Deere & Company (DE, NYSE)
Industry: Farm & Heavy Construction Machinery
Annual report, fiscal year 2014


FEET ON THE GROUND
EYES ON THE HORIZON






## FEET ON THE GROUND

Net Sales and Revenues (MM)



Worldwide net sales and revenues decreased 5% in 2014 compared with 2013 due to lower Agriculture & Turf sales, partially offset by higher Construction & Forestry sales and Financial Services revenues.

Net Income \( ^{*} \)  (MM)



While down 11%, net income remained strong – reaching its second-highest-ever level in 2014. Earnings per share were down 5%, benefiting from fewer shares outstanding.

* Net income attributable to Deere & Company.

Shareholder Value Added \( ^{*} \)  (SVA) (MM)



* Non-GAAP financial measure. See page 15 for details.

Solid profits, plus the disciplined use of assets and the skillful execution of business plans, yielded another year of impressive SVA performance. SVA represents operating profit less an implied charge for capital.

Dividends Declared (U.S. dollars per share)



During 2014, Deere boosted its quarterly dividend rate by 18%, to 60 cents per share. It was the 12th dividend increase since 2004. Over this time, the company returned more than half of its cash flow from operations to investors through dividends and share repurchases (net of issuances).

## About the Cover

“Feet on the Ground” refers to our unrelenting drive for operational excellence and distinctive levels of quality in all our products, including the pictured 6170M utility tractor and F440R round baler. “Eyes on the Horizon” means looking ahead and making the investments necessary to meet the world’s growing need for food, shelter, and infrastructure.



## More Than 9.5 Billion: Estimated worldwide population by 2050 Nearly 70% living in cities

Experts project that the world’s expanding and increasingly urban population will enjoy higher living standards and diets that include more grain-intensive foods such as meat. In response, Deere will be called on to offer products and services that help meet the demand for more food, fuel, shelter, and infrastructure in the years ahead.



Global Grain Demand (in millions of metric tons)



Source: USDA WASDE report, August 2014.

Capital Expenditures + Research & Development (in billions)



Carrying out our growth plans requires an extensive commitment to advanced new products and efficient manufacturing capacity. This is illustrated by last year’s combined expenditure of $2.5 billion for R&D and capital projects.




Production-class construction equipment such as the new 350-horsepower 1050K crawler dozer, introduced in late 2014, demonstrates Construction & Forestry’s continued push into the large-equipment segment.

# Broad-Based Business Lineup,
Skillful Execution Lead to
Another Year of Solid Performance

Though challenged by a weakening farm economy, John Deere had another good year in 2014. We recorded our second-highest-ever level of income, took further actions to expand our worldwide presence, and continued an aggressive launch of advanced new products. We also furthered our commitment to being a responsible corporate citizen and leading employer.

Our results reflected the skillful execution of our business plans, which stress increasing our global customer base while keeping a tight grip on costs and assets. As a result, we believe the company is well-positioned to earn solid profits even in a softer agricultural environment and, longer term, to benefit from sweeping trends that hold great promise.

For the fiscal year, Deere reported income of $3.16 billion on net sales and revenues of $36.1 billion. This represented a 5 percent decline in sales and revenues and 11 percent lower income compared with levels of 2013. Earnings per share were down as well, but by only 5 percent, reflecting the impact of fewer shares outstanding due to continued share repurchases.

Last year’s results yielded healthy levels of economic profit, or Shareholder Value Added \( ^{*} \)  (SVA), meaning profits stayed well above an underlying cost of capital. SVA – operating profit less an implied capital charge – is the primary measure used in managing the company and making investment decisions.

SVA was $2.69 billion for the year while cash flow from operations totaled $3.53 billion. In addition to funding important projects, these dollars allowed us to return a record amount to investors through dividends and share repurchases. Since 2004, the company has increased the quarterly dividend rate on 12 occasions and repurchased more than 200 million shares of stock.



Setting new productivity standards, the 617-horsepower 8600 forage harvester meets the challenging requirements of commercial-scale operations and contractors. Real-time crop monitoring works in both corn and grass, an industry exclusive.



The company’s balance sheet has remained strong. At year-end, Deere carried some $5 billion of cash and securities. Our equipment operations had relatively low debt, while financial services continued to be conservatively capitalized.

## BROAD LINEUP MAKING IMPACT

Although results were down, the Agriculture & Turf (A&T) division remained solidly profitable, with operating margins near 14 percent. This performance was achieved in spite of a sharp decline in sales of some of our most profitable models of farm machinery. Further, Deere’s largest division brought important products to market and continued to broaden its customer base.

In other businesses, Construction & Forestry (C&F) rebounded strongly. It was helped by a recovering U.S. economy, an improved market for forestry products, and an expanded product lineup. Of significance, the division started up two new factories in Brazil, one with joint-venture partner Hitachi. The nation is expected to play a central role in C&F’s growth ambitions.

Deere’s financial-services unit posted record profits while providing competitive financing to our equipment customers. Net income climbed to $624 million as the loan and lease portfolio grew by more than $3 billion. Credit quality remained strong with the provision for loss equaling less than one dollar for each $1,000 of portfolio value. Over many years, Financial Services has proved to be a reliable source of profits and a major driver of John Deere equipment sales.

## PIVOTAL YEAR AHEAD

While the company is well-positioned for long-term success, 2015 is likely to be a year of challenge. Our financial forecast is calling for a significant reduction in sales and earnings, driven by sharply lower demand for agricultural equipment, especially larger, more profitable models.

Despite the prospect of lower results, we do not view next year’s outlook as discouraging. That the company expects to remain solidly profitable in the face of such a slowdown speaks to the impact of our aggressive actions to control costs and assets and balance factory production with demand. It also shows the value of having a well-rounded business lineup that serves




the needs of a broad and growing range of customers – from production farmers and dairy and livestock producers to homeowners and large property owners, as well as construction and forestry contractors.

All in all, 2015 promises to be a pivotal year, in which the investments and operating changes we’ve made – focused on developing a more flexible cost structure and a wider range of revenue sources – will be called on to keep our performance moving ahead.

## DEMAND GROWTH DRIVING PLANS

Taking a longer view, we believe the future holds great opportunity. Despite ongoing geopolitical and economic tensions, global trends based on population growth and rising living standards remain powerful. True, economic growth in much of the world has slowed. However, projections for global population have edged even higher, to more than 9.5 billion by 2050.
Strong lumber prices and an improving U.S. housing market are fueling sales of forestry equipment, such as this 2154D forestry swing machine. By the use of different heads, this versatile machine can build logging roads, delimb trees, cut trees to exact length, or load logs.

What’s more, while crop supplies and prices sometimes vary widely from one year to the next, demand follows a steadier course. Since 1995, global corn consumption has risen every year, by over 80 percent in all. Soybean demand has more than doubled over this time.

This bullish outlook goes beyond agriculture and extends to a growing requirement for roads, bridges, and buildings as well. All this bolsters our conviction that John Deere will see major benefits from an increasing need for productive farm, turf, construction, and forestry equipment well into the future.



## PURSUING FAR-REACHING STRATEGY

To capitalize on this promising situation, Deere is pursuing a far-reaching operating strategy that is having a major impact on our performance. As we’ve reported in the past, its aim is to increase our global customer base while making further improvements in profitability and asset management.

“Feet on the Ground, Eyes on the Horizon” captures the essence of our plans. The phrase means focusing on safe, efficient operations and responsive customer service while looking ahead and making investments to expand our competitive position in key markets throughout the world.

Our record of skillful execution shows how we’ve kept our feet planted firmly on the ground. Last year, we successfully brought to market dozens of new products while continuing to manage an extensive engine-development program. At the same time, our agricultural-equipment factories scaled back production in line with moderating demand, helping keep inventories in check.

New ExactEmerge planter row-units give corn and soybean growers double the speed of most planters without sacrificing accuracy. It’s a market-shifting innovation that will help large-scale farmers be more productive.
Meanwhile, operating return on operating assets (OROA) – a yardstick of effective execution – was an impressive 27.7 percent for our equipment businesses.

We’ve kept our eyes trained on the horizon, too. To help ensure the success of our plans to serve a growing group of customers, Deere has added significantly to its global production capacity. In recent years, we’ve built seven new factories and upgraded many others. In 2014, new factories for construction equipment were officially opened in Brazil.

In other moves, the company completed the sale of its irrigation unit and of a majority interest of its landscapes operation. We also reached agreement to sell our crop insurance business. By narrowing our focus to areas of greatest potential, these steps are supportive of our goals for increased growth and profitability. Additionally in 2014, Deere announced an expansion of its product-engineering center in Iowa, a move that underscores our commitment to the design of advanced products.

## MOVING TOWARD OUR GOALS

Since our strategy was launched in 2010, we’ve laid the groundwork to reach targets of $50 billion in sales and 2.5 asset






turns, both at mid-cycle sales volumes, by 2018. Last year, we met one of our most aggressive profitability goals by establishing a more responsive cost structure, which can attain a 12 percent operating margin at mid-cycle sales.

