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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED OCTOBER 31, 2003

Commission file number 1-4121

DEERE & COMPANY

(Exact name of registrant as specified in its charter)

SECURITIES REGISTERED PURSUANT

TO SECTION 12(b) OF THE ACT

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes  x    No  ¨

The aggregate quoted market price of voting stock of registrant held by nonaffiliates at April 30, 2003 was $10,520,718,013. At November 30, 2003, 244,313,103 shares of common stock, $1 par value, of the registrant were outstanding. Documents Incorporated by Reference. Portions of the proxy statement for the annual meeting of stockholders to be held on February 25, 2004 are incorporated by reference in Part III.

PART I

ITEM 1. BUSINESS.

Products

Deere & Company (Company) and its subsidiaries (collectively called John Deere) have operations which are categorized into four major business segments.

The agricultural equipment segment manufactures and distributes a full line of farm equipment and 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.

The commercial and consumer equipment segment manufactures and distributes equipment 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; landscape 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, loaders, forwarders, harvesters and related attachments.

The products and services produced by the segments above 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 and finances retail revolving charge accounts.

John Deere is also engaged in special technologies operations and provides managed health care plans. John Deere’s worldwide agricultural equipment; commercial and consumer equipment; construction and forestry; and special technologies operations are sometimes referred to as the “Equipment Operations.” The credit and health care operations are sometimes referred to as “Financial Services.”

Additional information is presented in the discussion of business segment and geographic area results on page 17. The John Deere enterprise has manufactured agricultural machinery since 1837. The present Company was incorporated under the laws of Delaware in 1958.

The Company’s Internet address is http://www.JohnDeere.com. Through that address, the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available free of charge as soon as reasonably practicable after they are filed with the Securities and Exchange Commission.

Market Conditions and Outlook

As a result of the factors and conditions outlined below, sales for the full 2004 fiscal year are expected to increase between 9 and 11 percent and net income is forecast to be in a range of $750 million to $850

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million. The Company’s net equipment sales for the first quarter of 2004 are currently forecast to be up approximately 25 percent in comparison with depressed sales levels in the first quarter of 2003, although production levels are expected to increase only 9 to 11 percent for the first quarter. Company-wide net income for the first quarter in 2004 is forecasted in a range of $100 million to $150 million. Excluding the impact of currency and price, sales are expected to increase 18 to 20 percent for the quarter and 6 to 8 percent for the year.

The Company’s yearly earnings estimate also includes an increase of approximately $125 million pretax in postretirement benefit costs, based on the Company’s assumptions that reflect recent trends in medical inflation and interest rates.

Agricultural Equipment After hitting a record level in 2003, United States farm income is expected to remain strong in the coming year as a result of continuing high crop and livestock prices, as well as favorable levels of carryover stocks in farm commodities. In addition, tax provisions that offer expanded depreciation and expense write-offs should lend further support to farm machinery sales. As a result of these positive factors, industry retail sales in the United States and Canada are now expected to be up 5 to 10 percent for fiscal 2004. In other parts of the world, industry retail sales in Western Europe are expected to be flat to down 5 percent for the year mainly as a result of lower farm income due to the impact of drought on the livestock sector. The Company believes industry sales in South America will be flat in 2004. While favorable conditions support further industry growth in South America, the Company believes this could be offset by the timing and availability of Brazilian government financing. On a worldwide basis, sales of the Company’s agricultural equipment are now forecast to be up between 8 to 10 percent for the year with an increase in physical volume of 5 to 7 percent.

Commercial and Consumer Equipment The Company’s commercial and consumer equipment sales are expected to continue benefiting from the success of new products, including an expanded utility-vehicle line and the 100 series lawn tractor introduced in the mass and dealer channels in 2003. As a result, the segment’s sales are forecast to be up between 10 to 12 percent for the year.

Construction and Forestry Retail activity in the construction and forestry sectors rose at a healthy rate in 2003 mainly as a result of strong replacement demand. The Company’s sales for 2003 rose sharply in virtually all market segments and outpaced the industry. Further replacement demand is expected to lead to modest growth in the industry in 2004. In 2004, the Company’s shipments of construction and forestry equipment are projected to be up 2 to 4 percent. The Company consolidated Nortrax, Inc. during the first quarter of 2004. Nortrax, Inc. and Nortrax Investments, Inc. (collectively called Nortrax) are ventures involved in the ownership and development of several construction equipment dealer locations. Including Nortrax in the consolidated results will add an additional estimated $275 million to sales for the year.

Credit Operations Although the Company’s credit operations are expect to benefit from further growth in the loan portfolio, net income for 2004 is forecast to be down slightly as a result of lower gains on receivable sales. The credit operations expect net income of about $300 million for the year.

2003 Consolidated Results Compared with 2002

The Company had net income in 2003 of $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 the year 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 last year.

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The Company’s Equipment Operations, which exclude the Financial Services operations, had net income of $305 million in 2003, compared with $78 million in 2002. Income increased primarily due to improved price realization and a higher physical volume of sales. Partially offsetting these factors were higher postretirement benefit costs of $306 million. Last year’s results were negatively affected by the costs of closing certain facilities and higher costs associated with the Company’s minority investments in Nortrax. In addition, prior-year results 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 due primarily to lower loan losses, growth in the portfolio and the absence of losses from Argentina related to the peso devaluation last year. Additional information is presented in the credit operations discussion on pages 17, 20 and 21.

EQUIPMENT OPERATIONS

Agricultural Equipment

Sales of agricultural equipment, particularly in the United States and Canada, are affected by total farm cash receipts, which reflect levels of farm commodity prices, acreage planted, crop yields and the amount and timing of government payments. Sales are also influenced by general economic conditions, farm land prices, farmers’ debt levels, interest rates, agricultural trends and the levels of costs associated with farming. Weather and climatic conditions can also affect buying decisions of equipment purchasers.

Innovations to machinery and technology also influence buying. For example, larger, more productive equipment is well accepted where farmers are striving for more efficiency in their operations. The Company has developed a comprehensive agricultural management systems approach using advanced technology and global satellite positioning to enable farmers to better control input costs and yields, to improve environmental management and to gather information.

Large, cost-efficient, highly-mechanized agricultural operations account for an important share of worldwide farm output. The large-size agricultural equipment used on such farms has been particularly important to John Deere. A large proportion of the Equipment Operations’ total agricultural equipment sales in the United States is comprised of tractors over 100 horsepower, self-propelled combines, self-propelled cotton pickers, self-propelled forage harvesters and self-propelled sprayers.

