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 April 30, 2010

	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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes

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


Non-Accelerated Filer		Smaller Reporting Company

(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

At April 30, 2010, 424,837,898 shares of common stock, $1 par value, of the registrant were outstanding.

Index to Exhibits: Page 46

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DEERE & COMPANY

STATEMENT OF CONSOLIDATED INCOME

For the Three Months Ended April 30, 2010 and 2009

(In millions of dollars and shares except per share amounts) Unaudited

	2010		2009

Net Sales and Revenues
Net sales	$	6,548.2	$	6,187.0
Finance and interest income	435.1		442.1
Other income	147.6		118.7
Total	7,130.9		6,747.8


Costs and Expenses
Cost of sales	4,765.2		4,756.4
Research and development expenses	266.0		255.7
Selling, administrative and general expenses	733.3		688.0
Interest expense	207.3		269.4
Other operating expenses	170.2		166.4
Total	6,142.0		6,135.9

Income of Consolidated Group before Income Taxes	988.9		611.9
Provision for income taxes	448.4		137.1
Income of Consolidated Group	540.5		474.8
Equity in income (loss) of unconsolidated affiliates	9.3		(2.6		)
Net Income	549.8		472.2
Less: Net income (loss) attributable to noncontrolling interests	2.3		(.1		)
Net Income Attributable to Deere & Company	$	547.5	$	472.3

Per Share Data
Basic	$	1.29	$	1.12
Diluted	$	1.28	$	1.11

Average Shares Outstanding
Basic	424.4		422.7
Diluted	429.0		423.7

See Condensed Notes to Interim Consolidated Financial Statements.

DEERE & COMPANY

STATEMENT OF CONSOLIDATED INCOME

For the Six Months Ended April 30, 2010 and 2009

(In millions of dollars and shares except per share amounts) Unaudited

	2010		2009

Net Sales and Revenues
Net sales	$	10,785.5	$	10,747.1
Finance and interest income	902.3		908.7
Other income	277.9		238.0
Total	11,965.7		11,893.8


Costs and Expenses
Cost of sales	7,970.7		8,298.9
Research and development expenses	501.7		475.1
Selling, administrative and general expenses	1,375.6		1,327.0
Interest expense	425.7		543.9
Other operating expenses	338.9		363.2
Total	10,612.6		11,008.1


Income of Consolidated Group before Income Taxes	1,353.1		885.7
Provision for income taxes	558.3		210.7
Income of Consolidated Group	794.8		675.0
Equity in income of unconsolidated affiliates	.6		1.2
Net Income	795.4		676.2
Less: Net income attributable to noncontrolling interests	4.7
Net Income Attributable to Deere & Company	$	790.7	$	676.2

Per Share Data
Basic	$	1.86	$	1.60
Diluted	$	1.85	$	1.60

Average Shares Outstanding
Basic	424.0		422.6
Diluted	428.2		423.7

See Condensed Notes to Interim Consolidated Financial Statements.

DEERE & COMPANY

CONDENSED CONSOLIDATED BALANCE SHEET

(In millions of dollars) Unaudited

	April 30			October 31			April 30
	2010			2009			2009
Assets
Cash and cash equivalents	$	3,614.9		$	4,651.7		$	4,797.2
Marketable securities	234.2			192.0			185.8
Receivables from unconsolidated affiliates	37.7			38.4			48.0
Trade accounts and notes receivable - net	4,014.2			2,616.9			4,373.1
Financing receivables - net	15,039.7			15,254.7			13,511.4
Restricted financing receivables - net	3,084.6			3,108.4			3,167.4
Other receivables	610.6			864.5			635.6
Equipment on operating leases - net	1,717.3			1,733.3			1,553.2
Inventories	3,002.9			2,397.3			3,551.0
Property and equipment - net	4,430.4			4,532.2			4,254.8
Investments in unconsolidated affiliates	227.0			212.8			207.6
Goodwill	1,006.4			1,036.5			1,256.7
Other intangible assets - net	129.3			136.3			145.2
Retirement benefits	169.0			94.4			1,150.4
Deferred income taxes	2,593.4			2,804.8			1,571.9
Other assets	1,102.5			1,458.4			1,391.5
Total Assets	$	41,014.1		$	41,132.6		$	41,800.8

