DEERE & CO - 10-Q Quarterly Report

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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, 2005

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 ý No o

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

Yes ý No o

At January 31, 2005, 246,505,065 shares of common stock, $1 par value, of the registrant were outstanding.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended January 31, 2005 and 2004
(In millions of dollars and shares except per share amounts) Unaudited

	2005			2004
Net Sales and Revenues
Net sales	$	3,526.5		$	2,911.6
Finance and interest income	325.6			294.7
Health care premiums and fees	188.9			181.4
Other income	86.1			96.1
Total	4,127.1			3,483.8

Costs and Expenses
Cost of sales	2,765.9			2,294.5
Research and development expenses	149.3			138.2
Selling, administrative and general expenses	461.9			417.7
Interest expense	167.1			147.4
Health care claims and costs	152.1			150.6
Other operating expenses	85.3			73.2
Total	3,781.6			3,221.6

Income of Consolidated Group Before Income Taxes	345.5			262.2
Provision for income taxes	119.8			92.6
Income of Consolidated Group	225.7			169.6

Equity in Income (Loss) of Unconsolidated Affiliates
Credit	.2			.2
Other	(3.1		)	1.0
Total	(2.9		)	1.2

Net Income	$	222.8		$	170.8

Per Share:
Net income - basic	$	.90		$	.70
Net income - diluted	$	.89		$	.68

Average Shares Outstanding:
Basic	247.1			245.4
Diluted	251.0			251.9

See Notes to Interim Financial Statements.

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

	January 31 2005			October 31 2004			January 31 2004
Assets
Cash and cash equivalents	$	2,865.5		$	3,181.1		$	4,087.8
Marketable securities	263.5			246.7			262.8
Receivables from unconsolidated affiliates	20.1			17.6			23.8
Trade accounts and notes receivable - net	3,131.7			3,206.9			2,837.8
Financing receivables - net	11,352.3			11,232.6			9,396.9
Other receivables	364.4			663.0			352.1
Equipment on operating leases - net	1,232.3			1,296.9			1,289.5
Inventories	2,802.0			1,999.1			2,169.8
Property and equipment - net	2,159.9			2,161.6			2,098.6
Investments in unconsolidated affiliates	103.7			106.9			113.7
Goodwill	984.5			973.6			938.2
Other intangible assets - net	21.4			21.7			256.0
Prepaid pension costs	2,491.1			2,493.1			62.3
Other assets	481.8			515.4			566.4
Deferred income taxes	551.2			528.1			1,517.1
Deferred charges	122.7			109.7			115.6
Total Assets	$	28,948.1		$	28,754.0		$	26,088.4

Liabilities and Stockholders’ Equity
Short-term borrowings	$	3,971.8		$	3,457.5		$	3,458.1
Payables to unconsolidated affiliates	124.4			142.3			122.8
Accounts payable and accrued expenses	3,614.4			3,973.6			3,021.2
Health care claims and reserves	133.6			135.9			111.3
Accrued taxes	186.6			179.2			218.6
Deferred income taxes	62.6			62.6			30.1
Long-term borrowings	10,954.7			11,090.4			10,746.7
Retirement benefit accruals and other liabilities	3,401.9			3,319.7			4,095.1
Total liabilities	22,450.0			22,361.2			21,803.9
Common stock, $1 par value (issued shares at January 31, 2005 – 268,215,602)	2,043.5			2,043.5			1,990.6
Common stock in treasury	(1,099.0		)	(1,040.4		)	(997.5		)
Unamortized restricted stock compensation	(27.3		)	(12.7		)	(17.8		)
Retained earnings	5,583.7			5,445.1			4,446.2
Total	6,500.9			6,435.5			5,421.5
Accumulated other comprehensive income (loss)	(2.8		)	(42.7		)	(1,137.0		)
Stockholders’ equity	6,498.1			6,392.8			4,284.5
Total Liabilities and Stockholders’ Equity	$	28,948.1		$	28,754.0		$	26,088.4

See Notes to Interim Financial Statements.

DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Three Months Ended January 31, 2005 and 2004
(In millions of dollars) Unaudited

	2005			2004
Cash Flows from Operating Activities
Net income	$	222.8		$	170.8
Adjustments to reconcile net income to net cash used for operating activities:
Provision (credit) for doubtful receivables	(2.7		)	12.1
Provision for depreciation and amortization	160.3			159.9
Undistributed earnings of unconsolidated affiliates	3.4			(.6		)
Credit for deferred income taxes	(24.3		)	(1.2		)
Changes in assets and liabilities:
Trade, notes and financing receivables related to sales of equipment	192.0			(50.2		)
Inventories	(810.1		)	(580.5		)
Accounts payable and accrued expenses	(390.2		)	(67.7		)
Retirement benefit accruals/prepaid pension costs	77.7			92.1
Other	165.4			65.7
Net cash used for operating activities	(405.7		)	(199.6		)

Cash Flows from Investing Activities
Collections of financing receivables	2,098.1			2,206.2
Proceeds from sales of financing receivables	33.9			696.0
Proceeds from maturities and sales of marketable securities	19.1			10.8
Proceeds from sales of equipment on operating leases	91.5			114.9
Proceeds from sales of businesses				74.5
Cost of financing receivables acquired	(2,204.1		)	(2,322.8		)
Purchases of marketable securities	(37.2		)	(33.5		)
Purchases of property and equipment	(81.2		)	(53.7		)
Cost of operating leases acquired	(58.9		)	(41.6		)
Acquisitions of businesses, net of cash acquired	(6.1		)	(108.6		)
Increase in receivables from unconsolidated affiliates				(14.9		)
Other	19.0			(2.3		)
Net cash provided by (used for) investing activities	(125.9		)	525.0

Cash Flows from Financing Activities
Increase (decrease) in short-term borrowings	12.4			(438.2		)
Proceeds from long-term borrowings	379.5			267.5
Principal payments on long-term borrowings	(27.8		)	(532.5		)
Proceeds from issuance of common stock	71.0			133.2
Repurchases of common stock	(162.3		)	(.2		)
Dividends paid	(69.3		)	(53.4		)
Other	(.1		)	(.1		)
Net cash provided by (used for) financing activities	203.4			(623.7		)

Effect of Exchange Rate Changes on Cash	12.6			1.6

Net Decrease in Cash and Cash Equivalents	(315.6		)	(296.7		)
Cash and Cash Equivalents at Beginning of Period	3,181.1			4,384.5
Cash and Cash Equivalents at End of Period	$	2,865.5		$	4,087.8

See Notes to Interim Financial Statements (Reclassifications in Note 1).

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 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 Part II., Item 5. of this report. 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 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 2005 financial statement presentations.

Certain information in the Statement of Consolidated Cash Flows as shown in the following table has been reclassified for the three months ended January 31, 2004. This reclassification is related to concerns raised by the staff of the U.S. Securities and Exchange Commission. Previously, the Company reported an increase in cash flow from operating activities when a trade receivable was settled by a dealer through financing received from the Company’s credit operations. The Company also reported an increase in cash flow from operating activities when equipment that had been in the Company’s inventory was transferred to the credit operations and financed as an operating lease with a customer. The financing receivable or operating lease issued by the credit operations for these transactions was reported as a corresponding cash outflow from investing activities. There was no cash received by the Company on a consolidated basis at that time. These offsetting intercompany cash flows have been eliminated in the Statement of Consolidated Cash Flows to properly reflect consolidated operating and investing activities. Subsequent cash inflows from the collections or sales of these financing receivables were reclassified from investing to operating activities in order to properly classify cash receipts from the sale of inventory as operating activities. The Supplemental Consolidating Data Statement of Cash Flows in Note 15 for the Equipment Operations and the Financial Services operations on a stand-alone basis has not changed.

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 the sale of equipment to the Company’s customers. Cash flows from financing receivables that are related to the sale of equipment to the Company’s customers are also included in operating activities. The remaining financing receivables are related to the financing of equipment sold by an independent dealer and are included in investing activities.

The Company had non-cash operating and investing activities not included in the Statement of Consolidated Cash Flows for the transfer of inventory to equipment under operating leases of approximately $33 million and $34 million in the first three months of 2005 and 2004, respectively.

Reconciliations of the reclassifications in the Statement of Consolidated Cash Flows for the three months ended January 31, 2004 in millions of dollars are as follows:

Cash Flows from Operating Activities
Net cash used for operating activities
Previous	$	(226.4	)
Reclassification	26.8
Revised	$	(199.6	)

Cash Flows from Investing Activities
Collections of financing receivables
Previous	$	2,822.6
Reclassification	(616.4		)
Revised	$	2,206.2

Cost of financing receivables acquired
Previous	$	(2,867.0	)
Reclassification	544.2
Revised	$	(2,322.8	)

Cost of operating leases acquired
Previous	$	(87.0	)
Reclassification	45.4
Revised	$	(41.6	)

Net cash provided by investing activities
Previous	$	551.8
Reclassification	(26.8		)
Revised	$	525.0

(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, health care and certain miscellaneous service operations.

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

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

	Three Months Ended January 31
	2005			2004

Balance, beginning of period	$	5,445.1		$	4,329.5
Net income	222.8			170.8
Dividends declared	(69.1		)	(54.1		)
Other adjustments	(15.1		)
Balance, end of period	$	5,583.7		$	4,446.2

(4) The Company currently uses the intrinsic value method to account for stock-based employee compensation in its financial statements (see Note 13 for future adoption of the fair value method). The pro forma net income and net income 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
	2005			2004
Net income as reported	$	222.8		$	170.8

Add:
Stock-based employee compensation costs, net of tax, included in net income	2.0			1.2

Less:
Stock-based employee compensation costs, net of tax, as if fair value method had been applied	(9.3		)	(7.9		)

Pro forma net income	$	215.5		$	164.1

Net income per share:
As reported - basic	$	.90		$	.70
Pro forma - basic	.87			.67
As reported - diluted	.89			.68
Pro forma - diluted	.86			.65

In December 2004, the Company granted options to employees for the purchase of 3.8 million shares of common stock at an exercise price of $69.37 per share and a binomial lattice model fair value of $19.97 per share. At January 31, 2005, options for 20.3 million shares were outstanding at option prices in a range of $32.53 to $69.37 per share and a weighted-average exercise price of $50.96 per share. In December 2004, the Company also granted .3 million of restricted stock units with a fair value of $69.37 per share. At January 31, 2005, a total of 5.4 million shares remained available for the granting of future options and restricted stock units.

(5) 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:

	January 31 2005			October 31 2004		January 31 2004
Raw materials and supplies	$		719	$	589	$	563
Work-in-process	519			408		420
Finished goods and parts	2,568			2,004		2,134
Total FIFO value	3,806			3,001		3,117
Less adjustment to LIFO basis	1,004			1,002		947
Inventories	$	2,802		$	1,999	$	2,170

(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:

	Three Months Ended January 31
	2005			2004

Balance, beginning of period	$	458		$	389

Payments	(93		)	(81		)

Accruals for warranties	93			89

Balance, end of period	$	458		$	397

The Company has guarantees for certain recourse obligations on financing receivables that 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, 2005, the maximum amount of exposure to losses under these agreements was $174 million. The estimated risk associated with sold receivables totaled $20 million at January 31, 2005. This risk of loss is recognized primarily in the retained interests on the Company’s balance sheet related to these sold receivables. The retained interests are related to assets held by special purpose entities (SPEs). At January 31, 2005, the assets of these SPEs related to the Company’s securitization and sale of retail notes totaled approximately $2,955 million. The Company may recover a portion of any required payments incurred under these agreements from the repossession of the equipment collateralizing the receivables. At January 31, 2005, the maximum remaining term of the receivables guaranteed was approximately six years.

At January 31, 2005, the Company had guaranteed approximately $40 million of residual value for two operating leases related to an administrative and a manufacturing building. 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 $9 million related to these agreements at January 31, 2005. The leases have terms expiring from 2006 to 2007.

At January 31, 2005, the Company had approximately $100 million of guarantees issued primarily to 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, 2005, the Company had accrued losses of approximately $1 million under these agreements. The maximum remaining term of the receivables guaranteed at January 31, 2005 was approximately seven years.

The Company had pledged assets of $17 million, outside the U.S., as collateral for borrowings, and $17 million of restricted investments related to conducting the health care business in various states at January 31, 2005.

The Company also had other miscellaneous contingent liabilities totaling approximately $35 million at January 31, 2005, for which it believes the probability for payment is primarily remote.

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 that are registered with the U.S. Securities and Exchange Commission, are fully and unconditionally guaranteed by the Company. These registered debt securities totaled $250 million at January 31, 2005 and are included on the consolidated balance sheet.

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

	Three Months Ended January 31
	2005		2004
Dividends declared	$	.28	$	.22
Dividends paid	$	.28	$	.22

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

	Three Months Ended January 31
							%
	2005			2004			Change
Net sales and revenues:
Agricultural equipment *	$	2,010		$	1,596		+26
Commercial and consumer equipment	523			570			-8
Construction and forestry	993			746			+33
Total net sales **	3,526			2,912			+21
Credit revenues *	331			316			+5
Other revenues	270			256			+5
Total net sales and revenues **	$	4,127		$	3,484		+18
Operating profit: ***
Agricultural equipment	$	163		$	85		+92
Commercial and consumer equipment	(2		)	20
Construction and forestry	101			93			+9
Credit	126			117			+8
Other	10			6			+67
Total operating profit **	398			321			+24
Interest, corporate expenses - net and income taxes	(175		)	(150		)	+17
Net income	$	223		$	171		+30
Identifiable assets:
Agricultural equipment	$	3,552		$	3,026		+17
Commercial and consumer equipment	1,564			1,501			+4
Construction and forestry	2,048			1,843			+11
Credit	16,020			14,262			+12
Other	399			378			+6
Corporate	5,365			5,078			+6
Total assets	$	28,948		$	26,088		+11

* Additional intersegment sales and revenues
	Agricultural equipment sales	$	22	$	17	+29
	Construction and forestry sales	3		2		+50
	Credit revenues	49		48		+2

** Includes equipment operations outside the U.S. and Canada as follows:
	Net sales	$	1,124	$	914	+23
	Operating profit	111		108		+3

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

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

	Three Months Ended January 31
	2005		2004
Net income	$	222.8	$	170.8
Average shares outstanding	247.1		245.4
Basic net income per share	$	.90	$	.70

Average shares outstanding	247.1		245.4
Effect of dilutive stock options	3.9		6.5
Total potential shares outstanding	251.0		251.9
Diluted net income per share	$	.89	$	.68

All stock options outstanding were included in the above computation during the first three months of 2005 and 2004.

(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
	2005			2004
Net income	$	222.8		$	170.8

Other comprehensive income (loss), net of tax:
Change in cumulative translation adjustment	34.4			22.7
Unrealized gain (loss) on investments	(.7		)	7.2
Unrealized gain on derivatives	6.2			1.1

Comprehensive income	$	262.7		$	201.8

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

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

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

	Three Months Ended January 31
	2005			2004
Service cost	$	37		$	34
Interest cost	112			112
Expected return on plan assets	(170		)	(143		)
Amortization of actuarial loss	28			14
Amortization of prior service cost	11			10
Net cost	$	18		$	27

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

	Three Months Ended January 31
	2005			2004
Service cost	$	28		$	29
Interest cost	76			79
Expected return on plan assets	(16		)	(13		)
Amortization of actuarial loss	85			77
Amortization of prior service credit	(34		)	(26		)
Net cost	$	139		$	146

During the first quarter of 2005, the Company contributed approximately $8 million to its pension plans and $73 million to its other postretirement benefit plans. The Company presently anticipates contributing an additional $182 million to its pension plans and $617 million to its other postretirement benefit plans in the remainder of fiscal year 2005. These contributions include payments from Company funds to either increase plan assets or make direct payments to plan participants.

(13) New accounting standards to be adopted are as follows:

In December 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment. This Statement eliminated the alternative of accounting for share-based compensation under Accounting Principles Board (APB) Opinion No. 25. The revised standard generally requires the recognition of the cost of employee services for share-based compensation based on the grant date fair value of the equity or liability instruments issued. The effective date is the beginning of the fourth fiscal quarter of 2005. The expected impact of the adoption on the Company’s net income in the fourth quarter of 2005 will be an expense of approximately $10 million after-tax.

In November 2004, the FASB issued Statement No. 151, Inventory Costs an amendment of ARB No. 43, Chapter 4. This Statement clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The effective date is the beginning of fiscal year 2006. In December 2004, the FASB issued Statement No. 152, Accounting for Real Estate Time-Sharing Transactions an amendment of FASB Statements No. 66 and 67. This Statement requires real estate time-sharing transactions to be accounted for as nonretail land sales and the effective date is the beginning of fiscal year 2006. In December 2004, the FASB issued Statement No. 153, Exchanges of Nonmonetary Assets an amendment of APB Opinion No. 29. This Statement eliminates the exception to fair value accounting for nonmonetary exchanges of similar productive assets and replaces it with an exception for nonmonetary exchanges that do not have commercial substance. Commercial substance is defined as a transaction that is expected to significantly change future cash flows as a result of the exchange. The effective date is the beginning of the fourth fiscal quarter of 2005. The adoption of these Statements is not expected to have a material effect on the Company’s financial position or net income.

(14) On October 22, 2004, the American Jobs Creation Act of 2004 (the Act) was signed into law. The Act introduces a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer (repatriation provision), provided certain criteria are met. The deduction would be 85 percent of certain foreign earnings that are repatriated in either an enterprise’s last tax year that began before the enactment date (the Company’s 2004 fiscal tax year), or the first tax year that begins during the one-year period beginning on the date of enactment (the Company’s 2005 fiscal tax year). At this time, the Company is still evaluating the amounts that may qualify under the law and the foreign earnings that may be repatriated. The Company expects to complete the evaluation by the end of its fiscal third quarter. No amounts related to the repatriation deduction under the act have been recognized in the Company’s income tax expense at this time.

(15) SUPPLEMENTAL CONSOLIDATING DATA
STATEMENT OF INCOME
For the Three Months Ended January 31, 2005 and 2004

(In millions of dollars) Unaudited

	EQUIPMENT OPERATIONS*				FINANCIAL SERVICES
	2005		2004		2005		2004

Net Sales and Revenues
Net sales	$	3,526.5	$	2,911.6
Finance and interest income	29.0		18.4		$	357.2	$	328.8
Health care premiums and fees					193.7		186.0
Other income	72.2		68.1		25.9		38.2
Total	3,627.7		2,998.1		576.8		553.0

Costs and Expenses
Cost of sales	2,769.8		2,298.2
Research and development expenses	149.3		138.2
Selling, administrative and general expenses	367.2		312.6		96.6		107.0
Interest expense	56.8		53.1		124.7		102.1
Interest compensation to Financial Services	46.2		44.7
Health care claims and costs					152.1		150.6
Other operating expenses	28.5		11.3		67.8		71.1
Total	3,417.8		2,858.1		441.2		430.8

Income of Consolidated Group Before Income Taxes	209.9		140.0		135.6		122.2
Provision for income taxes	72.0		49.7		47.7		42.9
Income of Consolidated Group	137.9		90.3		87.9		79.3

Equity in Income of Unconsolidated Subsidiaries and Affiliates
Credit	81.6		76.4		.2		.2
Other	3.3		4.1
Total	84.9		80.5		.2		.2

Net Income	$	222.8	$	170.8	$	88.1	$	79.5

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

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

SUPPLEMENTAL CONSOLIDATING DATA

CONDENSED BALANCE SHEET
(In millions of dollars) Unaudited

	EQUIPMENT OPERATIONS *									FINANCIAL SERVICES
	January 31 2005			October 31 2004			January 31 2004			January 31 2005		October 31 2004		January 31 2004

Assets
Cash and cash equivalents	$	2,541.4		$	2,915.1		$	3,450.1		$	324.1	$	266.0	$	637.7
Cash equivalents deposited with unconsolidated subsidiaries	90.2			224.4			280.3

Cash and cash equivalents	2,631.6			3,139.5			3,730.4			324.1		266.0		637.7
Marketable securities										263.5		246.7		262.8
Receivables from unconsolidated subsidiaries and affiliates	1,316.1			1,469.5			361.6			3.3		.7
Trade accounts and notes receivable - net	704.2			781.5			666.3			2,797.1		2,765.8		2,519.7
Financing receivables - net	41.3			64.7			61.3			11,311.0		11,167.9		9,335.6
Other receivables	223.6			498.4			134.6			140.8		164.6		217.5
Equipment on operating leases - net	5.6			8.9			11.5			1,226.7		1,288.0		1,277.9
Inventories	2,802.0			1,999.1			2,169.8
Property and equipment - net	2,111.4			2,112.3			2,067.1			48.5		49.4		31.5
Investments in unconsolidated subsidiaries and affiliates	2,260.9			2,250.2			2,373.6			4.2		4.1		4.0
Goodwill	984.5			973.6			938.1							.2
Other intangible assets - net	21.3			21.6			255.7					.1		.2
Prepaid pension costs	2,473.8			2,474.5			61.7			17.3		18.6		.6
Other assets	222.7			206.2			238.3			259.1		309.1		328.1
Deferred income taxes	676.5			656.7			1,625.3							2.1
Deferred charges	100.4			86.8			95.0			23.4		23.7		21.9
Total Assets	$	16,575.9		$	16,743.5		$	14,790.3		$	16,419.0	$	16,304.7	$	14,639.8

Liabilities and Stockholders’ Equity
Short-term borrowings	$	311.7		$	311.9		$	642.6		$	3,660.1	$	3,145.6	$	2,815.5
Payables to unconsolidated subsidiaries and affiliates	127.7			142.8			122.8			1,386.3		1,676.3		618.1
Accounts payable and accrued expenses	3,385.7			3,683.8			2,738.9			599.4		631.0		631.7
Health care claims and reserves										133.6		135.9		111.3
Accrued taxes	153.7			162.0			191.7			32.9		17.2		26.9
Deferred income taxes	11.5			35.9			5.1			176.5		155.3		135.3
Long-term borrowings	2,722.4			2,728.5			2,754.7			8,232.3		8,361.9		7,992.0
Retirement benefit accruals and other liabilities	3,365.1			3,285.8			4,050.0			36.7		33.9		45.1
Total liabilities	10,077.8			10,350.7			10,505.8			14,257.8		14,157.1		12,375.9

Common Stock, $1 par value (issued shares at January 31, 2005 – 268,215,602)	2,043.5			2,043.5			1,990.6			976.8		974.1		968.6
Common stock in treasury	(1,099.0		)	(1,040.4		)	(997.5		)
Unamortized restricted stock compensation	(27.3		)	(12.7		)	(17.8		)
Retained earnings	5,583.7			5,445.1			4,446.2			1,141.6		1,142.7		1,286.9
Total	6,500.9			6,435.5			5,421.5			2,118.4		2,116.8		2,255.5
Accumulated other comprehensive income (loss)	(2.8		)	(42.7		)	(1,137.0		)	42.8		30.8		8.4

Stockholders’ equity	6,498.1			6,392.8			4,284.5			2,161.2		2,147.6		2,263.9
Total Liabilities and Stockholders’ Equity	$	16,575.9		$	16,743.5		$	14,790.3		$	16,419.0	$	16,304.7	$	14,639.8

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

SUPPLEMENTAL CONSOLIDATING DATA
STATEMENT OF CASH FLOWS
For the Three Months Ended January 31, 2005 and 2004
(In millions of dollars) Unaudited

	EQUIPMENT OPERATIONS*						FINANCIAL SERVICES
	2005			2004			2005			2004

Cash Flows from Operating Activities
Net income	$	222.8		$	170.8		$	88.1		$	79.5
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Provision (credit) for doubtful receivables	3.0			1.2			(5.6		)	10.9
Provision for depreciation and amortization	98.8			94.4			72.5			73.8
Undistributed earnings of unconsolidated subsidiaries and affiliates	4.8			(9.7		)	(.2		)	(.1		)
Provision (credit) for deferred income taxes	(43.8		)	1.4			19.5			(2.5		)
Changes in assets and liabilities:
Receivables	105.5			72.5			19.6			(28.9		)
Inventories	(777.3		)	(546.9		)
Accounts payable and accrued expenses	(320.8		)	(19.6		)	(39.7		)	(5.5		)
Other	254.1			90.6			(11.1		)	65.2
Net cash provided by (used for) operating activities	(452.9		)	(145.3		)	143.1			192.4

Cash Flows from Investing Activities
Collections of receivables	14.9			28.4			5,731.3			4,904.9
Proceeds from sales of financing receivables							57.8			696.0
Proceeds from maturities and sales of marketable securities							19.1			10.8
Proceeds from sales of equipment on operating leases	2.7						88.8			114.9
Proceeds from sales of businesses				74.5
Cost of receivables acquired	(.1		)	(11.5		)	(5,838.3		)	(5,174.4		)
Purchases of marketable securities							(37.2		)	(33.5		)
Purchases of property and equipment	(80.6		)	(53.2		)	(.6		)	(.5		)
Cost of operating leases acquired							(103.1		)	(87.0		)
Acquisitions of businesses, net of cash acquired	(6.1		)	(108.6		)
Decrease in receivables with unconsolidated affiliates										274.3
Other	12.0			4.2			4.2			(6.4		)
Net cash provided by (used for) investing activities	(57.2		)	(66.2		)	(78.0		)	699.1

Cash Flows from Financing Activities
Increase (decrease) in short-term borrowings	(2.0		)	65.5			14.4			(503.7		)
Change in intercompany receivables/payables	153.9			(481.0		)	(288.2		)	198.9
Proceeds from long-term borrowings	1.1			.6			378.5			266.9
Principal payments on long-term borrowings	(2.2		)	(4.1		)	(25.6		)	(528.5		)
Proceeds from issuance of common stock	71.0			133.2
Repurchases of common stock	(162.3		)	(.2		)
Dividends paid	(69.3		)	(53.4		)	(89.2		)	(70.3		)
Other	(.2		)				2.7
Net cash used for financing activities	(10.0		)	(339.4		)	(7.4		)	(636.7		)

Effect of Exchange Rate Changes on Cash	12.2			(6.1		)	.4			7.7

Net Increase (Decrease) in Cash and Cash Equivalents	(507.9		)	(557.0		)	58.1			262.5
Cash and Cash Equivalents at Beginning of Period	3,139.5			4,287.4			266.0			375.2
Cash and Cash Equivalents at End of Period	$	2,631.6		$	3,730.4		$	324.1		$	637.7

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

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Overview

The Company’s Equipment Operations primarily generate revenues and cash from the sale of equipment to John Deere dealers and distributors. The Equipment Operations manufacture and distribute a full line of agricultural equipment; a variety of commercial and consumer equipment; and a broad range of equipment for construction and forestry. The Company’s Financial Services primarily provide credit services and managed health care plans. The credit operations primarily finance sales and leases of equipment by John Deere dealers and trade receivables purchased from the Equipment Operations. The health care operations provide managed health care services for the Company and certain outside customers. The information in the following discussion is presented in a format that includes information grouped as the Equipment Operations, Financial Services and consolidated. The Company also views its operations as consisting of two geographic areas, the U.S. and Canada, and outside the U.S. and Canada.

The Company’s businesses are currently affected by the following key trends and economic conditions. In the U.S., the livestock and dairy sectors are expected to remain in solid condition in 2005, while government payments largely offset the effect of lower commodity prices. As a result, U.S. farm cash receipts for 2005 are forecast to remain near the record level of 2004. The Company’s agricultural equipment sales were up 26 percent for the first quarter of 2005 and are forecast to be up approximately 7 to 9 percent in 2005, excluding the impact of exchange rates. Currency is expected to add approximately three percentage points to these sales for the year. The Company’s commercial and consumer equipment sales decreased 8 percent in the first quarter of 2005 and are expected to increase approximately 4 to 6 percent for the year due to new models of compact tractors and utility vehicles, as well as an expanded market position in commercial mowing equipment. Construction and forestry markets are receiving continued support from favorable U.S. economic conditions and fleet replenishment. In addition, global forestry markets are expected to experience modest growth. The Company’s construction and forestry sales increased 33 percent in the first quarter of 2005 and are forecast to increase 10 to 12 percent in 2005. The Company’s Financial Services operations are expected to report net income of approximately $305 million for the year.

Items of concern include the availability and price of raw materials, including steel and rubber, which have an impact on results of the Company’s Equipment Operations. To date, Company factories have been able to secure adequate supplies of such materials, though prices have risen. In addition, producing engines that continue to meet high performance standards, yet also comply with increasingly stringent emissions regulations is one of the Company’s major priorities. In this regard, the Company is making and intends to continue to make the financial and technical investment needed to produce engines in conformance with the U.S. Environmental Protection Agency Tier 3 and Tier 4 emissions rules for off-road diesel engines. There is also uncertainty concerning the impact of Asian rust on the U.S. soybean crop and soybean production practices in the U.S.

The Company’s pattern of consistent product investment has allowed customers to appreciate the value in its advanced new models of equipment. Steps to achieve more flexibility in manufacturing and order fulfillment have also played a role in the Company’s improved results. Positive customer response and the expanding market position on a global basis should position the Company for another year of strong performance in 2005.

2005 Compared with 2004

Deere & Company’s net income for the first quarter was $222.8 million, or $.89 per share, compared with net income for the same period last year of $170.8 million, or $.68 per share.

Worldwide net sales and revenues grew 18 percent to $4,127 million for the first quarter, compared with $3,484 million for the same period a year ago. Net sales of the Equipment Operations increased to $3,526 million for the first quarter, compared to $2,912 million last year. The Company’s equipment sales in the U.S. and Canada rose 20 percent for the first quarter. Outside the U.S. and Canada, net sales increased by 16 percent, excluding currency translation, and by 23 percent on a reported basis.

The Company’s Equipment Operations reported operating profit of $262 million for the first quarter, compared with $198 million for the same period last year. The improvement was primarily due to increased shipments, efficiencies related to stronger production volumes, and improved price realization. Partially offsetting these factors were higher raw material costs. Excluding last year’s gain on the sale of a construction equipment rental company, equipment operating profit rose 56 percent on a 21 percent increase in sales. The Equipment Operations had net income of $137.9 million for the quarter, compared with $90.3 million last year. The same factors mentioned above affected these results.

Business Segment Results

• Agricultural Equipment. Segment sales increased 26 percent for the current quarter. The sales increase was mainly due to higher shipments, reflecting continued strong retail demand, as well as improved price realization and the impact of currency translation. Operating profit nearly doubled to $163 million, compared with $85 million last year. The operating profit improvement was primarily driven by higher worldwide sales and efficiencies related to stronger production volumes. Improved price realization offset a significant portion of an increase in raw material costs.

• Commercial and Consumer Equipment. Sales declined 8 percent for the first quarter as the segment further aligned shipments and production levels with seasonal demand. The lower shipments and production volumes contributed to an operating loss of $2 million for the quarter versus operating profit of $20 million last year. Having a positive impact for the quarter was improved price realization, which mostly offset an increase in raw material costs.

• Construction and Forestry. Segment sales rose 33 percent for the first quarter reflecting strong activity at the retail level. Operating profit improved to $101 million, compared with $93 million for the same quarter a year ago. Excluding last year’s $30 million pretax gain from the sale of an equipment rental company, operating profit improved 60 percent. The first-quarter 2005 operating profit increase was mainly a result of higher sales and efficiencies related to stronger production volumes. Improved price realization mostly offset higher raw material costs.

• Credit. The credit segment had an operating profit of $126 million for the first quarter, compared with $117 million last year. The increase was primarily due to a lower provision for credit losses related to a high quality loan portfolio, and growth in the portfolio. Last year, the credit operations benefited from gains on retail notes that were sold during the first quarter of 2004. Total revenues of the credit operations, including intercompany revenues, increased 4 percent to $379 million in the current quarter from $364 million in the first quarter of 2004. The average balance of receivables and leases financed was 12 percent higher in the first quarter, compared with the same period last year. Interest expense increased 22 percent in the current quarter, compared with last year, as a result of higher average borrowings and borrowing rates. The credit operations’ consolidated ratio of earnings to fixed charges was 2.10 to 1 for the first quarter this year, compared with 2.14 to 1 in the same period last year.

• Other. The other segment, which consists primarily of the health care operations, had an operating profit of $10 million for the first quarter, compared with $6 million last year. The increase was primarily attributable to improved underwriting margins.

The cost of sales to net sales ratio for the first quarter of 2005 was 78.4 percent, compared to 78.8 percent in the same period last year. The decrease was primarily due to manufacturing efficiencies related to higher production and sales, and improved price realization, partially offset by increased raw material costs and a higher employee performance bonus provision.

Finance and interest income and interest expense increased this year due to growth in the credit operations portfolio and higher financing rates. Other income decreased in the current quarter primarily due to gains on retail notes sold during the first quarter of last year. Selling, administrative and general expenses were higher in 2005 primarily due to the acquisition and consolidation of Nortrax, Inc., Nortrax Investments, Inc. and Ontrac Holdings, Inc. (collectively called Nortrax), a higher employee performance bonus provision and foreign currency exchange rate effects. Other operating expenses increased, primarily as a result of the consolidation of Nortrax and an increase in service expenses.

Market Conditions and Outlook

Excluding the impact of currency translation, Company equipment sales are expected to increase by 6 to 8 percent for fiscal year 2005 and by 9 to 11 percent for the second quarter of 2005, compared to the same periods last year. Currency is forecast to add about two percentage points to sales for both periods. Production levels are expected to be down slightly for the year but up 3 to 5 percent for the second quarter. Net income is forecast to be around $1.5 billion for the full year and in the range of $500 million to $525 million for the quarter.

• Agricultural Equipment. In the U.S., the livestock and dairy sectors are expected to remain in solid condition in 2005, while government payments largely offset the effect of lower commodity prices. As a result, U.S. farm cash receipts for the year are forecast to remain near the record level of 2004. Given these conditions, the Company now expects industry retail sales in the U.S. and Canada to be up 5 to 10 percent for fiscal year 2005 in comparison with the positive levels of last year.

In other parts of the world, industry retail sales in Western Europe are forecast to be flat to down 5 percent for the year. Farmers in the region benefited from a good fall harvest and are expected to see 2005 income in line with last year. In South America, industry sales are forecast to be down 20 to 30 percent as a result of the combination of a weaker U.S. dollar and lower commodity prices, as well as increased input costs.

Based on these factors and market conditions, worldwide sales of the Company’s agricultural equipment are forecast to be up 7 to 9 percent for the year, excluding the impact of exchange rates. Currency is expected to add about three percentage points to the Company’s agricultural equipment sales for the year.

• Commercial and Consumer Equipment. Sales of the Company’s commercial and consumer equipment are expected to increase 4 to 6 percent for the year with help from new models of compact tractors and utility vehicles, as well as an expanded market position in commercial mowing equipment.

• Construction and Forestry. Markets for construction equipment are receiving continued support from favorable U.S. economic conditions and fleet replenishment by contractors and rental companies. In addition, global forestry markets are expected to experience modest growth for the year. In this environment, the Company’s sales of construction and forestry equipment are forecast to rise by 10 to 12 percent for fiscal year 2005.

• Financial Services. The outlook for the Company’s Financial Services operations is largely unchanged. Net income for the year is expected to be about $305 million, which is slightly higher than the previous forecast due to a further improvement in the Company’s credit portfolio quality.

Safe Harbor Statement

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements herein that relate to future operating periods are subject to important risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect particular lines of business, while others could affect all of the Company’s businesses.

Forward-looking statements involve certain factors that are subject to change, including, for the Company’s agricultural equipment segment, the many interrelated factors that affect farmers’ confidence. These factors include worldwide demand for agricultural products, the level, complexity and distribution of government farm programs (and international reaction to such programs), world grain stocks, the growth of non-food uses for some crops, prices of commodities and livestock, crop production expenses (most notably fuel and fertilizer costs), weather and soil conditions, real estate values, available acreage for farming, the land ownership policies of various governments, animal diseases (including bovine spongiform encephalopathy, commonly known as “mad cow” disease), crop pests and diseases (including Asian rust), harvest yields, availability of transport for crops and the level of farm product exports (including concerns about genetically modified organisms).

Factors affecting the outlook for the Company’s commercial and consumer equipment segment include general economic conditions in these markets, consumer confidence, consumer borrowing patterns, consumer purchasing preferences, housing starts, spending by municipalities and golf courses, and weather conditions. Sales of commercial and consumer equipment during the spring are also affected by the severity and timing of weather patterns.

The number of housing starts, interest rates and consumer spending patterns are especially important to sales of the Company’s construction equipment. The levels of public and non-residential construction also impact the results of the Company’s construction and forestry segment. Prices for pulp, lumber and structural panels are important to sales of forestry equipment.

All of the Company’s businesses and its reported results are affected by general economic conditions in and the political stability of the global markets in which the Company operates; production and technological difficulties, including capacity and supply constraints of, and prices for, commodities such as steel and

rubber; oil and energy prices and supplies; the availability and cost of freight; monetary and fiscal policies of various countries; wars and other international conflicts and the threat thereof; actions by the U.S. Federal Reserve Board and other central banks; actions by the U.S. Securities and Exchange Commission; actions by environmental regulatory agencies, including those related to engine emissions and the risk of global warming; actions by other regulatory bodies, actions by rating agencies; capital market disruptions; investor sentiment; inflation and deflation rates, interest rate levels and foreign currency exchange rates; customer borrowing and repayment practices, and the number of customer loan delinquencies and defaults; actions of competitors in the various industries in which the Company competes, particularly price discounting; dealer practices, especially as to levels of new and used field inventories; labor relations; changes to accounting standards; the effects of terrorism and the response thereto; and legislation affecting the sectors in which the Company operates. Company results are also affected by changes in market values of investment assets and the level of interest rates, which impact postretirement benefit costs, and significant changes in health care costs.

The Company’s outlook is based upon assumptions relating to the factors described above, which are sometimes based upon estimates and data prepared by government agencies. Such estimates and data are often revised. The Company, however, undertakes no obligation to update or revise its outlook, whether as a result of new developments or otherwise. Further information concerning the Company and its businesses, including factors that potentially could materially affect the Company’s financial results, is included in the Company’s most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission.

Critical Accounting Policies

See the Company’s critical accounting policies discussed in the Management’s Discussion and Analysis of the most recent annual report filed on Form 10-K. There have been no material changes to these policies.

CAPITAL RESOURCES AND LIQUIDITY

The discussion of capital resources and liquidity has been organized to review separately, where appropriate, the Company’s Equipment Operations, Financial Services operations and the consolidated totals.

Certain information in the Statement of Consolidated Cash Flows (Unaudited) has been reclassified for the three months ended January 31, 2004 to eliminate the effects of non-cash transactions. See Note 1 to the Interim Financial Statements for further discussion and quantification of the reclassification. The Supplemental Consolidating Data Statement of Cash Flows in Note 15 for the Equipment Operations and the Financial Services operations on a stand-alone basis has not changed.

Equipment Operations

The Company’s equipment businesses are capital intensive and are subject to large seasonal variations in financing requirements for inventories and certain receivables from dealers. The Equipment Operations sell most of their trade receivables to the Company’s credit operations. As a result, the seasonal variations in financing requirements of the Equipment Operations have decreased. To the extent necessary, funds provided from operations are supplemented by external financing sources.

Negative cash flows from operating activities in the first three months of 2005 of $453 million resulted primarily from an increase in inventories and a decrease in accounts payable and accrued expenses. Partially offsetting these operating cash outflows were positive cash flows from net income, a decrease in taxes receivable and a decrease in trade receivables. The resulting net cash requirement for operating

activities, repurchases of common stock, purchases of property and equipment and payment of dividends were provided primarily from a decrease in cash and cash equivalents, a decrease in receivables from Financial Services and issuances of common stock (which were the result of the exercise of stock options).

In the first three months of 2004, negative cash flows from operating activities of $145 million resulted primarily from an increase in inventories and a decrease in accounts payable and accrued expenses. Partially offsetting these operating cash outflows were positive cash flows from net income, a decrease in taxes receivable and an increase in retirement benefit accruals. The resulting net cash requirement for operating activities, an increase in receivables from Financial Services, acquisitions of businesses, payment of dividends and purchases of property and equipment were provided primarily from a decrease in cash and cash equivalents, issuances of common stock (which were the result of the exercise of stock options), proceeds from sales of businesses and borrowings.

Trade receivables held by the Equipment Operations decreased $77 million during the first quarter and increased $38 million from a year ago. The Equipment Operations sell a significant portion of their trade receivables to the credit operations. See the following consolidated discussion of trade receivables.

Inventories increased by $803 million during the first three months, primarily reflecting a seasonal increase in the first quarter. Inventories increased $632 million, compared to a year ago primarily due to the increase in sales, the consolidation of Ontrac Holdings, Inc. and foreign currency exchange rate effects. Most of these inventories are valued on the last-in, first-out (LIFO) method. The ratios of inventories on a first-in, first-out (FIFO) basis, which approximates current cost, to the last 12 months’ cost of sales were 27 percent at January 31, 2005, compared to 22 percent at October 31, 2004 and 28 percent at January 31, 2004.

Total interest-bearing debt of the Equipment Operations was $3,034 million at January 31, 2005, compared with $3,040 million at the end of fiscal year 2004 and $3,397 million at January 31, 2004. The ratios of debt to total capital (total interest-bearing debt and stockholders’ equity) were 32 percent, 32 percent and 44 percent at January 31, 2005, October 31, 2004 and January 31, 2004, respectively.

Financial Services

The Financial Services’ credit operations rely on their ability to raise substantial amounts of funds to finance their receivable and lease portfolios. Their primary sources of funds for this purpose are a combination of borrowings and equity capital. Additionally, the credit operations have periodically sold substantial amounts of retail notes.

During the first quarter of 2005, the cash provided by operating activities was used for investing activities, financing activities and an increase in cash and cash equivalents. Cash provided by Financial Services operating activities was $143 million in the current quarter. Cash used for investing activities totaled $78 million in the first three months of 2005, primarily due to the cost of receivables acquired exceeding collections of receivables. Cash used for financing activities totaled $7 million in the current quarter, resulting primarily from a decrease in payables to the Equipment Operations and dividends paid to the Equipment Operations, partially offset by an increase in long-term and short-term borrowings. Cash and cash equivalents increased $58 million.

In the first quarter of 2004, the aggregate cash provided by operating and investing activities was used primarily to decrease borrowings. Cash provided by Financial Services operating activities was $192 million in the first quarter of 2004. Cash provided by investing activities totaled $699 million in the first three months of 2004, primarily due to collections of receivables and the sales of retail notes exceeding the cost of receivables acquired. Cash used for financing activities totaled $637 million in the first quarter of 2004, resulting primarily from a decrease in short-term and long-term external borrowings and dividends

paid to the Equipment Operations, partially offset by an increase in payables to the Equipment Operations. Cash and cash equivalents also increased $263 million.

Receivables and leases held by the credit operations consist of retail notes originating in connection with retail sales of new and used equipment by dealers of John Deere products, retail notes from non-Deere equipment customers, trade receivables, wholesale note receivables, revolving charge accounts, operating loans, insured international export financing generally involving John Deere products, and financing and operating leases. During the first quarter of 2005 and the past 12 months, these receivables and leases increased $113 million and $2,202 million, respectively, due to the cost of receivables and leases acquired exceeding the collections and sales of retail notes. Total acquisitions of receivables and leases were 13 percent higher in the first three months of 2005, compared with the same period last year. Acquisition volumes of wholesale notes, trade receivables, leases, retail notes and revolving charge accounts were all higher in the first three months of 2005, compared to the same period last year. Total receivables and leases administered by the credit operations, which include receivables previously sold, amounted to $18,230 million at January 31, 2005, compared with $18,620 million at October 31, 2004 and $16,260 million at January 31, 2004. At January 31, 2005, the unpaid balance of all receivables previously sold was $2,895 million, compared with $3,398 million at October 31, 2004 and $3,127 million at January 31, 2004.

Total external interest-bearing debt of the credit operations was $11,892 million at January 31, 2005, compared with $11,508 million at the end of fiscal year 2004 and $10,808 million at January 31, 2004. Total external borrowings increased during the first three months of 2005 and the past 12 months, generally corresponding with the level of the receivable and lease portfolio, the level of cash and cash equivalents and the change in payables owed to the Equipment Operations. The credit operations’ ratio of interest-bearing debt to stockholder’s equity was 6.5 to 1 at January 31, 2005, compared with 6.4 to 1 at October 31, 2004 and 5.3 to 1 at January 31, 2004.

During the first quarter of 2005, the credit operations issued $379 million of long-term borrowings, which were primarily medium-term notes.

Consolidated

Sources of liquidity for the Company include cash and short-term investments, funds from operations, the issuance of commercial paper and term debt, the securitization and sale of retail notes, and committed and uncommitted, unsecured, bank lines of credit.

Because of the multiple funding sources that have been and continue to be available to the Company, the Company expects to have sufficient sources of liquidity to meet its ongoing funding needs. The Company’s commercial paper outstanding at January 31, 2005, October 31, 2004 and January 31, 2004 was approximately $1.9 billion, $1.9 billion and $1.7 billion, respectively, while the total cash and short-term investment position was approximately $2.9 billion, $3.2 billion and $4.1 billion, respectively. The Company has for many years accessed diverse funding sources, including short-term and long-term unsecured debt capital markets in the U.S., Canada, Europe and Australia, as well as public and private securitization markets in the U.S. and Canada.

The Company maintains unsecured lines of credit with various banks. Some of the lines are available to both the Equipment Operations and certain credit operations. Worldwide lines of credit totaled $3,312 million at January 31, 2005, $906 million of which were unused. For the purpose of computing unused credit lines, commercial paper and short-term bank borrowings, excluding the current portion of long-term borrowings, were considered to constitute utilization. Included in the total credit lines at January 31, 2005 was a long-term facility agreement totaling $1,250 million, expiring in February 2009.

In February 2005, the Company replaced its existing short-term $1,250 million revolving credit facility agreement, which was included in the worldwide lines of credit discussed above and expired in February 2005, with a $625 million short-term credit facility agreement, expiring in February 2006, and a $625 million long-term credit facility agreement, expiring in February 2010. This long-term agreement is in addition to the $1,250 million long-term agreement discussed above, expiring in February 2009.

The credit agreements require the Equipment Operations to maintain a ratio of total debt to total capital (total debt and stockholders’ equity) of 65 percent or less at the end of each fiscal quarter. At January 31, 2005, the ratio was 32 percent. Under this provision, the Company’s excess equity capacity and retained earnings balance free of restriction at January 31, 2005 was $4,864 million. Alternatively under this provision, the Equipment Operations had the capacity to incur debt of $9,034 million at January 31, 2005.

To access public debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings to the Company’s securities as an indicator of credit quality for fixed income investors. A security rating is not a recommendation by the rating agency to buy, sell or hold Company securities. A credit rating agency may change or withdraw Company ratings based on its assessment of the Company’s current and future ability to meet interest and principal repayment obligations. Lower credit ratings generally result in higher borrowing costs and reduced access to debt capital markets.

The senior long-term and short-term debt ratings and outlook currently assigned to unsecured Company securities by the rating agencies engaged by the Company are as follows:

	Senior Long-Term	Short-Term	Outlook
Moody’s Investors Service, Inc.	A3	Prime-2	Stable
Standard & Poor’s	A-	A-2	Stable

Trade accounts and notes receivable result mainly from sales to dealers of equipment that is being carried in their inventories. Trade receivables decreased $75 million during the first three months of 2005. These receivables increased $294 million, compared to a year ago, primarily due to the increase in sales and the effects of foreign exchange. The ratios of worldwide trade accounts and notes receivable to the last 12 months’ net sales were 17 percent at January 31, 2005, compared to 18 percent at October 31, 2004 and 20 percent at January 31, 2004. Agricultural equipment trade receivables increased $198 million, commercial and consumer equipment receivables increased $7 million and construction and forestry receivables increased $89 million, compared to a year ago. The percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 2 percent, 2 percent and 4 percent at January 31, 2005, October 31, 2004 and January 31, 2004, respectively.

Stockholders’ equity was $6,498 million at January 31, 2005, compared with $6,393 million at October 31, 2004 and $4,285 million at January 31, 2004. The increase of $105 million during the first quarter of 2005 resulted primarily from net income of $223 million, which was partially offset by dividends declared of $69 million and an increase in treasury stock of $59 million,

The Board of Directors at its meeting on February 23, 2005 increased the quarterly dividend from $.28 per share to $.31 per share, payable May 2, 2005, to stockholders of record on March 31, 2005.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See the Company’s most recent annual report filed on Form 10-K (Item 7A). There has been no material change in this information.

Item 4. CONTROLS AND PROCEDURES

The Company’s principal executive officer and its principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (“the Act”)) were effective as of January 31, 2005, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Act.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Note 11 to the Interim Financial Statements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company’s purchases of its common stock during the first quarter of 2005 were as follows:

Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (1)
	(thousands)			(thousands)	(millions)
Nov 1 to Nov 30					$	1,000

Dec 1 to Dec 31	1,108	$	72.13	1,108	920

Jan 1 to Jan 31	1,159	71.11		1,159	838

Total	2,267			2,267

1. During the first quarter of 2005, the Company had one active share purchase plan that was publicly announced in December 2004 (Plan) to purchase up to $1 billion of its common stock.

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

MANAGEMENT’S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS FOR THE YEARS ENDED OCTOBER 31, 2004, 2003 AND 2002

OVERVIEW

Organization

The company’s Equipment Operations primarily generate revenues and cash from the sale of equipment to John Deere dealers and distributors. The Equipment Operations manufacture and distribute a full line of agricultural equipment; a variety of commercial and consumer equipment; and a broad range of equipment for construction and forestry. The company’s Financial Services primarily provide credit services and managed health care plans. The credit operations primarily finance sales and leases of equipment by John Deere dealers and trade receivables purchased from the Equipment Operations. The health care operations provide managed health care services for the company and certain outside customers. The information in the following discussion is presented in a format that includes information grouped as the Equipment Operations, Financial Services and consolidated. The company also views its operations as consisting of two geographic areas, the U.S. and Canada, and outside the U.S. and Canada.

Trends and Economic Conditions

The company’s businesses are currently affected by the following key trends and economic conditions. Farmers are benefiting from record production of corn and soybeans, strong livestock and dairy sectors, and government payments that are expected to increase substantially in 2005. As a result, U.S. farm cash receipts are forecast to be about the same in 2005 as the record level in 2004. The company’s agricultural equipment sales were up 31 percent for 2004 and are forecast to be up approximately 2 to 5 percent in 2005. The company’s commercial and consumer equipment sales increased 16 percent in 2004 and are expected to increase approximately 2 to 5 percent in 2005 due to new products and higher sales of commercial mowing equipment. Construction and forestry markets are expected to be supported in 2005 by moderate economic growth, relatively low interest rates and a favorable level of housing starts. The company’s construction and forestry sales increased 54 percent in 2004 and are forecast to increase 6 to 9 percent in 2005. Although the credit operations are expected to benefit from further growth in the loan portfolio, net income for 2005 is forecast to be down due to increased leverage in the portfolio. The credit operations are expected to report net income of approximately $280 million for the year. The health care operations expect net income to increase to about $15 million for 2005 as a result of an improved underwriting margin.

Items of concern include the availability and price of raw materials, including steel and rubber, which have an impact on results of the company’s Equipment Operations. To date, company factories have been able to secure adequate supplies of such materials though prices have risen. In addition, producing engines that continue to meet high performance standards, yet also comply with increasingly stringent emissions regulations, is one of the company’s major priorities. In this regard, the company is making and intends to continue to make the financial and technical investment needed to produce engines in conformance with the U.S. Environmental Protection Agency Tier 3 and Tier 4 emissions rules for off-road diesel engines.

Stronger market conditions, combined with a focus on building a better business, have been responsible for much of the company’s success this year. The company’s asset management efforts are continuing to yield positive results, especially in light of the strong increase in sales. Beyond the ongoing impact of the company’s business improvement efforts, a positive customer response to the company’s products is expected to continue driving performance in 2005.

2004 COMPARED WITH 2003

CONSOLIDATED RESULTS

Worldwide net income in 2004 was $1,406 million, or $5.56 per share diluted ($5.69 basic), compared with $643 million, or $2.64 per share diluted ($2.68 basic), in 2003. Net sales and revenues increased 29 percent to $19,986 million in 2004, compared with $15,535 million in 2003. Net sales of the Equipment Operations increased 32 percent in 2004 to $17,673 million from $13,349 million last year. Net sales increased primarily due to higher shipments. Net sales in the U.S. and Canada rose 33 percent in 2004. Outside the U.S. and Canada, net sales increased by 20 percent for the year, excluding currency translation, and by 30 percent on a reported basis.

Worldwide Equipment Operations, which exclude the Financial Services operations, had an operating profit of $1,905 million in 2004, compared with $708 million in 2003. Operating profit increased primarily due to increased shipments and price realization. The increase in operating profit was partially offset by a larger provision for employee bonuses and higher raw material costs. The larger provision for bonuses was driven by the strong performance in the Equipment Operations.

The Equipment Operations’ net income was $1,097 million in 2004, compared with $305 million in 2003. The same operating factors mentioned above affected these results. In addition, this year’s results benefited from a lower effective tax rate and a decrease in interest expense.

Net income of the company’s Financial Services operations in 2004 was $309 million, compared with $330 million in 2003. The decrease was primarily due to higher administrative costs, lower credit margins and increased medical claims costs. Additional information is presented in the following discussion of the credit and “Other” operations.

The cost of sales to net sales ratio for 2004 was 76.8 percent, compared to 80.5 percent last year. The decrease in the ratio was primarily due to manufacturing efficiencies related to higher production and sales, and improved price realization. Partially offsetting these factors were the higher employee performance bonus provision and increased costs for raw material, such as steel and rubber.

Finance and interest income decreased this year primarily due to a decrease in rental income on operating leases and lower average finance rates. Health care premiums and fees increased, compared to last year, primarily due to higher insured enrollment, while health care claims and costs increased primarily due to higher medical costs and an increase in enrollment. Other income

increased this year primarily due to service income related to Nortrax, Inc., Nortrax Investments, Inc. and Ontrac Holdings, Inc. (collectively called Nortrax), which were consolidated in 2004, and a gain from the sale of the company’s 49 percent ownership in Sunstate Equipment Co., LLC, an equipment rental company. Selling, administrative and general expenses were higher this year primarily due to a higher employee performance bonus provision, the consolidation of Nortrax and foreign currency exchange rate effects. Other operating expenses increased primarily as a result of the consolidation of Nortrax and an increase in service expense.

The company has several defined benefit pension plans and defined benefit health care and life insurance plans. The company’s postretirement benefit costs for these plans in 2004 were $596 million, compared to $593 million in 2003. The long-term expected return on plan assets, which is reflected in these costs, was an expected gain of 8.5 percent in both years, or $671 million in 2004, compared to $597 million in 2003. The actual return on postretirement benefit plan assets was a gain of $654 million in 2004, compared to a gain of $1,050 million in 2003. In 2005, the long-term expected return will continue to be 8.5 percent. The total unrecognized losses related to the postretirement benefit plans at October 31, 2004 and 2003 were $5,149 million and $4,794 million, respectively. The company expects the increase in postretirement benefit costs in 2005 to be approximately $40 million pretax, compared with 2004, caused by amortization of unrecognized losses primarily as a result of a decrease in the discount rate assumption and prior years’ asset losses. The company makes any required contributions to the postretirement benefit plan assets under applicable regulations and voluntary contributions from time to time based on the company’s liquidity and ability to make tax-deductible contributions. Total company contributions to the plans were $1,852 million in 2004 and $745 million in 2003, which include direct benefit payments for unfunded plans. These contributions also included voluntary contributions to the U.S. postretirement benefit plan assets of $1,551 million in 2004 and $475 million in 2003. Total company contributions in 2005 are expected to be approximately $810 million, including voluntary contributions to U.S. postretirement plan assets of approximately $500 million. See the following discussion of “Critical Accounting Policies” for postretirement benefit obligations.

BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS

The following discussion relates to operating results by reportable segment and geographic area. Operating profit is income before external interest expense, certain foreign exchange gains or losses, income taxes and corporate expenses. However, operating profit of the credit segment includes the effect of interest expense and foreign exchange gains or losses.

Beginning in fiscal 2004, the special technologies group’s results were transferred from the “Other” segment to the agricultural equipment segment due to changes in internal reporting. As a result, the 2003 and 2002 results for the agricultural equipment and “Other” segment were restated for net sales of $41 million and $54 million and operating losses of $8 million and $42 million, respectively, related to the special technologies group. This had no effect on total net sales and operating profit. The “Other” segment now represents primarily the health care operations along with certain miscellaneous service operations added in 2004.

Worldwide Agricultural Equipment Operations

The agricultural equipment segment had an operating profit of $1,072 million in 2004, compared with $329 million in 2003. Net sales increased 31 percent this year primarily due to higher shipments, reflecting strong retail demand, as well as the translation effect of exchange rates and improved price realization. The operating profit improvement was primarily due to higher worldwide sales, efficiencies related to stronger production volumes, and improved price realization. Offsetting these factors were the higher provision for performance bonuses and increased raw material costs.

Worldwide Commercial and Consumer Equipment Operations

The commercial and consumer equipment segment had an operating profit of $246 million, compared with $227 million in 2003. Net sales increased 16 percent for the year primarily due to higher volumes. The improved operating profit was primarily due to higher sales and production volumes. Partially offsetting these factors were an increase in the performance bonus provision in addition to higher costs for freight and raw materials.

Worldwide Construction and Forestry Operations

The construction and forestry segment had an operating profit of $587 million in 2004, compared with $152 million in 2003. Sales increased 54 percent for the year. The increase in sales was primarily due to higher volumes. The operating profit improvement was primarily due to higher sales, efficiencies related to stronger production volumes, and improved price realization. Partially offsetting these factors were a larger performance bonus provision and higher raw material costs. The results also included a $30 million pretax gain from the sale of an equipment rental company.

Worldwide Credit Operations

The operating profit of the credit operations was $466 million in 2004, compared with $474 million in 2003. Operating profit in 2004 was lower than last year due primarily to higher administrative costs, partly related to a higher provision for performance bonuses in connection with the overall company profitability, and lower margins. Partially offsetting these factors was a lower provision for credit losses, reflecting solid portfolio quality. Total revenues of the credit operations decreased 4 percent in 2004, primarily reflecting lower rental income from operating leases related to the lower level of leases, and lower average finance rates. The average balance of receivables and leases financed was 2 percent higher in 2004, compared with 2003. A decrease in funding rates in 2004 resulted in a 3 percent decrease in interest expense, compared with 2003. The credit operations’ ratio of earnings to fixed charges was 2.12 to 1 in 2004, compared to 2.07 to 1 in 2003.

Worldwide Other Operations

The company’s other operations,which consisted primarily of the health care operations, had an operating profit of $5 million in 2004, compared with $30 million last year. The decrease was primarily due to increased medical claims costs and a higher performance bonus provision related to overall company profitability.

Equipment Operations in U.S. and Canada

The equipment operations in the U.S. and Canada had an operating profit of $1,284 million in 2004, compared with $386 million in 2003. The increase was primarily due to higher sales, efficiencies related to stronger production volumes and improved price realization. Partially offsetting these items was a higher provision for performance bonuses and increased raw material costs. Sales increased primarily due to higher shipments, reflecting strong retail demand, as well as improved price realization. Sales increased 33 percent in 2004 while the physical volume of sales increased 30 percent, compared to 2003.

Equipment Operations outside U.S. and Canada

The equipment operations outside the U.S. and Canada had an operating profit of $621 million in 2004, compared with $322 million in 2003. The increase was primarily due to higher sales and production volumes of agricultural equipment. Partially offsetting these factors were higher expenses related to stronger foreign exchange rates and an increased provision for performance bonuses. Sales increased mainly from higher volumes, as well as the effect of stronger foreign exchange rates and improvements in price realization. Sales were 30 percent higher than last year, while the physical volume of sales increased 16 percent in 2004, compared with 2003.

MARKET CONDITIONS AND OUTLOOK

Please see Part I., Item 2 of this report on Form 10-Q.

SAFE HARBOR STATEMENT

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements under “Market Conditions and Outlook,” and other statements herein that relate to future operating periods are subject to important risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect particular lines of business, while others could affect all of the company’s businesses.

Forward looking statements involve certain factors that are subject to change, including for the company’s agricultural equipment segment the many interrelated factors that affect farmers’ confidence, including worldwide demand for agricultural products, world grain stocks, the growth of non-food uses for some crops, prices realized for commodities and livestock, crop production expenses (most notably fuel and fertilizer costs), weather and soil conditions, real estate values, available acreage for farming, the land ownership policies of various governments, the level, complexity and distribution of government farm programs, international reaction to such programs, animal diseases (including bovine spongiform encephalopathy, commonly known as “mad cow” disease), crop pests and diseases (including Asian rust), harvest yields, availability of transport for crops and the level of farm product exports (including concerns about genetically modified organisms).

Factors affecting the outlook for the company’s commercial and consumer equipment segment include general economic conditions in these markets, consumer confidence, consumer borrowing patterns, consumer purchasing preferences, housing starts, spending on behalf of municipalities and golf courses, and weather conditions.

The number of housing starts, interest rates and consumer spending patterns are especially important to sales of the company’s construction equipment. The levels of public and non-residential construction also impact the results of the company’s construction and forestry segment. Prices for pulp, lumber and structural panels are important to sales of forestry equipment.

All of the company’s businesses and its reported results are affected by general economic conditions in and the political stability of global markets in which the company operates; production and technological difficulties, including capacity and supply constraints, and prices, including supply commodities such as steel and rubber; oil and energy prices and supplies; the availability and cost of freight; monetary and fiscal policies

of various countries, wars and other international conflicts and the threat thereof; actions by the U.S. Federal Reserve Board and other central banks; actions by the U.S. Securities and Exchange Commission; actions by environmental regulatory agencies, including those related to engine emissions and the risk of global warming; actions by other regulatory bodies; actions by rating agencies; capital market disruptions; investor sentiment; inflation and deflation rates, interest rate levels and currency exchange rates; customer borrowing and repayment practices, and the number of customer loan delinquencies and defaults; actions of competitors in the various industries in which the company competes, particularly price discounting; dealer practices especially as to levels of new and used field inventories; labor relations; changes to accounting standards; the effects of terrorism and the response thereto; and legislation affecting the sectors in which the company operates. Company results are also affected by changes in market values of investment assets and the level of interest rates, which impact postretirement benefit costs, and significant changes in health care costs.

The company’s outlook is based upon assumptions relating to the factors described above, which are sometimes based upon estimates and data prepared by government agencies. Such estimates and data are often revised. The company, however, undertakes no obligation to update or revise its outlook, whether as a result of new developments or otherwise. Further information concerning the company and its businesses, including factors that potentially could materially affect the company’s financial results, is included in other filings with the Securities and Exchange Commission.

2003 COMPARED WITH 2002

CONSOLIDATED RESULTS

Worldwide net income in 2003 was $643 million, or $2.64 per share diluted ($2.68 basic), compared with $319 million, or $1.33 per share diluted ($1.34 basic), in 2002. The success of new products and ongoing efforts to manage costs and asset intensity were evident in the results for 2003. Improved market conditions also contributed to the stronger performance of the company’s construction and forestry and commercial and consumer equipment segments. Additionally, as a result of disciplined asset management, trade receivables ended 2003 at their lowest level in more than a decade.

Net sales and revenues increased 11 percent to $15,535 million in 2003, compared with $13,947 million in 2002. Net sales of the Equipment Operations increased 14 percent in 2003 to $13,349 million from $11,703 million in 2002. Net sales increased primarily due to higher physical volumes of commercial and consumer equipment and construction and forestry equipment. In addition, the increase was due to the translation effect of stronger foreign currency exchange rates and improved price realization. Net sales outside the U.S. and Canada increased 17 percent in 2003. Excluding the impact of changes in currency exchange rates, these sales were up 5 percent for 2003.

Worldwide Equipment Operations, which exclude the Financial Services operations, had an operating profit of $708 million in 2003, compared with $401 million in 2002. Operating profit increased primarily due to improved price realization and a higher physical volume of sales. Partially offsetting these factors were an increase in postretirement benefit costs of $306 million in 2003. The results in 2002 were negatively affected by the costs of closing certain facilities and higher costs associated with the company’s minority investments in Nortrax. During 2004, the company acquired a majority interest in Nortrax and it was consolidated.

The Equipment Operations’ net income was $305 million in 2003, compared with $78 million in 2002. The same operating factors mentioned above affected these results. In addition, results for 2002 were negatively impacted by a higher effective tax rate.

Net income of the company’s Financial Services operations in 2003 was $330 million, compared with $262 million in 2002. The increase was primarily due to lower loan losses, growth in the portfolio and the absence of losses from Argentina related to the peso devaluation in 2002. Additional information is presented in the following discussion of the credit operations.

The cost of sales to net sales ratio for 2003 was 80.5 percent, compared to 82.0 percent in 2002. The decrease in the ratio was primarily due to improved price realization, higher production volumes, the discontinuance of the amortization of goodwill, and costs in 2002 from closing certain facilities along with higher costs related to Nortrax. These improvements were partially offset by higher postretirement benefit costs in 2003.

Finance and interest income decreased in 2003 primarily due to a decrease in rental income on operating leases caused by a lower level of leases. Health care premiums and fees and related health care claims and costs increased, compared to 2002, primarily due to higher enrollment. Other income decreased in 2003 primarily related to a lower volume of retail notes sold. Research and development costs increased in 2003 due to the higher level of new product development and exchange rate fluctuations. Selling, administrative and general expenses were higher in 2003 primarily due to higher expenses for employee postretirement benefits, exchange rate fluctuations and increased promotional and support costs for new products. Other operating expenses decreased primarily as a result of lower depreciation on operating leases in 2003 due to a lower level of leases, and the absence of losses in 2002 from the Argentine operations related to the peso devaluation. Equity income (loss) of unconsolidated affiliates improved in 2003 primarily due to the results of the Deere-Hitachi Construction Machinery Corporation and Nortrax.

The company’s postretirement benefit costs in 2003 were $593 million, compared to $279 million in 2002. The long-term expected return on plan assets, which is reflected in these costs, was an expected gain of 8.5 percent, or $597 million, in 2003, compared to 9.7 percent, or $663 million, in 2002. The actual return on postretirement benefit plan assets was a gain of $1,050 million in 2003, compared to a loss of $522 million in 2002. The total unrecognized losses related to the postretirement benefit plans at October 31, 2003 was $4,794 million. Total company contributions to the plans were $745 million in 2003 and $228 million in 2002, which include direct benefit payments for unfunded plans. The contributions in 2003 included a $475 million voluntary contribution to the U.S. postretirement benefit plan assets. No voluntary contribution was made in 2002.

See the following discussion of “Critical Accounting Policies” for postretirement benefit obligations.

The annual pretax increase in earnings and cash flows from the restructurings in 2001 and 2002 have been approximately $100 million as expected. The restructurings primarily have reduced cost of sales by approximately $300 million and selling, administrative and general expenses by $30 million, partially offset by a reduction in sales of $230 million.

BUSINESS SEGMENT RESULTS

The agriculture equipment and the “Other” segment discussed below were restated in 2003 and 2002 for the transfer of the special technologies group from the “Other” segment to the agricultural equipment segment (see previous segment discussion for “2004 Compared with 2003”).

Worldwide Agricultural Equipment Operations

The agricultural equipment segment had an operating profit of $329 million in 2003, compared with $397 million in 2002. Net sales increased 9 percent in 2003 due to the translation effect of stronger exchange rates and improved price realization. The production volumes and physical volume of sales were approximately equal to 2002. The lower operating profit was primarily due to higher postretirement benefit costs of $216 million, higher compensation to the credit operations for financing trade receivables and one-time labor agreement ratification costs. Offsetting these factors was the impact of improved price realization.

Worldwide Commercial and Consumer Equipment Operations

The commercial and consumer equipment segment had an operating profit of $227 million in 2003, compared with $79 million in 2002. Net sales increased 19 percent in 2003, primarily due to strong retail demand for recently introduced products and the impact of expanded distribution channels. The improved operating profit was primarily due to higher sales and production volumes. Partially offsetting these factors were higher promotional and support costs related to new products, as well as higher postretirement benefit costs of $31 million. Results in 2002 were also negatively affected by restructuring costs related to the closure of certain facilities.

Worldwide Construction and Forestry Operations

The construction and forestry segment had an operating profit of $152 million in 2003, compared with an operating loss of $75 million in 2002. Sales increased 24 percent in 2003. The increase was primarily due to higher physical volumes, reflecting improved retail activity. The operating profit improvement was primarily due to higher sales and production volumes. Improved price realization also had a favorable impact on the results for 2003. Partially offsetting these factors were higher postretirement benefit costs of $59 million. The results in 2002 were negatively affected by higher costs related to the company’s investment in Nortrax and the costs for a factory closing.

Worldwide Credit Operations

The operating profit of the credit operations was $474 million in 2003, compared with $386 million in 2002. Operating profit in 2003 was higher than in 2002 due primarily to lower loan losses, growth in the portfolio and the absence of losses in Argentina related to the peso devaluation, partially offset by narrower financing spreads, lower gains from a lower volume of retail note sales and higher selling, administrative and general expenses. Total revenues of the credit operations decreased 2 percent in 2003, primarily reflecting lower rental income from operating leases related to the lower level of leases, and a decrease in gains on a lower volume of retail note sales. The average balance of receivables and leases financed was 12 percent higher in 2003, compared with 2002, primarily due to the increased level of trade receivables. A decrease in financing rates, primarily offset by an increase in average borrowings in 2003, resulted in a 1 percent decrease in interest expense, compared with 2002. The credit operations’ ratio of earnings to fixed charges was 2.07 to 1 in 2003, compared to 1.85 to 1 in 2002.

Worldwide Other Operations

The company’s other operations, which consisted of the health care operations, had an operating profit of $30 million in 2003 and 2002.

FASB STATEMENT NO. 142

In 2003, the company adopted FASB Statement No. 142, Goodwill and Other Intangible Assets. In accordance with this Statement, the company did not amortize goodwill related to new acquisitions made after June 30, 2001 and discontinued amortizing goodwill for prior acquisitions as of November 1, 2002. Based on the new standard, goodwill will be written down only for impairments. In 2002, the company had goodwill amortization of $58 million pretax ($53 million after-tax).

CAPITAL RESOURCES AND LIQUIDITY

The discussion of capital resources and liquidity has been organized to review separately, where appropriate, the company’s Equipment Operations, Financial Services operations and the consolidated totals.

Certain information in the Statement of Consolidated Cash Flows has been reclassified for the years ended 2004, 2003 and 2002 to eliminate the effects of non-cash transactions. See Note 1 to the Consolidated Financial Statements for further discussion and quantification of the reclassification. The Supplemental Consolidating Data Statement of Cash Flows in Note 29 for the Equipment Operations and the Financial Services operations on a stand-alone basis has not changed.

EQUIPMENT OPERATIONS

The company’s equipment businesses are capital intensive and are subject to large seasonal variations in financing requirements for inventories and certain receivables from dealers. The Equipment Operations sell most of their trade receivables to the company’s credit operations. As a result, the seasonal variations in financing requirements of the Equipment Operations have decreased. To the extent necessary, funds provided from operations are supplemented by external financing sources.

Cash provided by operating activities during 2004 was $1,383 million primarily due to net income adjusted for non-cash provisions, and an increase in accounts payable and accrued expenses, which were partially offset by a cash outflow for voluntary contributions to U.S. employee postretirement benefit plans of $1,551 million ($475 million last year) along with an increase in inventories and trade receivables. The operating cash flows, a decrease in cash and cash equivalents of $1,148 million, the proceeds from the issuance of common stock of $251 million (which were the result of the exercise of stock options) and proceeds from sales of businesses of $90 million were used primarily to increase receivables from Financial Services by $1,656 million,

fund purchases of property and equipment of $346 million, decrease borrowings by $320 million, pay dividends to stockholders of $247 million, acquire businesses for $193 million and repurchase common stock for $193 million.

Over the last three years, operating activities have provided an aggregate of $3,974 million in cash. In addition, proceeds from the issuance of common stock were $473 million and the sales of businesses were $166 million. The aggregate amount of these cash flows was used mainly to increase receivables from Financial Services by $1,576 million, fund purchases of property and equipment of $1,004 million, stockholders’ dividends of $666 million, acquisitions of businesses for $213 million and repurchases of common stock for $195 million. Cash and cash equivalents also increased $1,041 million over the three-year period.

Trade receivables held by the Equipment Operations increased by $135 million during 2004. During this time period, the Equipment Operations sold most of its trade receivables to the credit operations (see following consolidated discussion).

Inventories increased by $633 million in 2004. Most of these inventories are valued on the last-in, first-out (LIFO) method. The ratios of inventories on a first-in, first-out (FIFO) basis, which approximates current cost, to fiscal year cost of sales were 22 percent at October 31, 2004, and 2003.

Total interest-bearing debt of the Equipment Operations was $3,040 million at the end of 2004, compared with $3,304 million at the end of 2003 and $3,387 million at the end of 2002. The ratio of total debt to total capital (total interest-bearing debt and stockholders’ equity) at the end of 2004, 2003 and 2002 was 32 percent, 45 percent and 52 percent, respectively.

