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 January 31, 2009

Commission file no: 1-4121

DEERE  &  COMPANY

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):

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 January 31, 2009, 422,672,599 shares of common stock, $1 par value, of the registrant were outstanding.

Index to Exhibits:  Page 35

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended January 31, 2009 and 2008
(In millions of dollars and shares except per share amounts) Unaudited

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See Condensed Notes to Interim Financial Statements.

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

3

See Condensed Notes to Interim Financial Statements.

DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Three Months Ended January 31, 2009 and 2008
(In millions of dollars) Unaudited

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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 included 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.

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.

Certain items previously reported in specific financial statement captions in the first quarter of 2008 have been reclassified to conform to the year end 2008 and first quarter of 2009 financial statement presentation.  In particular, “Accrued taxes” previously presented separately has been combined with “Accounts payable and accrued expenses” on the consolidated balance sheet.

Cash Flow Information

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 $34 million and $57 million in the first three months of 2009 and 2008, respectively.  The Company also had non-cash transactions for accounts payable related to purchases of property and equipment of approximately $118 million and $83 million at January 31, 2009 and 2008, respectively.

Variable Interest Entities

The Company is the primary beneficiary and consolidates a supplier that is a variable interest entity (VIE).  The Company would absorb more than a majority of the VIE’s expected losses based on a cost sharing supply contract.  No additional support beyond what was previously contractually required has been provided during the first quarter of 2009.  The VIE produces blended fertilizer and other lawn care products for the commercial and consumer equipment segment.  The assets of the VIE that were consolidated, less the intercompany receivables of $26 million eliminated in consolidation, totaled $88 million and consisted of $79 million of inventory, $6 million of property and equipment and $3 million of other assets.  The liabilities of the VIE totaled $126 million and consisted of $101 million of accounts payable and accrued expenses and $25 million of short-term borrowings.  The VIE is financed through its own accounts payable and short-term borrowings.  The assets of the VIE can only be used to settle the obligations of the VIE.  The creditors of the VIE do not have recourse to the general credit of the Company.  See Note 6 for VIEs related to securitization of financing receivables.

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(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:

*                  Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes

(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:

(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 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 $225 million and $231 million at January 31, 2009 and 2008, respectively.

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

At January 31, 2009, the Company had approximately $150 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 January 31, 2009, the Company had an accrued liability of approximately $6 million under these agreements.  The maximum remaining term of the receivables guaranteed at January 31, 2009 was approximately six years.

The credit operation’s subsidiary, John Deere Risk Protection, Inc., offers crop insurance products through managing general agency agreements (Agreements) with insurance companies (Insurance Carriers) rated “Excellent” by A.M. Best Company.  As a managing general agent, John Deere Risk Protection, Inc. will receive commissions from the Insurance Carriers for selling crop insurance to producers.  The credit operations have guaranteed certain obligations under the Agreements, including the obligation to pay the Insurance Carriers for any uncollected premiums.  At January 31, 2009, the maximum exposure for uncollected premiums was approximately $17 million.  Substantially all of the credit operations’ crop insurance risk under the Agreements has been mitigated by a syndicate of private reinsurance companies.  The 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 Carriers for exposure under the Agreements of approximately $20 million at January 31, 2009.  The credit operations believe that the likelihood of the occurrence of events that give rise to the exposures under these Agreements is substantially remote and as a result, at January 31, 2009, the credit operations’ accrued liability under the Agreements was not material.

At January 31, 2009, the Company had commitments of approximately $366 million for the construction and acquisition of property and equipment.  Also, at January 31, 2009, the Company had pledged or restricted assets of $189 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 January 31, 2009, for which it believes the probability for payment is substantially remote.  The accrued liability for these contingencies was not material at January 31, 2009.

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(6)         Securitization of financing receivables:

The Company, as a part of its overall funding strategy, periodically transfers certain financing receivables (retail notes) into variable interest entities (VIEs) that are 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 transaction.

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 in accordance with FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities.  No additional support to these SPEs beyond what was previously contractually required has been provided during the first quarter of 2009.

In certain securitizations, the Company is the primary beneficiary of the SPEs and, as such, consolidates the entities.  The restricted assets (retail notes, allowance for credit losses and other assets) of the consolidated SPEs totaled $1,517 million, $1,303 million and $1,325 million at January 31, 2009, October 31, 2008 and January 31, 2008, respectively.  The liabilities (short-term borrowings and accrued interest) of these SPEs totaled $1,518 million, $1,287 million and $1,352 million at January 31, 2009, October 31, 2008 and January 31, 2008, respectively.  The credit holders of these SPEs do not have legal recourse to the Company’s general credit.