Liabilities and Stockholders’ Equity
Short-term borrowings	$	6,260.6		$	7,158.9		$	8,929.7
Payables to unconsolidated affiliates	151.4			55.0			101.2
Accounts payable and accrued expenses	5,625.9			5,371.4			5,589.7
Deferred income taxes	136.5			167.3			173.5
Long-term borrowings	17,375.8			17,391.7			16,850.2
Retirement benefits and other liabilities	5,804.5			6,165.5			3,283.6
Total liabilities	35,354.7			36,309.8			34,927.9

Commitments and contingencies (Note 13)

Common stock, $1 par value (issued shares at April 30, 2010 – 536,431,204)	3,058.1			2,996.2			2,976.6
Common stock in treasury	(5,521.5		)	(5,564.7		)	(5,580.1		)
Retained earnings	11,533.4			10,980.5			11,020.0
Accumulated other comprehensive income (loss)	(3,419.1		)	(3,593.3		)	(1,548.3		)
Total Deere & Company stockholders’ equity	5,650.9			4,818.7			6,868.2
Noncontrolling interests	8.5			4.1			4.7
Total stockholders’ equity	5,659.4			4,822.8			6,872.9
Total Liabilities and Stockholders’ Equity	$	41,014.1		$	41,132.6		$	41,800.8

See Condensed Notes to Interim Consolidated Financial Statements.

DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Six Months Ended April 30, 2010 and 2009
(In millions of dollars) Unaudited

	2010			2009
Cash Flows from Operating Activities
Net income	$	795.4		$	676.2
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Provision for doubtful receivables	59.3			96.1
Provision for depreciation and amortization	463.4			430.7
Share-based compensation expense	51.7			56.3
Undistributed earnings of unconsolidated affiliates	4.5			(1.7		)
Provision (credit) for deferred income taxes	109.1			(73.3		)
Changes in assets and liabilities:
Trade, notes and financing receivables related to sales	(1,220.4		)	(1,124.6		)
Inventories	(754.9		)	(626.5		)
Accounts payable and accrued expenses	458.6			(614.4		)
Accrued income taxes payable/receivable	199.1			(28.0		)
Retirement benefits	(34.5		)	38.3
Other	285.3			(10.0		)
Net cash provided by (used for) operating activities	416.6			(1,180.9		)

Cash Flows from Investing Activities
Collections of receivables	5,889.8			6,256.6
Proceeds from sales of financing receivables	1.3			7.9
Proceeds from maturities and sales of marketable securities	9.2			810.4
Proceeds from sales of equipment on operating leases	330.9			226.5
Government grants related to property and equipment	21.6
Proceeds from sales of businesses, net of cash sold	5.8
Cost of receivables acquired	(6,034.9		)	(5,443.4		)
Purchases of marketable securities	(45.7		)	(12.3		)
Purchases of property and equipment	(311.2		)	(449.1		)
Cost of equipment on operating leases acquired	(208.2		)	(167.3		)
Acquisitions of businesses, net of cash acquired	(41.6		)	(44.3		)
Other	(67.1		)	(40.7		)
Net cash provided by (used for) investing activities	(450.1		)	1,144.3

Cash Flows from Financing Activities
Increase (decrease) in short-term borrowings	(77.3		)	804.3
Proceeds from long-term borrowings	939.8			4,211.6
Payments of long-term borrowings	(1,609.2		)	(1,944.7		)
Proceeds from issuance of common stock	43.5			4.1
Repurchases of common stock	(3.8		)	(3.2		)
Dividends paid	(237.6		)	(354.5		)
Excess tax benefits from share-based compensation	13.7			.7
Other	(19.9		)	(113.6		)
Net cash provided by (used for) financing activities	(950.8		)	2,604.7

Effect of Exchange Rate Changes on Cash and Cash Equivalents	(52.5		)	17.7

Net Increase (Decrease) in Cash and Cash Equivalents	(1,036.8		)	2,585.8
Cash and Cash Equivalents at Beginning of Period	4,651.7			2,211.4
Cash and Cash Equivalents at End of Period	$	3,614.9		$	4,797.2

See Condensed Notes to Interim Consolidated Financial Statements.