During 2004, the Equipment Operations retired $250 million of 6.55% notes and other long-term borrowings of $17 million.

Capital expenditures for the Equipment Operations in 2005 are estimated to be approximately $480 million.

FINANCIAL SERVICES

The Financial Services’ credit operations rely on their ability to raise substantial amounts of funds to finance their receivable and lease portfolios. Their primary sources of funds for this purpose are a combination of borrowings and equity capital. Additionally, the credit operations periodically sell substantial amounts of retail notes.

Cash flows from the company’s Financial Services operating activities were $653 million in 2004. Cash provided by financing activities totaled $664 million in 2004, representing a $1,264 million increase in borrowings from the Equipment Operations and a $134 million increase in long-term borrowings, partially offset by a $293 million decrease in short-term borrowings and the payment of $444 million of dividends to the Equipment Operations. The cash provided by operating and financing activities was used primarily to increase receivables. Cash used by investing activities totaled $1,437 million in 2004, primarily due to receivable acquisitions exceeding collections by $3,849 million, partially offset by sales of receivables of $2,334 million. Cash and cash equivalents also decreased $109 million.

Over the last three years, the Financial Services operating activities have provided $2,118 million in cash. In addition, the sale of receivables of $7,242 million, an increase in borrowings of $752 million and the sale of equipment on operating leases of $1,452 million have provided cash inflows. These amounts have been used mainly to fund receivable and lease acquisitions, which exceeded collections by $10,857 million, and dividends to the Equipment Operations of $1,092 million. Cash and cash equivalents also decreased $309 million over the three-year period.

Receivables and leases increased by $1,662 million in 2004, compared with 2003. Acquisition volumes of receivables and leases increased 26 percent in 2004, compared with 2003. The volumes of trade receivables, leases, wholesale notes, retail notes, operating loans and revolving charge accounts increased approximately 37 percent, 23 percent, 22 percent, 17 percent, 16 percent and 10 percent, respectively. The credit operations also sold retail notes receiving proceeds of $2,334 million during 2004, compared with $1,941 million in 2003. At October 31, 2004 and 2003, net receivables and leases administered, which include receivables and leases previously sold but still administered, were $18,620 million and $16,476 million, respectively.

Trade receivables held by the credit operations increased by $487 million in 2004 (see following consolidated discussion).

Total external interest-bearing debt of the credit operations was $11,508 million at the end of 2004, compared with $11,447 million at the end of 2003 and $10,001 million at the end of 2002. Total external borrowings have increased generally corresponding with the level of the receivable and lease portfolio, the level of cash and cash equivalents and the change in payables owed to the Equipment Operations. The credit subsidiaries’ ratio of total interest-bearing debt to total stockholder’s equity was 6.4 to 1 at the end of 2004 and 5.6 to 1 at the end of 2003 and 2002.

During 2004, the credit operations redeemed $150 million of 8-5/8% subordinated debentures due August 2019. The redemption price was equal to the par value plus accrued interest. The credit operations also issued $2,179 million and retired $1,895 million of other long-term borrowings during the year, which were primarily medium-term notes.

CONSOLIDATED

Sources of liquidity for the company include cash and short-term investments, funds from operations, the issuance of commercial paper and term debt, the securitization and sale of retail notes, and committed and uncommitted, unsecured, bank lines of credit.

Because of the multiple funding sources that have been and continue to be available to the company, the company expects to have sufficient sources of liquidity to meet its funding needs. The company’s worldwide commercial paper outstanding at October 31, 2004 and 2003 was approximately $1.9 billion and $2.1 billion, respectively, while the total cash and cash equivalents position was $3.2 billion and $4.4 billion, respectively. The company has for many years accessed diverse funding sources, including short-term and long-term unsecured debt capital markets in the U.S., Canada, Europe and Australia, as well as public and private securitization markets in the U.S. and Canada.

The company also has access to unsecured bank lines of credit with various U.S. and foreign banks. Some of the lines are available to both Deere & Company and John Deere Capital Corporation. Worldwide lines of credit totaled $3,190 million at October 31, 2004, $900 million of which were unused. For the purpose of computing unused credit lines, commercial paper and

short-term bank borrowings, excluding the current portion of long-term borrowings, were considered to constitute utilization. Included in the total credit lines at October 31, 2004 was a long-term credit facility agreement totaling $1,250 million, expiring in February 2009.

The credit agreement requires the Equipment Operations to maintain a ratio of total debt to total capital (total debt and stockholders’ equity) of 65 percent or less at the end of each fiscal quarter. At October 31, 2004, the ratio was 32 percent. Under this provision, the company’s excess equity capacity and retained earnings balance free of restriction at October 31, 2004 was $4,756 million. Alternatively under this provision, the Equipment Operations had the capacity to incur additional debt of $8,832 million at October 31, 2004.

To access public debt capital markets, the company relies on credit rating agencies to assign short-term and long-term credit ratings to the company’s securities as an indicator of credit quality for fixed income investors. A security rating is not a recommendation by the rating agency to buy, sell or hold company securities. A credit rating agency may change or withdraw company ratings based on its assessment of the company’s current and future ability to meet interest and principal repayment obligations. Lower credit ratings generally result in higher borrowing costs and reduced access to debt capital markets.

The senior long-term and short-term debt ratings and outlook currently assigned to company securities by the rating agencies engaged by the company are as follows:

	Senior Long-Term	Short-Term	Outlook
Moody’s Investors Service, Inc.	A3	Prime-2	Stable
Standard & Poor’s	A-	A-2	Stable

Trade accounts and notes receivable primarily arise from sales of goods to dealers. Trade receivables increased by $588 million in 2004. The ratios of trade accounts and notes receivable at October 31 to fiscal year net sales were 18 percent in 2004, compared with 20 percent in 2003. Total worldwide agricultural equipment trade receivables increased $127 million, commercial and consumer equipment receivables increased $110 million and construction and forestry receivables increased $351 million. The collection period for trade receivables averages less than 12 months. The percentage of trade receivables outstanding for a period exceeding 12 months was 2 percent at October 31, 2004, compared with 11 percent at October 31, 2003.

Stockholders’ equity was $6,393 million at October 31, 2004, compared with $4,002 million at October 31, 2003. The increase of $2,391 million resulted primarily from net income of $1,406 million, a decrease in the minimum pension liability adjustment of $1,021 million and a decrease in treasury stock of $101 million, partially offset by dividends declared of $262 million.

OFF-BALANCE SHEET ARRANGEMENTS

The company’s credit operations periodically securitize and sell retail notes to special purpose entities (SPEs) in securitizations of retail notes. The credit operations use these SPEs in a manner consistent with conventional practices in the securitization industry to isolate the retail notes for the benefit of securitization investors. The use of the SPEs enables these operations to access the highly liquid and efficient securitization markets for the sales of these types of financial assets. The amounts of funding from securitizations reflects such factors as capital market accessibility, relative costs of funding sources and assets available for securitization. Based on an assessment of these and other factors, the company received $2,269 million of funding and recognized pretax gains of $48 million related to these securitizations during 2004. The company’s total exposure to recourse provisions related to securitized retail notes was $218 million and the total assets held by the SPEs related to securitizations were $3,441 million at October 31, 2004.

At October 31, 2004, the company had guaranteed approximately $40 million of residual values for two operating leases related to an administrative and a manufacturing building. 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 terms of the operating leases and had accrued expenses of $9 million related to these agreements at October 31, 2004. The leases have terms expiring in 2006 and 2007.

At October 31, 2004, the company had approximately $95 million of guarantees issued primarily to banks outside the U.S. 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 October 31, 2004, the company had accrued losses of approximately $1 million under these agreements. The maximum remaining term of the receivables guaranteed at October 31, 2004 was approximately six years.

AGGREGATE CONTRACTUAL OBLIGATIONS

Most of the company’s contractual obligations to make payments to third parties are debt obligations. In addition, the company has off-balance sheet obligations for the purchases of raw materials and services along with agreements for future lease payments. The payment schedule for these contractual obligations in millions of dollars is as follows:

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Total debt*
Equipment Operations	$	2,958	$	312	$	281	$	8	$	2,357
Financial Services	11,265		3,146		4,393		1,541		2,185
Total	14,223		3,458		4,674		1,549		4,542
Purchase obligations	2,306		2,274		32
Operating leases	367		75		130		59		103
Capital leases	12		2		3		2		5
Contractual obligations	$	16,908	$	5,809	$	4,839	$	1,610	$	4,650

* Principal payments.

CRITICAL ACCOUNTING POLICIES

The preparation of the company’s consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. Changes in these estimates and assumptions could have a significant effect on the financial statements. The accounting policies below are those management believes are the most critical to the preparation of the company’s financial statements and require the most difficult, subjective or complex judgments. The company’s other accounting policies are described in the Notes to the Consolidated Financial Statements.

Sales Incentives

At the time a sale to a dealer is recognized, the company records an estimate of the future sales incentive costs for allowances and financing programs that will be due when the dealer sells the equipment to a retail customer. The estimate is based on historical data, announced incentive programs, field inventory levels and settlement volumes. The final cost of these programs and the amount of accrual required for a specific sale is fully determined when the dealer sells the equipment to the retail customer. This is due to numerous programs available at any particular time and new programs that may be announced after the company records the sale. Changes in the mix and types of programs affect these estimates, which are reviewed quarterly.

The sales incentive accruals at October 31, 2004, 2003 and 2002 were $540 million, $444 million and $584 million, respectively. The total incentive accruals recorded at the end of 2004 increased compared to the end of 2003 primarily due to an increase in the sales volume discounts to dealers related to the increase in sales in 2004. In 2003, the sales incentive accruals recorded at year-end decreased, compared to 2002 year-end, primarily due to the volume discounts for the agricultural equipment segment being paid quarterly beginning in 2003 versus annually in 2002.

The estimation of the sales incentive accrual is impacted by many assumptions. One of the key assumptions is the historical percentage of sales incentive costs to settlements from dealers. Over the last five fiscal years, this percent has varied by approximately plus or minus .5 percent, compared to the average sales incentive costs to settlements percentage during that period. Holding other assumptions constant, if this loss experience percentage were to increase or decrease .5 percent, the sales incentive accrual at October 31, 2004 would increase or decrease by approximately $25 million.

Product Warranties

At the time a sale to a dealer is recognized, the company records the estimated future warranty costs. 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. Variances in claims experience and the type of warranty programs affect these estimates, which are reviewed quarterly.

The product warranty accruals at October 31, 2004, 2003 and 2002 were $458 million, $389 million and $332 million, respectively. The increases in 2004 and 2003 were primarily due to the increases in sales volume.

Estimates used to determine the product warranty accruals are significantly affected by the historical percentage of warranty claims costs to sales. Over the last five fiscal years, this loss experience percent has varied by approximately plus or minus .15 percent, compared to the average warranty costs to sales percentage during that period. Holding other assumptions constant, if this estimated loss experience percentage were to increase or decrease .15 percent, the warranty accrual at October 31, 2004 would increase or decrease by approximately $30 million.

Postretirement Benefit Obligations

Pension obligations and other postretirement employee benefit (OPEB) obligations are based on various assumptions used by the company’s actuaries in calculating these amounts. These assumptions include discount rates, health care cost trend rates, expected return on plan assets, compensation increases, retirement rates, mortality rates and other factors. Actual results that differ from the assumptions and changes in assumptions affect future expenses and obligations.

The total net pension and OPEB liabilities recognized at October 31, 2004, 2003 and 2002 were $729 million, $3,804 million and $3,660 million, respectively. The decrease in the total net liabilities recognized at October 31, 2004 is primarily due to the decrease in the minimum pension liability related to the increase in pension plan assets. The increase in plan assets was a result of voluntary company contributions and the return on plan assets.

The effect of hypothetical changes to selected assumptions on the company’s major U. S retirement benefit plans would be as follows in millions of dollars:

October 31, 2004

2005

Increase

Percentage

(Decrease)

Assumptions

Change

PBO/APBO*

Equity**

Expense

Pension

Discount rate***

+/-.5

(389)/417

0/(2,436

)

(34)/34

Expected return on assets

+/-.5

(39)/39

OPEB

Discount rate***

+/-.5

(353)/394

(52)/57

Health care cost trend rate***

+/-1.0

716/(630

)

170/(148

)

* Projected benefit obligation (PBO) for pension plans and accumulated postretirement benefit obligation (APBO) for OPEB plans.

** Pretax minimum pension liability adjustment.

*** Pretax impact on service cost, interest cost and amortization of gains or losses.

Allowance for Credit Losses

The allowance for credit losses represents an estimate of the losses expected from the company’s receivable portfolio. The level of the allowance is based on many quantitative and qualitative factors, including historical loss experience by product category, portfolio duration, delinquency trends, economic conditions and credit risk quality. The adequacy of the allowance is assessed quarterly.

Different assumptions or changes in economic conditions would result in changes to the allowance for credit losses and the provision for credit losses.

The total allowance for credit losses at October 31, 2004, 2003 and 2002 was $201 million, $207 million and $182 million, respectively. The decrease in 2004 was primarily due to improved credit quality and delinquency trends. The increase in 2003 was primarily due to the increase in receivables.

The assumptions used in evaluating the company’s exposure to credit losses involve estimates and significant judgment. The historical loss experience on the receivable portfolios represents one of the key assumptions involved in determining the allowance for credit losses. Over the last five fiscal years, the average loss experience has fluctuated between 2 basis points and 15 basis points in any given fiscal year over the applicable prior period. Holding other estimates constant, a 5 basis point increase or decrease in estimated loss experience on the receivable portfolios would result in an increase or decrease of approximately $7 million to the allowance for credit losses at October 31, 2004.

Operating Lease Residual Values

The carrying value of equipment on operating leases is affected by the estimated fair values of the equipment at the end of the lease (residual values). Upon termination of the lease, the equipment is either purchased by the lessee or sold to a third party, in which case the company may record a gain or a loss for the difference between the estimated residual value and the sales price. The residual values are dependent on current economic conditions and are reviewed quarterly. Changes in residual value assumptions would affect the amount of depreciation expense and the amount of investment in equipment on operating leases.

The total operating lease residual values at October 31, 2004, 2003 and 2002 were $803 million, $913 million and $1,092 million, respectively. The decreases in 2004 and 2003 were primarily due to the decreases in the level of operating leases.

Estimates used in determining end of lease market values for equipment on operating leases significantly impact the amount and timing of depreciation expense. If future market values for this equipment were to decrease 5 percent from the company’s present estimates, the total impact would be to increase the company’s depreciation on equipment on operating leases by approximately $40 million. This amount would be charged to depreciation expense during the remaining lease terms such that the net investment in operating leases at the end of the lease terms would be equal to the revised residual values. Initial lease terms generally range from three to five years.

FINANCIAL INSTRUMENT RISK INFORMATION

The company is naturally exposed to various interest rate and foreign currency risks. As a result, the company enters into derivative transactions to manage certain of these exposures that arise 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. Accordingly, from time to time, these operations enter into interest rate swap agreements to manage their interest rate exposure. 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. The company has entered into agreements related to the management of these currency transaction risks. The credit risk under these interest rate and foreign currency agreements is not considered to be significant.

Interest Rate Risk

Quarterly, the company uses a combination of cash flow models to assess the sensitivity of its financial instruments with interest rate exposure to changes in market interest rates. The models calculate the effect of adjusting interest rates as follows. Cash flows for financing receivables are discounted at the current prevailing rate for each receivable portfolio. Cash flows for borrowings are discounted at the treasury yield curve plus a market credit spread for similarly rated borrowers. Cash flows for interest rate swaps are projected and discounted using forecasted rates from the swap yield curve at the repricing dates. The net loss in these financial instruments’ fair values which would be caused by decreasing the interest rates by 10 percent from the market rates at October 31, 2004 and 2003 would have been approximately $42 million and $56 million, respectively.

Foreign Currency Risk

In the Equipment Operations, it is the company’s practice to hedge significant currency exposures. Worldwide foreign currency exposures are reviewed quarterly. Based on the Equipment Operations anticipated and committed foreign currency cash inflows and outflows for the next twelve months and the foreign currency derivatives at year end, the company estimates that a hypothetical 10 percent weakening of the U.S. dollar relative to all other currencies through 2005 would decrease the 2005 expected net cash inflows by $18 million. At last year end, a hypothetical 10 percent strengthening of the U.S. dollar under similar assumptions and calculations indicated a potential $65 million adverse effect on the 2004 net cash inflows.

In the Financial Services operations, the company’s policy is to hedge the foreign currency risk if the currency of the borrowings does not match the currency of the receivable portfolio. As a result, a hypothetical 10 percent adverse change in the value of the U.S. dollar relative to all other foreign currencies would not have a material effect on the Financial Services cash flows.

DEERE & COMPANY

STATEMENT OF CONSOLIDATED INCOME

For the Years Ended October 31, 2004, 2003 and 2002

(In millions of dollars except per share amounts)

	2004		2003		2002
Net Sales and Revenues
Net sales	$	17,673.0	$	13,349.1	$	11,702.8
Finance and interest income	1,195.7		1,275.6		1,339.2
Health care premiums and fees	766.2		664.5		636.0
Other income	351.2		245.4		269.0
Total	19,986.1		15,534.6		13,947.0

Costs and Expenses
Cost of sales	13,567.5		10,752.7		9,593.4
Research and development expenses	611.6		577.3		527.8
Selling, administrative and general expenses	2,117.4		1,744.2		1,657.3
Interest expense	592.1		628.5		637.1
Health care claims and costs	650.3		536.1		518.4
Other operating expenses	333.5		324.5		410.3
Total	17,872.4		14,563.3		13,344.3

Income of Consolidated Group before Income Taxes	2,113.7		971.3		602.7
Provision for income taxes	708.5		336.9		258.3
Income of Consolidated Group	1,405.2		634.4		344.4

Equity in Income (Loss) of Unconsolidated Affiliates
Credit	.6		.2		(3.8		)
Other	.3		8.5		(21.4		)
Total	.9		8.7		(25.2		)

Net Income	$	1,406.1	$	643.1	$	319.2

Per Share Data
Net income – basic	$	5.69	$	2.68	$	1.34
Net income – diluted	$	5.56	$	2.64	$	1.33
Dividends declared	$	1.06	$	.88	$	.88

The notes to consolidated financial statements are an integral part of this statement.

DEERE & COMPANY

CONSOLIDATED BALANCE SHEET

As of October 31, 2004 and 2003

(In millions of dollars except per share amounts)

	2004			2003
ASSETS
Cash and cash equivalents	$	3,181.1		$	4,384.5
Marketable securities	246.7			231.8
Receivables from unconsolidated affiliates	17.6			303.2
Trade accounts and notes receivable - net	3,206.9			2,619.3
Financing receivables - net	11,232.6			9,974.2
Other receivables	663.0			428.3
Equipment on operating leases - net	1,296.9			1,381.9
Inventories	1,999.1			1,366.1
Property and equipment - net	2,161.6			2,075.6
Investments in unconsolidated affiliates	106.9			195.5
Goodwill	973.6			872.1
Other intangible assets - net	21.7			252.9
Prepaid pension costs	2,493.1			62.6
Other assets	515.4			534.3
Deferred income taxes	528.1			1,476.1
Deferred charges	109.7			99.6

Total Assets	$	28,754.0		$	26,258.0

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Short-term borrowings	$	3,457.5		$	4,347.2
Payables to unconsolidated affiliates	142.3			87.8
Accounts payable and accrued expenses	3,973.6			3,105.5
Health care claims and reserves	135.9			94.1
Accrued taxes	179.2			226.5
Deferred income taxes	62.6			30.7
Long-term borrowings	11,090.4			10,404.2
Retirement benefit accruals and other liabilities	3,319.7			3,959.9
Total liabilities	22,361.2			22,255.9

STOCKHOLDERS’ EQUITY
Common stock, $1 par value (authorized – 600,000,000 shares; issued – 268,215,602 shares in 2004 and 2003), at stated value	2,043.5			1,987.8
Common stock in treasury, 21,356,458 shares in 2004 and 24,694,170 shares in 2003, at cost	(1,040.4		)	(1,141.4		)
Unamortized restricted stock compensation	(12.7		)	(5.8		)
Retained earnings	5,445.1			4,329.5
Total	6,435.5			5,170.1
Minimum pension liability adjustment	(57.2		)	(1,078.0		)
Cumulative translation adjustment	9.1			(79.2		)
Unrealized loss on derivatives	(6.4		)	(22.4		)
Unrealized gain on investments.	11.8			11.6
Accumulated other comprehensive income (loss)	(42.7		)	(1,168.0		)
Total stockholders’ equity	6,392.8			4,002.1

Total Liabilities and Stockholders’ Equity	$	28,754.0		$	26,258.0

The notes to consolidated financial statements are an integral part of this statement.

DEERE & COMPANY

STATEMENT OF CONSOLIDATED CASH FLOWS

For the Years Ended October 31, 2004, 2003 and 2002

(In millions of dollars)

	2004			2003			2002
Cash Flows from Operating Activities
Net income	$	1,406.1		$	643.1		$	319.2
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful receivables	51.4			106.8			160.7
Provision for depreciation and amortization	621.0			631.4			725.3
Undistributed earnings of unconsolidated affiliates	20.7			(5.5		)	22.7
Provision (credit) for deferred income taxes	385.0			33.1			(1.2		)
Changes in assets and liabilities:
Trade, notes and financing receivables related to sales of equipment	(863.7		)	497.9			12.0
Inventories	(501.3		)	(72.8		)	(30.2		)
Accounts payable and accrued expenses	872.7			(184.9		)	144.0
Retirement benefit accruals/prepaid pension costs	(1,245.7		)	(175.9		)	59.3
Other	(250.1		)	163.3			157.5
Net cash provided by operating activities	496.1			1,636.5			1,569.3

Cash Flows from Investing Activities
Collections of financing receivables	7,611.6			6,844.0			5,212.2
Proceeds from sales of financing receivables	2,206.8			1,704.0			2,967.8
Proceeds from maturities and sales of marketable securities	66.7			76.4			75.4
Proceeds from sales of equipment on operating leases	444.4			514.5			495.2
Proceeds from sales of businesses	90.6			22.5			53.5
Cost of financing receivables acquired	(10,493.5		)	(9,421.8		)	(8,034.3		)
Purchases of marketable securities	(79.6		)	(118.2		)	(87.8		)
Purchases of property and equipment	(363.8		)	(309.6		)	(358.7		)
Cost of operating leases acquired	(290.6		)	(258.9		)	(325.1		)
Acquisitions of businesses, net of cash acquired	(192.9		)	(10.6		)	(19.0		)
Decrease (increase) in receivables from unconsolidated affiliates	(68.7		)	(6.8		)	14.8
Other	(.1		)	(32.4		)	1.0
Net cash used for investing activities	(1,069.1		)	(996.9		)	(5.0		)

Cash Flows from Financing Activities
Increase (decrease) in short-term borrowings	(356.0		)	126.9			(1,413.2		)
Proceeds from long-term borrowings	2,189.5			3,312.9			4,573.7
Principal payments on long-term borrowings	(2,312.7		)	(2,542.7		)	(2,771.0		)
Proceeds from issuance of common stock	250.8			174.5			48.0
Repurchases of common stock	(193.1		)	(.4		)	(1.2		)
Dividends paid	(246.6		)	(210.5		)	(208.9		)
Other	(.4		)	(1.8		)	(1.5		)
Net cash provided by (used for) financing activities	(668.5		)	858.9			225.9

Effect of Exchange Rate Changes on Cash	38.1			71.1			(5.3		)

Net Increase (Decrease) in Cash and Cash Equivalents	(1,203.4		)	1,569.6			1,784.9
Cash and Cash Equivalents at Beginning of Year	4,384.5			2,814.9			1,030.0
Cash and Cash Equivalents at End of Year	$	3,181.1		$	4,384.5		$	2,814.9

The notes to consolidated financial statements are an integral part of this statement. (See reclassifications in Note 1.)