Deere reinforced its strategy in 2014 by placing a more intense focus on quality and innovation. We did so because products of exceptional quality often earn higher levels of customer satisfaction and have superior market shares. Similarly, when innovative products are introduced that transform an industry category – such as Deere has done in recent years with cotton pickers, sprayers, and planters, among others – a strong customer response typically follows. The company has a long record of success in these areas. However, it’s essential we take our performance to the next level in order to deliver even greater value to our customers.

Demonstrating commitment to the commercial hay segment, the L330 and L340 are the first John Deere-designed and -built large square balers, produced at the company’s hay and forage plant in Ottumwa, Iowa.
WINNING CUSTOMERS WITH INNOVATIVE PRODUCTS
Last year, the company introduced dozens of products featuring improvements in power, comfort, performance, and emissions control.

Highlighting new agricultural equipment were 16 members of our four-wheel-drive tractor family and a line of breakthrough planters that can double field speeds and maintain planting accuracy. Because planting is the farm activity most sensitive to timing, our ExactEmerge planters could be a real game-changer in helping farmers improve productivity. Also, we broadened our capabilities in hay and forage by introducing sophisticated commercial-scale forage harvesters and the first Deere-built large square balers.

To serve the needs of larger contractors, Construction & Forestry introduced a new production-class crawler dozer and moved ahead with plans to bring out a large hybrid-electric four-wheel-drive loader in 2015. Other new products included updated utility vehicles and a diesel-powered commercial mower.






New 1 Series sub-compact tractors are versatile machines well-suited for the needs of any farmstead. The 1025R, shown here with a front loader and rear-mounted tiller, is sized and priced to win over new customers in the large-property segment.



## DEALERS MAKING CONTRIBUTION

John Deere’s success is closely tied to the strength of our dealership network and our ability to provide professional after-market service.

Last year, in support of our new construction-equipment factories in Brazil, C&F almost doubled its number of dealership locations in the country. A&T continued efforts to help dealers improve their performance and service capabilities, with a particular focus on emerging markets.

To help customers get the most value from their investment in our equipment, we took further steps to strengthen our global parts-distribution system. At year-end, work to upgrade a pair of distribution centers in Brazil and India was nearing completion. Both are scheduled to open in 2015.

The company augmented its global financing capabilities by forming a relationship with a leading bank in Poland to offer financing for our equipment customers there. Deere now has a retail-financing presence in 45 countries, including all those where we have significant sales.

## BEING A POWER FOR GOOD

Long a cornerstone of John Deere’s success, our corporate citizenship efforts continued making a meaningful impact in 2014. Total company and company-foundation support of citizenship activities, whose main focus includes solutions for world hunger, improved educational opportunities, and community development, increased significantly.

In addition, John Deere employees enriched their communities through extensive volunteer efforts that are becoming more global in scale and last year included expanded leadership volunteerism activities in China and Indonesia.

In another highlight, a program sponsored by Deere that helps subsistence farmers in India received an international award of excellence from a leading philanthropic group. In all, it is estimated that more than 9 million people saw direct benefit from the company’s citizenship activities in 2014.



Responsible citizenship is also reflected in efforts to protect the well-being of our employees and to safeguard the environment. Deere extended its exemplary safety record in 2014 with well over half of our locations reporting not a single lost-time incident. Recordable incidents and those resulting in time away from work declined about 20 percent, to all-time lows.

On the environmental side, we made progress meeting our aggressive goals for water reduction and waste recycling. Thanks to projects like one at our Torreon, Mexico, engine factory, which reduced well-water usage by almost half, the company achieved a significant overall reduction in water consumption. In addition, we nearly met our goal of recycling 75 percent of waste from our manufacturing facilities well ahead of the 2018 objective.

At the same time, John Deere products are being designed to minimize adverse effects on the environment through better productivity, increased fuel efficiency, and more accurate nutrient application. Many recently introduced products feature clean-burning engine technology that has reduced emissions by 99 percent or more from earlier levels.

In other milestones from 2014, Deere again was included in prominent listings of the world’s most-ethical and most-admired companies and honored as a top-100 global brand.

We also won accolades for being a good employer. For a third consecutive time, Deere was recognized as a top company for leaders in a widely followed study by a noted benefits consultant. Our leadership-development efforts were ranked 10th-best in North America and 16th-best globally. In addition, Deere was honored as a top employer in Brazil, Germany, Luxembourg, Mexico, and Spain. These are important acknowledgements of our ability to identify, nurture, and develop top employee talent.

To support growth for construction equipment outside the U.S., Deere inaugurated two factories in Brazil early in 2014, one with joint-venture partner Hitachi. Here, employee Adriano Santos da Silva connects hydraulic lines on a backhoe loader.







## ON TRACK FOR LONG-TERM SUCCESS

Although John Deere faces challenging conditions in 2015, we firmly believe the company is on track for long-term growth and success. Thanks to the tireless efforts of employees, dealers, and suppliers everywhere, our plans for helping meet the world’s need for advanced equipment and solutions are making steady gains and providing value to customers every day.

At the same time, we’re confident our actions to develop a more durable business model will help the company deliver solid results in today’s sluggish farm economy.

For these reasons, we are proud to reaffirm our faith in the company’s present course and in our ability to demonstrate strong, sustainable performance well into the future.

To all who share our passion for seizing the great opportunities that lie ahead and for helping people live better lives through our commitment to those linked to the land, we express our thanks for your continued support.
Deere’s senior management team shown at company headquarters in Moline, Illinois. From left: Jim Field, John May, Sam Allen, Mark von Pentz, Raj Kalathur, Jean Gilles, Mary Jones, Max Guinn, and Mike Mack.

On behalf of the John Deere team,



Samuel R. Allen
December 19, 2014



## DEERE ENTERPRISE

– Net sales and revenues decline 5%, to $36.1 billion; earnings are $3.16 billion, second-best in company history.

– SVA declines on lower profits but remains at third-highest-ever level.

– Cash flow from operations continues to be strong, at $3.53 billion.

– Combined dividend payments and share repurchases total a record $3.5 billion; quarterly dividend rate boosted to 60 cents; company repurchases 31.5 million shares.

– Maintaining focus on core equipment businesses, Deere completes sale of irrigation business and majority interest in landscapes operation; also agreement announced for sale of crop insurance business.



Deere & Company World Headquarters in Moline, Illinois, a capstone of Finnish-American architect Eero Saarinen’s distinguished career, turned 50 years old in 2014.

## EQUIPMENT OPERATIONS

– Operating profit of the equipment operations totals $4.3 billion, down 15%, on lower Agriculture & Turf sales, partially offset by higher Construction & Forestry sales.

– With focus on innovation, John Deere Technology Center-India, in Pune,

SVA (MM)



inaugurates 10,500-square-foot research and development lab in nearby Lonikand. Facility expands advanced engineering capabilities.

– Engines introduced below 174 horsepower certified to latest

U.S. EPA Final Tier 4/EU Stage IV (FT4) emissions standards; this completes FT4 coverage for full 45- to 600-horsepower range of John Deere-designed and -built engines.

– Extending our competitive edge in customer support, company begins work on new parts facility in India and expansion of parts center in Brazil; both facilities expected to be operational in 2015.





– Company now offers JDLink technology in 48 countries, helping customers monitor their fleet’s performance remotely, analyze fuel usage, schedule maintenance, and secure machines through geo-fencing and electronic curfews.



## AGRICULTURE & TURF

– Sales decline 9% amid weakening demand for farm machinery, especially larger models.

– Operating profit falls to $3.65 billion, compared with $4.68 billion a year earlier; factors include lower shipment and production volumes and a less favorable product mix.

– Focusing on important markets, company introduces new large square balers, windrowers, and self-propelled forage harvesters for commercial-scale operations and contractors, and diesel commercial mowers for landscape and turf contractors.

– Supporting growth in Asia, company holds first product-introduction meetings for dealers in region; products featured included new tractors, sugarcane and combine harvesters, cotton pickers, and precision-farming technology.

– Innovations, including hybrid plug-in tractor, hitch system for easier tractor-implement connection, and forage-quality advancements, earn awards and industry recognition in France, Holland, Italy, Spain, and U.K.



Continuing the rapid introduction of advanced products, Deere brings out the largest tractors in its lineup – the 9R/9RT Series. Boasting 620 horsepower, the 9620R is the most powerful tractor built by the company.

## CONSTRUCTION & FORESTRY

– Bolstered by improvements in construction and forestry markets, operating profit jumps 71%, to $648 million, on a 12% increase in sales.

– Helped by higher profits, SVA reaches $206 million, best in seven years.

– Continuing growth outside
U.S. and Canada, division inaugurates new backhoe, wheel loader, and excavator manufacturing facilities in Brazil and adds to dealer coverage of Brazilian market; broadens product offering in China with introduction of new excavators.

– Division adds ForestSight technology suite to its services lineup, allowing loggers to wirelessly connect machines and dealers to optimize machine performance and minimize downtime.

## SVA (MM)





Combining strict emissions compliance with customer needs, Construction & Forestry division rolls out wheel loaders with cabs that are quieter and engines that are U.S. EPA Final Tier 4/EU Stage IV-compliant.



## FINANCIAL SERVICES

– Net income climbs to record $624 million.

– SVA also reaches record high of $257 million, mainly due to increased profit.

– Portfolio of financed receivables and leases increases 8%, to nearly $40 billion.

– Provision for credit losses remains historically low at

0.09% of average portfolio, well below 10- and 15-year averages.

– Expanding customer access to credit in order to facilitate equipment sales, financial services enters into cooperation agreement with Credit Agricole Polska; arrangement provides retail financing for John Deere customers in Poland.

– Great Places to Work Institute recognizes division’s European bank in Luxembourg as the country’s best employer; bank provides financing to customers in Germany, Spain, and U.K.



Facilitating equipment sales through convenient access to financing, John Deere Financial field agents in India utilize an application for tablet computers to document customer farm and crop information. The Deere-developed technology speeds the credit-application and -approval process.

## 5-YEAR CUMULATIVE TOTAL RETURN

Deere compared to S&P 500 Index and S&P 500 Construction & Farm Machinery Index



<table><tr><td>At October 31</td><td>2009</td><td>2010</td><td>2011</td><td>2012</td><td>2013</td><td>2014</td></tr><tr><td>Deere &amp; Company</td><td>100.00</td><td>171.83</td><td>173.07</td><td>199.26</td><td>195.40</td><td>209.45</td></tr><tr><td>S&amp;P 500</td><td>100.00</td><td>116.52</td><td>125.94</td><td>145.09</td><td>184.52</td><td>216.39</td></tr><tr><td>S&amp;P Con &amp; Farm Mach</td><td>100.00</td><td>158.40</td><td>173.79</td><td>169.43</td><td>183.54</td><td>216.57</td></tr></table>

The graph compares the cumulative total returns of Deere & Company, the S&P 500 Stock Index, and the S&P 500 Construction & Farm Machinery Index over a five-year period. It assumes $100 was invested on October 31, 2009, and that dividends were reinvested. Deere & Company stock price at October 31, 2014, was $85.54.

The Standard & Poor’s 500 Construction & Farm Machinery Index is made up of Deere (DE), Caterpillar (CAT), Cummins (CMI), Joy Global (JOY), and Paccar (PCAR). The stock performance shown in the graph is not intended to forecast and does not necessarily indicate future price performance.

Copyright © 2014 Standard & Poor's, a division of McGraw Hill Financial. All rights reserved. (www.researchdatagroup.com/S&P.htm).



## SVA: FOCUSING ON GROWTH AND SUSTAINABLE PERFORMANCE

Shareholder Value Added (SVA) – essentially, the difference between operating profit and pretax cost of capital – is a metric used by John Deere to evaluate business results and measure sustainable performance.

To arrive at SVA, each equipment segment is assessed a pretax cost of assets – generally 12% of average identifiable operating assets with inventory at standard cost (believed to more closely approximate the current cost of inventory and the company’s related investment). The financial services segment is assessed a cost of average equity – approximately 15% pretax.

The amount of SVA is determined by deducting the asset or equity charge from operating profit.

Additional information on these metrics and their relationship to amounts presented in accordance with U.S. GAAP can be found at our website, www.JohnDeere.com. Note: Some totals may vary due to rounding.

DEERE EQUIPMENT OPERATIONS

<table><tr><td>$MM unless indicated</td><td>2012</td><td>2013</td><td>2014</td></tr><tr><td>Net Sales</td><td>33,501</td><td>34,998</td><td>32,961</td></tr><tr><td>Operating Profit</td><td>4,397</td><td>5,058</td><td>4,297</td></tr><tr><td>Average Assets</td><td></td><td></td><td></td></tr><tr><td>With Inventories @ Std Cost</td><td>14,965</td><td>15,924</td><td>15,493</td></tr><tr><td>With Inventories @ LIFO</td><td>13,594</td><td>14,569</td><td>14,113</td></tr><tr><td>OROA % @ LIFO</td><td>32.3</td><td>34.7</td><td>30.4</td></tr><tr><td>Asset Turns (Std Cost)</td><td>2.24</td><td>2.20</td><td>2.13</td></tr><tr><td>Operating Margin %</td><td>x 13.12</td><td>x 14.45</td><td>x 13.04</td></tr><tr><td>OROA % @ Standard Cost</td><td>29.4</td><td>31.8</td><td>27.7</td></tr><tr><td>$MM</td><td>2012</td><td>2013</td><td>2014</td></tr><tr><td>Average Assets @ Std Cost</td><td>14,965</td><td>15,924</td><td>15,493</td></tr><tr><td>Operating Profit</td><td>4,397</td><td>5,058</td><td>4,297</td></tr><tr><td>Cost of Assets</td><td>-1,795</td><td>-1,911</td><td>-1,860</td></tr><tr><td>SVA</td><td>2,602</td><td>3,147</td><td>2,437</td></tr></table>

Deere Equipment Operations, to create and grow SVA, are targeting an operating return on average operating assets (OROA) of 20% at mid-cycle sales volumes and equally ambitious returns at other points in the cycle. (For purposes of this calculation, operating assets are average identifiable assets during the year with inventories valued at standard cost.)

AGRICULTURE & TURF

<table><tr><td>$MM unless indicated</td><td>2012</td><td>2013</td><td>2014</td></tr><tr><td>Net Sales</td><td>27,123</td><td>29,132</td><td>26,380</td></tr><tr><td>Operating Profit</td><td>3,921</td><td>4,680</td><td>3,649</td></tr><tr><td>Average Assets</td><td></td><td></td><td></td></tr><tr><td>With Inventories @ Std Cost</td><td>11,564</td><td>12,211</td><td>11,813</td></tr><tr><td>With Inventories @ LIFO</td><td>10,422</td><td>11,103</td><td>10,668</td></tr><tr><td>OROA % @ LIFO</td><td>37.6</td><td>42.2</td><td>34.2</td></tr><tr><td>Asset Turns (Std Cost)</td><td>2.35</td><td>2.39</td><td>2.23</td></tr><tr><td>Operating Margin %</td><td>x 14.46</td><td>x 16.06</td><td>x 13.83</td></tr><tr><td>OROA % @ Standard Cost</td><td>33.9</td><td>38.3</td><td>30.9</td></tr><tr><td>$MM</td><td>2012</td><td>2013</td><td>2014</td></tr><tr><td>Average Assets @ Std Cost</td><td>11,564</td><td>12,211</td><td>11,813</td></tr><tr><td>Operating Profit</td><td>3,921</td><td>4,680</td><td>3,649</td></tr><tr><td>Cost of Assets</td><td>-1,387</td><td>-1,465</td><td>-1,418</td></tr><tr><td>SVA</td><td>2,534</td><td>3,215</td><td>2,231</td></tr></table>

CONSTRUCTION & FORESTRY

<table><tr><td>$MM unless indicated</td><td>2012</td><td>2013</td><td>2014</td></tr><tr><td>Net Sales</td><td>6,378</td><td>5,866</td><td>6,581</td></tr><tr><td>Operating Profit</td><td>476</td><td>378</td><td>648</td></tr><tr><td>Average Assets</td><td></td><td></td><td></td></tr><tr><td>With Inventories @ Std Cost</td><td>3,401</td><td>3,713</td><td>3,680</td></tr><tr><td>With Inventories @ LIFO</td><td>3,172</td><td>3,466</td><td>3,445</td></tr><tr><td>OROA % @ LIFO</td><td>15.0</td><td>10.9</td><td>18.8</td></tr><tr><td>Asset Turns (Std Cost)</td><td>1.88</td><td>1.58</td><td>1.79</td></tr><tr><td>Operating Margin %</td><td>x 7.46</td><td>x 6.44</td><td>x 9.85</td></tr><tr><td>OROA % @ Standard Cost</td><td>14.0</td><td>10.2</td><td>17.6</td></tr><tr><td>$MM</td><td>2012</td><td>2013</td><td>2014</td></tr><tr><td>Average Assets @ Std Cost</td><td>3,401</td><td>3,713</td><td>3,680</td></tr><tr><td>Operating Profit</td><td>476</td><td>378</td><td>648</td></tr><tr><td>Cost of Assets</td><td>-408</td><td>-446</td><td>-442</td></tr><tr><td>SVA</td><td>68</td><td>-68</td><td>206</td></tr></table>

FINANCIAL SERVICES

<table><tr><td>$MM unless indicated</td><td>2012</td><td>2013</td><td>2014</td></tr><tr><td>Net Income Attributable to Deere &amp; Company</td><td>460</td><td>565</td><td>624</td></tr><tr><td>Average Equity</td><td>3,470</td><td>4,073</td><td>4,575</td></tr><tr><td>ROE %</td><td>13.3</td><td>13.9</td><td>13.6</td></tr><tr><td>$MM</td><td>2012</td><td>2013</td><td>2014</td></tr><tr><td>Operating Profit</td><td>712</td><td>870</td><td>921</td></tr><tr><td>Average Equity</td><td>3,470</td><td>4,073</td><td>4,575</td></tr><tr><td>Operating Profit</td><td>712</td><td>870</td><td>921</td></tr><tr><td>Cost of Equity</td><td>-538</td><td>-627</td><td>-664</td></tr><tr><td>SVA</td><td>174</td><td>243</td><td>257</td></tr></table>

The Financial Services SVA metric is calculated on a pretax basis.



SAMUEL R. ALLEN (39)
Chairman and Chief Executive Officer

JEAN H. GILLES (34)
Senior Vice President, John Deere Power Systems,
Worldwide Parts Services, Advanced Technology & Engineering,
and Global Supply Management & Logistics

MARY K.W. JONES (17)
Senior Vice President and General Counsel

RAJESH KALATHUR (18)
Senior Vice President and Chief Financial Officer

KIMBERLY K. BEARDSLEY (24)
Vice President, Worldwide Parts Services

PIERRE J. GUYOT (16)
Vice President, Global Supply Management & Logistics

TIMOTHY V. HAIGHT (15)
Vice President and Deputy General Counsel, and
Chief Counsel, Financial Services Division

MICHAEL A. HARRING (30)
Vice President and Deputy General Counsel, North America

KLAUS G. HOEHN (22)
Vice President, Advanced Technology & Engineering

MARC A. HOWZE (13)
Vice President, Global Human Resources and
Employee Communications

THOMAS K. JARRETT (26)
Vice President, Taxes

JENNY R. KIMBALL (22)
Vice President and Treasurer

BRADLEY D. MORRIS (37)
Vice President, Labor Relations

GREGORY R. NOE (21)
Vice President and Deputy General Counsel, International

LUANN K. RICKERT (35)
Vice President, Internal Audit

LAURIE S. SIMPSON (34)
Vice President and Chief Compliance Officer

THOMAS C. SPITZFADEN (35)
Vice President, Pension Fund & Investments

CHARLES R. STAMP, JR. (15)
Vice President, Public Affairs Worldwide

JAMES E. TEMPERLEY (38)
Vice President and Comptroller

PATRICK W. WEBBER (37)
Vice President, Information Technology

TODD E. DAVIES (24)
Corporate Secretary and Associate General Counsel

## WORLDWIDE AGRICULTURE & TURF DIVISION

JAMES M. FIELD (20)
President, Americas, Australia, and Global Harvesting and Turf Platforms

JOHN C. MAY (17)
President, Agricultural Solutions, and
Chief Information Officer

MARKWART VON PENTZ (24)
President, Europe, Asia, Africa, and Global Tractor Platform

BERNHARD E. HAAS (28)
Senior Vice President, Global Tractor Platform

JOHN D. LAGEMANN (32)
Senior Vice President, Sales & Marketing, Americas and Australia

CORY J. REED (16)
Senior Vice President, Intelligent Solutions

RANDAL A. SERGESKETTER (34)
Senior Vice President, Global Crop Harvesting Platform

## WORLDWIDE CONSTRUCTION & FORESTRY DIVISION

MAX A. GUINN (34)
President, Worldwide C&F, Labor Relations, and Security

BRIAN J. RAUCH (20)
Senior Vice President,
Engineering, Manufacturing, and Supply Management

DOMENIC G. RUCCOLO (24)
Senior Vice President, Sales & Marketing

## WORLDWIDE FINANCIAL SERVICES DIVISION

MICHAEL J. MACK (28)
Group President, Financial Services Division,
Human Resources, and Public Affairs

BRET C. THOMAS (1)
Executive Vice President, Global Operations

DAVID C. GILMORE (24)
Senior Vice President, U.S., Canada, Australia, and New Zealand

PATRICK E. MACK (37)
Senior Vice President, International Finance

LAWRENCE W. SIDWELL (15)
Senior Vice President, Global Credit & Risk



From left: Dipak C. Jain, Vance D. Coffman, Crandall C. Bowles, Clayton M. Jones, Richard B. Myers, Charles O. Holliday, Jr., Samuel R. Allen, Gregory R. Page, Sherry M. Smith, Joachim Milberg, and Thomas H. Patrick at Deere & Company World Headquarters.



SAMUEL R. ALLEN (5)
Chairman and Chief Executive Officer,
Deere & Company

CRANDALL C. BOWLES (18)
Chairman, The Springs Company
asset management company

VANCE D. COFFMAN (10)
Retired Chairman, Lockheed Martin Corporation
aerospace, defense and information technology

CHARLES O. HOLLIDAY, JR. (7)
Chairman, National Academy of Engineering
nonprofit engineering institution

DIPAK C. JAIN (12)
Director, Sasin Graduate Institute
of Business Administration
international graduate business school

CLAYTON M. JONES (7)
Retired Chairman, Rockwell Collins, Inc.
aviation electronics and communications
JOACHIM MILBERG (11)
Chairman, Supervisory Board,
Bayerische Motoren Werke (BMW) AG
motor vehicles

RICHARD B. MYERS (8)
Retired Chairman, Joint Chiefs of Staff
Retired General, United States Air Force
principal military advisor to the President,
the Secretary of Defense,
and the National Security Council

GREGORY R. PAGE (1)
Executive Chairman, Cargill, Inc.
agricultural, food, financial, and industrial products and services

THOMAS H. PATRICK (14)
Chairman, New Vernon Capital, LLC
private equity fund

SHERRY M. SMITH (3)
Former Executive Vice President and
Chief Financial Officer, Supervalu Inc.
retail and wholesale grocery and
retail general merchandise products



## ANNUAL MEETING

The annual meeting of company stockholders will be held at 10 a.m. CT on February 25, 2015, at Deere & Company World Headquarters, One John Deere Place, Moline, Illinois.

## TRANSFER AGENT & REGISTRAR

Send all correspondence, including address changes and certificates for transfer, as well as inquiries concerning lost, stolen, or destroyed stock certificates or dividend checks, to:

Deere & Company
c/o Computershare
P.O. Box 30170
College Station, TX 77842-3170

Phone toll-free: 1-800-268-7369
From outside the U.S., call: (201) 680-6678
TDD: 1-800-231-5469
Email: shareholder@computershare.com
www.computershare.com/investor

## DIVIDEND REINVESTMENT & DIRECT PURCHASE PLAN

Investors may purchase initial Deere & Company shares and automatically reinvest dividends through the Computershare BuyDIRECT Plan. Optional monthly cash investments may be made automatically through electronic debits.

For inquiries about existing reinvestment accounts, call 1-800-268-7369 or write to:

Deere & Company
c/o Computershare
P.O. Box 30170
College Station, TX 77842-3170

## STOCKHOLDER RELATIONS

Deere & Company welcomes your comments:

Deere & Company
Stockholder Relations Department
One John Deere Place, Moline, IL 61265-8098
Phone: (309) 765-4539 Fax: (309) 765-4663
www.JohnDeere.com/Investors

## INVESTOR RELATIONS

Securities analysts, portfolio managers, and representatives of financial institutions may contact:

Tony Huegel
Director, Investor Relations
Deere & Company
One John Deere Place, Moline, IL 61265-8098
Phone: (309) 765-4491
www.JohnDeere.com/Investors

## STOCK EXCHANGES

Deere & Company common stock is listed on the New York Stock Exchange under the ticker symbol DE.

## FORM 10-K

The annual report on Form 10-K filed with the Securities and Exchange Commission is available online or upon written request to Deere & Company Stockholder Relations.

## AUDITORS

Deloitte & Touche LLP
Chicago, Illinois

## TABLE OF CONTENTS:

Management’s Discussion and Analysis ..... 19
Reports of Management and Independent Registered Public Accounting Firm ..... 29
Consolidated Financial Statements ..... 30
Notes to Consolidated Financial Statements ..... 35
Selected Financial Data ..... 67



## RESULTS OF OPERATIONS FOR THE YEARS ENDED
OCTOBER 31, 2014, 2013 AND 2012

## OVERVIEW

## Organization

The company’s equipment operations generate revenues and cash primarily from the sale of equipment to John Deere dealers and distributors. The equipment operations manufacture and distribute a full line of agricultural equipment; a variety of commercial and consumer equipment; and a broad range of equipment for construction and forestry. The company’s financial services primarily provide credit services, which mainly finance sales and leases of equipment by John Deere dealers and trade receivables purchased from the equipment operations. In addition, financial services offer crop risk mitigation products and extended equipment warranties. The information in the following discussion is presented in a format that includes information grouped as consolidated, equipment operations and financial services. The company also views its operations as consisting of two geographic areas, the U.S. and Canada, and outside the U.S. and Canada. The company’s operating segments consist of agriculture and turf, construction and forestry, and financial services.

## Trends and Economic Conditions

The company’s agriculture and turf equipment sales decreased 9 percent in 2014 and are forecast to decrease by about 20 percent for 2015. Industry agricultural machinery sales in the U.S. and Canada for 2015 are forecast to decrease 25 to 30 percent, compared to 2014. Industry sales in the European Union (EU)28 nations are forecast to decrease about 10 percent in 2015, while South American industry sales are projected to decrease about 10 percent from 2014 levels. Industry sales in the Commonwealth of Independent States are expected to decrease. Asian sales are projected to decrease slightly in 2015. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be approximately the same to 5 percent higher. The company’s construction and forestry sales increased 12 percent in 2014 and are forecast to increase by about 5 percent in 2015. Global forestry sales are expected to be approximately the same as the attractive levels of 2014. Net income of the company’s financial services operations attributable to Deere & Company in 2015 is expected to be approximately $610 million.

Items of concern include the uncertainty of the effectiveness of governmental actions in respect to monetary and fiscal policies, the global economic recovery, the impact of sovereign and state debt, eurozone issues, capital market disruptions, trade agreements and geopolitical events. Significant volatility in the price of many commodities could also impact the company’s results. Designing and producing products with engines that continue to meet high performance standards and increasingly stringent emissions regulations is one of the company’s major priorities.

The company completed a year of solid performance and produced healthy levels of cash flow in spite of weaker conditions in the global farm sector. Even with a significant decline in sales and continued pullback in the global agriculture sector, the company expects to remain solidly profitable in 2015. Longer term, the company believes it is well positioned to earn solid returns throughout the business cycle and realize substantial benefits from the world’s growing need for food, shelter and infrastructure.

## 2014 COMPARED WITH 2013

## CONSOLIDATED RESULTS

Worldwide net income attributable to Deere & Company in 2014 was $3,162 million, or $8.63 per share diluted ($8.71 basic), compared with $3,537 million, or $9.09 per share diluted ($9.18 basic), in 2013. Net sales and revenues decreased 5 percent to $36,067 million in 2014, compared with $37,795 million in 2013. Net sales of the equipment operations decreased 6 percent in 2014 to $32,961 million from $34,998 million last year. The sales decrease was largely due to lower shipment volumes and an unfavorable foreign currency translation effect of 1 percent, partially offset by price realization of 2 percent. Net sales in the U.S. and Canada decreased 8 percent in 2014. Net sales outside the U.S. and Canada decreased 3 percent in 2014, which included an unfavorable effect of 1 percent for foreign currency translation.

Worldwide equipment operations had an operating profit of $4,297 million in 2014, compared with $5,058 million in 2013. The operating profit decline was due primarily to the impact of lower shipment and production volumes, a less favorable product mix, the unfavorable effects of foreign currency exchange and higher production costs primarily related to the impact of engine emission programs. The decline was partially offset by price realization. Last year’s results were also affected by impairment charges for the company’s John Deere Landscapes and John Deere Water operations (see Notes 4 and 5).

The equipment operations’ net income was $2,548 million in 2014, compared with $2,974 million in 2013. The same operating factors mentioned above affected these results.

Net income of the financial services operations attributable to Deere & Company in 2014 increased to $624 million, compared with $565 million in 2013. The improvement was due primarily to growth in the credit portfolio, a more favorable effective tax rate, partially offset by lower crop insurance margins, higher selling, administrative and general expenses and a higher provision for credit losses. Additional information is presented in the following discussion of the “Worldwide Financial Services Operations.”

The cost of sales to net sales ratio for 2014 was 75.2 percent, compared with 73.3 percent last year. The increase was due primarily to a less favorable product mix, the unfavorable effects of foreign currency exchange and higher production costs largely related to engine emission requirements, partially offset by price realization.

Finance and interest income increased this year due to a larger average credit portfolio, partially offset by lower average financing rates. Other income increased due primarily to higher insurance premiums and service revenue. Research and development costs decreased primarily due to the completion of certain product developments in 2014 compared to last year. Selling, administrative and general expenses decreased due primarily to the deconsolidation of Landscapes and the sale of



the Water operations (see Note 4). Interest expense decreased due to lower average borrowing rates, partially offset by higher average borrowings. Other operating expenses increased due primarily to higher depreciation of equipment on operating leases, higher insurance claims and the write-down to realizable value and sale of the Water operations, partially offset by impairment charges in 2013 for the Landscapes operations (see Notes 4 and 5).

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 2014 were $432 million, compared with $575 million in 2013. The long-term expected return on plan assets, which is reflected in these costs, was an expected gain of 7.5 percent in 2014 and 7.8 percent in 2013, or $848 million in 2014 and $862 million in 2013. The actual return was a gain of $1,213 million in 2014 and $1,470 million in 2013. In 2015, the expected return will be approximately 7.3 percent. The company’s postretirement costs in 2015 are expected to increase approximately $85 million. The company makes any required contributions to the 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 $138 million in 2014 and $338 million in 2013, which include direct benefit payments for unfunded plans. These contributions also included voluntary contributions to plan assets of $5 million in 2014 and $227 million in 2013. Total company contributions in 2015 are expected to be approximately $104 million, which are primarily direct benefit payments for unfunded plans. The company has no significant required contributions to pension plan assets in 2015 under applicable funding regulations. See the following discussion of “Critical Accounting Policies” for more information about postretirement benefit obligations.

## BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS

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

## Worldwide Agriculture and Turf Operations

The agriculture and turf segment had an operating profit of $3,649 million in 2014, compared with $4,680 million in 2013. Net sales decreased 9 percent this year due largely to lower shipment volumes, the previously announced sales of the company’s Landscapes and Water operations and the unfavorable effects of currency translation. Partially offsetting these factors was price realization. The decrease in operating profit was driven mainly by lower shipment and production volumes, a less favorable product mix, the unfavorable effects of foreign currency exchange and higher production costs primarily related to engine emission programs. The decline was partially offset by price realization. As previously noted, last year also was affected by impairment charges for the Landscapes and Water operations (see Notes 4 and 5).

## Worldwide Construction and Forestry Operations

The construction and forestry segment had an operating profit of $648 million in 2014, compared with $378 million in 2013. Net sales increased 12 percent for the year mainly as a result of higher shipment volumes and price realization, partially offset by the unfavorable effect of currency translation. Operating profit benefited in 2014 from higher shipment volumes, lower selling, administrative and general expenses and price realization, partially offset by the unfavorable effects of foreign currency exchange.

## Worldwide Financial Services Operations

The operating profit of the financial services segment was $921 million in 2014, compared with $870 million in 2013. The results were higher due primarily to growth in the credit portfolio, partially offset by lower crop insurance margins, higher selling, administrative and general expenses and a higher provision for credit losses. Total revenues of the financial services operations, including intercompany revenues, increased 9 percent in 2014, primarily reflecting the larger portfolio. The average balance of receivables and leases financed was 13 percent higher in 2014, compared with 2013. Interest expense decreased 12 percent in 2014 as a result of lower average borrowing rates, partially offset by higher average borrowings. The financial services operations' ratio of earnings to fixed charges was 3.37 to 1 in 2014, compared with 2.90 to 1 in 2013.

## Equipment Operations in U.S. and Canada

The equipment operations in the U.S. and Canada had an operating profit of $3,311 million in 2014, compared with $4,062 million in 2013. The decline was due primarily to the impact of lower shipment and production volumes, a less favorable product mix and higher production costs primarily related to engine emission programs. The decline was partially offset by price realization. Results in 2013 were also affected by impairment charges for the Landscapes and Water operations. Net sales decreased 8 percent due primarily to lower shipment volumes, partially offset by price realization. The physical volume of sales decreased 9 percent, compared with 2013.

## Equipment Operations outside U.S. and Canada

The equipment operations outside the U.S. and Canada had an operating profit of $986 million in 2014, compared with $996 million in 2013. The decrease was due primarily to the impact of lower shipment and production volumes, a less favorable product mix, the unfavorable effects of foreign currency exchange, higher production costs and an impairment charge for the China operations (see Note 5), partially offset by price realization. Results in 2013 were also affected by impairment charges for the Water operations. Net sales were 3 percent lower primarily reflecting decreased shipment volumes and the effect of foreign currency translation, partially offset by price realization. The physical volume of sales decreased 5 percent, compared with 2013.

## MARKET CONDITIONS AND OUTLOOK

Company equipment sales are projected to decrease about 15 percent for fiscal year 2015 and decrease about 21 percent for the first quarter, compared with the same periods in 2014.



For fiscal year 2015, net income attributable to Deere & Company is anticipated to be about $1.9 billion.

Agriculture and Turf. The company’s worldwide sales of agriculture and turf equipment are forecast to decrease by about 20 percent for fiscal year 2015 as a result of weaker conditions in the global farm economy. Lower commodity prices and falling farm incomes are putting pressure on demand for agricultural machinery, especially for larger models. Conditions are more positive in the U.S. livestock sector, providing support to the sale of smaller sizes of equipment. Based on these factors, industry sales for agricultural machinery in the U.S. and Canada are forecast to be down 25 to 30 percent for 2015. Fiscal year industry sales in the EU28 are forecast to decrease about 10 percent due to lower crop prices and farm incomes as well as potential pressure on the dairy sector. In South America, industry sales of tractors and combines are projected to decrease about 10 percent as a result of the headwinds affecting agricultural producers. Industry sales in the Commonwealth of Independent States are expected to deteriorate further due in part to tight credit conditions. Asian sales are projected to decrease slightly, with most of the decline centered in China. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be about the same to 5 percent higher, benefiting from general economic growth.

Construction and Forestry. The company’s worldwide sales of construction and forestry equipment are forecast to increase by about 5 percent for 2015. The gain reflects further economic recovery and higher housing starts in the U.S. as well as sales increases outside the U.S. and Canada. Global forestry sales are expected to be about the same as the attractive levels of 2014.

Financial Services. Fiscal year 2015 net income attributable to Deere & Company for the financial services operations is expected to be approximately $610 million. The outlook reflects a decline from 2014 due primarily to an expected increase in the provision for credit losses, versus the low level of 2014, and a less favorable tax rate. These factors are projected to be partially offset by growth in the credit portfolio and higher crop insurance margins.

## SAFE HARBOR STATEMENT

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements under “Overview,” “Market Conditions and Outlook,” and other forward-looking statements herein that relate to future events, expectations, trends and operating periods involve certain factors that are subject to change, and 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.

The company’s agricultural equipment business is subject to a number of uncertainties including the many interrelated factors that affect farmers’ confidence. These factors include worldwide economic conditions, demand for agricultural products, world grain stocks, weather conditions (including its effects on timely planting and harvesting), soil conditions (including low subsoil moisture), harvest yields, prices for commodities and livestock, crop and livestock production expenses, availability of transport for crops, the growth and sustainability of non-food uses for some crops (including ethanol and biodiesel production), real estate values, available acreage for farming, the land ownership policies of various governments, changes in government farm programs and policies (including those in Argentina, Brazil, China, the European Union, India, Russia and the U.S.), international reaction to such programs, changes in and effects of crop insurance programs, global trade agreements, animal diseases and their effects on poultry, beef and pork consumption and prices, crop pests and diseases, and the level of farm product exports (including concerns about genetically modified organisms).

Factors affecting the outlook for the company’s turf and utility equipment include general economic conditions, consumer confidence, weather conditions, customer profitability, consumer borrowing patterns, consumer purchasing preferences, housing starts, infrastructure investment, spending by municipalities and golf courses, and consumable input costs.

General economic conditions, consumer spending patterns, real estate and housing prices, the number of housing starts and interest rates are especially important to sales of the company’s construction and forestry equipment. The levels of public and non-residential construction also impact the results of the company’s construction and forestry segment. Prices for pulp, paper, 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 the global markets in which the company operates, especially material changes in economic activity in these markets; customer confidence in general economic conditions; foreign currency exchange rates and their volatility, especially fluctuations in the value of the U.S. dollar; interest rates; and inflation and deflation rates. Government spending and taxing could adversely affect the economy, employment, consumer and corporate spending, and company results.

Customer and company operations and results could be affected by changes in weather patterns (including the effects of drought conditions in parts of the U.S. and drier than normal conditions in certain other markets); the political and social stability of the global markets in which the company operates; the effects of, or response to, terrorism and security threats; wars and other conflicts and the threat thereof and the response thereto; and the spread of major epidemics.

Significant changes in market liquidity conditions and any failure to comply with financial covenants in credit agreements could impact access to funding and funding costs, which could reduce the company’s earnings and cash flows. Financial market conditions could also negatively impact customer access to capital for purchases of the company’s products and customer confidence and purchase decisions; borrowing and repayment practices; and the number and size of customer loan delinquencies and defaults. A debt crisis, in Europe or elsewhere, could negatively impact currencies, global financial markets, social and political stability, funding sources and costs, asset and obligation values, customers, suppliers, and company operations and results.



State debt crises also could negatively impact customers, suppliers, demand for equipment, and company operations and results. The company’s investment management activities could be impaired by changes in the equity, bond and other financial markets, which would negatively affect earnings.

Additional factors that could materially affect the company’s operations, access to capital, expenses and results include changes in and the impact of governmental trade, banking, monetary and fiscal policies, including financial regulatory reform and its effects on the consumer finance industry, derivatives, funding costs and other areas, and governmental programs, policies, tariffs and sanctions in particular jurisdictions or for the benefit of certain industries or sectors (including protectionist, economic, punitive and expropriation policies and trade and licensing restrictions that could disrupt international commerce); actions by the U.S. Federal Reserve Board and other central banks; actions by the U.S. Securities and Exchange Commission (SEC), the U.S. Commodity Futures Trading Commission and other financial regulators; actions by environmental, health and safety regulatory agencies, including those related to engine emissions (in particular Interim Tier 4/Stage IIIb and Final Tier 4/Stage IV non-road diesel emission requirements in the U.S. and European Union), carbon and other greenhouse gas emissions, noise and the effects of climate change; changes in labor regulations; changes to accounting standards; changes in tax rates, estimates, and regulations and company actions related thereto; compliance with U.S. and foreign laws when expanding to new markets and otherwise; and actions by other regulatory bodies including changes in laws and regulations affecting the sectors in which the company operates. Trade, financial and other sanctions imposed by the U.S., the European Union, Russia and other countries could negatively impact company assets, operations, sales, forecasts and results. Customer and company operations and results also could be affected by changes to GPS radio frequency bands or their permitted uses.

Other factors that could materially affect results include production, design and technological innovations and difficulties, including capacity and supply constraints and prices; the availability and prices of strategically sourced materials, components and whole goods; delays or disruptions in the company’s supply chain or the loss of liquidity by suppliers; the failure of suppliers to comply with laws, regulations and company policy pertaining to employment, human rights, health, safety, the environment and other ethical business practices; events that damage the company’s reputation or brand; start-up of new plants and new products; the success of new product initiatives and customer acceptance of new products; changes in customer product preferences and sales mix whether as a result of changes in equipment design to meet government regulations or for other reasons; gaps or limitations in rural broadband coverage, capacity and speed needed to support technology solutions; oil and energy prices and supplies; the availability and cost of freight; actions of competitors in the various industries in which the company competes, particularly price discounting; dealer practices especially as to levels of new and used field inventories; labor relations; acquisitions and divestitures of businesses; the integration of new businesses; the implementation of organizational changes; difficulties related to the conversion and implementation of enterprise resource planning systems that disrupt business, negatively impact supply or distribution relationships or create higher than expected costs; security breaches and other disruptions to the company’s information technology infrastructure; and changes in company declared dividends and common stock issuances and repurchases.

Company results are also affected by changes in the level and funding of employee retirement benefits, changes in market values of investment assets, the level of interest and discount rates, and compensation, retirement and mortality rates which impact retirement benefit costs, and significant changes in health care costs including those which may result from governmental action.

The liquidity and ongoing profitability of John Deere Capital Corporation and other credit subsidiaries depend largely on timely access to capital in order to meet future cash flow requirements, to fund operations and costs associated with engaging in diversified funding activities, and to fund purchases of the company’s products. If general economic conditions deteriorate or capital markets become volatile, funding could be unavailable or insufficient. Additionally, customer confidence levels may result in declines in credit applications and increases in delinquencies and default rates, which could materially impact write-offs and provisions for credit losses. The failure of reinsurers of the company’s insurance business also could materially affect results.

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, except as required by law, undertakes no obligation to update or revise its outlook, whether as a result of new developments or otherwise. Further information concerning the company and its businesses, including factors that potentially could materially affect the company’s financial results, is included in the company’s other filings with the SEC.

## 2013 COMPARED WITH 2012

## CONSOLIDATED RESULTS

Worldwide net income attributable to Deere & Company in 2013 was $3,537 million, or $9.09 per share diluted ($9.18 basic), compared with $3,065 million, or $7.63 per share diluted ($7.72 basic), in 2012. Net sales and revenues increased 5 percent to $37,795 million in 2013, compared with $36,157 million in 2012. Net sales of the equipment operations increased 4 percent in 2013 to $34,998 million from $33,501 million in 2012. The sales increase included improved price realization of 3 percent and an unfavorable foreign currency translation effect of 1 percent. Net sales in the U.S. and Canada increased 5 percent in 2013. Net sales outside the U.S. and Canada increased by 4 percent in 2013, which included an unfavorable effect of 3 percent for foreign currency translation.

Worldwide equipment operations had an operating profit of $5,058 million in 2013, compared with $4,397 million



in 2012. The higher operating profit was due primarily to the impact of improved price realization and higher shipment volumes, partially offset by the unfavorable effects of foreign currency exchange, increased production costs, higher selling, administrative and general expenses and increased warranty costs. The increased production costs were due primarily to higher manufacturing overhead expenses in support of growth, new products and engine emission requirements, partially offset by lower raw material costs. The results were also affected by impairment charges for long-lived assets related to the Water operations and a write down to realizable value of the assets being held for sale for the Landscapes operations (see Notes 4 and 5).

The equipment operations’ net income was $2,974 million in 2013, compared with $2,616 million in 2012. The same operating factors mentioned above, as well as an increase in interest expense due to higher average borrowings and a higher effective tax rate affected these results.

Net income of the financial services operations attributable to Deere & Company in 2013 increased to $565 million, compared with $460 million in 2012. The results were higher primarily due to growth in the credit portfolio and higher crop insurance margins, partially offset by higher selling, administrative and general expenses. In addition, results in 2012 benefited from revenue related to wind energy credits. Additional information is presented in the following discussion of the “Worldwide Financial Services Operations.”

The cost of sales to net sales ratio for 2013 was 73.3 percent, compared with 74.6 percent in 2012. The improvement was primarily due to the increase in price realization, partially offset by the unfavorable effects of foreign currency exchange, higher production costs and increased warranty costs.