Deere & Company

STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY

For the Six Months Ended April 30, 2009 and 2010

(In millions of dollars) Unaudited

				Deere & Company Stockholders
	Total Stockholders’ Equity			Comprehensive Income (Loss)			Common Stock		Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Non- Controlling Interests

Balance October 31, 2008	$	6,537.2					$	2,934.0	$	(5,594.6	)	$	10,580.6		$	(1,387.3	)	$	4.5
Net income	676.2			$	676.2							676.2
Other comprehensive income (loss)
Retirement benefits adjustment	(105.3		)	(105.3		)									(105.3		)
Cumulative translation adjustment	(37.1		)	(37.4		)									(37.4		)	.3
Unrealized loss on derivatives	(24.2		)	(24.2		)									(24.2		)
Unrealized gain on investments	5.9			5.9											5.9
Comprehensive income	515.5			$	515.2													.3

Repurchases of common stock	(3.2		)						(3.2		)
Treasury shares reissued	17.7								17.7
Dividends declared	(236.7		)									(236.7		)
Stock options and other	42.4						42.6					(.1		)				(.1		)
Balance April 30, 2009	$	6,872.9					$	2,976.6	$	(5,580.1	)	$	11,020.0		$	(1,548.3	)	$	4.7



Balance October 31, 2009	$	4,822.8					$	2,996.2	$	(5,564.7	)	$	10,980.5		$	(3,593.3	)	$	4.1
Net income	795.4			$	790.7							790.7						4.7
Other comprehensive income (loss)
Retirement benefits adjustment	227.0			227.0											227.0
Cumulative translation adjustment	(75.5		)	(75.3		)									(75.3		)	(.2		)
Unrealized gain on derivatives	21.9			21.9											21.9
Unrealized gain on investments	.6			.6											.6
Comprehensive income	969.4			$	964.9													4.5

Repurchases of common stock	(3.8		)						(3.8		)
Treasury shares reissued	47.0								47.0
Dividends declared	(237.7		)									(237.7		)
Stock options and other	61.7						61.9					(.1		)				(.1		)
Balance April 30, 2010	$	5,659.4					$	3,058.1	$	(5,521.5	)	$	11,533.4		$	(3,419.1	)	$	8.5

See Condensed Notes to Interim Consolidated Financial Statements.

Condensed Notes to Interim Consolidated Financial Statements (Unaudited)

(1) 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 agriculture and turf operations 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.

Variable Interest Entities

The Company is the primary beneficiary of 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 any periods presented. The VIE produces blended fertilizer and other lawn care products for the agriculture and turf segment.

The assets and liabilities of this supplier VIE consisted of the following in millions of dollars:

	April 30 2010		October 31 2009		April 30 2009
Intercompany receivables	$	22	$	32	$	50
Inventories	58		36		80
Property and equipment - net	5		5		6
Other assets	7		3		8
Total assets	$	92	$	76	$	144

Accounts payable and accrued expenses	$	86	$	59	$	107
Short-term borrowings	7		23		47
Total liabilities	$	93	$	82	$	154

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.

The Company is the primary beneficiary of and consolidates certain wind energy entities that are VIEs, which invest in wind farms that own and operate turbines to generate electrical energy. Although the Company owns less than a majority of the equity voting rights, it owns most of the financial rights that would absorb the VIEs’ expected losses or returns. No additional support to the VIEs beyond what was previously contractually required has been provided during any periods presented.

The assets and liabilities of these wind energy VIEs consisted of the following in millions of dollars:

	April 30 2010		October 31 2009		April 30 2009
Receivables - net	$	31	$	32	$	2
Property and equipment - net	134		141		167
Other assets			1		1
Total assets	$	165	$	174	$	170

Intercompany borrowings	$	52	$	55	$	57
Accounts payable and accrued expenses	4		6		4
Total liabilities	$	56	$	61	$	61

The VIEs are financed primarily through intercompany borrowings and equity. The VIEs’ assets are pledged as security interests for the intercompany borrowings. The remaining creditors of the VIEs do not have recourse to the general credit of the Company.