DEERE & COMPANY

STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY

For the Years Ended October 31, 2002, 2003 and 2004

(In millions of dollars)

	Total Equity			Common Stock		Treasury Stock			Unamortized Restricted Stock			Retained Earnings			Other Comprehensive Income (Loss)

Balance October 31, 2001	$	3,992.2		$	1,948.6	$	(1,405.5	)	$	(16.8	)	$	3,834.8		$	(368.9	)
Comprehensive income (loss)
Net income	319.2											319.2
Other comprehensive income (loss)
Minimum pension liability adjustment	(1,015.9		)												(1,015.9		)
Cumulative translation adjustment	(7.6		)												(7.6		)
Unrealized gain on derivatives	25.0														25.0
Unrealized gain on investments	1.0														1.0
Total comprehensive income (loss)	(678.3		)
Repurchases of common stock	(1.2		)			(1.2		)
Treasury shares reissued	84.5					84.5
Dividends declared	(209.3		)									(209.3		)
Other stockholder transactions	(24.7		)	8.4					(1.0		)	(32.1		)
Balance October 31, 2002	3,163.2			1,957.0		(1,322.2		)	(17.8		)	3,912.6			(1,366.4		)
Comprehensive income
Net income	643.1											643.1
Other comprehensive income (loss)
Minimum pension liability adjustment	(45.9		)												(45.9		)
Cumulative translation adjustment	213.9														213.9
Unrealized gain on derivatives	24.6														24.6
Unrealized gain on investments	5.8														5.8
Total comprehensive income	841.5
Repurchases of common stock	(.4		)			(.4		)
Treasury shares reissued	181.2					181.2
Dividends declared	(211.2		)									(211.2		)
Other stockholder transactions	27.8			30.8					12.0			(15.0		)
Balance October 31, 2003	4,002.1			1,987.8		(1,141.4		)	(5.8		)	4,329.5			(1,168.0		)
Comprehensive income
Net income	1,406.1											1,406.1
Other comprehensive income
Minimum pension liability adjustment	1,020.8														1,020.8
Cumulative translation adjustment	88.3														88.3
Unrealized gain on derivatives	16.0														16.0
Unrealized gain on investments	.2														.2
Total comprehensive income	2,531.4
Repurchases of common stock	(193.1		)			(193.1		)
Treasury shares reissued	294.1					294.1
Dividends declared	(262.2		)									(262.2		)
Other stockholder transactions	20.5			55.7					(6.9		)	(28.3		)
Balance October 31, 2004	$	6,392.8		$	2,043.5	$	(1,040.4	)	$	(12.7	)	$	5,445.1		$	(42.7	)

The notes to consolidated financial statements are an integral part of this statement.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following are significant accounting policies in addition to those included in other notes to the consolidated financial statements.

Principles of Consolidation

The consolidated financial statements represent the consolidation of all companies in which Deere & Company has a controlling interest. Deere & Company records its investment in each unconsolidated affiliated company (generally 20 to 50 percent ownership) at its related equity in the net assets of such affiliate. Other investments (less than 20 percent ownership) are recorded at cost. Consolidated retained earnings at October 31, 2004 include undistributed earnings of the unconsolidated affiliates of $10 million. Dividends from unconsolidated affiliates were $22 million in 2004, $3 million in 2003 and $2 million in 2002 (see Note 6).

Special purpose entities (SPEs) related to the sale and securitization of financing receivables, which are also variable interest entities (VIEs), are not consolidated since the company does not control these entities, and they either meet the requirements of qualified special purpose entities, or the company is not the primary beneficiary. In addition, the specified assets in these VIEs related to the company’s securitizations are not the only source of payment for specified liabilities or other interests of these VIEs and, therefore, do not require consolidation (see Note 10).

Certain amounts for prior years have been reclassified to conform with 2004 financial statement presentations.

Structure of Operations

Certain 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. The special technologies operations were combined with the agricultural equipment operations in 2004 (see Note 27).

Financial Services — Includes the company’s credit, health care and certain miscellaneous service operations, which were added in 2004.

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

Cash Flow Reclassifications

Certain information in the Statement of Consolidated Cash Flows as shown in the following table has been reclassified for the years ended 2004, 2003 and 2002. This reclassification is related to concerns raised by the staff of the U.S. Securities and Exchange Commission. Previously, the company reported an increase in cash flow from operating activities when a trade receivable was settled by a dealer through financing received from the company's credit operations. The company also reported an increase in cash flow from operating activities when equipment that had been in the company's inventory was transferred to the credit operations and financed as an operating lease with a customer. The financing receivable or operating lease issued by the credit operations for these transactions was reported as a corresponding cash outflow from investing activities. There was no cash received by the company on a consolidated basis at that time. These offsetting intercompany cash flows have been eliminated in the Statement of Consolidated Cash Flows to properly reflect consolidated operating and investing activities. Subsequent cash inflows from the collections or sales of these financing receivables were reclassified from investing to operating activities in order to properly classify cash receipts from the sale of inventory as operating activities. The Supplemental Consolidating Data Statement of Cash Flows in Note 29 for the Equipment Operations and the Financial Services operations on a stand-alone basis has not changed. See Note 26 for further cash flow information.

Reconciliations of the reclassifications in the Statement of Consolidated Cash Flows for the years ended October 31 in millions of dollars were as follows:

	2004			2003			2002
Cash Flows from Operating Activities

Net cash provided by operating activities
Previous	$	1,162.5		$	1,535.7		$	1,878.3
Reclassification	(666.4		)	100.8			(309.0		)
Revised	$	496.1		$	1,636.5		$	1,569.3

Cash Flow from Investing Activities

Collections of financing receivables
Previous	$	10,233.6		$	9,077.6		$	6,987.0
Reclassification	(2,622.0		)	(2,233.6		)	(1,774.8		)
Revised	$	7,611.6		$	6,844.0		$	5,212.2

Proceeds from sales of financing receivables
Previous	$	2,333.6		$	1,941.0		$	2,967.8
Reclassification	(126.8		)	(237.0		)
Revised	$	2,206.8		$	1,704.0		$	2,967.8

Cost of financing receivables acquired
Previous	$	(13,628.2	)	$	(11,576.8	)	$	(9,955.3	)
Reclassification	3,134.7			2,155.0			1,921.0
Revised	$	(10,493.5	)	$	(9,421.8	)	$	(8,034.3	)

Cost of operating leases acquired
Previous	$	(571.1	)	$	(473.7	)	$	(487.9	)
Reclassification	280.5			214.8			162.8
Revised	$	(290.6	)	$	(258.9	)	$	(325.1	)

Net cash used for investing activities
Previous	$	(1,735.5	)	$	(896.1	)	$	(314.0	)
Reclassification	666.4			(100.8		)	309.0
Revised	$	(1,069.1	)	$	(996.9	)	$	(5.0	)

Use of Estimates in Financial Statements

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.

Revenue Recognition

Sales of equipment and service parts are recorded when title and all risk of ownership are transferred to the independent dealer based on the agreement in effect with the dealer. In the U.S. and most international locations, this transfer occurs when goods are shipped to the dealer. In Canada and some other international locations, certain goods are shipped to dealers on a consignment basis under which title and risk of ownership are not transferred to the dealer. Accordingly, sales are not recorded until a retail customer has purchased the goods. In all cases, when a sale is recorded by the company, no significant uncertainty exists surrounding the purchaser’s obligation to pay. No right of return exists on sales of equipment. Service parts returns are estimable and accrued at the time a sale is recognized. The company makes appropriate provisions based on experience for costs such as doubtful receivables, sales incentives and product warranty.

Financing revenue is recorded over the terms of the related receivables using the interest method. Income from operating leases is recognized on a straight-line basis over the scheduled lease terms. Health care premiums and fees are recognized as earned over the terms of the policies or contracts.

Sales Incentives

Product Warranties

At the time a sale to a dealer is recognized, the company records the estimated future warranty costs. These costs are usually estimated based on historical warranty claims (see Note 20).

Sales of Receivables

Certain financing receivables are periodically sold to SPEs in securitization transactions (see Note 10). Gains or losses from these sales are recognized in the period of sale based on the relative fair value of the portion sold and the portion allocated to retained interests. The retained interests are recorded at fair value estimated by discounting future cash flows. Changes in these fair values are recorded after-tax as a component of other comprehensive income, which is recorded directly in stockholders’ equity until realized.

Depreciation and Amortization

Property and equipment, capitalized software and other intangible assets are depreciated over their estimated useful lives using the straight-line method. Equipment on operating leases is depreciated over the terms of the leases using the straight-line method. Property and equipment expenditures for new and revised products, increased capacity and the replacement or major renewal of significant items are capitalized. Expenditures for maintenance, repairs and minor renewals are generally charged to expense as incurred.

Impairment of Long-Lived Assets and Goodwill

The company evaluates the carrying value of long-lived assets (including property and equipment, goodwill and other intangible assets) when events and circumstances warrant such a review. Goodwill is also reviewed for impairment by reporting unit annually (see Note 15). If the carrying value of the long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the asset.

Health Care Claims and Reserves

Health care claims and reserves include liabilities for unpaid claims based on estimated costs of settling the claims using past experience adjusted for current trends.

Foreign Currency Translation

The functional currencies for most of the company’s foreign operations are their respective local currencies. The assets and liabilities of these operations are translated into U.S. dollars at

the end of the period exchange rates, and the revenues and expenses are translated at weighted-average rates for the period. The gains or losses from these translations are included in other comprehensive income, which is part of stockholders’ equity. Gains or losses from transactions denominated in a currency other than the functional currency of the subsidiary involved and foreign exchange forward contracts and options are included in net income. The total foreign exchange pretax net loss for 2004, 2003 and 2002 was $26 million, $6 million and $36 million, respectively.

Stock-Based Compensation

The company has retained the intrinsic value method of accounting for its plans in accordance with Accounting Principles Board (APB) Opinion No. 25. No compensation expense for stock options was recognized under this method since the options’ exercise prices were not less than the market prices of the stock at the dates the options were awarded (see Note 22). The stock-based compensation expense recognized in earnings relates to restricted stock awards. For disclosure purposes under Financial Accounting Standards Board (FASB) Statement No. 123, Accounting for Stock-Based Compensation, the Black-Scholes option pricing model was used to calculate the “fair values” of stock options on the date the options were awarded. Based on this model, the weighted-average fair values of stock options awarded during 2004, 2003 and 2002 with the exercise price equal to the market price were $12.40, $9.55 and $11.42 per option, respectively.

Pro forma net income and net income per share, as if the fair value method in FASB Statement No. 123 had been used for stock-based compensation, and the assumptions used were as follows with dollars in millions except per share amounts:

	2004			2003			2002
Net income as reported	$	1,406		$	643		$	319
Add:
Stock-based employee compensation costs, net of tax, included in net income	5			3			2
Less:
Stock-based employee compensation costs, net of tax, as if fair value method had been applied	(31		)	(32		)	(37		)
Pro forma net income	$	1,380		$	614		$	284
Net income per share:
As reported – basic	$	5.69		$	2.68		$	1.34
Pro forma – basic	$	5.58		$	2.56		$	1.19
As reported – diluted	$	5.56		$	2.64		$	1.33
Pro forma – diluted	$	5.47		$	2.53		$	1.19
Black-Scholes assumptions*
Risk-free interest rate	2.6		%	2.4		%	3.6		%
Dividend yield	1.4		%	1.9		%	2.1		%
Stock volatility	27.8		%	29.8		%	36.0		%
Expected option life in years	3.2			3.4			3.7

* Weighted-averages

New Accounting Standard to be Adopted

On December 16, 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment. This standard eliminated the alternative of accounting for share-based compensation using APB Opinion No. 25. The revised standard generally requires the recognition of the cost of employee services based on the grant date fair value of equity or liability instruments issued. The effective date for the company is the beginning of the fourth fiscal quarter of 2005. The impact of the adoption on the company’s financial position or net income has not been determined.

New Accounting Standards Adopted

In 2004, the company adopted FASB Interpretation (FIN) No. 46 (revised December 2003), Consolidation of Variable Interest Entities, which addresses the consolidation and related disclosures of these entities by business enterprises. These are entities in which either the equity investment at risk is not sufficient to absorb the probable losses without additional subordinated financial support from other parties, or the investors with equity at risk lack certain essential characteristics of a controlling interest. Under the Interpretation, the company must consolidate any variable interest entities (VIEs) in which the company holds variable interests and the company is deemed the primary beneficiary. As disclosed in Note 10, the company’s credit operations hold retained interests in certain special purpose entities (SPEs) related to the securitization and sale of their retail notes. These SPEs are defined as VIEs. Under the Interpretation, most of the company’ retained interests are not deemed variable interests because they are interests in a VIE’s specified assets with a fair value that is less than half the fair value of the VIE’s total assets. In addition, these specified assets are not the only source of payment for specified liabilities or other interests of these VIE’s and, therefore, do not require consolidation under the Interpretation. The company’s remaining retained interests are with qualified special purpose entities (QSPEs) as defined by FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which are exempt from consolidation. The adoption of this standard did not require the consolidation of any SPEs related to securitizations. The effect of the adoption for other VIEs did not have a material effect on the company’s financial position or net income.

In 2004, the company also adopted FASB Statement No. 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88 and 106. This Statement added certain disclosure requirements for the major categories of plan assets, the accumulated pension benefit obligations, the measurement date used, the benefits expected to be paid to plan participants during the next ten years, the employer’s contributions expected to be paid to the plans during the next fiscal year, and interim disclosure of the components of the benefit costs along with any revisions to the contributions expected to be paid to the plans for the current fiscal year. This Statement required additional disclosure only and had no effect on the company’s financial position or net income (see Note 3).

In December 2003, the U.S. Congress passed and the President signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act). The Act includes a prescription drug benefit under Medicare Part D as well as a federal subsidy beginning in 2006. This subsidy will be paid to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent (as defined in the Act) to Medicare Part D. The company believes its retiree health and accident plan is at least actuarially equivalent to Medicare Part D and eligible for the federal subsidy. The subsidy will be based on approximately 28 percent of an individual beneficiary’s annual prescription drug costs between $250 and $5,000. The company elected to defer the recognition of the effects of the Act on the financial statements until final authoritative guidance on the

subsidy was issued by the FASB. The final guidance under FASB Staff Position (FSP) Financial Accounting Standards (FAS) 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, was issued May 19, 2004. The company adopted the guidance on a prospective basis in the third quarter of 2004. Treating the future subsidy under the Act as an actuarial experience gain, as required by the guidance, decreased the accumulated postretirement benefit obligation at the beginning of the third quarter by approximately $410 million. The subsidy also decreased the net periodic postretirement benefit cost for the last half of 2004 by approximately $42 million.

Acquisitions and Dispositions

The following acquisitions and dispositions were made which did not materially affect the company’s financial statements. In December 2003 and March 2004, the company exercised call options purchasing an additional 59 percent ownership interest in Nortrax, Inc. for $151 million, increasing its ownership interest to 100 percent, which included approximately $110 million for previously accrued costs related to the call option amount, approximately $30 million for goodwill and the remainder for identifiable net assets. In March 2004, the company exercised a call option purchasing an additional 60 percent ownership interest in Nortrax Investments, Inc. for $16 million, increasing its ownership interest to 100 percent, which included approximately $10 million for previously accrued costs related to the call option amount, approximately $2 million for goodwill and the remainder for identifiable net assets. In August 2004, the company exercised a call option purchasing an additional 66 percent of Ontrac Holdings, Inc. for $19 million, increasing its ownership to 100 percent, which included approximately $11 million for goodwill and the remainder for identifiable net assets. The goodwill generated in these acquisitions was the result of the future cash flows and related fair values of the entities acquired exceeding the fair values of the entities’ identifiable assets and liabilities. Nortrax, Inc. was consolidated at the end of December 2003, Nortrax Investments, Inc. was consolidated at the end of March 2004 and Ontrac Holdings, Inc. was consolidated at the end of August 2004, due to majority ownership interests. These entities also included approximately $30 million of existing goodwill, which was also included on the company’s balance sheet when they were consolidated. None of the goodwill is deductible for tax purposes. The other intangibles purchased with these entities were not material. All the entities described above, which are collectively called Nortrax, are included in the construction and forestry segment of the company’s operations and are involved in the ownership and development of several construction equipment dealer locations. The total values assigned to major assets and liabilities of the Nortrax entities related to the portion of additional ownership acquired during 2004 were approximately $175 million for inventories, $35 million for trade receivables, $43 million for goodwill, $25 million for property and equipment, $25 million for other assets, $215 million for payables to the company and $25 million of other liabilities. The pro forma results of the company’s operations as if these acquisitions had occurred at the beginning of the fiscal year would not differ materially from reported results.

In November 2003, the company sold its 49 percent minority ownership in Sunstate Equipment Co., LLC, which was a rental equipment company included in the construction and forestry operations on the equity accounting basis. The gain on the sale was approximately $30 million pretax, recorded in other income, and $22 million after-tax. The equity income included in the financial statements for the periods presented was not material.

2. SPECIAL ITEMS

In 2001 and 2002, the company announced certain actions aimed at increasing efficiency and reducing costs. As a result, the company recognized asset write-downs and liabilities related to these costs. Following are descriptions of these actions and tables of the write-downs and liabilities related to the restructuring charges as they affected the financial statements during 2002, 2003 and 2004. There have been no material revisions to any of these restructuring plans. The annual pretax increase in earnings and cash flows have been approximately $100 million as expected. The restructurings primarily have reduced cost of sales by approximately $300 million and selling, administrative and general expenses by $30 million, partially offset by a reduction in sales of $230 million.

2002 Restructuring Charges

The expense (income) and liabilities for restructuring items at October 31 in millions of dollars and the number of employees to be terminated were as follows:

	Liabilities 2001		Expense (Income)			Payments			Liabilities 2002
Property and equipment write-downs			$	29
Inventory write-downs			5
Total write-downs			34
Termination benefits	$	24	12			$	(25	)	$	11
Contract terminations	27		12			(21		)	18
Warranties and product returns	16		(8		)	(7		)	1
Other costs	7		8			(3		)	12
Total accruals	$	74	24			$	(56	)	$	42
Total			$	58	*

	2001		Additions			Terminated			2002
Employees to be terminated	1,000		900			(1700		)	200

* In addition to these charges, the company recognized $11 million of other restructuring costs as incurred for a total of $69 million restructuring costs. The restructuring costs of $69 million have been reduced by $14 million for adjustments ($10 million cost of sales and $4 million selling, administrative and general expenses) due to changes in prior-year estimates as described below. Early-retirement programs also totaled $3 million in 2002 for a total of $72 million of special items.

The costs for restructuring items in 2002 totaled $69 million consisting of $68 million of cost of sales and $1 million of other expenses, as discussed below. The beginning balances shown above relate to special items in 2001 for exiting the hand-held consumer products business included in the commercial and consumer equipment segment and a restructuring to reduce manufacturing and marketing costs in the construction and forestry segment.

In 2002, the company’s commercial and consumer equipment segment announced plans to close facilities in Williamsburg, Virginia and Jeffersonville, Indiana and streamline operations at Horicon, Wisconsin. As a result of these actions, a cost of $38 million was recognized, partially offset by $14 million for adjustments related to exiting the hand-held consumer products business in 2001. The net restructuring cost of $24 million consisted of property and equipment write-downs of $6 million, inventory write-downs of $1 million, contract terminations of $8 million, termination benefits of $3 million for approximately 200 employees and other costs of $6 million.

In 2002, the construction and forestry segment announced plans to close the Loudon, Tennessee factory and relocate the skid-steer loader production to its Dubuque, Iowa facility. Primarily as a result of this closure, a total cost of $27 million was recognized consisting of property and equipment write-downs of $14 million, inventory write-downs of $1 million, contract terminations of $4 million, termination benefits of $4 million for approximately 400 employees and other costs of $4 million.

In 2002, the company’s agricultural equipment segment recognized $12 million of impairment and reorganization costs primarily in its Argentina operations consisting of property and equipment write-downs of $8 million, inventory write-downs of $2 million, termination benefits of $1 million for approximately 100 employees and other costs of $1 million. The company’s special technologies group, which is included in the agricultural equipment segment (see Note 27), recognized $9 million of costs primarily related to the closure of a facility in Springfield, Illinois and the restructuring of Agris Corporation. These costs consisted of termination benefits of $4 million for approximately 200 employees, property and equipment write-downs of $1 million, inventory write-downs of $1 million and other costs of $3 million.

2003 Restructuring Charges

The income and liabilities for restructuring items at October 31 in millions of dollars and the number of employees to be terminated were as follows:

	Liabilities 2002		Adjustment Income**			Payments			Liabilities 2003
Termination benefits	$	11	$	(1	)	$	(10	)
Contract terminations	18		(3		)	(1		)	$	14
Warranties and product returns	1		(1		)
Other costs	12		(2		)	(8		)	2
Total	$	42	$	(7	)*	$	(19	)	$	16

	2002		Additions			Terminated			2003
Employees to be terminated	200					(200		)

* In addition to these accrual adjustments, the company recognized $2 million of other restructuring costs as incurred related to these actions for a net total $5 million of restructuring income.

** These are adjustments of prior year accruals due to changes in estimates.

The income from restructuring items in 2003 totaled $5 million consisting of credits of $2 million to cost of sales and $3 million to selling, administrative and general expenses. The beginning balances shown above relate to special items shown in the previous table for 2002.

2004 Restructuring Charges

The income and liabilities for restructuring items at October 31 in millions of dollars were as follows:

	Liabilities 2003		Adjustment Income*			Payments			Liabilities 2004
Contract terminations	$	14	$	(2	)	$	(12	)	$
Other costs	2		(1		)	(1		)
Total	$	16	$	(3	)	$	(13	)	$

* These are adjustments of prior year accruals due to changes in estimates.

The income from restructuring items in 2004 totaled $3 million consisting of a credit to cost of sales. The beginning balances shown above relate to special items shown in the previous table for 2003.

3. PENSION AND OTHER POSTRETIREMENT BENEFITS

The company has several defined benefit pension plans covering its U.S. employees and employees in certain foreign countries. The company also has several defined benefit health care and life insurance plans for retired employees in the U.S. and Canada. The company uses an October 31 measurement date for these plans.

The worldwide components of net periodic pension cost and the assumptions related to the cost consisted of the following in millions of dollars and in percents:

	2004			2003			2002
Pensions
Service cost	$	130		$	111		$	107
Interest cost	454			450			448
Expected return on plan assets	(619		)	(558		)	(619		)
Amortization of actuarial loss	49			40			2
Amortization of prior service cost	41			40			30
Amortization of net transition asset							(1		)
Special early-retirement benefits	3						3
Settlements/curtailments							6
Net cost (income)	$	58		$	83		$	(24	)
Weighted-average assumptions
Discount rates	6.0		%	6.7		%	7.2		%
Rate of compensation increase	3.9		%	3.9		%	3.9		%
Expected long-term rates of return	8.5		%	8.5		%	9.7		%

The worldwide components of net periodic postretirement benefits cost and the assumptions related to the cost consisted of the following in millions of dollars and in percents:

	2004			2003			2002
Health care and life insurance
Service cost	$	99		$	88		$	83
Interest cost	314			287			224
Expected returns on plan assets	(52		)	(39		)	(44		)
Amortization of actuarial loss	304			176			46
Amortization of prior service cost	(129		)	(2		)	(6		)
Special early-retirement benefits	2
Net cost	$	538		$	510		$	303
Weighted-average assumptions
Discount rates	6.1		%	6.8		%	7.2		%
Expected long-term rates of return	8.5		%	8.5		%	9.7		%

The following is the percentage allocation for the total pension and health care plan assets (similar for both plans) at October 31:

	Allocation Percent
	2004		2003
Equity securities	56	%	61	%
Debt securities	25		21
Real estate	4		4
Other	15		14

The primary investment objective is to maximize the growth of the pension and health care plan assets to meet the projected obligations to the beneficiaries over a long period of time, and to do so in a manner that is consistent with the company’s earnings strength and risk tolerance. Asset allocation policy is the most important decision in managing the assets and it is reviewed regularly. The asset allocation policy considers the company’s financial strength and long-term asset class risk/return expectations since the obligations are long-term in nature. The target allocations are approximately 60 percent for equity securities, 20 percent for debt securities, 4 percent for real estate and 16 percent for other. The assets are well diversified and are managed by professional investment firms as well as by investment professionals who are company employees.

The expected long-term rate of return on plan assets reflects management’s expectations of long-term average rates of return on funds invested to provide for benefits included in the projected benefit obligations. The expected return is based on the outlook for inflation, fixed income returns and equity returns, while also considering historical returns, asset allocation and investment strategy. Although not a guarantee of future results, the average annual return of the company’s U.S. pension fund was 11 percent during the past ten years and 12 percent during the past 20 years. The discount rate assumption is based on investment yields available on AA rated long-term corporate bonds.

The company expects to contribute approximately $130 million to its pension plans and approximately $680 million to its health care and life insurance plans in 2005, which include direct benefit payments on unfunded plans. These expected contributions also include voluntary contributions to the U.S. pension plans of approximately $100 million and the health care plans of approximately $400 million during 2005.

A worldwide reconciliation of the funded status of the benefit plans and the assumptions related to the obligations at October 3l in millions of dollars follows:

	Pensions						Health Care and Life Insurance
	2004			2003			2004			2003
Change in benefit obligations
Beginning of year balance	$	(7,790	)	$	(6,840	)	$	(5,408	)	$	(4,108	)
Service cost	(130		)	(111		)	(99		)	(88		)
Interest cost	(454		)	(450		)	(314		)	(287		)
Actuarial loss	(474		)	(534		)	(209		)	(1,578		)
Amendments	(3		)	(190		)	92			424
Benefits paid	516			484			260			238
Special early-retirement benefits	(3		)				(2		)
Foreign exchange and other	(65		)	(149		)	(10		)	(9		)
End of year balance	(8,403		)	(7,790		)	(5,690		)	(5,408		)
Change in plan assets (fair value)
Beginning of year balance	5,987			5,024			577			410
Actual return on plan assets	594			958			60			92
Employer contribution	1,548			432			304			313
Benefits paid	(516		)	(484		)	(260		)	(238		)
Foreign exchange and other	22			57			5
End of year balance	7,635			5,987			686			577
Plan obligation more than plan assets	(768		)	(1,803		)	(5,004		)	(4,831		)
Unrecognized actuarial loss	2,551			2,094			2,768			2,869
Unrecognized prior service (credit) cost	217			254			(387		)	(423		)
Net amount recognized	2,000			545			(2,623		)	(2,385		)
Minimum pension liability adjustment	(106		)	(1,964		)
Net asset (liability) recognized	$	1,894		$	(1,419	)	$	(2,623	)	$	(2,385	)
Amounts recognized in balance sheet
Prepaid benefit cost	$	2,493		$	63
Accrued benefit liability	(599		)	(1,482		)	$	(2,623	)	$	(2,385	)
Intangible asset	18			250
Accumulated pretax charge to other comprehensive income	88			1,714
Net amount recognized	$	2,000		$	545		$	(2,623	)	$	(2,385	)
Weighted-average assumptions
Discount rates	5.5		%	6.0		%	5.5		%	6.0		%
Rate of compensation increase	3.9		%	3.9		%

The annual rates of increase in the per capita cost of covered health care benefits (the health care cost trend rates) used to determine benefit obligations at October 31, 2004 were assumed to be 9.0 percent for 2005 graded down evenly to 5.0 percent for 2009 and all future years. The obligations at October 31, 2003 assumed 10.0 percent for 2004 graded down evenly to 5.0 percent for 2009. An increase of one percentage point in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligations at October 31, 2004 by $724 million and the aggregate of service and interest cost component of net periodic postretirement benefits cost for the year by $66 million. A decrease of one percentage point would decrease the obligations by $636 million and the cost by $56 million.

The benefits expected to be paid from the benefit plans, which reflect expected future years of service, and the Medicare subsidy expected to be received are as follows in millions of dollars.

	Pensions		Health Care and Life Insurance		Health Care Subsidy Receipts*
2005	$	520	$	277
2006	531		296		$	(10	)
2007	535		314		(12		)
2008	543		330		(12		)
2009	542		343		(12		)
2010 to 2014	2,910		1,929		(62		)

* See Note 1 for Medicare subsidy.

The total accumulated benefit obligations for all pension plans at October 31, 2004 and 2003 was $7,954 million and $7,390 million, respectively.

The accumulated benefit obligations and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $732 million and $141 million, respectively, at October 31, 2004 and $7,186 million and $5,745 million, respectively, at October 31, 2003. The projected benefit obligations and fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets were $4,725 million and $3,773 million, respectively, at October 31, 2004 and $7,569 million and $5,745 million, respectively, at October 31, 2003.

The minimum pension liability adjustment recorded by the company was $106 million and $1,964 million as of October 31, 2004 and 2003, respectively. The decrease in the adjustment, compared to last year, was a result of an increase in the fair value of plan assets due to voluntary company contributions and the return on plan assets during 2004.

See Note 23 for defined contribution plans related to employee investment and savings.

4. INCOME TAXES

The provision for income taxes by taxing jurisdiction and by significant component consisted of the following in millions of dollars:

	2004		2003			2002
Current:
U.S.:
Federal	$	109	$	96		$	145
State	5		4			1
Foreign	206		200			109
Total current	320		300			255
Deferred:
U.S.:
Federal	306		59			6
State	37		3			2
Foreign	46		(25		)	(5		)
Total deferred	389		37			3
Provision for income taxes	$	709	$	337		$	258

Based upon location of the company’s operations, the consolidated income before income taxes in the U.S. in 2004, 2003 and 2002 was $1,253 million, $428 million and $327 million, respectively, and in foreign countries was $861 million, $543 million and $276 million, respectively. Certain foreign operations are branches of Deere & Company and are, therefore, subject to U.S., as well as foreign income tax regulations. The pretax income by location and the preceding analysis of the income tax provision by taxing jurisdiction are, therefore, not directly related.

A comparison of the statutory and effective income tax provision and reasons for related differences in millions of dollars follow:

	2004			2003			2002
U.S. federal income tax provision at a statutory rate of 35 percent	$	740		$	340		$	211
Increase (decrease) resulting from:
State and local income taxes, net of federal income tax benefit	27			4			2
Taxes on foreign activities	(21		)	(4		)	(1		)
Goodwill amortization							10
Nondeductible costs and other-net	(37		)	(3		)	36
Provision for income taxes	$	709		$	337		$	258

At October 31, 2004, accumulated earnings in certain subsidiaries outside the U.S. totaled $556 million for which no provision for U.S. income taxes or foreign withholding taxes has been made, because it is expected that such earnings will be reinvested overseas indefinitely. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practical.

Deferred income taxes arise because there are certain items that are treated differently for financial accounting than for income tax reporting purposes. An analysis of the deferred income tax assets and liabilities at October 31 in millions of dollars follows:

	2004				2003
	Deferred Tax Assets		Deferred Tax Liabilities		Deferred Tax Assets		Deferred Tax Liabilities
Postretirement benefit accruals	$	1,017			$	911
Prepaid pension costs			$	778			$	215
Accrual for sales allowances	304				266
Tax over book depreciation			263				215
Deferred lease income			159				169
Accrual for employee benefits	126				60
Allowance for credit losses	79				79
Tax loss and tax credit carryforwards	55				37
Undistributed foreign earnings			44				20
Intercompany profit in inventory	36				21
Minimum pension liability adjustment	30				636
Other items	122		60		103		49
Deferred income tax assets and liabilities	$	1,769	$	1,304	$	2,113	$	668

Deere & Company files a consolidated federal income tax return in the U.S., which includes the wholly-owned Financial Services subsidiaries. These subsidiaries account for income taxes generally as if they filed separate income tax returns.

At October 31, 2004, certain tax loss and tax credit carryforwards for $55 million were available with $35 million expiring from 2007 through 2022 and $20 million with an unlimited expiration date.

5. OTHER INCOME AND OTHER OPERATING EXPENSES

The major components of other income and other operating expenses consisted of the following in millions of dollars:

	2004		2003		2002
Other income
Gains from sales of retail notes and leases*	$	50	$	54	$	81
Securitization and servicing fee income	58		55		50
Revenues from services	103		45		51
Investment income	12		11		12
Other**	128		80		75
Total	$	351	$	245	$	269
Other operating expenses
Depreciation of equipment on operating leases	$	239	$	273	$	316
Cost of services	55		20		31
Other***	39		32		63
Total	$	333	$	325	$	410

* Includes securitizations and other sales of retail notes and leases.

** Includes gain from the sale of Sunstate Equipment Co., LLC in 2004 (see Note 1).

*** Includes Argentine peso devaluation losses in 2002.

6. UNCONSOLIDATED AFFILIATED COMPANIES

Unconsolidated affiliated companies are companies in which Deere & Company generally owns 20 percent to 50 percent of the outstanding voting shares. Deere & Company does not control these companies and accounts for its investments in them on the equity basis. The investments in these companies primarily consist of Deere-Hitachi Construction Machinery Corporation (50 percent ownership), Bell Equipment Limited (32 percent ownership) and A&I Products (36 percent ownership). During 2004, the company increased its minority ownership in Nortrax, Inc., Nortrax Investments, Inc. and Ontrac Holdings, Inc. to 100 percent, at which time they were consolidated, and the company sold its minority ownership in Sunstate Equipment Co., LLC (see Note 1). The unconsolidated affiliated companies primarily manufacture or market equipment. Deere & Company’s share of the income of these companies is reported in the consolidated income statement under “Equity in Income (Loss) of Unconsolidated Affiliates.” The investment in these companies is reported in the consolidated balance sheet under “Investments in Unconsolidated Affiliates.”

Combined financial information of the unconsolidated affiliated companies in millions of dollars is as follows:

Operations	2004		2003		2002
Sales	$	1,798	$	1,929	$	1,605
Net income (loss)	2		23		(38		)
Deere & Company’s equity in net income (loss)	1		9		(25		)

Financial Position	2004		2003
Total assets	$	839	$	1,297
Total external borrowings	173		384
Total net assets	253		445
Deere & Company’s share of the net assets	107		196

7. MARKETABLE SECURITIES

Marketable securities are currently held by the health care subsidiaries. All marketable securities are classified as available-for-sale, with unrealized gains and losses shown as a component of stockholders’ equity. Realized gains or losses from the sales of marketable securities are based on the specific identification method.

The amortized cost and fair value of marketable securities at October 31 in millions of dollars follow:

	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
2004
Equity securities	$	25	$	3			$	28
U.S. government debt securities	73		2		$	1	74
Corporate debt securities	72		2				74
Mortgage-backed debt securities	70		1				71
Marketable securities	$	240	$	8	$	1	$	247

2003
Equity securities	$	25	$	3	$	1	$	27
U.S. government debt securities	62		2				64
Corporate debt securities	81		4		1		84
Mortgage-backed debt securities	57		1		1		57
Marketable securities	$	225	$	10	$	3	$	232

The contractual maturities of debt securities at October 31, 2004 in millions of dollars follow:

	Amortized Cost		Fair Value
Due in one year or less	$	9	$	9
Due after one through five years	63		66
Due after five through 10 years	67		68
Due after 10 years	76		76
Debt securities	$	215	$	219

Actual maturities may differ from contractual maturities because some securities may be called or prepaid. Proceeds from the sales of available-for-sale securities were $34 million in 2004, $20 million in 2003 and $34 million in 2002. Realized gains and losses,unrealized gains and losses, and the increase (decrease) in the net unrealized gains or losses were not significant in those years. The unrealized losses at October 31, 2004 were primarily the result of an increase in interest rates affecting the fair value of certain debt securities. The company has the ability and intent to hold these investments for a recovery of the cost.

8. TRADE ACCOUNTS AND NOTES RECEIVABLE

Trade accounts and notes receivable at October 31 consisted of the following in millions of dollars:

	2004		2003
Trade accounts and notes:
Agricultural	$	1,838	$	1,711	*
Commercial and consumer	793		683
Construction and forestry	576		225
Trade accounts and notes receivable–net	$	3,207	$	2,619

* Restated to include special technologies group (see Note 27).

At October 31, 2004 and 2003, dealer notes included in the previous table were $411 million and $428 million, and the allowance for doubtful trade receivables was $56 million and $58 million, respectively.

The Equipment Operations sell a significant portion of newly originated trade receivables to the credit operations and provide compensation to the credit operations at market rates of interest for these receivables.

Trade accounts and notes receivable primarily arise from sales of goods to dealers. Under the terms of the sales to dealers, interest is charged to dealers on outstanding balances, from the earlier of the date when goods are sold to retail customers by the dealer or the expiration of certain interest-free periods granted at the time of the sale to the dealer, until payment is received by the company. Dealers cannot cancel purchases after the equipment is shipped and are responsible for payment even if the equipment is not sold to retail customers. The interest-free periods are determined based on the type of equipment sold and the time of year of the sale. These periods range from one to 12 months for most equipment. Interest-free periods may not be extended. Interest charged may not be forgiven and interest rates, which exceed the prime rate, are set based on market factors. The company evaluates and assesses dealers on an ongoing basis as to their credit worthiness and generally retains a security interest in the goods associated with these trade receivables. The company is obligated to repurchase goods sold to a dealer upon cancellation or termination of the dealer’s contract for such causes as change in ownership, closeout of the business or default. The company may also in certain circumstances repurchase goods sold to a dealer in order to satisfy a request for goods from another dealer.

Trade accounts and notes receivable have significant concentrations of credit risk in the agricultural, commercial and consumer, and construction and forestry sectors as shown in the previous table. On a geographic basis, there is not a disproportionate concentration of credit risk in any area.

9. FINANCING RECEIVABLES

Financing receivables at October 31 consisted of the following in millions of dollars:

	2004		2003
Retail notes:
Equipment:
Agricultural	$	5,713	$	4,995
Commercial and consumer	1,161		1,092
Construction and forestry	1,749		1,515
Recreational products	75		114
Total	8,698		7,716
Wholesale notes	941		828
Revolving charge accounts	1,513		1,164
Financing leases (direct and sales-type)	803		759
Operating loans	380		543
Total financing receivables	12,335		11,010
Less:
Unearned finance income:
Equipment notes	834		755
Recreational product notes	22		34
Financing leases	101		98
Total	957		887
Allowance for doubtful receivables	145		149
Financing receivables – net	$	11,233	$	9,974

Financing receivables have significant concentrations of credit risk in the agricultural, commercial and consumer, and construction and forestry sectors as shown in the previous table. On a geographic basis, there is not a disproportionate concentration of credit risk in any area. The company retains as collateral a security interest in the equipment associated with retail notes, wholesale notes and financing leases.

Financing receivables at October 31 related to the company's sales of equipment (see Note 26) that were included in the table above were as follows in millions of dollars:

	2004		2003
Retail notes*:
Equipment:
Agricultural	$	731	$	591
Commercial and consumer	68		63
Construction and forestry	378		219
Total	1,177		873
Wholesale notes	941		828
Sales-type leases	355		271
Total	2,473		1,972
Less:
Unearned finance income:
Equipment notes	128		103
Financing leases	39		31
Total	167		134
Financing receivables related to the company's sales of equipment	$	2,306	$	1,838

*These retail notes generally arise from sales of equipment by company-owned dealers or through direct sales.

Financing receivable installments, including unearned finance income, at October 31 are scheduled as follows in millions of dollars:

	2004		2003
Due in months:
0 – 12	$	5,939	$	5,282
13 – 24	2,486		2,194
25 – 36	1,822		1,602
37 – 48	1,131		1,101
49 – 60	729		607
Thereafter	228		224
Total	$	12,335	$	11,010

The maximum terms for retail notes are generally eight years for agricultural equipment, six years for commercial and consumer equipment and five years for construction and forestry equipment. The maximum term for financing leases is generally five years, while the average term for wholesale notes is 12 months.

At October 31, 2004 and 2003, the unpaid balances of retail notes and leases previously sold by the credit operations were $3,398 million and $2,916 million, respectively. The retail notes sold are collateralized by security interests in the related equipment sold to customers. At October 31, 2004 and 2003, worldwide financing receivables administered, which include financing receivables and leases previously sold but still administered, totaled $14,631 million and $12,890 million, respectively.

Total financing receivable amounts 60 days or more past due were $41 million at October 31, 2004, compared with $51 million at October 31, 2003. These past-due amounts represented .36 percent of the receivables financed at October 31, 2004 and .50 percent at October 31, 2003. The allowance for doubtful financing receivables represented 1.28 percent and 1.47 percent of financing receivables outstanding at October 31, 2004 and 2003, respectively. In addition, at October 31, 2004 and 2003, the company’s credit operations had $184 million and $175 million, respectively, of deposits withheld from dealers and merchants available for potential credit losses. An analysis of the allowance for doubtful financing receivables follows in millions of dollars:

	2004			2003			2002
Balance, beginning of the year	$	149		$	136		$	126
Provision charged to operations	43			84			156
Amounts written off	(37		)	(56		)	(128		)
Other changes primarily related to transfers for retail note sales	(10		)	(15		)	(18		)
Balance, end of the year	$	145		$	149		$	136

10. SALE AND SECURITIZATION OF FINANCING RECEIVABLES

The company periodically sells receivables to special purpose entities (SPEs) in securitizations of retail notes. It retains interest-only strips, servicing rights, and in some cases, reserve accounts and subordinated certificates, all of which are retained interests in the securitized receivables. The retained interests are carried at estimated fair value in “Other receivables” or “Other assets” on the balance sheet. Gains or losses on sales of the receivables depend in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair values at the date of transfer. The company generally estimates fair values based on the present value of future expected cash flows using management’s key assumptions as discussed below. The company retains the rights to certain future cash flows and in the U.S. transactions receives annual servicing fees approximating 1 percent of the outstanding balance. No significant balances for servicing assets or liabilities exist because the benefits received for servicing are offset by the costs of providing the servicing. The company’s maximum exposure under recourse provisions related to securitizations at October 31, 2004 and 2003 was $218 million and $236 million, respectively. The recourse provisions include the fair value of the retained interests and all other recourse obligations contractually specified in the securitization agreements. The company does not record the other recourse obligations as liabilities as they are contingent liabilities that are remote at this time. Except for this exposure, the investors and securitization trusts have no recourse to the company for failure of debtors to pay when due. The company’s retained interests are subordinate to investors’ interests, and their values are subject to certain key assumptions as shown below. The total assets of the unconsolidated SPEs related to securitizations at October 31, 2004 and 2003 were $3,441 million and $2,964 million, respectively.

Pretax gains in millions of dollars on retail notes securitized and key assumptions used to initially determine the fair value of the retained interests were as follows:

	2004			2003			2002
Pretax gains	$	48		$	50		$	71
Weighted-average maturities in months	20			21			19
Average annual prepayment rates	20		%	19		%	22		%
Average expected annual credit losses	.38		%	.42		%	.42		%
Discount rates on retained interests and subordinate tranches	13		%	13		%	13		%

Cash flows received from securitization trusts in millions of dollars were as follows:

	2004		2003		2002
Proceeds from new securitizations	$	2,269	$	1,891	$	2,870
Servicing fees received	30		24		28
Other cash flows received	66		49		103

Components of retained interests in securitization of retail notes at October 31 in millions of dollars follow:

	2004		2003
Interest only strips	$	70	$	104
Reserve accounts held for benefit of securitization entities	43		30
Subordinated certificates	16		12
Retained interests	$	129	$	146

The total retained interests, weighted-average life, weighted-average current key economic assumptions and the sensitivity analysis showing the hypothetical effects on the retained interests from immediate 10 percent and 20 percent adverse changes in those assumptions with dollars in millions were as follows:

	2004			2003
Retail note securitizations
Carrying amount/fair value of retained interests	$	129		$	146
Weighted-average life (in months)	16			16
Prepayment speed assumption (annual rate)	20		%	20		%
Impact on fair value of 10% adverse change	$	1.8		$	1.9
Impact on fair value of 20% adverse change	$	3.6		$	3.8
Expected credit losses (annual rate)	.40		%	.40		%
Impact on fair value of 10% adverse change	$	2.0		$	1.8
Impact on fair value of 20% adverse change	$	4.0		$	3.6
Residual cash flows discount rate (annual)	13		%	13		%
Impact on fair value of 10% adverse change	$	3.6		$	3.6
Impact on fair value of 20% adverse change	$	7.1		$	7.0

These sensitivities are hypothetical changes in fair value and cannot be extrapolated because the relationship of the changes in assumption to the changes in fair value may not be linear.

Also, the effect of a variation in a particular assumption is calculated without changing any other assumption, whereas changes in one factor may result in changes in another. Accordingly, no assurance can be given that actual results would be consistent with the results of these estimates.

Principal balances of owned, securitized and total managed retail notes; past due amounts; and credit losses (net of recoveries) as of and for the years ended October 31, in millions of dollars follow:

	Principal Outstanding		Principal 60 Days or More Past Due		Net Credit Losses
2004
Owned	$	7,648	$	20	$	9
Securitized	3,215		10		5
Managed	$	10,863	$	30	$	14

2003
Owned	$	6,759	$	30	$	27
Securitized	2,752		12		11
Managed	$	9,511	$	42	$	38

The amount of actual and projected future credit losses as a percent of the original balance of retail notes securitized (expected static pool losses) were as follows:

	Retail Notes Securitized In
	2004		2003		2002
Actual and Projected Losses (%) as of October 31:
2004	.59	%	.49	%	.50	%
2003			.67	%	.53	%
2002					.61	%

11. OTHER RECEIVABLES

Other receivables at October 31 consisted of the following in millions of dollars:

	2004		2003
Taxes receivable	$	424	$	176
Receivables relating to securitizations	113		134
Other	126		118
Other receivables	$	663	$	428

The credit operations’ receivables related to securitizations are equal to the present value of payments to be received for certain retained interests and deposits made with other entities for recourse provisions under the retail note sales agreements.

12. EQUIPMENT ON OPERATING LEASES

Operating leases arise primarily from the leasing of John Deere equipment to retail customers. Initial lease terms generally range from 36 to 60 months. Net equipment on operating leases totaled $1,297 million and $1,382 million at October 31, 2004 and 2003, respectively. The equipment is depreciated on a straight-line basis over the terms of the leases. The accumulated depreciation on this equipment was $468 million and $535 million at October 31, 2004 and 2003, respectively. The corresponding depreciation expense was $239 million in 2004, $273 million in 2003 and $316 million in 2002.

Future payments to be received on operating leases totaled $676 million at October 31, 2004 and are scheduled as follows in millions of dollars: 2005 – $284, 2006 – $199, 2007 – $114, 2008 – $59 and 2009 – $20.

13. INVENTORIES

Most inventories owned by Deere & Company and its United States equipment subsidiaries are valued at cost, on the “last-in, first-out” (LIFO) basis. Remaining inventories are generally valued at the lower of cost, on the “first-in, first-out” (FIFO) basis, or market. The value of gross inventories on the LIFO basis represented 61 percent and 67 percent of worldwide gross inventories at FIFO value on October 31, 2004 and 2003, respectively. If all inventories had been valued on a FIFO basis, estimated inventories by major classification at October 31 in millions of dollars would have been as follows:

	2004		2003
Raw materials and supplies	$	589	$	496
Work-in-process	408		388
Finished machines and parts	2,004		1,432
Total FIFO value	3,001		2,316
Less adjustment to LIFO value	1,002		950
Inventories	$	1,999	$	1,366

14. PROPERTY AND DEPRECIATION

A summary of property and equipment at October 31 in millions of dollars follows:

	Average Useful Lives (Years)	2004		2003
Land		$	79	$	68
Buildings and building equipment	26	1,464		1,366
Machinery and equipment	10	2,870		2,705
Dies, patterns, tools, etc	7	987		932
All other	5	626		671
Construction in progress		156		92
Total at cost		6,182		5,834
Less accumulated depreciation		4,020		3,758
Property and equipment – net		$	2,162	$	2,076

Leased property under capital leases amounting to $13 million and $19 million at October 31, 2004 and 2003, respectively, is included in property and equipment.

Property and equipment is stated at cost less accumulated depreciation. Property and equipment additions in 2004, 2003 and 2002 were $365 million, $320 million and $358 million and depreciation was $342 million, $319 million and $310 million, respectively.

Capitalized software is stated at cost less accumulated amortization and the estimated useful life is three years. The amounts of total capitalized software costs, including purchased and internally developed software, classified as “Other Assets” at October 31, 2004 and 2003 were $315 million and $276 million, less accumulated amortization of $240 million and $207 million, respectively. Amortization of these software costs was $38 million, in 2004, 2003 and 2002.

The cost of compliance with foreseeable environmental requirements has been accrued and did not have a material effect on the company’s financial position or results of operations.

15. GOODWILL AND OTHER INTANGIBLE ASSETS-NET

Upon the adoption of FASB Statement No. 142, Goodwill and Other Intangible Assets, at the beginning of fiscal year 2003, goodwill was no longer amortized and will be written down in the future only for impairments. Goodwill is reviewed for impairment by reporting unit based on fair values annually or as events and circumstances change.

Pro forma net income and net income per share, excluding goodwill amortization, were as follows with dollars in millions except per share amounts:

	2004		2003		2002
Net income as reported	$	1,406	$	643	$	319
Goodwill amortization, net of tax					53
Pro forma net income	$	1,406	$	643	$	372
Basic net income per share:
Net income as reported	$	5.69	$	2.68	$	1.34
Goodwill amortization, net of tax					.22
Pro forma net income	$	5.69	$	2.68	$	1.56
Diluted net income per share:
Net income as reported	$	5.56	$	2.64	$	1.33
Goodwill amortization, net of tax					.22
Pro forma net income	$	5.56	$	2.64	$	1.55

The amounts of goodwill by operating segment were as follows in millions of dollars:

	2004*		2003
Agricultural equipment	$	101	$	94	**
Commercial and consumer equipment	299		305
Construction and forestry	574		473
Total goodwill	$	974	$	872

* The change in goodwill between years for construction and forestry was primarily due to $73 million goodwill from the additional acquisition and consolidation of Nortrax (see Note 1). The remaining changes are due to fluctuations in foreign currency exchange rates.

