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, 2003

Commission file no: 1-4121

DEERE  &  COMPANY

Delaware
(State of incorporation)

36-2382580
(IRS employer identification no.)

One John Deere Place

Moline, Illinois 61265

(Address of principal executive offices)

Telephone Number: (309) 765-8000

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

Yes

x

No

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes

x

No

          At January 31, 2003, 239,345,442 shares of common stock, $1 par value, of the registrant were outstanding.

Index to Exhibits: Page 30

PART I. FINANCIAL INFORMATION

DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended January 31, 2003 and 2002
(In millions of dollars except per share amounts) Unaudited

2003

2002

Net Sales and Revenues

Net sales

$

2,273.7

$

1,937.5

Finance and interest income

310.9

339.3

Health care premiums and fees

151.0

161.5

Other income

58.0

83.8

     Total

2,793.6

2,522.1

Costs and Expenses

Cost of sales

1,857.4

1,678.6

Research and development expenses

117.5

127.2

Selling, administrative and general expenses

357.3

365.8

Interest expense

152.0

161.9

Health care claims and costs

120.4

133.3

Other operating expenses

83.5

108.8

     Total

2,688.1

2,575.6

Income (Loss) of Consolidated Group

  Before Income Taxes

105.5

(53.5

)

Provision (credit) for income taxes

37.5

(24.5

)

Income (Loss) of Consolidated Group

68.0

(29.0

)

Equity in Income (Loss) of Unconsolidated Affiliates

  Credit

.1

(.9

)

  Other

(.1

)

(8.2

)

     Total

(9.1

)

Net income (loss)

$

68.0

$

(38.1

)

Per Share:

Net income (loss) - basic

$

.28

$

(.16

)

Net income (loss)- diluted

$

.28

$

(.16

)

See Notes to Interim Financial Statements.

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

January 31

October 31

January 31

2003

2002

2002

Assets

Cash and cash equivalents

$

3,553.4

$

2,814.9

$

2,364.8

Marketable securities

187.7

189.2

205.0

Receivables from unconsolidated

   affiliates

296.0

265.8

296.6

Trade accounts and notes

   receivable - net

2,911.3

2,733.6

2,678.6

Financing receivables - net

8,893.4

9,067.5

7,635.6

Other receivables

282.5

426.4

421.8

Equipment on operating leases - net

1,513.9

1,609.2

1,817.1

Inventories

1,929.3

1,371.8

1,830.7

Property and equipment - net

2,001.9

1,998.3

2,016.1

Investments in unconsolidated affiliates

176.2

180.6

191.3

Goodwill

830.9

804.0

836.6

Other intangible assets - net

90.5

90.9

27.4

Prepaid pension costs

51.4

49.6

668.2

Other assets

642.3

582.1

408.8

Deferred income taxes

1,492.8

1,490.1

908.1

Deferred charges

100.1

94.0

99.5

          Total assets

$

24,953.6

$

23,768.0

$

22,406.2

Liabilities and Stockholders' Equity

Short-term borrowings

$

4,170.1

$

4,437.3

$

6,455.9

Payables to unconsolidated

   affiliates

64.4

64.0

13.3

Accounts payable and accrued

   expenses

2,834.2

3,142.2

2,727.7

Health care claims and reserves

102.2

92.8

112.5

Accrued taxes

117.2

87.4

66.5

Deferred income taxes

24.8

24.5

17.8

Long-term borrowings

10,469.7

8,950.4

6,407.4

Retirement benefit accruals

   and other liabilities

3,914.1

3,806.2

2,662.7

     Total liabilities

21,696.7

20,604.8

18,463.8

Common Stock, $1 par value (issued shares at

   January 31, 2003 - 268,215,602)

1,957.0

1,957.0

1,947.7

Common stock in treasury

(1,307.6

)

(1,322.2

)

(1,382.7

)

Unamortized restricted stock compensation

(8.5

)

(17.8

)

(17.8

)

Retained earnings

3,924.4

3,912.6

3,734.9

   Total

4,565.3

4,529.6

4,282.1

Accumulated other comprehensive income (loss)

(1,308.4

)

(1,366.4

)

(339.7

)

Stockholders' equity

3,256.9

3,163.2

3,942.4

          Total liabilities and stockholders' equity

$

24,953.6

$

23,768.0

$

22,406.2

See Notes to Interim Financial Statements.