See Note 10 for VIEs related to securitization of financing receivables.

(2) The consolidated financial statements of Deere & Company have been prepared by the Company, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). 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.

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 previous periods have been reclassified to conform to the financial statement presentation as a result of the adoption in the first quarter of 2010 of the guidance in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810, Consolidation (FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements) (See Note 3).

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 $157 million and $104 million in the first six months of 2010 and 2009, respectively. The Company also had accounts payable related to purchases of property and equipment of approximately $36 million and $82 million at April 30, 2010 and 2009, respectively.

(3) New accounting standards adopted in the first six months of 2010 were as follows:

In the first quarter of 2010, the Company adopted FASB ASC 810, Consolidation (FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements). ASC 810 requires that noncontrolling interests are reported as a separate line in stockholders’ equity. The net income for both Deere & Company and the noncontrolling interests is included in “Net Income.” The “Net income (loss) attributable to noncontrolling interests” is deducted from “Net Income” to determine the “Net Income Attributable to Deere & Company,” which will continue to be used to determine earnings per share. ASC 810 also requires certain prospective changes in accounting for noncontrolling interests primarily related to increases and decreases in ownership and changes in control. As required, the presentation and disclosure requirements were adopted through retrospective application, and the consolidated financial statement prior period information has been adjusted accordingly. The adoption did not have a material effect on the Company’s consolidated financial statements.

In the first quarter of 2010, the Company adopted FASB ASC 805, Business Combinations (FASB Statement No. 141 (revised 2007), Business Combinations). ASC 805 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. This standard also requires the fair value measurement of certain other assets and liabilities related to the acquisition such as contingencies and research and development. The adoption did not have a material effect on the Company’s consolidated financial statements.

In the first quarter of 2010, the Company adopted FASB ASC 820, Fair Value Measurements and Disclosures (FASB Statement No. 157, Fair Value Measurements), for nonrecurring measurements of nonfinancial assets and liabilities. The standard requires that these measurements comply with certain guidance for fair value measurements and the disclosure of such measurements. The adoption did not have a material effect on the Company’s consolidated financial statements.

In the first quarter of 2010, the Company adopted FASB ASC 260, Earnings Per Share (FASB Staff Position (FSP) Emerging Issues Task Force 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities). Based on this guidance, the Company’s nonvested restricted stock awards are considered participating securities since they contain nonforfeitable dividend equivalent rights. The diluted earnings per share are reported as the most dilutive of either the two-class method or the treasury stock method. This requires the Company to compute earnings per share on the two-class method. The adoption did not have a material effect on the Company’s consolidated financial statements (see Note 6).

In the first quarter of 2010, the Company adopted FASB Accounting Standards Update (ASU) No. 2010-09, Amendments to Certain Recognition and Disclosure Requirements, which amends ASC 855, Subsequent Events. This ASU removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated. This change removes potential conflicts with SEC requirements. The adoption did not have a material effect on the Company’s consolidated financial statements.

In the second quarter of 2010, the Company adopted ASU No. 2010-06, Improving Disclosures about Fair Value Measurements, which amends ASC 820, Fair Value Measurements and Disclosures. This ASU requires disclosures of transfers into and out of Levels 1 and 2, more detailed roll forward reconciliations of Level 3 recurring fair value measurements on a gross basis, fair value information by class of assets and liabilities, and descriptions of valuation techniques and inputs for Level 2 and 3 measurements. The effective date for the roll forward reconciliations is the first quarter of fiscal year 2012. The adoption in the second quarter this year did not have a material effect and the future adoption will not have a material effect on the Company’s consolidated financial statements.