** Restated to include special technologies group (see Note 27).

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

	2004			2003
Amortized intangible assets:
Gross patents, licenses and other	$	12		$	9
Accumulated amortization	(8		)	(6		)
Net patents, licenses and other	4			3
Unamortized intangible assets:
Intangible asset related to minimum pension liability	18			250
Total other intangible assets-net	$	22		$	253

Other intangible assets, excluding the intangible pension asset, are stated at cost less accumulated amortization and are being amortized over 17 years or less on the straight-line basis. The intangible pension asset is remeasured and adjusted annually. The decrease in the intangible pension asset is a result of the decrease in the minimum pension liability due primarily to voluntary company contributions to the pension plan and the return on plan assets. The amortization of other intangible assets is not significant.

16. SHORT-TERM BORROWINGS

Short-term borrowings at October 31 consisted of the following in millions of dollars:

	2004		2003
Equipment Operations
Commercial paper	$	258	$	279
Notes payable to banks	19		35
Long-term borrowings due within one year	35		263
Total	312		577
Financial Services
Commercial paper	1,629		1,836
Notes payable to banks	32		66
Long-term borrowings due within one year	1,485		1,868
Total	3,146		3,770
Short-term borrowings	$	3,458	$	4,347

The weighted-average interest rates on total short-term borrowings, excluding current maturities of long-term borrowings, at October 31, 2004 and 2003 were 2.8 percent and 2.3 percent, respectively. All of the Financial Services’ short-term borrowings represent obligations of the credit subsidiaries.

Unsecured lines of credit available from U.S. and foreign banks were $3,190 million at October 31, 2004. Some of these credit lines are available to both Deere & Company and John Deere Capital Corporation. At October 31, 2004, $900 million of these worldwide lines of credit were unused. For the purpose of computing the unused credit lines, commercial paper and short-term bank borrowings, excluding the current maturities of long-term borrowings, were considered to constitute utilization.

Included in the above lines of credit is a long-term credit facility agreement expiring in February 2009 for $1,250 million. The agreement is mutually extendable and the annual facility fee is not significant. The credit agreement has various requirements of John Deere Capital Corporation, including the maintenance of its consolidated ratio of earnings to fixed charges at not less than 1.05 to 1 for each fiscal quarter and the ratio of senior debt to total stockholder’s equity plus subordinated debt at not more than 8 to 1 at the end of any fiscal quarter. The credit agreement also requires the Equipment Operations to maintain a ratio of total debt to total capital (total debt and stockholders’ equity) of 65 percent or less at the end of each fiscal quarter according to accounting principles generally accepted in the U.S. in effect at October 31, 2003. At October 31, 2004, the ratio was 32 percent. Under this provision, the company’s excess equity capacity and retained earnings balance free of restriction at October 31, 2004 was $4,756 million. Alternatively under this provision, the Equipment Operations had the capacity to incur additional debt of $8,832 million at October 31, 2004. All the requirements of the credit agreement have been met during the periods included in the financial statements.

Deere & Company has an agreement with John Deere Capital Corporation (Capital Corporation) pursuant to which it has agreed to continue to own at least 51 percent of the voting shares of capital stock of the Capital Corporation and to maintain the Capital Corporation’s consolidated tangible net worth at not less than $50 million. This agreement also obligates Deere & Company to make income maintenance payments to the Capital Corporation such that its consolidated ratio of earnings before fixed charges to fixed charges is not less than 1.05 to 1 for any fiscal quarter. Deere & Company’s obligations to make payments to the Capital Corporation under the agreement are independent of whether the Capital Corporation is in default on its indebtedness, obligations or other liabilities. Further, the company’s obligations under the agreement are not measured by the amount of the Capital Corporation’s indebtedness, obligations or other liabilities. Deere & Company’s obligations to make payments under this agreement are expressly stated not to be a guaranty of any specific indebtedness, obligation or liability of the Capital Corporation and are enforceable only by or in the name of the Capital Corporation. No payments were required under this agreement during the periods included in the financial statements.

17. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses at October 31 consisted of the following in millions of dollars:

	2004			2003
Equipment Operations
Accounts payable:
Trade payables	$	1,246		$	912
Dividends payable	69			53
Other	62			58
Accrued expenses:
Employee benefits	719			349
Product warranties	458			389
Dealer sales program discounts	287			261
Dealer sales volume discounts	224			137
Other	619			613
Total	3,684			2,772

Financial Services
Accounts payable:
Deposits withheld from dealers and merchants	184			175
Other	239			234
Accrued expenses:
Interest payable	85			79
Other	123			153
Total	631			641
Eliminations	341		*	307		*
Accounts payable and accrued expenses	$	3,974		$	3,106

* Trade receivable valuation accounts (primarily dealer sales program discounts) which are reclassified as accrued expenses by the Equipment Operations as a result of trade receivables sold to Financial Services.

18. LONG-TERM BORROWINGS

Long-term borrowings at October 31 consisted of the following in millions of dollars:

	2004			2003
Equipment Operations**
Notes and debentures:
Medium-term notes due 2006:
Average interest rates of 9.2% – 2004 and 9.6% – 2003	$	20		$	45
5-7/8% U.S. dollar notes due 2006: ($250 principal) Swapped $170 to Euro at average variable interest rates of 3.1% – 2004, 2.7% – 2003	250		*	257		*
7.85% debentures due 2010	500			500
6.95% notes due 2014: ($700 principal) Swapped to variable interest rates of 3.1% – 2004, 2.1% – 2003	786		*	771		*
8.95% debentures due 2019	200			200
8-1/2% debentures due 2022	200			200
6.55% debentures due 2028	200			200
8.10% debentures due 2030	250			250
7.125% notes due 2031	300			300
Other notes	22			4
Total	2,728			2,727
Financial Services**
Notes and debentures:
Medium-term notes due 2005 – 2009: (principal $3,443 - 2004, $2,696 - 2003) Average interest rates of 3.9% – 2004, 3.4% – 2003	3,459		*	2,714		*
5.125% debentures due in 2006: ($600 principal) Swapped $300 to variable interest rates of 2.7% – 2004, 1.8% – 2003	620		*	632		*
4.5% notes due 2007: ($500 principal) Swapped $300 in 2004 and $450 in 2003 to variable interest rates of 2.4% – 2004, 1.8% – 2003	510		*	511		*
3.90% notes due 2008: ($850 principal) Swapped $525 in 2004 and $650 in 2003 to variable interest rates of 2.6% – 2004, 1.7% – 2003	850		*	851		*
6% notes due 2009: ($300 principal) Swapped to variable interest rates of 1.9% – 2004, 1.4% – 2003	327		*	329		*
7% notes due 2012: ($1,500 principal) Swapped $1,225 to variable interest rates of 2.9% – 2004, 2.1% – 2003	1,674		*	1,665		*
5.10% debentures due 2013: ($650 principal) Swapped to variable interest rates of 2.7% – 2004, 1.8% – 2003	658		*	641		*
Other notes	264			184
Total notes and debentures	8,362			7,527
Subordinated debt:
8-5/8% subordinated debentures due 2019***				150
Total	8,362			7,677
Long-term borrowings	$	11,090		$	10,404

* Includes fair value adjustments related to interest rate swaps.

** All interest rates are as of year end.

*** Redeemed during 2004.

All of the Financial Services’ long-term borrowings represent obligations of the credit subsidiaries.

The approximate amounts of the Equipment Operations’ long-term borrowings maturing in each of the next five years in millions of dollars are as follows: 2005 – $35, 2006 – $277, 2007 – $4, 2008 – $2 and 2009 – $6. The approximate amounts of the credit subsidiaries’ long-term borrowings maturing in each of the next five years in millions of dollars are as follows: 2005 – $1,485, 2006 – $2,766, 2007 – $1,627, 2008 – $1,011 and 2009 – $530.

19. LEASES

At October 31, 2004, future minimum lease payments under capital leases amounted to $12 million as follows: 2005 – $2, 2006 – $2, 2007 – $1, 2008 – $1, 2009 – $1 and later years $5. Total rental expense for operating leases was $102 million in 2004, $98 million in 2003 and $95 million in 2002. At October 31, 2004, future minimum lease payments under operating leases amounted to $367 million as follows: 2005 – $75, 2006 – $67, 2007 – $63, 2008 – $32, 2009 – $27 and later years $103. See Note 20 for operating leases with residual value guarantees.

20. CONTINGENCIES AND COMMITMENTS

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.

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

	Warranty Liability
	2004			2003
Beginning of year balance	$	389		$	332
Payments	(378		)	(321		)
Accruals for warranties	447			378
End of year balance	$	458		$	389

The company has guaranteed certain recourse obligations on financing receivables that 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 October 31, 2004, the maximum amount of exposure to losses under these agreements was $218 million. The estimated credit risk associated with sold receivables totaled $23 million at October 31, 2004. This risk of loss is recognized primarily in the retained interests (see Note 10). The company may recover a portion of any required payments incurred under these agreements from the repossession of the equipment collateralizing the receivables. At October 31, 2004, the maximum remaining term of the receivables guaranteed was approximately six years.

At October 31, 2004, the company had approximately $95 million of guarantees issued primarily to 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 October 31, 2004, the company had accrued losses of approximately $1 million under these agreements. The maximum remaining term of the receivables guaranteed at October 31, 2004 was approximately six years.

The company had pledged assets of $16 million, outside the U.S., as collateral for borrowings, and $15 million of restricted investments related to conducting the health care business in various states at October 31, 2004.

The company also had other miscellaneous contingent liabilities totaling approximately $30 million at October 31, 2004, for which it believes the probability for payment is remote.

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 U.S. Securities and Exchange Commission, are fully and unconditionally guaranteed by the company. These registered debt securities totaled $250 million at October 31, 2004 and are included on the consolidated balance sheet.

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.

21. CAPITAL STOCK

Changes in the common stock account in millions were as follows:

	Number of Shares Issued	Amount
Balance at October 31, 2001	268.2	$	1,949
Other		8
Balance at October 31, 2002	268.2	1,957
Other		31
Balance at October 31, 2003	268.2	1,988
Other		56
Balance at October 31, 2004	268.2	$	2,044

The number of common shares the company is authorized to issue is 600 million and the number of authorized preferred shares, none of which has been issued, is 9 million.

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

	2004		2003		2002
Net income	$	1,406.1	$	643.1	$	319.2
Average shares outstanding	247.2		240.2		238.2
Basic net income per share	$	5.69	$	2.68	$	1.34
Average shares outstanding	247.2		240.2		238.2
Effect of dilutive stock options	5.9		3.1		2.7
Total potential shares outstanding	253.1		243.3		240.9
Diluted net income per share	$	5.56	$	2.64	$	1.33

Out of the total stock options outstanding during 2002, options to purchase 2.8 million shares were excluded from 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 related periods. All stock options outstanding were included in the computation during 2004 and 2003.

22. STOCK OPTION AND RESTRICTED STOCK AWARDS

The company issues stock options and restricted stock to key employees under plans approved by stockholders. Restricted stock is also issued to nonemployee directors under a plan approved by stockholders. Options are generally awarded with the exercise price equal to the market price and become exercisable in one to three years after grant. Options generally expire 10 years after the date of grant. According to these plans at October 31, 2004, the company is authorized to grant an additional 9.4 million shares related to stock options or restricted stock.

During the last three fiscal years, shares under option in millions were as follows:

	2004				2003				2002
			Exercise				Exercise				Exercise
	Shares		Price*		Shares		Price*		Shares		Price*
Outstanding at beginning of year	21.2		$	42.57	22.9		$	41.58	20.5		$	40.56
Granted – at market	3.3		61.64		3.9		45.80		4.3		42.30
Exercised	(6.2	)	41.42		(4.8	)	36.30		(1.6	)	30.35
Expired or forfeited	(.1	)	47.55		(.8	)	68.68		(.3	)	41.82
Outstanding at end of year	18.2		46.40		21.2		42.57		22.9		41.58
Exercisable at end of year	11.3		42.67		13.1		41.80		12.9		39.28

* Weighted-averages

Options outstanding and exercisable in millions at October 31, 2004 were as follows:

	Options Outstanding				Options Exercisable
		Remaining
Range of		Contractual	Exercise			Exercise
Exercise Prices	Shares	Life (yrs)*	Price*		Shares	Price*
$21.02 – $34.13	1.4	3.33	$	31.99	1.4	$	31.99
$36.37 – $41.47	2.4	5.08	41.30		2.4	41.30
$42.07 – $47.36	10.0	6.92	43.50		6.3	42.90
$50.97 – $61.64	4.4	7.55	60.02		1.2	55.81
Total	18.2				11.3

* Weighted-averages

In 2004, 2003, and 2002, the company granted 241,860, 196,294 and 12,711 shares of restricted stock with weighted-average fair values of $61.83, $45.29 and $48.43 per share, respectively. The total compensation expense for the restricted stock plans, which is being amortized over the restricted periods, was $8 million, $4 million and $2 million in 2004, 2003 and 2002, respectively.

23. EMPLOYEE INVESTMENT AND SAVINGS PLANS

The company has defined contribution plans related to employee investment and savings plans primarily in the U.S. Company contributions and costs under these plans were $43 million in 2004, $25 million in 2003 and $21 million in 2002.

24. OTHER COMPREHENSIVE INCOME ITEMS

Other comprehensive income items under FASB Statement No. 130, Reporting Comprehensive Income, are transactions recorded in stockholders’ equity during the year, excluding net income and transactions with stockholders. Following are the items included in other comprehensive income (loss) and the related tax effects in millions of dollars:

	Before			Tax			After
	Tax			(Expense)			Tax
	Amount			Credit			Amount
2002
Minimum pension liability adjustment	$	(1,620	)	$	604		$	(1,016	)
Cumulative translation adjustment	(8		)				(8		)
Unrealized gain (loss) on derivatives:
Hedging loss	(61		)	21			(40		)
Reclassification of realized loss to net income	99			(34		)	65
Net unrealized gain	38			(13		)	25
Unrealized holding gain and net gain on investments*	2			(1		)	1
Total other comprehensive loss	$	(1,588	)	$	590		$	(998	)

	Before			Tax			After
	Tax			(Expense)			Tax
	Amount			Credit			Amount
2003
Minimum pension liability adjustment	$	(72	)	$	26		$	(46	)
Cumulative translation adjustment	210			4			214
Unrealized gain (loss) on derivatives:
Hedging loss	(41		)	14			(27		)
Reclassification of realized loss to net income	79			(27		)	52
Net unrealized gain	38			(13		)	25
Unrealized holding gain and net gain on investments*	9			(3		)	6
Total other comprehensive income	$	185		$	14		$	199

2004
Minimum pension liability adjustment	$	1,627		$	(606	)	$	1,021
Cumulative translation adjustment	86			2			88
Unrealized gain (loss) on derivatives:
Hedging loss	(19		)	7			(12		)
Reclassification of realized loss to net income	44			(16		)	28
Net unrealized gain	25			(9		)	16
Unrealized gain on investments:
Holding gain	3			(1		)	2
Reclassification of realized gain to net income	(3		)	1			(2		)
Net unrealized gain
Total other comprehensive income	$	1,738		$	(613	)	$	1,125

* Reclassification of realized gains or losses to net income were not material.

25. FINANCIAL INSTRUMENTS

The fair values of financial instruments which do not approximate the carrying values in the financial statements at October 31 in millions of dollars follow:

	2004				2003
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Financing receivables	$	11,233	$	11,173	$	9,974	$	9,994
Long-term borrowings
Equipment Operations	$	2,728	$	3,149	$	2,727	$	3,109
Financial Services	8,362		8,770		7,677		7,687
Total	$	11,090	$	11,919	$	10,404	$	10,796

Fair Value Estimates

Fair values of the long-term financing receivables with fixed rates 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 with fixed rates were based on 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 include adjustments related to fair value hedges.

Derivatives

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.

Interest Rate Swaps

The company enters into interest rate swap agreements primarily to more closely match the fixed or floating interest rates of the credit operations’ borrowings to those of the assets being funded.

Certain interest rate swaps were designated as hedges of future cash flows from commercial paper and variable interest rate borrowings. The effective portion of the fair value gains or losses on these cash flow hedges are recorded in other comprehensive income and subsequently reclassified into interest expense as payments are accrued and the swaps approach maturity. These amounts offset the effects of interest rate changes on the related borrowings. The amount of the loss recorded in other comprehensive income at October 31, 2004 that is expected to be reclassified to earnings in the next 12 months if interest rates remain unchanged is approximately $5 million after-tax. These swaps mature in up to 43 months.

Certain interest rate swaps were designated as fair value hedges of fixed-rate, long-term borrowings. The effective portion of the fair value gains or losses on these swaps were offset by fair value adjustments in the underlying borrowings.

Any ineffective portions of the gains or losses on all cash flow and fair value interest rate swaps designated as hedges were recognized immediately in interest expense and were not material. The amounts of gains or losses reclassified from unrealized in other comprehensive income to realized in earnings as a result of the discontinuance of cash flow hedges were not material. There were no components of cash flow or fair value hedges that were excluded from the assessment of effectiveness.

The company has certain interest rate swap agreements that are not designated as hedges under FASB Statement No. 133 and the fair value gains or losses are recognized directly in earnings. These instruments relate to swaps that are used to facilitate certain borrowings.

Foreign Exchange Forward Contracts, Swaps and Options

The company has entered into foreign exchange forward contracts, swaps and purchased options in order to manage the currency exposure of certain receivables, liabilities, borrowings and expected inventory purchases. These derivatives were not designated as hedges under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The fair value gains or losses from these foreign currency derivatives are recognized directly in earnings, generally offsetting the foreign exchange gains or losses on the exposures being managed.

The company has designated cross currency interest rate swaps as fair value hedges of certain long-term borrowings. The effective portion of the fair value gains or losses on these swaps are offset by fair value adjustments in the underlying borrowings and the ineffectiveness was not material. The company has also designated foreign exchange forward contracts and currency swaps as cash flow hedges of long-term borrowings. The effective portion of the fair value gains or losses on these forward contracts and swaps is recorded in other comprehensive income and subsequently reclassified into earnings as payments are accrued and these instruments approach maturity. This offsets the exchange rate effects on the borrowing being hedged and the ineffectiveness was not material.

26. CASH FLOW INFORMATION

For purposes of the statement of consolidated cash flows, the company considers investments with original maturities of three months or less to be cash equivalents. Substantially all of the company’s short-term borrowings, excluding the current maturities of long-term borrowings, mature within three months or less.

The Equipment Operations sell most of their trade receivables to Financial Services. These intercompany cash flows are eliminated in the consolidated cash flows.

All cash flows from the changes in trade accounts and notes receivable (see Note 8) are classified as operating activities in the Statement of Consolidated Cash Flows as these receivables arise from the sale of equipment to the company’s customers. Cash flows from financing receivables (see Note 9) that are related to the sale of equipment to the company’s customers are also included in operating activities. The remaining financing receivables are related to the financing of equipment sold by an independent dealer and are included in investing activities.

The company had non-cash operating and investing activities not included in the Statement of Consolidated Cash Flows for the transfer of inventory to equipment under operating leases of approximately $208 million, $157 million and $116 million in 2004, 2003 and 2002, respectively.

Cash payments for interest and income taxes consisted of the following in millions of dollars:

	2004			2003			2002

Interest:
Equipment Operations*	$	357		$	354		$	312
Financial Services	395			416			413
Intercompany eliminations*	(241		)	(226		)	(187		)
Consolidated	$	511		$	544		$	538

Income taxes:
Equipment Operations	$	395		$	74		$	188
Financial Services	167			152			131
Intercompany eliminations	(138		)	(142		)	(118		)
Consolidated	$	424		$	84		$	201

* Includes interest compensation to Financial Services for financing trade receivables.

27. SEGMENT AND GEOGRAPHIC AREA DATA FOR THE YEARS ENDED OCTOBER 31, 2004, 2003 AND 2002

The company’s operations are organized and reported in four major business segments described as follows:

The agricultural equipment segment manufactures and distributes a full line of farm equipment and related service parts – including tractors; combine, cotton and sugarcane harvesters; tillage, seeding and soil preparation machinery; sprayers; hay and forage equipment; material handling equipment; and integrated agricultural management systems technology. In 2004, the special technologies group’s results were transferred from the “Other” segment to the agricultural equipment segment due to changes in internal reporting. The following information for the agricultural segment has been restated for this change in 2003 and 2002.

The commercial and consumer equipment segment manufactures and distributes equipment, products and service parts for commercial and residential uses – including small tractors for lawn, garden, commercial and utility purposes; walk-behind mowers; golf course equipment; utility vehicles (including those commonly referred to as all-terrain vehicles, or “ATVs”); landscape products and irrigation equipment; and other outdoor power products.

The construction and forestry segment manufactures, distributes to dealers and sells at retail a broad range of machines and service parts used in construction, earthmoving, material handling and timber harvesting – including backhoe loaders; crawler dozers and loaders; four-wheel-drive loaders; excavators; motor graders; articulated dump trucks; landscape loaders; skid-steer loaders; and log skidders, feller bunchers, log loaders, log forwarders, log harvesters and related attachments.

The products and services produced by the equipment segments are marketed primarily through independent retail dealer networks and major retail outlets.

The credit segment primarily finances sales and leases by John Deere dealers of new and used agricultural, commercial and consumer, and construction and forestry equipment. In addition, it provides wholesale financing to dealers of the foregoing equipment, provides operating loans, finances retail revolving charge accounts and plans to offer certain crop risk mitigation products.

Certain operations do not meet the materiality threshold of FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, and have been grouped together as an “Other” segment. In 2004, the special technologies group’s results, which were previously included in the “Other” segment, were transferred to the agricultural equipment segment due to changes in internal reporting. The information for the “Other” segment was restated for this change in 2003 and 2002 and, as a result, consists of only the health care operations in those years. In 2004, the “Other” segment information primarily consists of the health care operations, as well as certain miscellaneous service operations added in 2004.

Corporate assets are primarily the Equipment Operations’ prepaid pension costs, deferred income tax assets, other receivables and cash and cash equivalents as disclosed in Note 29, net of certain intercompany eliminations.

Because of integrated manufacturing operations and common administrative and marketing support, a substantial number of allocations must be made to determine operating segment and geographic area data. Intersegment sales and revenues represent sales of components and finance charges which are generally based on market prices.

Information relating to operations by operating segment in millions of dollars follows. In addition to the following unaffiliated sales and revenues by segment, intersegment sales and revenues in 2004, 2003 and 2002 were as follows: agricultural equipment net sales of $88 million, $61 million and $54 million, construction and forestry net sales of $11 million, $9 million and none, and credit revenues of $216 million, $209 million and $167 million, respectively.

OPERATING SEGMENTS

	2004		2003			2002

Net sales and revenues
Unaffiliated customers:
Agricultural equipment net sales	$	9,717	$	7,390	**	$	6,792	**
Commercial and consumer equipment net sales	3,742		3,231			2,712
Construction and forestry net sales	4,214		2,728			2,199
Total net sales	17,673		13,349			11,703
Credit revenues	1,276		1,347			1,426
Other revenues	1,037		839			818
Total	$	19,986	$	15,535		$	13,947

** See following ** note.

Operating profit (loss)*

Agricultural equipment	$	1,072		$	329	**	$	397	**
Commercial and consumer equipment	246			227			79
Construction and forestry	587			152			(75		)
Credit***	466			474			386
Other***	5			30		**	30		**
Total operating profit	2,376			1,212			817
Interest income	64			59			66
Interest expense	(205		)	(217		)	(223		)
Foreign exchange loss from equipment operations’ financing activities	(10		)	(12		)	(17		)
Corporate expenses – net	(111		)	(62		)	(66		)
Income taxes	(708		)	(337		)	(258		)
Total	(970		)	(569		)	(498		)
Net income	$	1,406		$	643		$	319

* In 2004 and 2003, there was no goodwill amortization and the costs or income for special items were not material. In 2002, the operating profit (loss) of the agricultural equipment, commercial and consumer equipment and construction and forestry segments included pretax goodwill amortization of $27 million, $14 million and $17 million, respectively, for a total of $58 million. In 2002, operating profit (loss) of the agricultural equipment, commercial and consumer equipment and construction and forestry segments included expense for special items of $21 million, $24 million and $27 million, respectively, for a total of $72 million (see Note 2).