Seasonality. Seasonal patterns in retail demand for agricultural equipment result in substantial variations in the volume and mix of products sold to retail customers during various times of the year. Seasonal demand must be estimated in advance, and equipment must be manufactured in anticipation of such demand in order to achieve efficient utilization of manpower and facilities throughout the year. For certain equipment, the Company offers early order discounts to retail customers. Production schedules are based, in part, on these early order programs. The Equipment Operations incur substantial seasonal indebtedness with related interest expense to finance production and inventory of equipment. The Equipment Operations also incur costs to finance sales to dealers in advance of seasonal demand. New combine and cotton harvesting equipment is sold under early order programs with waivers of retail finance charges available to customers to take delivery of machines during off-season periods. Used equipment trade-ins, of which there are typically several transactions for every new machine sale, are supported with a fixed pool of funds available to dealers which are then responsible for all associated inventory and sale costs.

An important part of the competition within the agricultural equipment industry during the past decade has come from a diverse variety of short-line and specialty manufacturers with differing manufacturing and

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marketing methods. Because of industry conditions, especially the merger of certain large integrated competitors, the agricultural equipment business continues to undergo significant change and may become more competitive.

Commercial and Consumer Equipment

John Deere commercial and consumer equipment includes front-engine lawn tractors, lawn and garden tractors, compact utility tractors, utility tractors, zero-turning radius mowers, front mowers and small utility vehicles. In the fourth quarter of 2003, the division expanded its offering of utility vehicles with new products focused on residential, commercial, agricultural, and consumer markets. A broad line of associated implements for mowing, tilling, snow and debris handling, aerating, and many other residential, commercial, golf and sports turf care applications are also included. The product line also includes walk-behind mowers and other outdoor power products. Retail sales of these commercial and consumer equipment products are influenced by weather conditions, consumer spending patterns and general economic conditions. In an effort to increase asset turnover and reduce the average level of field inventories through the year, the Company has recently modified the production and shipment schedules of its product lines to more closely correspond to the seasonal pattern of retail sales.

The division sells walk-behind mowers in Europe under the SABO brand. The division also builds products for sale by mass retailers. Since 1999, the Company has built products for sale through The Home Depot stores.

John Deere Landscapes, Inc., a unit of the division, distributes irrigation equipment, nursery products and landscape supplies primarily to landscape service professionals.

In addition to the equipment manufactured by the commercial and consumer division, John Deere purchases certain products from other manufacturers for resale.

Seasonality Seasonality of retail demand for the division’s equipment occurs in the second and third quarters. The division is pursuing a strategy of building and shipping as close to retail demand as possible. Consequently, production, shipping and retail sales will be proportionately higher in the second and third quarters of each year.

Construction and Forestry

John Deere construction, earthmoving, material handling and forestry equipment includes a broad range of backhoe loaders, crawler dozers and loaders, four-wheel-drive loaders, excavators, motor graders, articulated dump trucks, landscape loaders, skid-steer loaders, log skidders, log feller bunchers, log loaders, log forwarders, log harvesters and a variety of attachments.

Today, this segment provides sizes of equipment that compete for over 90 percent of the estimated total North American market for those categories of construction, earthmoving and material handling equipment in which it competes. These construction, earthmoving and material handling machines are distributed under the Deere brand name. This segment also provides the most complete line of forestry machines and attachments available in the world. These forestry machines and attachments are distributed under the Deere, Timberjack and Waratah brand names. In addition to the equipment manufactured by the Construction and Forestry division, John Deere purchases certain products from other manufacturers for resale.

The prevailing levels of residential, commercial and public construction and the condition of the forest products industry influence retail sales of John Deere construction, earthmoving, material handling and forestry equipment. General economic conditions, the level of interest rates and certain commodity prices such as those applicable to pulp, paper and saw logs also influence sales.

The Company and Hitachi have a joint venture for the manufacture of hydraulic excavators and track log loaders in the United States and Canada. In May 2002, the Company began distributing Hitachi brands of construction and mining equipment in North, Central and South America. The Company also has supply

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agreements with Hitachi under which a range of construction, earthmoving, material handling and forestry products manufactured by John Deere in the United States, Canada, Finland and New Zealand are distributed by Hitachi in Japan and other Far East markets.

The division has a number of initiatives in the rent-to-rent, or short-term rental, market for construction, earthmoving and material handling equipment. These include specially designed rental programs for John Deere dealers and expanded cooperation with major national equipment rental companies. In November 2003, the Company sold its minority ownership in Sunstate Equipment Co., LLC, a venture engaged in the rent-to-rent business.

During the 2003 fiscal year, the Company also had a minority ownership interest in Nortrax. Nortrax is, among other things, an authorized John Deere dealer for construction, earthmoving, material handling and forestry equipment in a variety of markets in the United States and Canada. During the first quarter of 2004, the Company acquired a majority interest in Nortrax, Inc. and it was consolidated.

Engineering and Research

John Deere makes large expenditures for engineering and research to improve the quality and performance of its products, and to develop new products. Such expenditures were $577 million or 4.3 percent of net sales of equipment in 2003, $528 million, or 4.5 percent in 2002, and $590 million, or 5.3 percent in 2001.

Manufacturing

Manufacturing Plants. In the United States and Canada, the Equipment Operations own and operate 23 factory locations and lease and operate another location, which contain approximately 29.4 million square feet of floor space. Of these 24 factories, ten are devoted primarily to agricultural equipment, four to commercial and consumer equipment, two to non-forestry construction equipment, one to engines, three to hydraulic and power train components, one to special technology equipment and three to forestry equipment. Outside the United States and Canada, the Equipment Operations own and operate: agricultural equipment factories in France, Germany, Mexico, The Netherlands, Brazil and South Africa; engine factories in Argentina, France and Mexico; a component factory in Spain; commercial and consumer equipment factories in Germany and The Netherlands; and forestry equipment factories in Finland and New Zealand. These factories outside the United States and Canada contain approximately 10.6 million square feet of floor space. The Equipment Operations also have financial interests in other manufacturing organizations, which include agricultural equipment manufacturers in China, India and the United States, an industrial truck manufacturer in South Africa and the Hitachi joint venture that builds hydraulic excavators and track log loaders in the United States and Canada.

John Deere’s facilities are well maintained, in good operating condition and are suitable for their present purposes. These facilities, together with both short-term and long-term planned capital expenditures, are expected to meet John Deere’s manufacturing needs in the foreseeable future.