In other securitizations, the Company transfers retail notes into bank-sponsored, multi-seller, commercial paper conduits, which are SPEs that are not consolidated.  The Company is not considered to be the primary beneficiary of these conduits, because the Company’s variable interests in the conduits will not absorb a majority of the conduits’ expected losses, residual returns, or both.  This is primarily due to these interests representing significantly less than a majority of the conduits’ total assets and liabilities.  These conduits provide a funding source to the Company (as well as other transferors into the conduit) as they fund the retail notes through the issuance of commercial paper.  The Company’s carrying values and variable interests related to these conduits were restricted assets (retail notes, allowance for credit losses and other assets) of $1,835 million, $398 million and $680 million at January 31, 2009, October 31, 2008 and January 31, 2008, respectively.  The liabilities (short-term borrowings and accrued interest) related to these conduits were $1,778 million, $398 million and $701 million at January 31, 2009, October 31, 2008 and January 31, 2008, respectively.

The Company’s carrying amount of the liabilities to the unconsolidated conduits, compared to the maximum exposure to loss related to these conduits, which would only be incurred in the event of a complete loss on the restricted assets, was as follows in millions of dollars:

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The assets of unconsolidated conduits related to securitizations in which the Company’s variable interests were considered significant were approximately $46 billion at January 31, 2009.

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

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

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 are not required to be placed into a restricted collection account until immediately prior to the time payment is required to the secured creditors.  At January 31, 2009, 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:

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

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

Out of the total stock options outstanding during the first quarter of 2009 and 2008, options to purchase 9.4 million shares and 2.0 million shares, respectively, were excluded from the above diluted per share computation because the incremental shares under the treasury stock method for the exercise of these options would have caused an antidilutive effect on net income per share.

(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:

(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 consolidated financial statements.

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(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 postretirement health care and life insurance plans for employees in the U.S. and Canada.

The worldwide components of net periodic pension cost (income) consisted of the following in millions of dollars:

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

During the first quarter of 2009, the Company contributed approximately $15 million to its pension plans and $34 million to its other postretirement benefit plans.  The Company presently anticipates contributing an additional $66 million to its pension plans and $65 million to its other postretirement benefit plans during the remainder of fiscal year 2009.  These contributions include payments from Company funds to either increase plan assets or make direct payments to plan participants.

(13)   In December 2008, the Company granted options to employees for the purchase of 4.6 million shares of common stock at an exercise price of $39.67 per share and a binomial lattice model fair value of $12.66 per share.  At January 31, 2009, options for 20.5 million shares were outstanding with a weighted-average exercise price of $40.45 per share.  The Company also granted .3 million of restricted stock units with a weighted-average fair value of $39.67 per share in the first quarter of 2009.  A total of 10.8 million shares remained available for the granting of future options and restricted stock.

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(14) Assets and liabilities measured at fair value on a recurring basis in millions of dollars follow:

Financial assets measured at fair value on a nonrecurring basis and the losses during the period in millions of dollars were as follows:

Level 1 measurements consist of quoted prices in active markets for identical assets or liabilities.  Level 2 measurements include significant other observable inputs such as quoted prices for similar assets or liabilities in active markets; identical assets or liabilities in inactive markets; observable inputs such as interest rates and yield curves; and other market-corroborated inputs.  Level 3 measurements include significant unobservable inputs.

FASB Statement No. 157, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  In determining fair value, the Company uses various methods including market and income approaches.  The Company utilizes valuation models and techniques that maximize the use of observable inputs.  The models are industry-standard models that consider various assumptions including time values and yield curves as well as other economic measures.  These valuation techniques are consistently applied.

The following is a description of the valuation methodologies the Company uses to measure financial instruments at fair value:

Investments Available for Sale — The majority of the Company’s investment portfolio consists of various debt securities such as U.S. government, agencies and agency mortgage-backed securities; and corporate and municipal bonds.  This portfolio of investments is primarily valued on a matrix pricing model in which all significant inputs are observable or can be derived from or corroborated by observable market data.

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Derivative Instruments — The Company’s derivative financial instruments consist of interest rate swaps and caps, foreign currency forwards and cross-currency interest rate swaps.  The portfolio is valued based on a discounted cash flow approach using market observable inputs, including swap curves and both forward and spot exchange rates for currencies.

Financing Receivables — Receivables with specific reserves established due to payment defaults are valued based on a discounted cash flow approach for the underlying collateral.  The related credit allowances represent cumulative adjustments to measure those specific receivables at fair value.

(15)           It is the Company’s policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading.  The Company’s credit operations manage the relationship of the types and amounts of their funding sources to their receivable and lease portfolio in an effort to diminish risk due to interest rate and foreign currency fluctuations, while responding to favorable financing opportunities.  The Company also has foreign currency exposures at some of its foreign and domestic operations related to buying, selling and financing in currencies other than the local currencies.