Finance and interest income increased in 2013 due to a larger average credit portfolio, partially offset by lower average financing rates. Research and development costs increased primarily as a result of increased spending in support of new products and more stringent engine emission requirements. Selling, administrative and general expenses increased primarily due to growth. Interest expense decreased due to lower average borrowing rates, partially offset by higher average borrowings. Other operating expenses increased primarily due to higher depreciation of equipment on operating leases and the impairment charge for the write-down to realizable value of assets being held for sale (see Note 5).

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 2013 were $575 million, compared with $511 million in 2012. The long-term expected return on plan assets, which is reflected in these costs, was an expected gain of 7.8 percent in 2013 and 8.0 percent in 2012, or $862 million in 2013 and $887 million in 2012. The actual return was a gain of $1,470 million in 2013 and $849 million in 2012. Total company contributions to the plans were $338 million in 2013 and $478 million in 2012, which include direct benefit payments for unfunded plans. These contributions also included voluntary contributions to plan assets of $227 million in 2013.

## BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS

## Worldwide Agriculture and Turf Operations

The agriculture and turf segment had an operating profit of $4,680 million in 2013, compared with $3,921 million in 2012. Net sales increased 7 percent in 2013 primarily due to higher shipment volumes and improved price realization, partially offset by the unfavorable effects of foreign currency translation. The increase in operating profit was primarily due to improved price realization and higher shipment volumes, partially offset by the unfavorable effects of foreign currency exchange, increased production costs, higher selling, administrative and general expenses and increased warranty costs. The increased production costs were due primarily to higher manufacturing overhead expenses in support of growth, new products and engine emission requirements, partially offset by lower raw material costs. The results were also affected by the previously mentioned impairment charges for the Water and Landscapes operations.

## Worldwide Construction and Forestry Operations

The construction and forestry segment had an operating profit of $378 million in 2013, compared with $476 million in 2012. Net sales decreased 8 percent in 2013 primarily due to lower shipment volumes, partially offset by price realization. The decline in operating profit in 2013 was primarily due to lower shipment volumes, an unfavorable product mix, increases in production costs and higher selling, administrative and general expenses, partially offset by improved price realization.

## Worldwide Financial Services Operations

The operating profit of the financial services segment was $870 million in 2013, compared with $712 million in 2012. The results were higher primarily due to growth in the credit portfolio and higher crop insurance margins, partially offset by increased selling, administrative and general expenses. In addition, results in 2012 benefited from revenue related to wind energy credits. Total revenues of the financial services operations, including intercompany revenues, increased 5 percent in 2013, primarily reflecting the larger portfolio. The average balance of receivables and leases financed was 16 percent higher in 2013, compared with 2012. Interest expense decreased 18 percent in 2013 as a result of lower average borrowing rates, partially offset by higher average borrowings. The financial services operations' ratio of earnings to fixed charges was 2.90 to 1 in 2013, compared with 2.25 to 1 in 2012.

## Equipment Operations in U.S. and Canada

The equipment operations in the U.S. and Canada had an operating profit of $4,062 million in 2013, compared with $3,836 million in 2012. The increase was due primarily to improved price realization and higher shipment volumes, partially offset by higher production costs, increased warranty costs and higher selling, administrative and general expenses. The results were also affected by impairment charges for the Landscapes and Water operations. Net sales increased 5 percent due primarily to price realization and higher shipment volumes. The physical volume of sales increased 1 percent, compared with 2012.



## Equipment Operations outside U.S. and Canada

The equipment operations outside the U.S. and Canada had an operating profit of $996 million in 2013, compared with $561 million in 2012. The increase was due primarily to the effects of improved price realization and higher shipment volumes, partially offset by the unfavorable effects of foreign currency exchange, higher selling, administrative and general expenses, increased production costs and higher warranty costs. The results were also affected by impairment charges for the Water operations. Net sales were 4 percent higher primarily reflecting price realization and increased shipment volumes, partially offset by the effect of foreign currency translation. The physical volume of sales increased 3 percent, compared with 2012.

## CAPITAL RESOURCES AND LIQUIDITY

The discussion of capital resources and liquidity has been organized to review separately, where appropriate, the company’s consolidated totals, equipment operations and financial services operations.

## CONSOLIDATED

Positive cash flows from consolidated operating activities in 2014 were $3,526 million. This resulted primarily from net income adjusted for non-cash provisions, a change in accrued income taxes payable/receivable and a change in the retirement benefits, which were partially offset by increases in receivables related to sales, inventories and insurance receivables. Cash outflows from investing activities were $2,881 million in 2014, due primarily to the cost of receivables (excluding receivables related to sales) and cost of equipment on operating leases exceeding the collections of receivables and the proceeds from sales of equipment on operating leases by $2,441 million, purchases of property and equipment of $1,048 million, partially offset by proceeds from maturities and sales exceeding purchases of marketable securities by $408 million. Cash outflows from financing activities were $288 million in 2014 due primarily to repurchases of common stock of $2,731 million and dividends paid of $786 million, partially offset by an increase in borrowings of $3,112 million. Cash and cash equivalents increased $283 million during 2014.

Over the last three years, operating activities have provided an aggregate of $7,948 million in cash. In addition, increases in borrowings were $11,778 million, proceeds from sales of businesses were $398 million and proceeds from issuance of common stock (resulting from the exercise of stock options) were $385 million. The aggregate amount of these cash flows was used mainly to acquire receivables (excluding receivables related to sales) and equipment on operating leases that exceeded collections of receivables and the proceeds from sales of equipment on operating leases by $7,721 million, repurchase common stock of $5,850 million, purchase property and equipment of $3,526 million, pay dividends of $2,237 million and purchase marketable securities that exceeded proceeds from maturities and sales by $456 million. Cash and cash equivalents increased $140 million over the three-year period.

The company has access to most global markets at reasonable costs and expects to have sufficient sources of global funding and liquidity to meet its funding needs. The company’s exposures to receivables from customers in European countries experiencing economic strains are not significant. Sources of liquidity for the company include cash and cash equivalents, marketable securities, funds from operations, the issuance of commercial paper and term debt, the securitization of retail notes (both public and private markets) and committed and uncommitted bank lines of credit. The company’s commercial paper outstanding at October 31, 2014 and 2013 was $2,633 million and $3,162 million, respectively, while the total cash and cash equivalents and marketable securities position was $5,002 million and $5,129 million, respectively. The amount of the total cash and cash equivalents and marketable securities held by foreign subsidiaries, in which earnings are considered indefinitely reinvested, was $1,025 million and $559 million at October 31, 2014 and 2013, respectively.

Lines of Credit. The company also has access to bank lines of credit with various banks throughout the world. Worldwide lines of credit totaled $6,413 million at October 31, 2014, $3,367 million of which were unused. For the purpose of computing unused credit lines, commercial paper and short-term bank borrowings, excluding secured borrowings and the current portion of long-term borrowings, were primarily considered to constitute utilization. Included in the total credit lines at October 31, 2014 were long-term credit facility agreements of $2,500 million, expiring in April 2018, and $2,500 million, expiring in April 2019. These credit agreements require John Deere Capital Corporation (Capital Corporation) to maintain its consolidated ratio of earnings to fixed charges at not less than 1.05 to 1 for each fiscal quarter and the ratio of senior debt, excluding securitization indebtedness, to capital base (total subordinated debt and stockholder's equity excluding accumulated other comprehensive income (loss)) at not more than 11 to 1 at the end of any fiscal quarter. The credit agreements also require the equipment operations to maintain a ratio of total debt to total capital (total debt and stockholders' equity excluding accumulated other comprehensive income (loss)) of 65 percent or less at the end of each fiscal quarter. Under this provision, the company's excess equity capacity and retained earnings balance free of restriction at October 31, 2014 was $10,115 million. Alternatively under this provision, the equipment operations had the capacity to incur additional debt of $18,785 million at October 31, 2014. All of these requirements of the credit agreements have been met during the periods included in the consolidated financial statements.

Debt Ratings. 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. Each agency’s rating should be evaluated independently of any other rating. Lower credit ratings generally result in higher borrowing costs, including costs of derivative transactions, and reduced access to debt



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

<table><tr><td></td><td>Senior Long-Term</td><td>Short-Term</td><td>Outlook</td></tr><tr><td>Moody&#x27;s Investors Service, Inc.</td><td>A2</td><td>Prime-1</td><td>Stable</td></tr><tr><td>Standard &amp; Poor&#x27;s</td><td>A</td><td>A-1</td><td>Stable</td></tr></table>

Trade accounts and notes receivable primarily arise from sales of goods to independent dealers. Trade receivables decreased by $481 million in 2014 due primarily to lower agriculture and turf shipment volumes, and the sale of the Water operations (see Note 4). The ratio of trade accounts and notes receivable at October 31 to fiscal year net sales was 10 percent in 2014 and 11 percent in 2013. Total worldwide agriculture and turf receivables decreased $495 million and construction and forestry receivables increased $14 million. The collection period for trade receivables averages less than 12 months. The percentage of trade receivables outstanding for a period exceeding 12 months was 1 percent at both October 31, 2014 and 2013.

Deere & Company’s stockholders’ equity was $9,063 million at October 31, 2014, compared with $10,266 million at October 31, 2013. The decrease of $1,203 million resulted from an increase in treasury stock of $2,623 million, dividends declared of $803 million, a change in the retirement benefits adjustment of $684 million and a change in the cumulative translation adjustment of $416 million, which were partially offset by net income attributable to Deere & Company of $3,162 million and an increase in common stock of $151 million.