Capacity is adequate to satisfy the Company’s current expectations for retail market demand. The Equipment Operations’ manufacturing strategy involves the implementation of appropriate levels of technology and automation to allow manufacturing processes to remain viable at varying production levels. Operations are also designed to be flexible enough to accommodate the product design changes required to meet market conditions. Common manufacturing facilities and techniques are employed in the production of components for agricultural, commercial and consumer and construction and forestry equipment.

In order to utilize manufacturing facilities and technology more effectively, the Equipment Operations pursue continuous improvements in manufacturing processes. These include steps to streamline manufacturing processes and enhance responsiveness to customers. The Company has implemented flexible assembly lines that can handle a wider product mix and deliver products at the times when dealers and customers require

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them. Additionally, considerable effort is being directed to manufacturing cost reduction through process improvement, product design, advanced manufacturing technology, enhanced environmental management systems, supply management and compensation incentives related to productivity and organizational structure. The Equipment Operations also pursue external sales of selected parts and components that can be manufactured and supplied to third parties on a competitive basis.

Capital Expenditures. The agricultural equipment, commercial and consumer equipment and construction and forestry operations’ capital expenditures totaled $304 million in 2003, compared with $351 million in 2002, and $480 million in 2001. Provisions for depreciation applicable to these operations’ property, plant and equipment during these years were $306 million, $296 million and $295 million, respectively. Capital expenditures for these operations in 2004 are currently estimated to be $520 million. The 2004 expenditures will be related primarily to the modernization and restructuring of key manufacturing facilities and will also be related to the development of new products. Future levels of capital expenditures will depend on business conditions.

Patents and Trademarks

John Deere owns a significant number of patents, licenses and trademarks which have been obtained over a period of years. The Company believes that, in the aggregate, the rights under these patents, licenses and trademarks are generally important to its operations, but does not consider that any patent, license, trademark or related group of them (other than its house trademarks) is of material importance in relation to John Deere’s business.

Marketing

In the United States and Canada, the Equipment Operations distribute equipment and service parts through the following facilities (collectively called sales branches): one agricultural equipment sales and administration office supported by seven agricultural equipment sales branches; one construction, earthmoving, material handling and forestry equipment sales and administration office; and one commercial and consumer equipment sales and administration office.

In addition, the Equipment Operations operate a centralized parts distribution warehouse in coordination with several regional parts depots in the United States and Canada and have an agreement with a third party to operate a high-volume parts warehouse in Indiana.

The sales branches in the United States and Canada market John Deere products at approximately 3,167 dealer locations, most of which are independently owned. Of these, approximately 1,600 sell agricultural equipment, while 576 sell construction, earthmoving, material handling and/or forestry equipment. Nortrax owns some of the 576. Commercial and consumer equipment is sold by most John Deere agricultural equipment dealers, a few construction, earthmoving, material handling and forestry equipment dealers, and about 991 commercial and consumer equipment dealers, many of whom also handle competitive brands and dissimilar lines of products. In addition, certain lawn and garden product lines are sold through various general and mass merchandisers, including The Home Depot.

Outside the United States and Canada, John Deere agricultural equipment is sold to distributors and dealers for resale in over 160 countries. Sales branches are located in Germany, France, Italy, Russia, Spain, Switzerland, the United Kingdom, South Africa, Mexico, Brazil, Argentina, Uruguay, Australia and Hong Kong. Export sales branches are located in Europe and the United States. Associated companies doing business in China and India also sell John Deere agricultural equipment. Commercial and consumer equipment sales occur primarily in Europe and Australia. Construction, earthmoving, material handling and forestry equipment is sold to distributors and dealers primarily by sales offices located in the United States, Singapore and Finland. Some of these dealers are independently owned while the Company owns others.

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Trade Accounts and Notes Receivable

Trade accounts and notes receivable arise from sales of goods to dealers. Most trade receivables originated by the Equipment Operations are purchased by Financial Services. The Equipment Operations compensate Financial Services at market rates of interest for these receivables. Additional information appears in Note 8 to the Consolidated Financial Statements.

Special Technologies Group

The Special Technologies Group (STG) consists of three operating units that offer a range of electronic, information-system and Internet-related products and services to the Company and outside customers. STG’s purpose is to integrate advanced technology into John Deere equipment and to make such advancements directly available to customers through a variety of business relationships and ventures. One STG unit, Phoenix International, develops and produces electronic devices that control and monitor a variety of mobile-equipment functions. Another, AGRIS Corporation, is a leading supplier of information-management systems for agribusinesses. NavCom develops systems for tracking the exact position of vehicles, and for transmitting data to and from vehicles on the move.

FINANCIAL SERVICES

Credit Operations

United States and Canada. The Company’s credit subsidiaries (collectively referred to as the Credit Companies) primarily provide and administer financing for retail purchases from John Deere dealers of new equipment manufactured by the Company’s agricultural equipment, commercial and consumer equipment, and construction and forestry divisions and used equipment taken in trade for this equipment. Deere & Company and John Deere Construction & Forestry Company are referred to as the “sales companies.” John Deere Capital Corporation (Capital Corporation), a United States credit subsidiary, purchases retail installment sales and loan contracts (retail notes) from the sales companies. These retail notes are acquired by the sales companies through John Deere retail dealers in the United States. John Deere Credit Inc., a Canadian credit subsidiary, purchases and finances retail notes acquired by John Deere Limited, the Company’s Canadian sales branch. The terms of retail notes and the basis on which the Credit Companies acquire retail notes from the sales companies are governed by agreements with the sales companies. The Credit Companies also finance and service revolving charge accounts, in most cases acquired from and offered through merchants in the agricultural, commercial and consumer, and construction and forestry markets (revolving charge accounts). Further, the Credit Companies finance and service operating loans, offered directly to agricultural producers or offered through and acquired from farm input providers, and provide insured international export financing generally involving John Deere products (operating loans). Additionally, the Credit Companies provide wholesale financing for inventories of John Deere engines and John Deere agricultural, commercial and consumer, and construction and forestry equipment owned by dealers of those products (wholesale notes).

Retail notes acquired by the sales companies are immediately sold to the Credit Companies. The Equipment Operations are the Credit Companies’ major source of business, but many retail purchasers of John Deere products finance their purchases outside the John Deere organization.