All derivatives are recorded at fair value on the balance sheet.  Each derivative is designated as a cash flow hedge, a fair value hedge, or remains undesignated.  All designated hedges are formally documented as to the relationship with the hedged item as well as the risk-management strategy.  Both at inception and on an ongoing basis the hedging instrument is assessed as to its effectiveness, when applicable.  If and when a derivative is determined not to be highly effective as a hedge, or the underlying hedged transaction is no longer likely to occur, or the derivative is terminated, hedge accounting is discontinued.  Any past or future changes in the derivative’s fair value, which will not be effective as an offset to the income effects of the item being hedged, are recognized currently in the income statement.

Certain of the Company’s derivative agreements contain credit support provisions that require the Company to post collateral if certain value or ratings thresholds are exceeded.  For some transactions the counterparty may request posting of full collateral if the Company’s debt rating were to fall below investment grade.  At January 31, 2009, there were no aggregate derivative positions requiring the posting of collateral.

Derivative instruments are subject to significant concentrations of credit risk to the banking sector.  The Company manages individual counterparty exposure by setting limits that consider the credit rating of the counterparty and the size of other financial commitments and exposures between the Company and the counterparty banks.  All interest rate derivatives are transacted under International Swaps and Derivatives Association (ISDA) documentation.  Some of these agreements include collateral support arrangements or mutual put options at fair value.  Each master agreement permits the net settlement of amounts owed in the event of early termination.  The maximum amount of loss that the Company would incur if counterparties to derivative instruments fail to meet their obligations, not considering collateral received or netting arrangements, was $829 million as of January 31, 2009.  The amount of collateral received at January 31, 2009 to offset this potential maximum loss was $50 million.  The netting provisions of the agreements would reduce the maximum amount of loss the Company would incur if the counterparties to derivative instruments fail to meet their obligations by an additional $167 million as of January 31, 2009.  None of the concentrations of risk with any individual counterparty was considered significant at January 31, 2009.

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Cash flow hedges

Certain interest rate contracts (swaps) were designated as hedges of future cash flows from variable interest rate borrowings.  The total notional amount of these receive-variable/pay-fixed interest rate contracts at January 31, 2009 was $3,694 million.  The effective portions of the fair value gains or losses on these cash flow hedges were recorded in other comprehensive income (OCI) and subsequently reclassified into interest expense as payments were accrued and the contracts approach maturity.  These amounts offset the effects of interest rate changes on the related borrowings.  Any ineffective portions of the gains or losses on all cash flow interest rate contracts designated as hedges were recognized currently in interest expense and no components were excluded from the assessment of effectiveness.  The cash flows from these contracts were recorded in operating activities in the consolidated statement of cash flows.

The amount of loss recorded in other comprehensive income at January 31, 2009 that is expected to be reclassified to interest expense in the next twelve months if interest rates remain unchanged is approximately $16 million after-tax.  These contracts mature in up to 28 months.  There were no significant gains or losses reclassified from OCI to earnings based on the probability that the original forecasted transaction would not occur.

Fair value hedges

Certain interest rate contracts (swaps) were designated as fair value hedges of fixed-rate, long-term borrowings.  The total notional amount of these receive-fixed/pay-variable interest rate contracts at January 31, 2009 was $5,450 million.  The effective portions of the fair value gains or losses on these contracts were offset by fair value gains or losses on the hedged items (fixed-rate borrowings).  Any ineffective portions of the gains or losses were recognized currently in interest expense and no components were excluded from the assessment of effectiveness.  The ineffective portions totaled $5 million gain in the first quarter of 2009.  The cash flows from these contracts were recorded in operating activities in the consolidated statement of cash flows.

Derivatives not designated as hedging instruments

The Company has certain interest rate contracts (swaps and caps), foreign exchange contracts (forwards and swaps) and cross-currency interest rate contracts (swaps), which were not formally designated as hedges under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.  These derivatives were held as economic hedges for underlying interest rate or foreign currency exposures primarily for certain borrowings and purchases or sales of inventory.  The total notional amount of the interest rate swaps was $1,720 million, the foreign exchange contracts was $2,063 million and the cross-currency interest rate contracts was $848 million at January 31, 2009.  There were also $1,862 million of interest rate caps purchased and $1,862 million sold at the same capped interest rate to facilitate borrowings through securitization of retail notes at January 31, 2009.  The fair value gains or losses from the interest rate contracts were recognized currently in interest expense and the gains or losses from foreign exchange contracts in cost of sales or other operating expenses, generally offsetting over time the expenses on the exposures being hedged.  The cash flows from these non-designated contracts were recorded in operating activities in the consolidated statement of cash flows.

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Fair values of derivative instruments in the condensed consolidated balance sheet in millions of dollars follow: