	In September 2006, the FASB issued Statement No. 157, Fair Value Measurements. This Statement defines fair value and expands disclosures about fair value measurements. These methods will apply to other accounting standards, which use fair value measurements and may change the application of certain measurements used in current practice. The effective date is the beginning of fiscal year 2009 for financial assets and liabilities. For nonfinancial assets and liabilities, the effective date is the beginning of fiscal year 2010, except items that are recognized or disclosed on a recurring basis (at least annually). The adoptions are not expected to have a material effect on the Company’s consolidated financial statements.

	In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This Statement permits entities to measure most financial instruments at fair value. It may be applied on a contract by contract basis and is irrevocable once applied to those contracts. The standard may be applied at the time of adoption for existing eligible items, or at initial recognition of eligible items. After election of this option, changes in fair value are reported in earnings. The items measured at fair value must be shown separately on the balance sheet. The effective date is the beginning of fiscal year 2009. The cumulative effect of adoption would be reported as an adjustment to beginning retained earnings. The adoption is not expected to have a material effect on the Company’s consolidated financial statements.

	In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. This Statement increases the disclosure requirements for derivative instruments. The new requirements include the location and fair value amounts of all derivatives by category reported in the consolidated balance sheet; the location and amount of gains or losses of all derivatives and designated hedged items by category reported in the consolidated income statement or in other comprehensive income in the consolidated balance sheet; and measures of volume such as notional amounts. For derivatives designated as hedges, the gains or losses must be divided into the effective portions and the ineffective portions. The Statement also requires the disclosure of group concentrations of credit risk by counterparties, including the maximum amount of loss due to credit risk and policies concerning collateral and master netting arrangements. Most disclosures are required on an interim and annual basis. The effective date is the second quarter of fiscal year 2009. The adoption will not have a material effect on the Company’s consolidated financial statements.

	In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles. This Statement identifies the sources for generally accepted accounting principles (GAAP) in the U.S. and lists the categories in descending order. An entity should follow the highest category of GAAP applicable for each of its accounting transactions. The adoption will not have a material effect on the Company’s consolidated financial statements.

(14)	In May 2008, the Company acquired T-Systems International, Inc. (T-Systems) for a cost of approximately $85 million, including a preliminary value of $30 million of goodwill and other intangibles. T-Systems, which is headquartered in California, manufactures and markets drip tape and agronomic technologies for irrigation. In June 2008, the Company acquired Plastro Irrigation Systems Ltd. (Plastro) for a cost of approximately $120 million, including a preliminary value of $90 million of goodwill and other intangibles. Plastro, which is headquartered in Israel, manufactures and markets drip and micro drip irrigation products for nursery and agricultural applications. Both acquisitions will be included in the Company’s agricultural equipment segment. In June 2008, the Company also acquired a 50 percent equity investment in Xuzhou Xuwa Excavator Machinery Co., Ltd. (XCG) for approximately $45 million. XCG, a domestic excavator manufacturer in China, will be included in the construction and forestry segment. The goodwill generated in these acquisitions were the result of the future cash flows and related fair values of the entity acquired exceeding the fair values of its identifiable assets and liabilities. Certain long-lived assets including other intangibles are still being evaluated. The results of these operations have been included in the Company’s financial statements since the dates of the acquisitions. The pro forma results of operations as if the acquisitions had occurred at the beginning of the fiscal year would not differ significantly from the reported results.

(15)	The Company’s Board of Directors at its meeting on May 28, 2008 authorized the repurchase of up to $5 billion of additional common stock (71.2 million shares based on July 31, 2008 closing common stock price of $70.16 per share). This repurchase program supplements the previous 40 million share repurchase program, which had 18.5 million shares remaining as of July 31, 2008. Repurchases of the Company’s common stock under this plan will be made from time to time, at the Company’s discretion, in the open market.

(16)	On September 2, 2008, the Company announced it will close its manufacturing facility in Welland, Ontario, Canada, and transfer production to Company operations in Wisconsin and Mexico. The Welland factory manufactures utility vehicles and attachments for the commercial and consumer equipment and agricultural equipment businesses. The plant is scheduled to close by the end of 2009. Approximately 800 employees will be affected. The closure is expected to result in after-tax charges of approximately $90 million, about half of which will be recorded in the fourth quarter of 2008. These approximate after-tax charges will consist of pension and other postretirement benefits of $30 million, property and equipment impairments of $25 million, employee termination benefits of $20 million and other charges of $15 million. The cash expenditures will be approximately half of the total charges. For further information, see Management’s Discussion and Analysis of Financial Condition and Results of Operation, “Market Conditions and Outlook.”

(17) SUPPLEMENTAL CONSOLIDATING DATA
STATEMENT OF INCOME
For the Three Months Ended July 31, 2008 and 2007

(In millions of dollars) Unaudited

	EQUIPMENT OPERATIONS*				FINANCIAL SERVICES
	2008		2007		2008		2007
Net Sales and Revenues
Net sales	$	7,070.2	$	5,984.9
Finance and interest income	26.1		30.0		$	560.2	$	567.7
Other income	101.3		94.7		66.9		56.7
Total	7,197.6		6,109.6		627.1		624.4

Costs and Expenses
Cost of sales	5,422.2		4,543.2
Research and development expenses	238.1		204.3
Selling, administrative and general expenses	657.2		568.8		116.9		98.9
Interest expense	43.3		42.0		241.5		261.3
Interest compensation to Financial Services	60.3		69.0
Other operating expenses	23.1		21.8		153.1		122.4
Total	6,444.2		5,449.1		511.5		482.6

Income of Consolidated Group Before Income Taxes	753.4		660.5		115.6		141.8
Provision for income taxes	274.8		222.4		32.3		49.8
Income of Consolidated Group	478.6		438.1		83.3		92.0

Equity in Income of Unconsolidated Subsidiaries and Affiliates
Credit	80.3		91.3		.1		.1
Other	16.3		7.8
Total	96.6		99.1		.1		.1
Net Income	$	575.2	$	537.2	$	83.4	$	92.1

* Deere & Company with Financial Services on the equity basis.

The supplemental consolidating data is presented for informational purposes. Transactions between the “Equipment Operations” and “Financial Services” have been eliminated to arrive at the consolidated financial statements.

SUPPLEMENTAL CONSOLIDATING DATA (Continued)
STATEMENT OF INCOME
For the Nine Months Ended July 31, 2008 and 2007

(In millions of dollars) Unaudited

	EQUIPMENT OPERATIONS*				FINANCIAL SERVICES
	2008		2007		2008		2007
Net Sales and Revenues
Net sales	$	19,069.7	$	16,065.7
Finance and interest income	77.3		79.3		$	1,687.6	$	1,629.7
Other income	282.5		293.6		195.8		148.3
Total	19,429.5		16,438.6		1,883.4		1,778.0

Costs and Expenses
Cost of sales	14,293.4		12,199.4
Research and development expenses	672.5		585.4
Selling, administrative and general expenses	1,868.0		1,583.0		330.1		288.7
Interest expense	138.3		131.0		750.6		743.9
Interest compensation to Financial Services	176.0		186.7
Other operating expenses	105.0		102.2		415.9		339.3
Total	17,253.2		14,787.7		1,496.6		1,371.9

Income of Consolidated Group Before Income Taxes	2,176.3		1,650.9		386.8		406.1
Provision for income taxes	768.1		540.7		120.0		139.6
Income of Consolidated Group	1,408.2		1,110.2		266.8		266.5

Equity in Income of Unconsolidated Subsidiaries and Affiliates
Credit	260.1		265.1		.7		.3
Other	39.4		24.2
Total	299.5		289.3		.7		.3
Net Income	$	1,707.7	$	1,399.5	$	267.5	$	266.8

* Deere & Company with Financial Services on the equity basis.

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

CONDENSED BALANCE SHEET
(In millions of dollars) Unaudited

	EQUIPMENT OPERATIONS *									FINANCIAL SERVICES
	July 31 2008			October 31 2007			July 31 2007			July 31 2008		October 31 2007		July 31 2007
Assets
Cash and cash equivalents	$	2,099.5		$	2,019.6		$	1,482.9		$	723.3	$	259.1	$	290.3
Marketable securities	731.8			1,468.2			1,897.7			212.3		155.1		149.7
Receivables from unconsolidated subsidiaries and affiliates	676.1			437.0			336.4					.2		.2
Trade accounts and notes receivable - net	1,259.9			1,028.8			1,246.0			3,271.1		2,475.9		3,061.9
Financing receivables - net	5.6			11.0			5.0			16,017.4		15,620.2		14,337.6
Restricted financing receivables - net										1,933.8		2,289.0		2,541.8
Other receivables	614.2			524.0			421.7			68.1		74.2		96.2
Equipment on operating leases - net										1,661.0		1,705.3		1,568.5
Inventories	3,474.2			2,337.3			2,473.7
Property and equipment - net	2,955.9			2,721.4			2,562.3			982.6		812.6		666.2
Investments in unconsolidated subsidiaries and affiliates	2,519.0			2,643.4			2,591.8			6.4		5.1		5.0
Goodwill	1,329.8			1,234.3			1,249.4
Other intangible assets - net	183.4			131.0			71.9
Retirement benefits	2,041.9			1,967.6			2,628.9			6.7		9.0		9.2
Deferred income taxes	1,590.0			1,418.5			788.8			77.0		46.1		35.3
Other assets	389.1			347.6			293.1			457.6		259.3		240.1
Total Assets	$	19,870.4		$	18,289.7		$	18,049.6		$	25,417.3	$	23,711.1	$	23,002.0

Liabilities and Stockholders’ Equity
Short-term borrowings	$	407.7		$	129.8		$	215.6		$	9,706.5	$	9,839.7	$	9,964.0
Payables to unconsolidated subsidiaries and affiliates	178.5			136.5			120.9			631.0		407.4		313.9
Accounts payable and accrued expenses	5,547.9			4,884.4			4,769.2			1,062.5		924.2		889.8
Accrued taxes	579.7			242.4			236.2			70.0		33.7		38.2
Deferred income taxes	127.2			99.8			36.7			183.5		148.8		163.4
Long-term borrowings	1,980.8			1,973.2			1,952.9			11,416.6		9,825.0		9,143.3
Retirement benefit accruals and other liabilities	3,508.6			3,667.8			2,657.0			37.0		33.1		32.5
Total liabilities	12,330.4			11,133.9			9,988.5			23,107.1		21,211.9		20,545.1

Commitments and contingencies (Note 5)

Common stock, $1 par value (issued shares at July 31, 2008 – 536,431,204)	2,931.0			2,777.0			2,455.4			1,217.1		1,122.4		1,077.4
Common stock in treasury	(5,277.4		)	(4,015.4		)	(3,638.3		)
Retained earnings	10,353.8			9,031.7			8,988.1			928.7		1,228.8		1,254.6
Total	8,007.4			7,793.3			7,805.2			2,145.8		2,351.2		2,332.0
Accumulated other comprehensive income (loss)	(467.4		)	(637.5		)	255.9			164.4		148.0		124.9
Stockholders’ equity	7,540.0			7,155.8			8,061.1			2,310.2		2,499.2		2,456.9
Total Liabilities and Stockholders’ Equity	$	19,870.4		$	18,289.7		$	18,049.6		$	25,417.3	$	23,711.1	$	23,002.0

* Deere & Company with Financial Services on the equity basis.

SUPPLEMENTAL CONSOLIDATING DATA (Continued)

STATEMENT OF CASH FLOWS

For the Nine Months Ended July 31, 2008 and 2007

(In millions of dollars) Unaudited

	EQUIPMENT OPERATIONS*						FINANCIAL SERVICES
	2008			2007			2008			2007
Cash Flows from Operating Activities
Net income	$	1,707.7		$	1,399.5		$	267.5		$	266.8
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful receivables	7.0			3.2			58.1			45.0
Provision for depreciation and amortization	371.0			325.5			307.9			272.1
Undistributed earnings of unconsolidated subsidiaries and affiliates	261.1			186.6			(.8		)	(.3		)
Provision (credit) for deferred income taxes	(168.8		)	(61.1		)	25.7			(22.8		)
Changes in assets and liabilities:
Receivables	(190.8		)	(306.4		)	2.9			9.3
Inventories	(993.6		)	(273.3		)
Accounts payable and accrued expenses	507.9			412.7			102.3			63.8
Accrued income taxes payable/receivable	254.6			123.8			10.0			21.9
Retirement benefit accruals/prepaid pension costs	(121.4		)	(141.4		)	6.5			8.5
Other	(9.2		)	141.3			(53.0		)	(67.6		)
Net cash provided by operating activities	1,625.5			1,810.4			727.1			596.7

Cash Flows from Investing Activities
Collections of receivables							25,278.2			22,199.7
Proceeds from sales of financing receivables							101.6			155.2
Proceeds from maturities and sales of marketable securities	1,395.1			1,730.6			20.8			2.8
Proceeds from sales of equipment on operating leases							354.9			268.4
Proceeds from sales of businesses, net of cash sold	41.1
Cost of receivables acquired							(26,114.3		)	(23,028.5		)
Purchases of marketable securities	(691.3		)	(1,907.5		)	(77.9		)	(45.5		)
Purchases of property and equipment	(448.5		)	(396.9		)	(182.8		)	(315.9		)
Cost of equipment on operating leases acquired							(603.3		)	(573.9		)
Acquisitions of businesses, net of cash acquired	(241.4		)	(144.9		)
Other	(145.9		)	(93.2		)	(28.3		)	105.7
Net cash used for investing activities	(90.9		)	(811.9		)	(1,251.1		)