New accounting standards to be adopted are as follows:

In December 2008, the FASB issued ASC 715, Compensation-Retirement Benefits (FSP Financial Accounting Statement (FAS) 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets). ASC 715 requires additional disclosures relating to how investment allocation decisions are made, the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets, the levels within the fair value hierarchy in which the measurements fall, a reconciliation of the beginning and ending balances for Level 3 measurements, the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period and significant concentrations of risk within plan assets. The effective date is the end of fiscal year 2010. The adoption will not have a material effect on the Company’s consolidated financial statements.

In December 2009, the FASB issued ASU No. 2009-16, Accounting for Transfers of Financial Assets, which amends ASC 860, Transfers and Servicing (FASB Statement No. 166, Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140). This ASU eliminates the qualifying special purpose entities from the consolidation guidance and clarifies the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. It requires additional disclosures about the risks from continuing involvement in transferred financial assets accounted for as sales. The effective date is the beginning of fiscal year 2011. The adoption is not expected to have a material effect on the Company’s consolidated financial statements.

In December 2009, the FASB issued ASU No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, which amends ASC 810, Consolidation (FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R)). This ASU requires a qualitative analysis to determine the primary beneficiary of a VIE. The analysis identifies the primary beneficiary as the enterprise that has both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. The ASU also requires additional disclosures about an enterprise’s involvement in a VIE. The effective date is the beginning of fiscal year 2011. The adoption is not expected to have a material effect on the Company’s consolidated financial statements.

(4) 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
	2010		2009		2010		2009

Net income	$	549.8	$	472.2	$	795.4	$	676.2
Other comprehensive income (loss), net of tax:
Retirement benefits adjustment	155.2		(115.8)		227.0		(105.3		)
Cumulative translation adjustment	34.4		55.7		(75.5)		(37.1		)
Unrealized gain (loss) on derivatives	15.6		8.2		21.9		(24.2		)
Unrealized gain on investments	.3		.3		.6		5.9
Comprehensive income	$	755.3	$	420.6	$	969.4	$	515.5

For the second quarter of 2010 and 2009, the table above includes noncontrolling interests’ comprehensive income (loss) of $2.2 million and $(.1) million, which consists of net income (loss) of $2.3 million and $(.1) million and cumulative translation adjustments of $(.1) million and none, respectively. For the first six months of 2010 and 2009, the table includes noncontrolling interests’ comprehensive income of $4.5 million and $.3 million, which consists of net income of $4.7 million and none and cumulative translation adjustments of $(.2) million and $.3 million, respectively.

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

	Three Months Ended April 30				Six Months Ended April 30
	2010		2009		2010		2009

Dividends declared	$	.28	$	.28	$	.56	$	.56
Dividends paid	$	.28	$	.56 *	$	.56	$	.84	*

* Due to the dividend payment dates, two quarterly dividends of $.28 per share were included in the second quarter of 2009 and three quarterly dividends of $.28 per share were included in the first six months of 2009.

(6) A reconciliation of basic and diluted net income attributable to Deere & Company per share follows in millions of dollars, except per share amounts:

	Three Months Ended April 30				Six Months Ended April 30
	2010		2009		2010		2009
Net income attributable to Deere & Company	$	547.5	$	472.3	$	790.7	$	676.2
Less income allocable to participating securities (see Note 3) *	.2				.3
Income allocable to common stock	$	547.3	$	472.3	$	790.4	$	676.2
Average shares outstanding	424.4		422.7		424.0		422.6
Basic per share	$	1.29	$	1.12	$	1.86	$	1.60

Average shares outstanding	424.4		422.7		424.0		422.6
Effect of dilutive stock options	4.6		1.0		4.2		1.1
Total potential shares outstanding	429.0		423.7		428.2		423.7
Diluted per share	$	1.28	$	1.11	$	1.85	$	1.60

Out of the total stock options outstanding during the second quarter of 2010 and 2009, options to purchase 1.9 million shares in both periods of 2010 and 9.3 million shares in both periods of 2009 were excluded from the above diluted per share computation because the incremental shares under the treasury stock method for these options would have been antidilutive.

* Effect on prior periods was not material.

(7) 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 retired employees in the U.S. and Canada.

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

	Three Months Ended April 30				Six Months Ended April 30
	2010		2009		2010		2009
Service cost	$	43	$	31	$	87	$	60
Interest cost	125		141		256		280
Expected return on plan assets	(191)		(184)		(381)		(368)
Amortization of actuarial loss	30		1		59		3
Amortization of prior service cost	11		5		21		12
Settlements/curtailments	2				3
Early-retirement benefits							2
Net cost (income)	$	20	$	(6)	$	45	$	(11)

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

	Three Months Ended April 30				Six Months Ended April 30
	2010		2009		2010		2009
Service cost	$	10	$	6	$	22	$	14
Interest cost	83		89		168		172
Expected return on plan assets	(31)		(29)		(61)		(59)
Amortization of actuarial loss	71		23		155		33
Amortization of prior service credit	(3)		(3)		(7)		(6)
Early-retirement benefits							1
Net cost	$	130	$	86	$	277	$	155

During the first six months of 2010, the Company contributed approximately $288 million to its pension plans and $54 million to its other postretirement benefit plans. The Company presently anticipates contributing an additional $221 million to its pension plans and $20 million to its other postretirement benefit plans in the remainder of fiscal year 2010. These contributions include payments from Company funds to either increase plan assets or make direct payments to plan participants.

(8) The Company’s unrecognized tax benefits at April 30, 2010 were $185 million of which approximately $66 million would affect the effective tax rate if they 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. Based on worldwide tax audits which have closed, the Company had changes during the first six months of 2010 related to transfer pricing that caused a decrease of approximately $15 million for settlements, a decrease of $110 million for positions taken during prior years and an increase of approximately $47 million for positions taken during prior years. These changes in unrecognized tax benefits did not have a material impact on the effective tax rate due to compensating adjustments to related tax receivables. Other changes to the unrecognized tax benefits were not significant.

The Patient Protection and Affordable Care Act as amended by the Healthcare and Education Reconciliation Act of 2010 was signed into law in the Company’s second fiscal quarter of 2010. Under the new legislation, to the extent the Company’s future health care drug expenses are reimbursed under the Medicare Part D retiree drug subsidy (RDS) program, the expenses will no longer be tax deductible effective November 1, 2013. Since the tax effects for the retiree health care liabilities are reflected in the Company’s financial statements, the entire impact of this tax change relating to the future retiree drug costs must be recorded in tax expense in the period in which the legislation is enacted. As a result of the legislation, the Company’s tax expenses were approximately $130 million higher in the second quarter of 2010.

(9) 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
	2010		2009		% Change	2010		2009		% Change
Net sales and revenues:
Agriculture and turf ***	$	5,637	$	5,587	+1	$	9,245	$	9,406	-2
Construction and forestry	911		600		+52	1,540		1,341		+15
Total net sales	6,548		6,187		+6	10,785		10,747
Credit revenues	476		458		+4	958		931		+3
Other revenues	107		103		+4	223		216		+3
Total net sales and revenues	$	7,131	$	6,748	+6	$	11,966	$	11,894	+1
Operating profit (loss): *
Agriculture and turf ***	$	952	$	703	+35	$	1,304	$	993	+31
Construction and forestry	36		(75)			(1)		(58)		-98
Credit	105		58		+81	200		111		+80
Other	5					12		4		+200
Total operating profit	1,098		686		+60	1,515		1,050		+44
Other reconciling items **	(551)		(214)		+157	(724)		(374)		+94
Net income attributable to Deere & Company	$	547	$	472	+16	$	791	$	676	+17

Identifiable assets:
Agriculture and turf ***						$	7,136	$	7,730	-8
Construction and forestry						2,113		2,220		-5
Credit						25,952		26,681		-3
Other						271		267		+1
Corporate						5,542		4,903		+13
Total assets						$	41,014	$	41,801	-2

Intersegment sales and revenues:
Agriculture and turf net sales	$	12	$	3	+300	$	26	$	11	+136
Construction and forestry net sales	3		1		+200	3		1		+200
Credit revenues	56		71		-21	108		139		-22

Equipment operations outside the U.S. and Canada:
Net sales	$	2,341	$	2,155	+9	$	4,052	$	3,972	+2
Operating profit	207		88		+135	325		166		+96

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

**		Other reconciling items are primarily corporate expenses, certain external interest expense, certain foreign exchange gains and losses, income taxes and net income attributable to noncontrolling interests.