** Years 2003 and 2002 were restated for sales of $41 million and $54 million, operating losses of $8 million and $42 million and identifiable assets of $67 million and $73 million, respectively, for the transfer of the special technologies group’s results from the “Other” segment to the agricultural equipment segment. Other insignificant restatements of the agricultural equipment segment information related to this transfer were also made.

*** Operating profit of the credit business segment includes the effect of interest expense, which is the largest element of its operating costs, and foreign exchange gains or losses. Operating profit of the “Other” segment includes health care investment income.

OPERATING SEGMENTS

	2004			2003			2002

Interest income*
Agricultural equipment	$	6		$	6		$	7
Commercial and consumer equipment	5			4			5
Construction and forestry	8			8			7
Credit**	992			1,000			948
Corporate	64			59			66
Intercompany**	(241		)	(226		)	(187		)
Total	$	834		$	851		$	846

* Does not include finance rental income for equipment on operating leases.

** Includes interest income from Equipment Operations for financing trade receivables.

Interest expense

Agricultural equipment*	$	127		$	133		$	94
Commercial and consumer equipment*	54			48			46
Construction and forestry*	24			19			18
Credit	423			437			443
Corporate	205			218			223
Intercompany*	(241		)	(226		)	(187		)
Total	$	592		$	629		$	637

* Includes interest compensation to credit operations for financing trade receivables.

Depreciation* and amortization expense

Agricultural equipment	$	225	$	213	$	232
Commercial and consumer equipment	73		69		81
Construction and forestry	65		60		82
Credit	250		281		322
Other	8		8		8
Total	$	621	$	631	$	725

* Includes depreciation for equipment on operating leases.

Equity in income (loss) of unconsolidated affiliates

Agricultural equipment	$	2		$	(2	)	$	(10	)
Commercial and consumer equipment	(2		)	(1		)
Construction and forestry				12			(11		)
Credit	1						(4		)
Total	$	1		$	9		$	(25	)

Identifiable operating assets

Agricultural equipment	$	3,145	$	2,778	**	$	2,948	**
Commercial and consumer equipment	1,330		1,295			1,324
Construction and forestry	1,970		1,461			1,423
Credit	15,937		14,714			13,671
Other	368		321		**	283		**
Corporate	6,004		5,689			4,119
Total	$	28,754	$	26,258		$	23,768

** See previous ** note in the operating profit information.

OPERATING SEGMENTS

	2004		2003		2002

Capital additions
Agricultural equipment	$	246	$	205	$	233
Commercial and consumer equipment	64		71		62
Construction and forestry	37		38		59
Credit	4		4		3
Other	14		2		1
Total	$	365	$	320	$	358

Investment in unconsolidated affiliates

Agricultural equipment	$	18	$	19	$	22
Commercial and consumer equipment	4		6		6
Construction and forestry	81		167		145
Credit	4		3		7
Other			1		1
Total	$	107	$	196	$	181

The company views and has historically disclosed its operations as consisting of two geographic areas, the U.S. and Canada, and outside the U.S. and Canada, shown below in millions of dollars. Operating income for these areas has been disclosed in addition to the requirements under FASB Statement No. 131. No individual foreign country’s net sales and revenues were material for disclosure purposes.

GEOGRAPHIC AREAS

	2004		2003		2002

Net sales and revenues
Unaffiliated customers:
U.S. and Canada:
Equipment Operations net sales (91%)*	$	12,332	$	9,249	$	8,199
Financial Services revenues (88%)*	1,845		1,861		1,950
Total	14,177		11,110		10,149
Outside U.S. and Canada:
Equipment Operations net sales	5,340		4,100		3,504
Financial Services revenues	214		165		127
Total	5,554		4,265		3,631
Other revenues	255		160		167
Total	$	19,986	$	15,535	$	13,947

* The percentages indicate the approximate proportion of each amount that relates to the U.S. only and are based upon a three-year average for 2004, 2003 and 2002.

Operating profit
U.S. and Canada:
Equipment Operations	$	1,284	$	386	$	170
Financial Services	418		469		410
Total	1,702		855		580
Outside U.S. and Canada:
Equipment Operations	621		322		231
Financial Services	53		35		6
Total	674		357		237
Total	$	2,376	$	1,212	$	817

GEOGRAPHIC AREAS

	2004		2003		2002

Property and equipment
U.S.	$	1,328	$	1,297	$	1,285
Germany	276		241		192
Mexico	200		215		217
Other countries	358		323		304
Total	$	2,162	$	2,076	$	1,998

28. SUPPLEMENTAL INFORMATION (UNAUDITED)

Quarterly information with respect to net sales and revenues and earnings is shown in the following schedule. Such information is shown in millions of dollars except for per share amounts.

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
2004
Net sales and revenues	$	3,484	$	5,877	$	5,418	$	5,207
Income before income taxes	262		742		585		525
Net income	171		477		401		357
Net income per share – basic	.70		1.93		1.61		1.44
Net income per share – diluted	.68		1.88		1.58		1.41
Dividends declared per share	.22		.28		.28		.28
Dividends paid per share	.22		.22		.28		.28

2003
Net sales and revenues	$	2,794	$	4,400	$	4,402	$	3,939
Income before income taxes	106		398		370		97
Net income	68		257		247		71
Net income per share – basic	.28		1.08		1.03		.29
Net income per share – diluted	.28		1.07		1.02		.27
Dividends declared per share	.22		.22		.22		.22
Dividends paid per share	.22		.22		.22		.22

Net income per share for each quarter must be computed independently. As a result, their sum may not equal the total net income per share for the year.

Common stock per share sales prices from New York Stock Exchange composite transactions quotations follow:

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter

2004 Market price
High	$	67.41	$	74.93	$	70.49	$	65.95
Low	$	59.20	$	60.00	$	60.60	$	56.72

2003 Market price
High	$	51.60	$	43.80	$	49.96	$	60.75
Low	$	41.30	$	37.56	$	42.45	$	48.25

At October 31, 2004, there were 30,091 holders of record of the company’s $1 par value common stock.

Dividend and Other Events

A quarterly cash dividend of $.28 per share was declared at the board of directors’ meeting held on December 1, 2004, payable on February 1, 2005.

On December 1, 2004, the company’s board of directors authorized the repurchase of up to $1 billion of company common stock. Repurchases of company common stock under this plan will be made from time to time, at the company’s discretion, in the open market or through privately negotiated transactions.

29. SUPPLEMENTAL CONSOLIDATING DATA

INCOME STATEMENT

For the Years Ended October 31, 2004, 2003 and 2002

(In millions of dollars)

	EQUIPMENT OPERATIONS*							FINANCIAL SERVICES
	2004		2003		2002			2004		2003		2002
Net Sales and Revenues
Net sales	$	17,673.0	$	13,349.1	$	11,702.8
Finance and interest income	83.2		77.6		85.6			$	1,353.7	$	1,424.0	$	1,440.6
Health care premiums and fees								784.8		683.1		654.2
Other income	236.1		145.3		146.0			154.3		145.3		167.3
Total	17,992.3		13,572.0		11,934.4			2,292.8		2,252.4		2,262.1

Costs and Expenses
Cost of sales	13,582.3		10,767.5		9,608.1
Research and development expenses	611.6		577.3		527.8
Selling, administrative and general expenses	1,647.6		1,284.7		1,153.5			477.1		466.3		510.2
Interest expense	205.0		217.6		222.9			423.3		437.2		443.1
Interest compensation to Financial Services	205.1		199.6		158.1
Health care claims and costs								650.3		536.1		518.4
Other operating expenses	97.7		57.8		81.4			271.4		309.0		370.3
Total	16,349.3		13,104.5		11,751.8			1,822.1		1,748.6		1,842.0

Income of Consolidated Group before
Income Taxes	1,643.0		467.5		182.6			470.7		503.8		420.1
Provision for income taxes	546.4		162.4		104.2			162.1		174.5		154.1
Income of Consolidated Group	1,096.6		305.1		78.4			308.6		329.3		266.0

Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates
Credit	306.2		310.5		243.0			.6		.2		(3.8		)
Other	3.3		27.5		(2.2		)			.2
Total	309.5		338.0		240.8			.6		.4		(3.8		)

Net Income	$	1,406.1	$	643.1	$	319.2		$	309.2	$	329.7	$	262.2

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

The supplemental consolidating data is presented for informational purposes. The “Equipment Operations” (Deere & Company with Financial Services on the Equity Basis) reflect the basis of consolidation described in Note 1 to the consolidated financial statements. The consolidated group data in the “Equipment Operations” income statement reflect the results of the agricultural equipment, commercial and consumer equipment and construction and forestry operations. The supplemental “Financial Services” data represent primarily Deere & Company’s credit and health care operations. Transactions between the “Equipment Operations” and “Financial Services” have been eliminated to arrive at the consolidated financial statements.

BALANCE SHEET

As of October 31, 2004 and 2003

(In millions of dollars except per share amounts)

	EQUIPMENT OPERATIONS*				FINANCIAL SERVICES
	2004		2003		2004		2003
ASSETS
Cash and cash equivalents	$2,915.1		$4,009.3		$266.0		$375.2
Cash equivalents deposited with unconsolidated subsidiaries	224.4		278.1
Cash and cash equivalents	3,139.5		4,287.4		266.0		375.2
Marketable securities					246.7		231.8
Receivables from unconsolidated subsidiaries and affiliates	1,469.5		178.8		.7		274.3
Trade accounts and notes receivable - net	781.5		646.1		2,765.8		2,279.1
Financing receivables - net	64.7		63.5		11,167.9		9,910.7
Other receivables	498.4		236.6		164.6		191.7
Equipment on operating leases - net	8.9		11.9		1,288.0		1,369.9
Inventories	1,999.1		1,366.1
Property and equipment - net	2,112.3		2,042.9		49.4		32.7
Investments in unconsolidated subsidiaries and affiliates	2,250.2		2,431.2		4.1		3.8
Goodwill	973.6		871.9				.2
Other intangible assets - net	21.6		252.6		.1		.2
Prepaid pension costs	2,474.5		62.0		18.6		.6
Other assets	206.2		195.0		309.1		339.4
Deferred income taxes	656.7		1,590.8				3.2
Deferred charges	86.8		78.4		23.7		22.1

Total Assets	$16,743.5		$14,315.2		$16,304.7		$15,034.9

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES
Short-term borrowings	$311.9		$577.0		$3,145.6		$3,770.2
Payables to unconsolidated subsidiaries and affiliates	142.8		96.7		1,676.3		419.4
Accounts payable and accrued expenses	3,683.8		2,771.5		631.0		640.7
Health care claims and reserves					135.9		94.1
Accrued taxes	162.0		209.9		17.2		16.6
Deferred income taxes	35.9		11.5		155.3		137.2
Long-term borrowings	2,728.5		2,727.5		8,361.9		7,676.7
Retirement benefit accruals and other liabilities	3,285.8		3,919.0		33.9		40.8

Total liabilities	10,350.7		10,313.1		14,157.1		12,795.7

STOCKHOLDERS’ EQUITY
Common stock, $1 par value (authorized – 600,000,000 shares; issued – 268,215,602 shares in 2004 and 2003), at stated value	2,043.5		1,987.8		974.1		968.6
Common stock in treasury, 21,356,458 shares in 2004 and 24,694,170 shares in 2003, at cost	(1,040.4	)	(1,141.4	)
Unamortized restricted stock compensation	(12.7	)	(5.8	)
Retained earnings	5,445.1		4,329.5		1,142.7		1,277.7
Total	6,435.5		5,170.1		2,116.8		2,246.3
Minimum pension liability adjustment	(57.2	)	(1,078.0	)
Cumulative translation adjustment	9.1		(79.2	)	24.3		1.5
Unrealized loss on derivatives	(6.4	)	(22.4	)	(5.3	)	(20.2	)
Unrealized gain on investments	11.8		11.6		11.8		11.6
Accumulated other comprehensive income (loss)	(42.7	)	(1,168.0	)	30.8		(7.1	)
Total stockholders’ equity	6,392.8		4,002.1		2,147.6		2,239.2

Total Liabilities and Stockholders’ Equity	$16,743.5		$14,315.2		$16,304.7		$15,034.9

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

The supplemental consolidating data is presented for informational purposes. The “Equipment Operations” (Deere & Company with Financial Services on the Equity Basis) reflect the basis of consolidation described in Note 1 to the consolidated financial statements. The supplemental “Financial Services” data represent primarily Deere & Company’s credit and health care operations. Transactions between the “Equipment Operations” and “Financial Services” have been eliminated to arrive at the consolidated financial statements.

STATEMENT OF CASH FLOWS

For the Years Ended October 31, 2004, 2003 and 2002

(In millions of dollars)

	EQUIPMENT OPERATIONS*									FINANCIAL SERVICES
	2004			2003			2002			2004			2003			2002
Cash Flows from Operating Activities
Net income	$	1,406.1		$	643.1		$	319.2		$	309.2		$	329.7		$	262.2
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful receivables	9.3			17.9			6.5			42.1			88.9			154.2
Provision for depreciation and amortization	362.7			341.6			394.8			291.7			329.0			366.3
Undistributed earnings of unconsolidated subsidiaries and affiliates	156.2			(86.9		)	156.2			(.5		)	(.4		)	3.8
Provision (credit) for deferred income taxes	374.4			19.8			(19.2		)	10.6			13.3			18.0
Changes in assets and liabilities:
Receivables	(112.9		)	338.6			116.7			35.6			(42.5		)	(3.8		)
Inventories	(293.6		)	84.1			85.8
Accounts payable and accrued expenses	916.0			(162.0		)	107.9			(9.0		)	(29.6		)	(4.2		)
Other**	(1,435.0		)	7.1			219.9			(26.3		)	5.9			(26.3		)
Net cash provided by operating activities	1,383.2			1,203.3			1,387.8			653.4			694.3			770.2

Cash Flows from Investing Activities
Collections of receivables	37.0			11.5			8.7			24,015.1			19,396.3			14,992.3
Proceeds from sales of financing receivables										2,333.6			1,941.0			2,967.8
Proceeds from maturities and sales of marketable securities										66.7			76.4			75.4
Proceeds from sales of equipment on operating leases	.8			.1			1.6			443.6			514.4			493.6
Proceeds from sales of businesses	90.4			22.5			53.5			.2
Cost of receivables acquired	(17.3		)	(4.2		)	(27.4		)	(27,864.3		)	(22,011.5		)	(17,861.4		)
Purchases of marketable securities										(79.5		)	(118.2		)	(87.8		)
Purchases of property and equipment	(345.9		)	(303.4		)	(354.5		)	(18.0		)	(6.2		)	(4.2		)
Cost of operating leases acquired				(2.8		)	(6.1		)	(571.1		)	(470.9		)	(481.8		)
Acquisitions of businesses, net of cash acquired	(192.9		)	(10.6		)	(9.3		)							(9.7		)
Decrease (increase) in receivables from unconsolidated affiliates										274.3			(14.5		)	54.1
Other	34.4			9.4			80.3			(37.2		)	(39.3		)	(79.5		)
Net cash provided by (used for) investing activities	(393.5		)	(277.5		)	(253.2		)	(1,436.6		)	(732.5		)	58.8

Cash Flows from Financing Activities
Increase (decrease) in short-term borrowings	(63.3		)	(123.2		)	(304.6		)	(292.8		)	250.1			(1,108.6		)
Change in intercompany receivables/payables	(1,656.1		)	50.5			29.6			1,264.3			(563.2		)	(882.0		)
Proceeds from long-term borrowings	10.9			9.1			708.3			2,178.7			3,303.8			3,865.4
Principal payments on long-term borrowings	(267.4		)	(19.0		)	(75.9		)	(2,045.2		)	(2,523.7		)	(2,695.1		)
Proceeds from issuance of common stock	250.8			174.5			48.0
Repurchases of common stock	(193.1		)	(.4		)	(1.2		)
Dividends paid	(246.6		)	(210.5		)	(208.9		)	(444.2		)	(247.9		)	(399.5		)
Other	(.4		)	(1.8		)	(1.5		)	2.7
Net cash provided by (used for) financing activities	(2,165.2		)	(120.8		)	193.8			663.5			219.1			(1,219.8		)

Effect of Exchange Rate Changes on Cash	27.6			53.1			2.3			10.5			18.0			(7.6		)
Net Increase (Decrease) in Cash and Cash Equivalents	(1,147.9		)	858.1			1,330.7			(109.2		)	198.9			(398.4		)
Cash and Cash Equivalents at Beginning of Year	4,287.4			3,429.3			2,098.6			375.2			176.3			574.7
Cash and Cash Equivalents at End of Year	$	3,139.5		$	4,287.4		$	3,429.3		$	266.0		$	375.2		$	176.3

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

** Primarily related to pension and other postretirement benefits in 2004.

The supplemental consolidating data is presented for informational purposes. The “Equipment Operations” (Deere & Company with Financial Services on the Equity Basis) reflect the basis of consolidation described in Note 1 to the consolidated financial statements. The supplemental “Financial Services” data represent primarily Deere & Company’s credit and health care operations. Transactions between the “Equipment Operations” and “Financial Services” have been eliminated to arrive at the consolidated financial statements.

DEERE & COMPANY

SELECTED FINANCIAL DATA

(Dollars in millions except per share amounts)

	2004			2003			2002			2001			2000			1999			1998			1997			1996			1995
Net sales and revenues	$	19,986		$	15,535		$	13,947		$	13,293		$	13,137		$	11,751		$	13,822		$	12,791		$	11,229		$	10,291
Net sales	17,673			13,349			11,703			11,077			11,169			9,701			11,926			11,082			9,640			8,830
Finance and interest income	1,196			1,276			1,339			1,445			1,321			1,104			1,007			867			763			660
Research and development expenses	612			577			528			590			542			458			445			412			370			327
Selling, administrative and general expenses	2,117			1,744			1,657			1,717			1,505			1,362			1,309			1,321			1,147			1,001
Interest expense	592			629			637			766			677			557			519			422			402			393
Income (loss) before goodwill amortization	1,406			643			372			(13		)	526			264			1,036			978			828			713
Goodwill amortization – after-tax							53			51			40			25			15			18			11			7
Net income (loss)	1,406			643			319			(64		)	486			239			1,021			960			817			706
Return on net sales	8.0		%	4.8		%	2.7		%	(.6		) %	4.3		%	2.5		%	8.6		%	8.7		%	8.5		%	8.0		%
Return on beginning stockholders’ equity	35.1		%	20.3		%	8.0		%	(1.5		) %	11.9		%	5.9		%	24.6		%	27.0		%	26.5		%	27.6		%

Income (loss) per share before goodwill amortization – basic	$	5.69		$	2.68		$	1.56		$	(.05	)	$	2.24		$	1.14		$	4.26		$	3.85		$	3.18		$	2.74
Net income (loss) per share – basic	5.69			2.68			1.34			(.27		)	2.07			1.03			4.20			3.78			3.14			2.71
Net income (loss) per share – diluted	5.56			2.64			1.33			(.27		)	2.06			1.02			4.16			3.74			3.11			2.69
Dividends declared per share	1.06			.88			.88			.88			.88			.88			.88			.80			.80			.75
Dividends paid per share	1.00			.88			.88			.88			.88			.88			.86			.80			.80			.73 1/3
Average number of common shares outstanding (in millions) - basic	247.2			240.2			238.2			235.0			234.3			232.9			243.3			253.7			260.5			260.5
- diluted	253.1			243.3			240.9			236.8			236.0			234.4			245.7			256.6			263.2			262.5

Total assets	$	28,754		$	26,258		$	23,768		$	22,663		$	20,469		$	17,578		$	18,002		$	16,320		$	14,653		$	13,847
Trade accounts and notes receivable – net	3,207			2,619			2,734			2,923			3,169			3,251			4,059			3,334			3,153			3,260
Financing receivables – net	11,233			9,974			9,068			9,199			8,276			6,743			6,333			6,405			5,912			5,345
Equipment on operating leases – net	1,297			1,382			1,609			1,939			1,954			1,655			1,209			775			430			259
Inventories	1,999			1,366			1,372			1,506			1,553			1,294			1,287			1,073			829			721
Property and equipment – net	2,162			2,076			1,998			2,052			1,912			1,782			1,700			1,524			1,352			1,336
Short-term borrowings:
Equipment Operations	312			577			398			773			928			642			1,512			171			223			396
Financial Services	3,146			3,770			4,039			5,425			4,831			3,846			3,810			3,604			2,921			2,744
Total	3,458			4,347			4,437			6,198			5,759			4,488			5,322			3,775			3,144			3,140
Long-term borrowings:
Equipment Operations	2,728			2,727			2,989			2,210			1,718			1,036			553			540			626			703
Financial Services	8,362			7,677			5,961			4,351			3,046			2,770			2,239			2,083			1,799			1,473
Total	11,090			10,404			8,950			6,561			4,764			3,806			2,792			2,623			2,425			2,176
Total stockholders’ equity	6,393			4,002			3,163			3,992			4,302			4,094			4,080			4,147			3,557			3,085

Book value per share	$	25.90		$	16.43		$	13.24		$	16.82		$	18.34		$	17.51		$	17.56		$	16.57		$	13.83		$	11.78
Capital expenditures	$	364		$	313		$	358		$	495		$	419		$	308		$	438		$	492		$	277		$	263
Number of employees (at year end)	46,465			43,221			43,051			45,069			43,670			38,726			37,002			34,420			33,919			33,375

	[Letterhead]
	Deloitte & Touche LLP
	Two Prudential Plaza
	180 North Stetson Avenue
	Chicago, Illinois 60601

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Deere & Company:

We have audited the accompanying consolidated balance sheets of Deere & Company and subsidiaries as of October 31, 2004 and 2003 and the related statements of consolidated income, changes in consolidated stockholders’ equity and consolidated cash flows for each of the three years in the period ended October 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Deere & Company and subsidiaries at October 31, 2004 and 2003 and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 15 to the financial statements, effective November 1, 2002, the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

DELOITTE & TOUCHE LLP

Chicago, Illinois

December 17, 2004

(March 9, 2005 as to the cash flow reclassification described in Notes 1, 9, and 26)

Item 6. Exhibits

See the index to exhibits immediately preceding the exhibits filed with this report.

Certain instruments relating to long-term debt constituting less than 10% of the registrant’s total assets are not filed as exhibits herewith pursuant to Item 601 (b) (4) (iii) (A) of Regulation S-K. The registrant will file copies of such instruments upon request of the Commission.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		DEERE & COMPANY


Date:	March 14, 2005	By:	/s/ Nathan J. Jones
			Nathan J. Jones Senior Vice President, Principal Financial Officer and Principal Accounting Officer

INDEX TO EXHIBITS

Number

2		Not applicable

3.1		Certificate of Incorporation, as amended (Exhibit 3.2 to Form 10-K of registrant for the year ended October 31, 1999, Securities and Exchange Commission File Number 1-4121*)

3.2		Bylaws, as amended (Exhibit 3 to Form 8-K of registrant dated February 23, 2005*)

4.1		Five-Year Credit Agreement among registrant, John Deere Capital Corporation, various financial institutions, JPMorgan Chase Bank N.A. as administrative agent, Citibank N.A. and Credit Suisse First Boston as documentation agents, Merrill Lynch Bank USA as co-documentation agent, and Bank of America, N.A. and Deutsche Bank AG, New York Branch as syndication agents, et al, dated as of February 15, 2005.

4.2		364-Day Credit Agreement among registrant, John Deere Capital Corporation, various financial institutions, JPMorgan Chase Bank N.A. as administrative agent, Citibank N.A. and Credit Suisse First Boston as documentation agents, Merrill Lynch Bank USA as co-documentation agent, and Bank of America, N.A. and Deutsche Bank AG, New York Branch as syndication agents, et al, dated as of February 15, 2005.

10.1		Form of John Deere Restricted Stock Unit Grant

10.2		John Deere Performance Bonus Plan (Appendix A to Notice and Proxy Statement of registrant for the annual stockholder meeting on February 23, 2005*)

11		Not applicable

12		Computation of ratio of earnings to fixed charges

15		Not applicable

18		Not applicable

19		Not applicable

22		Not applicable

23		Consent of Deloitte & Touche LLP

24		Not applicable

31.1		Rule 13a-14(a)/15d-14(a) Certification

31.2		Rule 13a-14(a)/15d-14(a) Certification

32		Section 1350 Certifications

* Incorporated by reference