The Credit Companies offer retail leases to equipment users in the United States. A small number of leases are executed with units of local government. Leases are usually written for periods of two to five years, and frequently contain an option permitting the customer to purchase the equipment at the end of the lease term. Retail leases are also offered in a generally similar manner to customers in Canada through John Deere Credit Inc. and John Deere Limited.

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The Credit Companies’ terms for financing equipment retail sales (other than smaller items financed with unsecured revolving charge accounts) provide for retention of a security interest in the equipment financed. The Credit Companies’ guidelines for minimum down payments, which vary with the types of equipment and repayment provisions, are generally not less than 20 percent on agricultural equipment, 10 percent on construction and forestry equipment and 10 percent on lawn and grounds care equipment used for personal use. Finance charges are sometimes waived for specified periods or reduced on certain John Deere products sold or leased in advance of the season of use or in other sales promotions. The Credit Companies generally receive compensation from the sales companies equal to a competitive interest rate for periods during which finance charges are waived or reduced on the retail notes or leases. The cost is accounted for as a deduction in arriving at net sales by the Equipment Operations.

The Company has an agreement with the Capital Corporation to make income maintenance payments to the Capital Corporation such that its ratio of earnings before fixed charges to fixed charges is not less than 1.05 to 1 for any fiscal quarter. For 2003 and 2002, the Capital Corporation’s ratios were 2.17 and 1.97 to 1, respectively, and never less than 2.05 to 1 and 1.81 to 1 for any fiscal quarter of 2003 and 2002, respectively. The Company has also committed 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. The 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. The 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 necessary under this agreement in 2002 or 2003.

Outside the United States and Canada. The Credit Companies offer equipment financing products in Argentina, Australia, Brazil, Finland, France (through a joint venture), Germany, Italy, Luxembourg, Mexico, New Zealand, Portugal (through a cooperation agreement), Spain, Sweden and the United Kingdom. Retail sales financing outside of the United States and Canada is affected by a diversity of customs and regulations.

Additional information on the Credit Companies appears on pages 17, 20 and 21.

Health Care

In 1985, the Company formed John Deere Health Care, Inc. to commercialize the Company’s expertise in the field of health care benefit management, which had been developed from efforts to manage its own health care costs. John Deere Health Care currently provides health benefit management programs and related administrative services in Illinois, Iowa, Tennessee and Virginia for companies and government entities, either as a third-party administrator or through its health maintenance organization subsidiary, John Deere Health Plan, Inc.. At October 31, 2003, approximately 530,000 individuals were enrolled in these programs, of which approximately 72,000 were John Deere employees, retirees and their dependents.

ENVIRONMENTAL MATTERS

The Company is subject to a wide variety of state, federal and international environmental laws, rules and regulations. These laws, rules and regulations may affect the way the Company conducts its operations, and failure to comply with these regulations could lead to fines and other penalties. The Company is also involved in the evaluation and clean-up of a limited number of sites that it owns. Management does not expect that these matters will have a material adverse effect on the consolidated financial position or results of operations of the Company. With respect to recently acquired properties, the Company cannot be certain that it has identified all adverse environmental conditions. The Company expects that it will acquire additional properties in the future.

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EMPLOYEES

At October 31, 2003, John Deere had approximately 43,200 full-time employees, including approximately 27,000 employees in the United States and Canada. From time to time, John Deere also retains consultants, independent contractors, and temporary and part-time workers. Unions are certified as bargaining agents for approximately 40 percent of John Deere’s United States employees. Most of the Company’s United States production and maintenance workers are covered by a collective bargaining agreement with the United Auto Workers (UAW), with an expiration date of September 30, 2009.

The majority of employees at John Deere manufacturing facilities outside the United States are also represented by unions.

EXECUTIVE OFFICERS OF THE REGISTRANT

Following are the names and ages of the executive officers of the Company, their positions with the Company and summaries of their backgrounds and business experience. All executive officers are elected or appointed by the Board of Directors and hold office until the annual meeting of the Board of Directors following the annual meeting of stockholders in each year.

David M. Purvis, Senior Vice President and Chief Technology Officer, resigned from the Company on December 5, 2003.

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ITEM 2. PROPERTIES.

See “Manufacturing” in Item 1.

The Equipment Operations own 16 facilities housing sales branches, one centralized parts depot, regional parts depots, transfer houses and warehouses throughout the United States and Canada. These facilities contain approximately 5.2 million square feet of floor space. The Equipment Operations also own and occupy buildings housing sales branches, one centralized parts depot and regional parts depots in Australia, Brazil, Europe and New Zealand. These facilities contain approximately 1.0 million square feet of floor space.

Deere & Company administrative offices, research facilities and certain facilities for health care activities, all of which are owned by John Deere, together contain about 2.4 million square feet of floor space and miscellaneous other facilities total .8 million square feet.

Overall, the Company owns approximately 49.3 million square feet of facilities and leases additional square feet in various locations.

ITEM 3. LEGAL PROCEEDINGS.

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.

The Company has been cooperating in a proceeding with the California Air Resources Board regarding small engines that may not comply with California emission standards. These engines were used in certain of the Company’s portable power equipment and walk behind lawn mowers. The Company ceased selling these engines in California and is attempting to recall those previously sold.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company’s common stock is listed on the New York Stock Exchange, the Chicago Stock Exchange and the Frankfurt (Germany) Stock Exchange. See the information concerning quoted prices of the Company’s common stock and the number of stockholders in the second table and the sentence following it, and the data on dividends declared and paid per share in the first table, under the caption “Supplemental Information (Unaudited)” in Note 28 to the Consolidated Financial Statements.

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ITEM 6. SELECTED FINANCIAL DATA.

Financial Summary

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

See the information under the caption “Management’s Discussion and Analysis” on pages 16 through 23.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is exposed to a variety of market risks, including interest rates and currency exchange rates. The Company attempts to actively manage these risks. See the information under “Management’s Discussion and Analysis” on page 23.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See the consolidated financial statements and notes thereto and supplementary data on pages 24 through 49.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

ITEM 9A. 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 October 31, 2003, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Act.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information regarding directors in the proxy statement dated January 15, 2004 (proxy statement), under the captions “Election of Directors,” “Directors Continuing in Office” and in the third paragraph under the caption “Committees - The Audit Review Committee,” is incorporated herein by reference. Information regarding executive officers is presented in Item 1 of this report under the caption “Executive Officers of the Registrant.”

The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. This code of ethics and the Company’s corporate governance policies are posted on the Company’s website at http://www.JohnDeere.com. The Company intends to satisfy disclosure requirements regarding amendments to or waivers from its code of ethics by posting such information on this website.

ITEM 11. EXECUTIVE COMPENSATION.

The information in the proxy statement under the captions “Compensation of Executive Officers” and “Compensation of Directors” is incorporated herein by reference.

Equity compensation plan information in the proxy statement, under the caption “Equity Compensation Plan Information,” is incorporated herein by reference.

The information on the security ownership of certain beneficial owners in the proxy statement under the caption “Security Ownership of Certain Beneficial Owners and Management” is incorporated herein by reference.

The information on shares of common stock of the Company beneficially owned by, and under option to (i) each director, (ii) certain named executive officers and (iii) the directors and officers as a group, contained in the proxy statement under the captions “Security Ownership of Certain Beneficial Owners and Management,” “Compensation of Executive Officers-Summary Compensation Table” and “Compensation of Executive Officers-Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values” is incorporated herein by reference.

None.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information in the proxy statement under the caption “Certain Business Relationships” is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Not Applicable.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

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Financial Statement Schedules Omitted

The following schedules for the Company and consolidated subsidiaries are omitted because of the absence of the conditions under which they are required: I, III, IV and V.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS FOR THE YEARS ENDED OCTOBER 31, 2003, 2002 AND 2001

Deere & Company and its subsidiaries manufacture, distribute and finance a full line of agricultural equipment; a variety of commercial and consumer equipment; a broad range of equipment for construction and forestry; and other technological products and services. The company also provides credit services and managed health care plans.

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 the year 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 last year. 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 United States and Canada increased 17 percent in 2003. Excluding the impact of changes in currency exchange rates, these sales were up 5 percent for the year.

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 this year. Last year’s results were negatively affected by the costs of closing certain facilities and higher costs associated with the company’s minority investments in Nortrax, Inc. and Nortrax Investments, Inc. (collectively called Nortrax), ventures involved in the ownership and development of several construction equipment dealer locations. During the first quarter of 2004, the company acquired a majority interest in Nortrax, Inc. 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, prior-year results 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 last year. 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 last year. The decrease in the ratio was primarily due to improved price realization, higher production volumes, the discontinuance of the amortization of goodwill, and last year’s costs from closing certain facilities and higher costs related to Nortrax. These improvements were partially offset by higher postretirement benefit costs.

Finance and interest income decreased this year 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 last year, primarily due to higher enrollment. Other income decreased this year primarily related to a lower volume of retail notes sold. Research and development costs increased this year due to the higher level of new product development and exchange rate fluctuations. Selling, administrative and general expenses were higher this year 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 this year due to the lower level of leases, and the absence of last year’s losses from the Argentine operations related to the peso devaluation. Equity income (loss) of unconsolidated affiliates improved this year primarily due to the results of the Deere-Hitachi Construction Machinery Corporation and Nortrax.

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 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. In 2004, 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, 2003 was $4,794 million. The company expects the increase in postretirement benefit costs in 2004 to be approximately $125 million pretax, compared with 2003, caused by the amortization of the unrecognized losses primarily as a result of increasing the medical trend rate assumptions and a decrease in the discount rate assumption. 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 $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 United States postretirement benefit plan assets. No voluntary contribution was made in 2002. See the following discussion of “Critical Accounting Policies” for postretirement benefit obligations.

The estimated annual pretax increase in earnings and cash flows in 2002, 2003 and ongoing from the restructurings in 2001 and 2002 were approximately $100 million. These savings were as expected. The restructurings primarily 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.

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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.

Worldwide Agricultural Equipment Operations

The agricultural equipment segment had an operating profit of $337 million in 2003, compared with $439 million in 2002. Net sales increased 9 percent this year 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 last year. 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, compared with $79 million in 2002. Net sales increased 19 percent for the year 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 for the year. 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 this year’s results. Partially offsetting these factors were higher postretirement benefit costs of $59 million. Last year’s results 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 last year 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, partially 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 had an operating profit of $22 million in 2003, compared with an operating loss of $12 million last year. The improvement was primarily due to lower costs and expenses of the special technologies group and the absence of goodwill amortization from the adoption of Financial Accounting Standards Board (FASB) Statement No. 142, Goodwill and Other Intangible Assets. The operating profit for the health care operations was comparable to last year.

Equipment Operations in United States and Canada

The equipment operations in the United States and Canada had an operating profit of $386 million in 2003, compared with $170 million in 2002. The increase was primarily due to improved price realization and higher sales and production volumes of construction and forestry and commercial and consumer equipment. Partially offsetting these items were higher postretirement benefit costs and higher promotional and support costs related to new products. Last year’s results were negatively affected by restructuring costs related to the closure of certain facilities and higher costs related to the company’s investment in Nortrax. Sales increased 13 percent in 2003 while the physical volume of sales increased 10 percent, compared to 2002.

Equipment Operations outside United States and Canada

The equipment operations outside the United States and Canada had an operating profit of $322 million in 2003, compared with $231 million in 2002. The increase was primarily due to higher sales and production volumes of agricultural equipment. Sales increased mainly from the effect of stronger foreign exchange rates, as well as improvements in price realization and physical volume. Partially offsetting these factors were higher expenses related to stronger foreign exchange rates and increased compensation to the credit operations for financing trade receivables. Sales were 17 percent higher than last year, while the physical volume of sales increased 2 percent in 2003, compared with 2002.

MARKET CONDITIONS AND OUTLOOK

As a result of the factors and conditions outlined below, sales for the full 2004 fiscal year are expected to increase between 9 and 11 percent and net income is forecast to be in a range of $750 million to $850 million. The company’s net equipment sales for the first quarter of 2004 are currently forecast to be up approximately 25 percent in comparison with depressed sales levels in the first quarter of 2003, although production levels are expected to increase only 9 to 11 percent for the first quarter. Company-wide net income for the first quarter in 2004 is forecasted in a range of $100 million to $150 million. Excluding the impact of currency and price, sales are expected to increase 18 to 20 percent for the quarter and 6 to 8 percent for the year.

The company’s yearly earnings estimate also includes an increase of approximately $125 million pretax in postretirement benefit costs, based on the company’s assumptions that reflect recent trends in medical inflation and interest rates.

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Agricultural Equipment: After hitting a record level in 2003, United States farm income is expected to remain strong in the coming year as a result of continuing high crop and livestock prices, as well as favorable levels of carryover stocks in farm commodities. In addition, tax provisions that offer expanded depreciation and expense write-offs should lend further support to farm machinery sales. As a result of these positive factors, industry retail sales in the United States and Canada are now expected to be up 5 to 10 percent for fiscal 2004. In other parts of the world, industry retail sales in Western Europe are expected to be flat to down 5 percent for the year mainly as a result of lower farm income due to the impact of drought on the livestock sector. The company believes industry sales in South America will be flat in 2004. While favorable conditions support further industry growth in South America, the company believes this could be offset by the timing and availability of Brazilian government financing. On a worldwide basis, sales of the company’s agricultural equipment are now forecast to be up between 8 to 10 percent for the year with an increase in physical volume of 5 to 7 percent.

Commercial and Consumer Equipment: The company’s commercial and consumer equipment sales are expected to continue benefiting from the success of new products, including an expanded utility-vehicle line and the 100 series lawn tractor introduced in the mass and dealer channels in 2003. As a result, the segment’s sales are forecast to be up between 10 to 12 percent for the year.

Construction and Forestry: Retail activity in the construction and forestry sectors rose at a healthy rate in 2003 mainly as a result of strong replacement demand. The company’s sales for 2003 rose sharply in virtually all market segments and outpaced the industry. Further replacement demand is expected to lead to modest growth in the industry in 2004. In 2004, the company’s shipments of construction and forestry equipment are projected to be up 2 to 4 percent. The company consolidated Nortrax, Inc. during the first quarter of 2004. Including Nortrax in the consolidated results will add an additional estimated $275 million to sales for the year.

Credit Operations: Although the company’s credit operations are expected to benefit from further growth in the loan portfolio, net income for 2004 is forecast to be down slightly as a result of lower gains on receivable sales. The credit operations expect net income of about $300 million for the year.

FASB STATEMENT NO. 142

In the first quarter of 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. The company was also required to test existing goodwill for impairment on a transitional basis as of November 1, 2002. The company completed this test and determined that its goodwill was not impaired and no write-downs were necessary. In 2002 and 2001, the company had goodwill amortization of $58 million pretax ($53 million after-tax) and $55 million pretax ($51 million after-tax), respectively.

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, 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 level, complexity and distribution of government farm programs, animal diseases, crop pests, harvest yields and availability of rail transport for crops. Factors that are particularly important to the company’s outlook for this segment include prices realized by farmers for their crops and livestock, which in turn are strongly impacted by weather and soil conditions and the level of farm product exports, as well as the level of payments under United States government farm programs. Further outbreaks of “mad cow” or “foot-and-mouth” disease could also adversely affect livestock and feed prices. Concerns pertaining to genetically modified organisms, or GMOs, may affect farm exports. The success of the fall harvest and the prices realized by farmers for their crops especially affect retail sales of agricultural equipment in the winter.

Factors affecting the outlook for the company’s commercial and consumer equipment segment include general economic conditions in the United States, consumer confidence, consumer borrowing patterns and weather conditions. Another important assumption is continued consumer acceptance of the company’s new products, including the new 100-series lawn tractors and an expanded utility vehicle line. Sales of commercial and consumer equipment during the winter are also affected by the amount and timing of snowfall.

The number of housing starts is 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 (including Brazil, Argentina and other South American countries), monetary and fiscal policies of various countries, wars and other international conflicts and the threat thereof; actions by the United States Federal Reserve Board and other central banks, actions by the United States 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

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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; production and technological difficulties, including capacity and supply constraints; oil and energy prices and supplies; 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 significant changes in health care costs and in market values of investment assets, which impact postretirement benefit 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.

2002 COMPARED WITH 2001

CONSOLIDATED RESULTS

Worldwide net income in 2002 was $319 million, or $1.33 per share diluted ($1.34 basic), compared with a net loss of $64 million, or $.27 per share diluted ($.27 basic), in 2001. Special charges of $46 million in 2002 and $217 million in 2001 had a negative impact on the results for the respective years. These charges were related to the costs of closing and restructuring certain facilities in both years and a voluntary early-retirement program in 2001. In addition to the decrease in special charges, better price realization as well as the favorable impact of the company’s broad-based cost and expense reduction initiatives were the primary drivers of the improved results in 2002. Favorable customer response to new products also contributed to achieving higher sales and more efficient production levels. These factors, in conjunction with a $323 million reduction in trade receivables and inventories helped generate consolidated cash flow from operations of $1.9 billion for 2002, well above 2001 levels.

Net sales and revenues increased 5 percent to $13,947 million in 2002, compared with $13,293 million in 2001, primarily due to higher net sales. Net sales of the Equipment Operations increased 6 percent in 2002 to $11,703 million from $11,077 million in 2001. The sales increase reflected higher overseas sales of agricultural equipment, especially in Europe, the impact of acquisitions net of divestitures and higher sales of commercial and consumer equipment. Sales were down for construction and forestry equipment (excluding acquisitions) and also for agricultural equipment in the United States and Canada. Sales outside the United States and Canada rose by 19 percent in 2002 due to higher agricultural equipment sales mainly in Europe. Without the effect of foreign exchange rate changes, these sales would have been up 18 percent for 2002.

Worldwide Equipment Operations, which exclude the Financial Services operations, had an operating profit of $401 million in 2002, compared with an operating loss of $46 million in 2001. The operating profit increased primarily due to the decrease in the previously mentioned special charges, improved price realization, cost and expense reductions, higher sales of agricultural and commercial and consumer equipment, and the absence of losses from the Homelite consumer products business, which was sold. Partially offsetting these factors were the compensation to credit for financing trade receivables, higher new product start-up costs and costs associated with Nortrax. Also having a negative impact on the results for 2002 were higher postretirement benefit costs, before special items, as well as lower sales and production volumes at core construction and forestry manufacturing facilities in Dubuque and Davenport, Iowa.

The Equipment Operations’ net income was $78 million in 2002, compared with a net loss of $238 million in 2001. The same operating factors mentioned above affected these results. In addition, the 2002 results benefited from lower interest expense, while a higher tax rate had a negative effect.

Net income of the company’s Financial Services operations in 2002 was $262 million, compared with $192 million in 2001. The increase was primarily due to the income earned on the trade receivables financed by the credit operations, increased gains on the sales of retail notes and improved interest rate spreads. Additional information is presented in the following discussion of the credit operations. Health care premiums and fees and related health care claims and costs increased in 2002, compared to 2001, primarily from increases in enrollment, premium increases and medical cost inflation.

The cost of sales to net sales ratio for 2002 was 82.0 percent, compared to 84.6 percent in 2001. The lower ratio was primarily due to the decrease in special charges, the higher level of production and improved price realization, partially offset by higher costs related to new product start-up, Nortrax and postretirement benefits.

Research and development expenses decreased in 2002, compared to 2001 when the company was introducing an unprecedented number of new products. Interest expense decreased in 2002 due primarily to lower average borrowing rates. Other operating expenses increased in 2002, primarily as a result of losses from the Argentine operations related to the peso devaluation. Other income increased in 2002, compared to 2001, primarily due to increased gains from sales of retail notes and the receipt of fire insurance settlements.

BUSINESS SEGMENT RESULTS

The agricultural equipment segment had an operating profit of $439 million in 2002, compared with $257 million in 2001. Net sales increased 7 percent in 2002 due to higher overseas sales, especially in Europe, where a record number of new products were introduced last fall. Partially offsetting the increase were lower United States and Canada sales for 2002. The operating profit improvement was primarily due to the decrease in special charges, improved price realization and higher sales and production volumes, as well as cost and expense reductions. Partially offsetting these factors were the compensation to credit for financing trade receivables and higher postretirement benefit costs. In addition, the 2002 results were negatively affected by higher new product start-up costs. Reflecting the segment’s commitment to more-disciplined asset management, company-owned and field inventory levels were down $120 million for 2002 in spite of the impact of stronger foreign currency exchange rates.

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The commercial and consumer equipment segment had an operating profit of $79 million in 2002, compared with an operating loss of $165 million in 2001. Net sales increased 7 percent for 2002 or 6 percent without acquisitions and divestitures.The operating profit improvement was mainly due to the decrease in special charges, the absence of losses from Homelite, higher sales, lower sales incentive costs, lower expenses and the receipt of fire insurance settlements. Partially offsetting these factors was the compensation to credit for financing trade receivables. Company-owned and field inventory reductions totaled $204 million for 2002.

The construction and forestry segment had an operating loss of $75 million in 2002, compared with an operating loss of $83 million in 2001. Sales decreased 1 percent for 2002. Excluding the impact of acquisitions, sales decreased 6 percent. Production volumes at core facilities were down 8 percent for 2002. The improvement in operating results was primarily due to a decrease in special charges and cost and expense reductions. Partially offsetting these factors were higher sales incentive costs, higher costs related to the investment in Nortrax, and the lower sales and production volumes from core operations. Also having a negative impact on the results for 2002 were higher postretirement benefit costs.

The operating profit of the credit operations was $386 million in 2002, compared with $274 million in 2001. Operating profit in 2002 was higher than in 2001 due primarily to income earned on trade receivables, increased gains on sales of retail notes and improved interest rate spreads, partially offset by an increase in the provision for credit losses and losses related to the peso devaluation in Argentina. Total revenues of the credit operations increased 9 percent in 2002, primarily reflecting the intercompany interest compensation received from the Equipment Operations related to trade receivables financed. The average balance of receivables and leases financed was 22 percent higher in 2002, compared with 2001, primarily due to the trade receivables mentioned above. A decrease in average borrowing rates in 2002 resulted in a 16 percent decrease in interest expense, compared with 2001. The credit operations’ ratio of earnings to fixed charges was 1.85 to 1 in 2002, compared to 1.51 to 1 in 2001.

The company’s other operations had an operating loss of $12 million in 2002, compared with $31 million in 2001. Results for both years were adversely affected by costs related to the development of new products and goodwill amortization of the special technologies operations. The decreased loss in 2002 was primarily due to cost and expense reductions in the technologies businesses and improved results of the health care operations mainly due to larger enrollment.

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.

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 2003 was $1,203 million primarily due to net income and a decrease in trade receivables and inventories, which were partially offset by a cash outflow for voluntary contributions to United States employee postretirement benefit plans of $475 million (none last year). The operating cash flows and the proceeds from the issuance of common stock of $175 million (which were derived from the exercise of stock options) were used primarily to increase cash and cash equivalents by $858 million, fund purchases of property and equipment of $303 million and pay dividends to stockholders of $211 million.

Over the last three years, operating activities have provided an aggregate of $5,292 million in cash. In addition, borrowings increased $455 million, proceeds from the issuance of common stock were $240 million and the receivables from Financial Services decreased $143 million. The aggregate amount of these cash flows was used mainly to fund purchases of property and equipment of $1,144 million, an increase in the investment in Financial Services of $700 million and stockholders’ dividends of $626 million. Cash and cash equivalents also increased $3,648 million over the three-year period.

Trade receivables held by the Equipment Operations decreased by $263 million during 2003. During this time period, the Equipment Operations sold most of its trade receivables to the credit operations. The decrease from a year ago was primarily due to the increased sales of overseas trade receivables to the credit operations (see following consolidated discussion).

Inventories decreased by $6 million in 2003. Most of these inventories are valued on the last-in, first-out (LIFO) method. Based on constant exchange rates, inventories were approximately $110 million lower this year. The ratios of inventories at LIFO cost to the last 12 months’ cost of sales were 13 percent at October 31, 2003, compared to 14 percent at October 31, 2002.

Total interest-bearing debt of the Equipment Operations was $3,304 million at the end of 2003, compared with $3,387 million at the end of 2002 and $2,984 million at the end of 2001. The ratio of total debt to total capital (total interest-bearing debt and stockholders’ equity) at the end of 2003, 2002 and 2001 was 45 percent, 52 percent and 43 percent, 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 periodically sell substantial amounts of retail notes.

Cash flows from the company’s Financial Services operating activities were $694 million in 2003. Cash provided by financing activities totaled $219 million in 2003, representing a $780 million increase in long-term borrowings and a $250 million increase in short-term borrowings, partially offset by a $563 million decrease

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in borrowings from the Equipment Operations and the payment of $248 million of dividends. The cash provided by operating and financing activities was used primarily to increase receivables. Cash used by investing activities totaled $733 million in 2003, primarily due to receivable acquisitions exceeding collections by $2,615 million, partially offset by sales of receivables of $1,941 million. Cash and cash equivalents also increased $199 million.

Over the past three years, the Financial Services operating activities have provided $2,177 million in cash. In addition, the sale of receivables of $6,637 million, an increase in borrowings of $2,617 million, the sale of equipment on operating leases of $1,398 million and a capital investment from the Equipment Operations of $700 million have provided cash inflows. These amounts have been used mainly to fund receivable and lease acquisitions, which exceeded collections by $12,332 million, and dividends of $658 million. Cash and cash equivalents also increased $175 million over the three-year period.

Receivables and leases increased by $818 million in 2003, compared with 2002. Acquisition volumes of receivables and leases increased 23 percent in 2003, compared with 2002. The volumes of operating loans, trade receivables, revolving charge accounts, wholesale notes and retail notes increased approximately 33 percent, 30 percent, 28 percent, 13 percent and 7 percent, respectively. The credit operations also sold retail notes receiving proceeds of $1,941 million during 2003, compared with $2,968 million in 2002. At October 31, 2003 and 2002, net receivables and leases administered, which include receivables and leases previously sold but still administered, were $16,476 million and $15,363 million, respectively.

Trade receivables held by the credit operations increased by $141 million in 2003 primarily due to the increased purchases of overseas trade receivables from the Equipment Operations (see following consolidated discussion).

Total external interest-bearing debt of the credit operations was $11,447 million at the end of 2003, compared with $10,001 million at the end of 2002 and $9,776 million at the end of 2001. 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 5.6 to 1 at the end of 2003, 2002 and 2001.

During 2003, the credit operations issued $850 million of 3.90% Global Notes due in January 2008 and entered into interest rate swaps related to $650 million of these notes, which swapped the fixed rate to a variable rate of approximately 1.7% at October 31,2003. During 2003, the credit operations also issued $650 million of 5.10% Global Debentures due in January 2013 and entered into interest rate swaps related to these notes, which swapped the fixed rate to a variable rate of approximately 1.8% at October 31, 2003. During 2003, the credit operations retired $200 million of floating rate notes. The credit operations issued $1,804 million and retired $2,324 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, 2003 and 2002 was approximately $2.1 billion and $1.8 billion, respectively, while the total cash and cash equivalents position was $4.4 billion and $2.8 billion, respectively. The company has for many years accessed diverse funding sources, including short-term and long-term unsecured debt capital markets in the United States, Canada, Europe and Australia, as well as public and private securitization markets in the United States and Canada. In addition, the company has access to unsecured bank lines of credit with various United States and foreign banks (see Note 16).

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 currently assigned to company securities by the rating agencies listed below are investment grade ratings. Each rating should be evaluated independently of any other rating. The current company ratings and ratings outlook from each of the rating agencies engaged by the company are as follows:

Trade accounts and notes receivable arise from sales of goods to dealers. Trade receivables decreased by $115 million in 2003. Based on constant exchange rates, trade receivables were approximately $235 million lower this year. Total worldwide agricultural equipment trade receivables increased $5 million, commercial and consumer equipment receivables decreased $77 million, construction and forestry receivables decreased $41 million and other equipment receivables decreased $2 million. The ratios of trade accounts and notes receivable at October 31 to fiscal year net sales were 20 percent in 2003, compared with 23 percent in 2002 and 26 percent in 2001. The collection period

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for trade receivables averages less than 12 months. The percentage of receivables outstanding for a period exceeding 12 months was 11 percent at October 31, 2003, compared with 6 percent at October 31, 2002 and 11 percent at October 31, 2001.

Stockholders’ equity was $4,002 million at October 31, 2003, compared with $3,163 million and $3,992 million at October 31, 2002 and 2001, respectively. The increase of $839 million resulted primarily from net income of $643 million, a change in the cumulative translation adjustment of $214 million and a decrease in treasury stock of $181 million, partially offset by dividends declared of $211 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 $1,891 million of funding and recognized pretax gains of $50 million related to these securitizations during 2003. The company’s total exposure to recourse provisions related to securitized retail notes was $236 million and the total assets held by the SPEs related to securitizations was $2,964 million at October 31, 2003.

At October 31, 2003, the company had a 41 percent ownership interest in Nortrax, Inc. and a 40 percent ownership interest in Nortrax Investments, Inc. (collectively called Nortrax), which have been recorded on the equity basis. These operations are involved in the ownership and development of several construction equipment dealers. The company has certain option agreements with the majority owners of Nortrax related to ownership for which the probable costs have been accrued at year-end. At October 31, 2003, Nortrax’s total assets, total net assets and the company’s investment in Nortrax were $432 million, $97 million and $40 million, respectively. The sales from the company to Nortrax and its affiliates in 2003 were $412 million, and the company’s receivables from Nortrax at October 31, 2003 totaled $235 million. Nortrax did not have significant external borrowings. Subsequent to year-end (in December 2003), the company exercised certain call options in Nortrax, Inc. for $112 million, increasing the company’s ownership interest to 83 percent. Nortrax, Inc., which represents most of the Nortrax operations, was consolidated at that time.

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

At October 31, 2003, the company had approximately $70 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, 2003, the company had accrued losses of approximately $1 million under these agreements. The maximum remaining term of the receivables guaranteed at October 31, 2003 was approximately seven 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 certain contractual agreements for future lease payments. The payment schedule for these contractual obligations in millions of dollars is as follows:

CRITICAL ACCOUNTING POLICIES

The preparation of the company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States 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.

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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. Variances in claims experience and the type of warranty programs affect these estimates, which are reviewed quarterly.

Retirement 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 effect of hypothetical changes to selected assumptions on the company’s major United States retirement benefit plans would be as follows in millions of dollars:

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 factors, including collection experience, 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 credit allowance and the provision for credit losses.

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 sale 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.

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, 2003 and 2002 would have been approximately $56 million and $35 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 monthly. 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 strengthening of the United States dollar relative to all other currencies through 2004 would decrease the 2004 expected net cash inflows by $65 million. Similar assumptions and calculations indicated a potential $28 million adverse effect on the 2003 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 United States dollar relative to all other foreign currencies would not have a material effect on the Financial Services cash flows.

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DEERE & COMPANY

STATEMENT OF CONSOLIDATED INCOME

For the Years Ended October 31, 2003, 2002 and 2001

(In millions of dollars except per share amounts)

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

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DEERE & COMPANY

CONSOLIDATED BALANCE SHEET

As of October 31, 2003 and 2002

(In millions of dollars except per share amounts)

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

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DEERE & COMPANY

STATEMENT OF CONSOLIDATED CASH FLOWS

For the Years Ended October 31, 2003, 2002 and 2001

(In millions of dollars)

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

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DEERE & COMPANY

STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY

For the Years Ended October 31, 2001, 2002 and 2003

(In millions of dollars)