***		At the beginning of the third quarter of 2009, the Company combined the agricultural equipment and the commercial and consumer equipment organizations and internal reporting. As a result, these two segments have been combined into the agriculture and turf segment for the second quarter and first six months ended April 30, 2009.

(10) 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 does not meet the criteria of sales of receivables, and is, therefore, accounted for as a secured borrowing. 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. 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. The SPEs supporting the secured borrowings to which the retail notes are transferred are consolidated unless the Company is not the primary beneficiary. No additional support to these SPEs beyond what was previously contractually required has been provided during the reporting periods.

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 $2,207 million, $2,157 million and $1,246 million at April 30, 2010, October 31, 2009 and April 30, 2009, respectively. The liabilities (short-term borrowings and accrued interest) of these SPEs totaled $2,143 million, $2,133 million and $1,241 million at April 30, 2010, October 31, 2009 and April 30, 2009, 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 $988 million, $1,059 million and $2,026 million at April 30, 2010, October 31, 2009 and April 30, 2009, respectively. The liabilities (short-term borrowings and accrued interest) related to these conduits were $925 million, $1,004 million and $1,927 million at April 30, 2010, October 31, 2009 and April 30, 2009, 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:

	April 30, 2010

Carrying value of liabilities	$	925
Maximum exposure to loss	988

The assets of unconsolidated conduits related to securitizations in which the Company’s variable interests were considered significant were approximately $26 billion at April 30, 2010.

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

	April 30 2010		October 31 2009		April 30 2009
Restricted financing receivables (retail notes)	$	3,108	$	3,133	$	3,178
Allowance for credit losses	(23)		(25)		(11)
Other assets	110		108		105
Total restricted securitized assets	$	3,195	$	3,216	$	3,272

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

	April 30 2010		October 31 2009		April 30 2009
Short-term borrowings	$	3,066	$	3,132	$	3,162
Accrued interest on borrowings	2		5		6
Total liabilities related to restricted securitized assets	$	3,068	$	3,137	$	3,168

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 April 30, 2010, the maximum remaining term of all restricted receivables was approximately seven years.

(11) 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 2010		October 31 2009		April 30 2009
Raw materials and supplies	$	1,043	$	940	$	1,169
Work-in-process	457		387		480
Finished goods and parts	2,821		2,437		3,240
Total FIFO value	4,321		3,764		4,889
Less adjustment to LIFO basis	1,318		1,367		1,338
Inventories	$	3,003	$	2,397	$	3,551

(12) The changes in amounts of goodwill by operating segments were as follows in millions of dollars:

	Agriculture and Turf			Construction and Forestry			Total
Balance October 31, 2009:
Goodwill	$	698		$	628		$	1,326
Less accumulated impairment losses	289						289
Goodwill-net	409			628			1,037

Translation adjustments	(1		)	(32		)	(33		)
Other	3			(1		)	2

Balance April 30, 2010:
Goodwill	700			595			1,295
Less accumulated impairment losses	289						289
Goodwill-net	$	411		$	595		$	1,006

The components of other intangible assets were as follows in millions of dollars:

	Useful Lives * (Years)	April 30 2010
Amortized intangible assets:
Customer lists and relationships	13	$	97
Technology, patents, trademarks and other	15	98
Total at cost		195
Less accumulated amortization		70		**
Total		125
Unamortized intangible assets:
Licenses		4
Other intangible assets-net		$	129

* Weighted-averages

** Accumulated amortization for customer lists and relationships was $40 million and technology, patents and trademarks was $30 million.

The amortization of other intangible assets in the second quarter and the first six months of 2010 was $6 million and $11 million, respectively. The estimated amortization expense for the next five years is as follows in millions of dollars: remainder of 2010 - $8, 2011 - $15, 2012 - $14, 2013 - $13 and 2014 - $12.