DEERE & COMPANY
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
For the Three Months Ended January 31, 2003 and 2002
(In millions of dollars) Unaudited

2003

2002

Cash Flows from Operating Activities

Net income (loss)

$

68.0

$

(38.1

)

Adjustments to reconcile net income (loss) to net cash

  used for operating activities

(605.4

)

(305.0

)

     Net cash used for operating activities

(537.4

)

(343.1

)

Cash Flows from Investing Activities

Collections of receivables

2,233.3

2,220.5

Proceeds from sales of financing receivables

292.0

1,702.8

Proceeds from maturities and sales of marketable securities

9.8

10.8

Proceeds from sales of equipment on operating leases

107.7

75.4

Proceeds from sales of businesses

22.5

50.3

Cost of receivables acquired

(2,282.7

)

(2,413.8

)

Purchases of marketable securities

(7.4

)

(40.9

)

Purchases of property and equipment

(48.4

)

(68.2

)

Cost of operating leases acquired

(76.9

)

(68.6

)

Acquisitions of businesses, net of cash acquired

(4.0

)

(4.6

)

Decrease (increase) in receivables with unconsolidated affiliates

(4.6

)

5.2

Other

(.4

)

132.5

     Net cash provided by investing activities

240.9

1,601.4

Cash Flows from Financing Activities

Increase in short-term borrowings

62.4

118.1

Proceeds from long-term borrowings

1,842.4

734.4

Principal payments on long-term borrowings

(857.2

)

(728.3

)

Proceeds from issuance of common stock

19.8

11.2

Repurchases of common stock

(.4

)

(.7

)

Dividends paid

(52.5

)

(51.7

)

Other

(1.2

)

(1.2

)

     Net cash provided by financing activities

1,013.3

81.8

Effect of Exchange Rate Changes on Cash

21.7

(5.3

)

Net Increase in Cash and Cash Equivalents

738.5

1,334.8

Cash and Cash Equivalents at Beginning of Period

2,814.9

1,030.0

Cash and Cash Equivalents at End of Period

$

3,553.4

$

2,364.8

See Notes to Interim Financial Statements.

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 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 United States of America 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 expe cted for the fiscal year.

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

Certain amounts for prior years have been reclassified to conform with 2003 financial statement presentations.

(2)

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

Equipment Operations  -  These data include the Company's agricultural equipment, commercial and consumer equipment, construction and forestry and special technologies operations with Financial Services reflected on the equity basis.

Financial Services  -  These data include the Company's credit and health care operations.

Consolidated  -  These data represent 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 follows in millions of dollars:

Three Months Ended
January 31,

2003

2002

Balance, beginning of period

$

3,912.6

$

3,834.8

Net income (loss)

68.0

(

38.1

)

Dividends declared

(

52.6

)

(

52.2

)

Other adjustments

(

3.6

)

(

9.6

)

Balance, end of period

$

3,924.4

$

3,734.9

(4)

The Company uses the intrinsic value method to account for stock-based employee compensation in its financial statements. The pro forma net income (loss) and net income (loss) per share, as if the fair value method in Financial Accounting Standards Board (FASB) Statement No. 123 had been used to account for stock-based compensation, with dollars in millions except per share amounts were as follows:

Three Months Ended
January 31

2003

2002

Net income (loss) as reported

$

68.0

$

(38.1

)

Add:

Stock-based employee compensation costs, net
   of tax, included in net income (loss)

..6

..5

Less:

Stock-based employee compensation costs, net
   of tax, as if fair value method had been applied

(8.3

)

(8.7

)

Pro forma net income (loss)

$

60.3

$

(46.3

)

Net income (loss) per share:

   As reported - basic

$

.28

$

(.16

)

   Pro forma - basic

.25

(.19

)

   As reported - diluted

.28

(.16

)

   Pro forma - diluted

.25

(.19

)

In December 2002, the Company granted options to employees for the purchase of 3.9 million shares of common stock at an exercise price of $45.80 per share and a Black-Scholes fair value of $9.55 per share. At January 31, 2003, options for 26.1 million shares were outstanding at option prices in a range of $13.63 to $82.19 per share and a weighted-average exercise price of $42.45 per share. The Company also granted 177,177 units of restricted stock with a fair value of $45.80 per share. A total of 2.8 million shares remained available for the granting of future options and restricted stock.

(5)

Most inventories owned by Deere & Company and its United States 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:

January 31,
2003

October 31,
2002

January 31,
2002

Raw materials and supplies

$

564

$

515

$

577

Work-in-process

443

361

420

Finished goods and parts

1,868

1,444

1,837

Total FIFO value

2,875

2,320

2,834

Adjustment to LIFO basis

946

948

1,003

Inventories

$

1,929

$

1,372

$

1,831

(6)

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 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.

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

    Beginning balance at October 31, 2002

$

332

    Payments

(68

)

    Accruals for warranties issued during the current period

69

    Accruals and adjustments for changes in estimates on preexisting       warranties

(4

)

    Ending balance at January 31, 2003

$

329

The Company has guarantees for certain recourse obligations on financing receivables which it has 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 January 31, 2003, the maximum amount of exposure to losses under these agreements was $211 million, which is net of accrued losses of $21 million related to these agreements. The Company may recover a portion of any required payments incurred under these agreements from the repossession of the equipment collateralizing the receivables. At January 31, 2003, the maximum remaining term of the receivables guaranteed was approximately six years.

The Company has certain minority ownership interests in unconsolidated affiliates in which the majority owners have put options to require the Company to purchase their interest. These puts could be exercised over a two-year window which begins December 2004 to March 2005 and total approximately $170 million to $250 million, depending on whether they are exercised on the first or last day of the period. If the Company's rating on its senior unsecured debt falls below Baa3 from Moody's Investors Service or BBB- from Standard & Poor's, these puts could be exercised immediately for approximately $150 million. A discussion of the Company's debt ratings is included in Management's Discussion and Analysis under Capital Resources and Liquidity. The Company also has call options to acquire the majority owners' interest. These calls can be exercised over a two-year window beginning December 2003 to March 2004 and total approximately $165 million to $260 million, depending on whether they are exercised on the f irst or last day of the period. At January 31, 2003, the Company had accrued losses of $87 million under these option agreements.

At January 31, 2003, the Company had guaranteed approximately $80 million of residual value for five operating leases related to certain administrative and manufacturing buildings. The Company is obligated at the end of each lease term to pay to the lessor any reduction in market value of the leased property up to the guaranteed residual value. The Company recognizes the expense for these future estimated lease payments over the lives of the operating leases and had accrued expenses of $15 million related to these agreements at January 31, 2003. The leases have terms expiring from 2004 to 2007.

At January 31, 2003, the Company had approximately $40 million of guarantees issued to various overseas banks 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, 2003, the Company had accrued losses of approximately $1 million under these agreements. The maximum remaining term of the receivables guaranteed at January 31, 2003 was approximately five years.

The Company also had other miscellaneous contingent liabilities totaling approximately $35 million at January 31, 2003, in which the probability for payment is remote.

     Commitments

At January 31, 2003, the Company had commitments of approximately $91 million for construction and acquisition of property and equipment. The Company had pledged assets of $11 million, primarily outside the United States, as collateral for borrowings, and $15 million of restricted investments related to conducting the health care business in various states at January 31, 2003.

John Deere B.V., located in the Netherlands, is a consolidated indirect wholly-owned finance subsidiary of the Company. The debt securities of John Deere B.V., including those which are registered with the United States Securities and Exchange Commission, are fully and unconditionally guaranteed by the Company.

(7)

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

Three Months Ended
January 31,

2003

2002

Dividends declared

$

.22

$

.22

Dividends paid

$

.22

$

.22

(8)

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

Three Months Ended
January 31,

           %

         2003

        2002

Change

Net sales and revenues

Agricultural Equipment**

$

1,271

$

1,180

+8

Commercial and consumer equipment

483

358

+35

Construction and forestry

512

387

+32

Other

8

13

-38

Total net sales***

2,274

1,938

+17

Credit revenues**

323

375

-14

Other revenues

197

209

-6

Total net sales and revenues ***

$

2,794

$

2,522

+11

Operating profit (loss): ****

Agricultural equipment

$

6

$

(15

)

*

Commercial and consumer equipment

23

(43

)

*

Construction and forestry

16

(66

)

*

Credit

107

118

-9

Other

4

(5

)

*

Total operating profit ***

156

(11

)

*

Interest, corporate expenses-net and income taxes

(88

)

(27

)

+226

Net income (loss)

$

68

(38

)

*

Identifiable assets:

Agricultural equipment

$

2,950

$

3,128

-6

Commercial and consumer equipment

1,511

1,526

-1

Construction and forestry

1,378

1,414

-3

Credit

14,158

12,694

+12

Other

385

404

-5

Corporate

4,572

3,240

+41

Total assets

$

24,954

$

22,406

+11

*

In the first quarter of 2002, the operating profit (loss) of the agricultural equipment, commercial and consumer equipment, construction and forestry and other segments included pretax goodwill amortization of $3, $4, $4 and $3, respectively, for a total of $14. In the first quarter of 2002, the operating profit (loss) of the commercial and consumer equipment and construction and forestry segments also included pretax costs for special items related to restructuring of $1 and $16, respectively, for a total of $17.

**

Additional intersegment sales and revenues:

Agricultural equipment sales

$

11

$

11

Credit revenues

44

35

+26

***

Includes overseas equipment operations as follows:

Net sales

$

724

$

610

+19

Operating profit

47

16

+194

****

Operating profit (loss) is income before external interest expense, foreign exchange gains and losses, income taxes and certain corporate expenses. However, operating profit (loss) 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 (loss) per share in millions, except per share amounts, follows:

Three Months Ended January 31,

2003

2002

Net income (loss)

$

68.0

$

(38.1

)

Average shares outstanding

239.2

237.5

Basic net income (loss) per share

$

.28

$

(.16

)

Average shares outstanding

239.2

237.5

Effect of dilutive stock options

3.3

Total potential shares outstanding

242.5

237.5

Diluted net income (loss) per share

$

.28

$

(.16

)

Stock options to purchase 2.8 million shares during the first quarter of 2003 and 3.0 million shares during the first quarter of 2002 were outstanding, but not included in the above diluted per share computation because the options' exercise prices were greater than the average market price of the Company's common stock during the period. Diluted net loss per share in the first quarter of 2002 is based on the average shares outstanding as the inclusion of 1.9 million of incremental shares from stock options would have been antidilutive.

(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 January 31,

2003

2002

Net income (loss)

$

68.0

$

(38.1

)

Other comprehensive income (loss), net of tax:

Change in cumulative translation adjustment

58.2

11.4

Unrealized gain on investments

3.3

.1

Unrealized gain (loss) on derivatives

(3.5

)

17.7

Comprehensive income (loss)

$

126.0

$

(8.9

)

(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)

In 2002 and the fourth quarter of 2001, the Company announced certain actions aimed at increasing efficiency and reducing costs. The Company established reserves and liabilities to recognize the accruable costs of these actions. The changes in these reserves and liabilities in millions of dollars and the number of employee reductions during the first quarter of 2003 were as follows:

Reserves and
Liabilities
October 31, 2002

Accruals and
Adjustments

Liquidations
And Payments

Reserves and
Liabilities
January 31, 2003

Property and equipment
   reserves

$  34

$   5

$  29

Inventory reserves

2

2

Termination benefits

11

6

*

5

Contract terminations

18

1

17

Warranties and
   product returns

1

1

Other costs

12

4

8

   Total

$  78

$  16

$  62

October 31, 2002

Additions

Reductions

January 31, 2003

Employee reductions

200

170

*

30

*

The decrease in the termination benefits liability is not proportional to the reduction in employees since certain benefits related to past services are not paid immediately upon termination.

(13)

In the first quarter of 2003, the Company adopted FASB Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 141 requires the purchase method of accounting for all business combinations and eliminates the pooling of interests method effective June 30, 2001. Statement No. 141 also specifies the types of acquired intangible assets to be included in goodwill and those to be reported separately from goodwill upon adoption of Statement No. 142. No adjustments of goodwill and other intangible assets were required based on these requirements.

In accordance with Statement No. 142, the Company did not amortize goodwill related to acquisitions made after June 30, 2001 and discontinued amortizing goodwill for prior acquisitions upon adoption of the new standard as of November 1, 2002. Based on the new standard, goodwill will only be written down only for impairments. The Company was also required to test existing goodwill for impairment on a transitional basis as of November 1, 2002. The Company has completed this test and has determined that its goodwill is not impaired and no write-downs are necessary. A fair value approach was applied to the Company's reporting units to determine if the carrying value of goodwill was impaired. The fair value of the reporting units were established based on discounted cash flows and market multiples. Goodwill will continue to be tested for impairment annually, or more often if events and circumstances change.