2008

2007

Net Sales and Revenues

Net sales

$

7,468.9

$

6,265.9

Finance and interest income

509.3

490.4

Other income

118.5

126.2

Total

8,096.7

6,882.5

Costs and Expenses

Cost of sales

5,508.6

4,705.5

Research and development expenses

230.2

204.3

Selling, administrative and general expenses

766.6

657.3

Interest expense

283.6

283.6

Other operating expenses

145.1

142.6

Total

6,934.1

5,993.3

Income of Consolidated Group Before Income Taxes

1,162.6

889.2

Provision for income taxes

411.1

279.9

Income of Consolidated Group

751.5

609.3

Equity in income of unconsolidated affiliates

12.0

14.3

Net Income

$

763.5

$

623.6

Per Share Data

Net income - basic

$

1.76

$

1.38

Net income - diluted

$

1.74

$

1.36

Average Shares Outstanding

Basic

433.7

452.9

Diluted

439.6

458.6

2008

2007

Net Sales and Revenues

Net sales

$

11,999.5

$

10,080.8

Finance and interest income

1,037.2

972.8

Other income

261.1

254.0

Total

13,297.8

11,307.6

Costs and Expenses

Cost of sales

8,870.4

7,655.7

Research and development expenses

434.5

381.1

Selling, administrative and general expenses

1,419.3

1,200.7

Interest expense

578.7

550.7

Other operating expenses

300.8

264.8

Total

11,603.7

10,053.0

Income of Consolidated Group Before Income Taxes

1,694.1

1,254.6

Provision for income taxes

581.1

408.0

Income of Consolidated Group

1,113.0

846.6

Equity in income of unconsolidated affiliates

19.5

15.7

Net Income

$

1,132.5

$

862.3

Per Share Data

Net income - basic

$

2.60

$

1.90

Net income - diluted

$

2.56

$

1.88

Average Shares Outstanding

Basic

435.6

453.7

Diluted

441.9

459.1

April 30

October 31

April 30

2008

2007

2007

Assets

Cash and cash equivalents

$

2,287.8

$

2,278.6

$

1,983.7

Marketable securities

981.8

1,623.3

1,864.8

Receivables from unconsolidated affiliates

38.4

29.6

22.2

Trade accounts and notes receivable - net

4,629.4

3,055.0

4,397.6

Financing receivables - net

15,236.4

15,631.2

13,314.8

Restricted financing receivables - net

2,201.6

2,289.0

2,766.3

Other receivables

666.1

596.3

411.0

Equipment on operating leases - net

1,627.2

1,705.3

1,490.4

Inventories

3,570.8

2,337.3

2,572.8

Property and equipment - net

3,784.0

3,534.0

3,100.2

Investments in unconsolidated affiliates

167.4

149.5

138.6

Goodwill

1,277.5

1,234.3

1,117.1

Other intangible assets - net

127.8

131.0

77.8

Retirement benefits

2,011.6

1,976.0

2,636.8

Deferred income taxes

1,533.2

1,399.5

756.5

Other assets

830.9

605.8

517.5

Total Assets

$

40,971.9

$

38,575.7

$

37,168.1

Liabilities and Stockholders’ Equity

Short-term borrowings

$

10,417.3

$

9,969.4

$

9,809.7

Payables to unconsolidated affiliates

207.1

136.5

126.7

Accounts payable and accrued expenses

5,825.1

5,357.9

4,803.1

Accrued taxes

708.6

274.3

339.6

Deferred income taxes

192.3

183.4

101.8

Long-term borrowings

12,752.0

11,798.2

11,275.6

Retirement benefit accruals and other liabilities

3,519.9

3,700.2

2,752.0

Total liabilities

33,622.3

31,419.9

29,208.5

Commitments and contingencies (Note 5)

Common stock, $1 par value (issued shares at
April 30, 2008 – 536,431,204)

2,908.8

2,777.0

2,386.5

Common stock in treasury

(4,934.4

)

(4,015.4

)

(3,155.7

)

Retained earnings

9,898.7

9,031.7

8,549.3

Total

7,873.1

7,793.3

7,780.1

Accumulated other comprehensive income (loss)

(523.5

)

(637.5

)

179.5

Stockholders’ equity

7,349.6

7,155.8

7,959.6

Total Liabilities and Stockholders’ Equity

$

40,971.9

$

38,575.7

$

37,168.1

2008

2007

Cash Flows from Operating Activities

Net income

$

1,132.5

$

862.3

Adjustments to reconcile net income to net cash used for operating activities:

Provision for doubtful receivables

40.8

30.3

Provision for depreciation and amortization

408.1

367.4

Share-based compensation expense

54.1

55.0

Undistributed earnings of unconsolidated affiliates

(16.9

)

(12.9

)

Credit for deferred income taxes

(100.6

)

(137.5

)

Changes in assets and liabilities:

Trade, notes and financing receivables related to sales of equipment

(1,269.8

)

(1,169.5

)

Inventories

(1,317.8

)

(684.5

)

Accounts payable and accrued expenses

356.6

242.1

Accrued income taxes payable/receivable

318.5

262.9

Retirement benefits

(149.0

)

(71.1

)

Other

20.9

95.8

Net cash used for operating activities

(522.6

)

(159.7

)

Cash Flows from Investing Activities

Collections of financing receivables

6,343.8

5,518.2

Proceeds from sales of financing receivables

31.1

59.3

Proceeds from maturities and sales of marketable securities

1,099.4

1,113.5

Proceeds from sales of equipment on operating leases

239.4

168.2

Proceeds from sales of businesses, net of cash sold

40.1

Cost of financing receivables acquired

(6,189.9

)

(5,295.4

)

Purchases of marketable securities

(489.8

)

(1,155.5

)

Purchases of property and equipment

(429.1

)

(527.9

)

Cost of equipment on operating leases acquired

(191.6

)

(194.8

)

Acquisitions of businesses, net of cash acquired

(35.3

)

Other

(30.2

)

124.8

Net cash provided by (used for) investing activities

387.9

(189.6

)

Cash Flows from Financing Activities

Increase in short-term borrowings

130.4

1,044.4

Proceeds from long-term borrowings

2,848.0

1,339.5

Payments of long-term borrowings

(1,826.5

)

(1,220.7

)

Proceeds from issuance of common stock

100.2

178.6

Repurchases of common stock

(1,001.5

)

(595.0

)

Dividends paid

(219.8

)

(188.8

)

Excess tax benefits from share-based compensation

54.0

53.1

Other

(9.6

)

(5.0

)

Net cash provided by financing activities

75.2

606.1

Effect of Exchange Rate Changes on Cash and Cash Equivalents

68.7

39.4

Net Increase in Cash and Cash Equivalents

9.2

296.2

Cash and Cash Equivalents at Beginning of Period

2,278.6

1,687.5

Cash and Cash Equivalents at End of Period

$

2,287.8

$

1,983.7

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 $122 million and $108 million in the first six 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 $97 million and $50 million at April 30, 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
April 30

Six Months Ended
April 30

2008

2007

2008

2007

Balance, beginning of period

$

9,243.4

$

8,025.3

$

9,031.7

$

7,886.8

Net income

763.5

623.6

1,132.5

862.3

Dividends declared

(108.1

)

(99.6

)

(217.5

)

(199.7

)

Adoption of FASB Interpretation No. 48 (see Note 13)

(48.0

)

Other

(.1

)

(.1

)

Balance, end of period

$

9,898.7

$

8,549.3

$

9,898.7

$

8,549.3

(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:

April 30
2008

October 31
2007

April 30
2007

Raw materials and supplies

$

1,112

$

882

$

818

Work-in-process

529

425

443

Finished goods and parts

3,196

2,263

2,491

Total FIFO value

4,837

3,570

3,752

Less adjustment to LIFO basis

1,266

1,233

1,179

Inventories

$

3,571

$

2,337

$

2,573

(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 $83 million and $51 million at April 30, 2008 and 2007, respectively.

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

Three Months Ended
April 30

Six Months Ended
April 30

2008

2007

2008

2007

Balance, beginning of period

$

626

$

552

$

626

$

552

Payments

(111

)

(96

)

(232

)

(205

)

Amortization of premiums received

(5

)

(8

)

(9

)

(12

)

Accruals for warranties

138

129

255

236

Premiums received

8

10

16

16

Balance, end of period

$

656

$

587

$

656

$

587

At April 30, 2008, the Company had approximately $223 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 April 30, 2008, the Company had an accrued liability of approximately $8 million under these agreements.  The maximum remaining term of the receivables guaranteed at April 30, 2008 was approximately seven years.

The credit operation’s 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 April 30, 2008, the maximum exposure for uncollected premiums was approximately $144 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 $830 million at April 30, 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 April 30, 2008, the credit operations’ accrued liability under the Agreement was not material.

At April 30, 2008, the Company had commitments of approximately $414 million for the construction and acquisition of property and equipment.  Also, at April 30, 2008, the Company had pledged assets of $138 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 $50 million at April 30, 2008, for which it believes the probability for payment is remote.  See Note 6 for recourse on sales of receivables.

(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).  For securitizations entered into prior to 2005, the structure of these transactions is such that the transfer of the retail notes met the criteria of sales in accordance with FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.  Beginning in 2005, the transfer of retail notes into new securitization transactions did not meet the sales criteria of FASB Statement No. 140 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 and sales of retail notes is provided below.

Secured borrowings

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

April 30
2008

October 31
2007

April 30
2007

Restricted financing receivables (retail notes)

$

2,217

$

2,301

$

2,783

Allowance for credit losses

(15

)

(12

)

(17

)

Other assets

53

45

41

Total restricted securitized assets

$

2,255

$

2,334

$

2,807

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

April 30
2008

October 31
2007

April 30
2007

Short-term borrowings

$

2,309

$

2,344

$

2,871

Accrued interest on borrowings

4

5

4

Total liabilities related to restricted securitized assets

$

2,313

$

2,349

$

2,875

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 credit rating, cash collections from these restricted assets do not need to be placed into a restricted 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 $1,661 million, $1,494 million and $1,824 million at April 30, 2008, October 31, 2007 and April 30, 2007, respectively.  These restricted retail notes are included in the restricted financing receivables related to securitizations shown in the table above.  At April 30, 2008, the maximum remaining term of all restricted receivables was approximately six years.

Sales of receivables

The Company has certain recourse obligations on financing receivables that it has previously sold.  If the receivables sold are not collected, the Company would be required to cover those losses up to the amount of its recourse obligation.  At April 30, 2008, the maximum amount of exposure to losses under these agreements was $11 million.  The estimated credit risk associated with sold receivables was not material at April 30, 2008.  This risk of loss is recognized primarily in the interests that continue to be held by the Company and recorded on its balance sheet.  These interests are related to assets held by unconsolidated SPEs.  At April 30, 2008, the assets of these SPEs related to the Company’s securitization and sale of retail notes totaled approximately $17 million.  The Company may recover a portion of any required payments incurred under these agreements from the repossession of the equipment collateralizing the receivables.  At April 30, 2008, the maximum remaining term of the receivables sold was approximately five years.

(7)

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

(8)

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

Three Months Ended April 30

Six Months Ended April 30

%

%

2008

2007

Change

2008

2007

Change

Net sales and revenues:

Agricultural equipment *

$

4,700

$

3,498

+34

$

7,458

$

5,579

+34

Commercial and consumer equipment

1,424

1,318

+8

2,166

1,959

+11

Construction and forestry *

1,345

1,450

-7

2,375

2,543

-7

Total net sales **

7,469

6,266

+19

11,999

10,081

+19

Credit revenues *

533

501

+6

1,083

994

+9

Other revenues

95

115

-17

216

233

-7

Total net sales and revenues **

$

8,097

$

6,882

+18

$

13,298

$

11,308

+18

Operating profit: ***

Agricultural equipment

$

782

$

487

+61

$

1,114

$

624

+79

Commercial and consumer equipment

154

150

+3

162

188

-14

Construction and forestry

166

192

-14

283

287

-1

Credit

133

131

+2

265

263

+1

Other

3

7

2

+250

Total operating profit **

1,238

960

+29

1,831

1,364

+34

Interest, corporate expenses – net and income taxes

(475

)

(336

)

+41

(698

)

(502

)

+39

Net income

$

763

$

624

+22

$

1,133

$

862

+31

Identifiable assets:

Agricultural equipment

$

5,685

$

4,309

+32

Commercial and consumer equipment

2,066

1,710

+21

Construction and forestry

2,498

2,367

+6

Credit

24,453

22,288

+10

Other

209

177

+18

Corporate

6,061

6,317

-4

Total assets

$

40,972

$

37,168

+10

*

Additional intersegment sales and revenues

Agricultural equipment sales

$

18

$

 29

-38

$

 33

$

53

-38

Construction and forestry sales

4

3

+33

5

5

Credit revenues

71

73

-3

134

129

+4

**

Includes equipment operations outside
the U.S. and Canada as follows:

Net sales

$

3,062

$

2,100

+46

$

4,870

$

3,424

+42

Operating profit

383

251

+53

593

334

+78

***

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
April 30

Six Months Ended
April 30

2008

2007*

2008

2007*

Income

$

763.5

$

623.6

$

1,132.5

$

862.3

Average shares outstanding

433.7

452.9

435.6

453.7

Basic income per share

$

1.76

$

1.38

$

2.60

$

1.90

Average shares outstanding

433.7

452.9

435.6

453.7

Effect of dilutive stock options

5.9

5.7

6.3

5.4

Total potential shares outstanding

439.6

458.6

441.9

459.1

Diluted income per share

$

1.74

$

1.36

$

2.56

$

1.88

Out of the total stock options outstanding during the second quarter and first six months of 2008, options to purchase 2.0 million shares were excluded from the above diluted per share computation because the incremental shares related to the exercise of these options under the treasury stock method would have caused an antidilutive effect on income per share.  During the same periods in 2007, 18 thousand shares were excluded for the same reason.

(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
April 30

Six Months Ended
April 30

2008

2007

2008

2007

Net income

$

763.5

$

623.6

$

1,132.5

$

862.3

Other comprehensive income, net of tax:

Retirement benefits adjustment

20.1

50.6

Cumulative translation adjustment

82.7

109.8

82.0

104.6

Unrealized gain (loss) on investments

(4.5

)

.9

(1.3

)

(.8

)

Unrealized gain (loss) on derivatives

16.2

.2

(17.3

)

1.4

Comprehensive income

$

878.0

$

734.5

$

1,246.5

$

967.5

(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.