(13) 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 $208 million and $221 million at April 30, 2010 and 2009, 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
	2010		2009		2010		2009

Balance, beginning of period	$	700	$	801	$	727	$	814
Payments	(117)		(114)		(252)		(238)
Amortization of premiums received	(24)		(27)		(48)		(54)
Accruals for warranties	129		114		251		232
Premiums received	25		24		44		47
Foreign exchange	(3)		1		(12)		(2)
Balance, end of period	$	710	$	799	$	710	$	799

At April 30, 2010, the Company had approximately $173 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, 2010, the Company had an accrued liability of approximately $7 million under these agreements. The maximum remaining term of the receivables guaranteed at April 30, 2010 was approximately six years.

The credit operations’ subsidiary, John Deere Risk Protection, Inc., offers crop insurance products through managing general agency agreements (Agreements) with insurance companies (Insurance Carriers) rated “Excellent” with 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 April 30, 2010, the maximum exposure for uncollected premiums was approximately $162 million. Substantially all of the credit operations’ crop insurance risk under the Agreements 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 Carriers for exposure under the Agreements of approximately $758 million at April 30, 2010. The credit operations believe that the likelihood of the occurrence of events that would give rise to the exposures under these Agreements is substantially remote and as a result, at April 30, 2010, the credit operations’ accrued liability under the Agreements was not material.

At April 30, 2010, the Company had commitments of approximately $239 million for the construction and acquisition of property and equipment. Also, at April 30, 2010, the Company had pledged assets of $178 million, primarily as collateral for borrowings. See Note 10 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, 2010, for which it believes the probability for payment was substantially remote. The accrued liability for these contingencies was not material at April 30, 2010.

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.

(14) The fair values of financial instruments that do not approximate the carrying values in millions of dollars follow:

	April 30, 2010				October 31, 2009
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financing receivables	$	15,040	$	15,128	$	15,255	$	15,434
Restricted financing receivables	3,085		3,091		3,108		3,146
Short-term secured borrowings	3,066		3,085		3,132		3,162
Long-term borrowings due within one year:
Equipment Operations	$	306	$	306	$	312	$	323
Financial Services	2,552		2,568		3,349		3,389
Total	$	2,858	$	2,874	$	3,661	$	3,712
Long-term borrowings:
Equipment Operations	$	3,054	$	3,327	$	3,073	$	3,303
Financial Services	14,322		14,969		14,319		14,818
Total	$	17,376	$	18,296	$	17,392	$	18,121

Fair values of the long-term financing receivables were based on the discounted values of their related cash flows at current market interest rates. The fair values of the remaining financing receivables approximated the carrying amounts.

Fair values of long-term borrowings and short-term secured borrowings were based on current market quotes for identical or similar borrowings or the discounted values of their related cash flows at current market interest rates. Certain long-term borrowings have been swapped to current variable interest rates. The carrying values of these long-term borrowings included adjustments related to fair value hedges.

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

	April 30		October 31			April 30
	2010*		2009*			2009*
Marketable securities
U.S. government debt securities	$	63	$		52	$	52
Municipal debt securities	23		24			24
Corporate debt securities	59		43			38
Residential mortgage-backed securities **	76		73			72
Other debt securities	13
Total marketable securities	234		192			186
Other assets
Derivatives:
Interest rate contracts	428		550			664
Foreign exchange contracts	10		17			27
Cross-currency interest rate contracts	4		173			40
Total assets	$	676	$		932	$	917
Accounts payable and accrued expenses
Derivatives:
Interest rate contracts	$	72	$	121		$	172
Foreign exchange contracts	35		32			53
Cross-currency interest rate contracts	54		1			1
Total liabilities	$	161	$	154		$	226

*	All measurements above were Level 2 measurements except for Level 1 measurements of U.S. government debt securities of $37 million, $32 million and $34 million at April 30, 2010, October 31, 2009 and April 30, 2009, respectively.
**	Primarily issued by U.S. government sponsored enterprises.

Carrying values for assets as of the end of the periods and losses during the related periods for nonrecurring Level 3 fair value measurements in millions of dollars were as follows:

				Six Months Ended
	April 30	October 31	April 30	April 30
	2010	2009	2009	2010	2009
Retail notes