## EQUIPMENT OPERATIONS

The company’s equipment businesses are capital intensive and are subject to seasonal variations in financing requirements for inventories and certain receivables from dealers. The equipment operations sell a significant portion of their trade receivables to financial services. To the extent necessary, funds provided from operations are supplemented by external financing sources.

Cash provided by operating activities of the equipment operations during 2014, including intercompany cash flows, was $4,532 million due primarily to net income adjusted for non-cash provisions, a decrease in inventories and trade receivables, a change in accrued income taxes payable/receivable and a change in the retirement benefits, partially offset by a decrease in accounts payable and accrued expenses.

Over the last three years, these operating activities, including intercompany cash flows, have provided an aggregate of $12,149 million in cash.

Trade receivables held by the equipment operations decreased by $356 million during 2014. The equipment operations sell a significant portion of their trade receivables to financial services (see previous consolidated discussion).

Inventories decreased by $725 million in 2014 due primarily to lower agriculture and turf shipment and production volumes and the sale of the Water operations (see Note 4). Most of these inventories are valued on the last-in, first-out (LIFO) method. The ratios of inventories on a first-in, first-out (FIFO) basis (see Note 15), which approximates current cost, to fiscal year cost of sales were 23 percent and 25 percent at October 31, 2014 and 2013, respectively.

Total interest-bearing debt of the equipment operations was $5,077 million at the end of 2014, compared with $5,951 million at the end of 2013 and $5,870 million at the end of 2012. The ratio of total debt to total capital (total interest-bearing debt and stockholders' equity) at the end of 2014, 2013 and 2012 was 36 percent, 37 percent and 46 percent, respectively.

Property and equipment cash expenditures for the equipment operations in 2014 were $1,045 million, compared with $1,155 million in 2013. Capital expenditures in 2015 are estimated to be $875 million.

## FINANCIAL SERVICES

The financial services 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 commercial paper, term debt, securitization of retail notes, equity capital and borrowings from Deere & Company.

The cash provided by operating activities and financing activities was used primarily for investing activities. Cash flows from the financial services' operating activities, including intercompany cash flows, were $1,321 million in 2014. Cash used by investing activities totaled $4,756 million in 2014, due primarily to the cost of receivables (excluding trade and wholesale) and cost of equipment on operating leases exceeding collections of these receivables and the proceeds from sales of equipment on operating leases by $3,836 million and an increase in trade receivables and wholesale notes of $782 million. Cash provided by financing activities totaled $4,185 million in 2014, representing primarily an increase in external borrowings of $3,936 million, borrowings from Deere & Company of $368 million and capital investment from Deere & Company of $67 million, partially offset by dividends paid of $150 million to Deere & Company. Cash and cash equivalents increased $737 million.

Over the last three years, the operating activities, including intercompany cash flows, have provided $3,442 million in cash. In addition, an increase in total borrowings of $12,539 million and capital investment from Deere & Company of $453 million provided cash inflows. These amounts have been used mainly to fund receivables (excluding trade and wholesale) and equipment on operating lease acquisitions, which exceeded collections and the proceeds from sales of equipment on operating leases by $11,531 million, fund an increase in trade receivables and wholesale notes of $3,453 million, pay dividends to Deere & Company of $380 million and purchase marketable securities that exceeded proceeds from maturities and sales by $239 million. Cash and cash equivalents increased $758 million over the three-year period.

Receivables and equipment on operating leases increased by $3,099 million in 2014, compared with 2013. Total acquisition volumes of receivables (excluding trade and wholesale notes) and cost of equipment on operating leases increased 4 percent in 2014, compared with 2013. The volumes of operating leases, financing leases and revolving charge accounts increased



approximately 27 percent, 6 percent and 3 percent, respectively, while retail note volumes were about the same. The amount of wholesale notes increased 11 percent and trade receivables increased 1 percent during 2014. At October 31, 2014 and 2013, net receivables and leases administered, which include receivables administered but not owned, were $39,629 million and $36,559 million, respectively.

Total external interest-bearing debt of the financial services operations was $31,882 million at the end of 2014, compared with $28,524 million at the end of 2013 and $26,551 million at the end of 2012. Total external borrowings have changed generally corresponding with the level of the receivable and lease portfolio, the level of cash and cash equivalents, the change in payables owed to Deere & Company and the change in investment from Deere & Company. The financial services operations' ratio of total interest-bearing debt to total stockholder's equity was to 7.4 to 1 at the end of 2014, 7.3 to 1 at the end of 2013 and 7.2 to 1 at the end of 2012.

The Capital Corporation has a revolving credit agreement to utilize bank conduit facilities to securitize retail notes (see Note 13). At October 31, 2014, the facility had a total capacity, or “financing limit,” of up to $3,000 million of secured financings at any time. The facility was renewed in November 2014 with a capacity of $3,500 million. After a three-year revolving period, unless the banks and Capital Corporation agree to renew, Capital Corporation would liquidate the secured borrowings over time as payments on the retail notes are collected. At October 31, 2014, $1,617 million of short-term securitization borrowings was outstanding under the agreement.

During 2014, the financial services operations issued $3,014 million and retired $2,565 million of retail note securitization borrowings. During 2014, the financial services operations also issued $8,171 million and retired $4,390 million of long-term borrowings, which were primarily medium-term notes.

## OFF-BALANCE-SHEET ARRANGEMENTS

At October 31, 2014, the company had approximately $210 million of guarantees issued primarily to banks outside the U.S. related to third-party receivables for the retail financing of John Deere equipment. The company may recover a portion of any required payments incurred under these agreements from repossession of the equipment collateralizing the receivables. The maximum remaining term of the receivables guaranteed at October 31, 2014 was approximately six years.

## AGGREGATE CONTRACTUAL OBLIGATIONS

The payment schedule for the company’s contractual obligations at October 31, 2014 in millions of dollars is as follows:

<table><tr><td></td><td>Total</td><td>Less than 1 year</td><td>2&amp;3 years</td><td>4&amp;5 years</td><td>More than 5 years</td></tr><tr><td>On-balance-sheet</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Debt*</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Equipment operations.....</td><td>$ 5,091</td><td>$ 434</td><td>$ 270</td><td>$ 775</td><td>$ 3,612</td></tr><tr><td>Financial services**</td><td>31,692</td><td>9,962</td><td>11,477</td><td>6,578</td><td>3,675</td></tr><tr><td>Total</td><td>36,783</td><td>10,396</td><td>11,747</td><td>7,353</td><td>7,287</td></tr></table>

(continued)

<table><tr><td></td><td>Total</td><td>Less than 1 year</td><td>2&amp;3 years</td><td>4&amp;5 years</td><td>More than 5 years</td></tr><tr><td>Interest relating to debt***</td><td>$ 4,777</td><td>$ 609</td><td>$ 1,069</td><td>$ 745</td><td>$ 2,354</td></tr><tr><td>Accounts payable</td><td>2,743</td><td>2,611</td><td>90</td><td>39</td><td>3</td></tr><tr><td>Capital leases</td><td>87</td><td>39</td><td>42</td><td>4</td><td>2</td></tr><tr><td>Off-balance-sheet</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Purchase obligations</td><td>3,007</td><td>2,970</td><td>37</td><td></td><td></td></tr><tr><td>Operating leases</td><td>371</td><td>121</td><td>134</td><td>70</td><td>46</td></tr><tr><td>Total</td><td>$47,768</td><td>$16,746</td><td>$13,119</td><td>$ 8,211</td><td>$ 9,692</td></tr></table>

* Principal payments.

** Securitization borrowings of $4,559 million classified as short-term on the balance sheet related to the securitization of retail notes are included in this table based on the expected payment schedule (see Note 18).

*** Includes projected payments related to interest rate swaps.

The previous table does not include unrecognized tax benefit liabilities of approximately $213 million at October 31, 2014, since the timing of future payments is not reasonably estimable at this time (see Note 8). For additional information regarding pension and other postretirement employee benefit obligations, short-term borrowings, long-term borrowings and lease obligations, see Notes 7, 18, 20 and 21, respectively.

## CRITICAL ACCOUNTING POLICIES

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

## Sales Incentives

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

The sales incentive accruals at October 31, 2014, 2013 and 2012 were $1,573 million, $1,531 million and $1,453 million, respectively. The increase in 2014 was due primarily to higher sales incentive accruals related to the U.S. and Canada operations. The increase in 2013 was due primarily to higher sales volumes.

The estimation of the sales incentive accrual is impacted by many assumptions. One of the key assumptions is the historical percent of sales incentive costs to retail sales



from dealers. Over the last five fiscal years, this percent has varied by an average of approximately plus or minus .5 percent, compared to the average sales incentive costs to retail sales percent during that period. Holding other assumptions constant, if this estimated cost experience percent were to increase or decrease .5 percent, the sales incentive accrual at October 31, 2014 would increase or decrease by approximately $40 million.

## Product Warranties

At the time a sale to a dealer is recognized, the company records the estimated future warranty costs. The company generally determines its total warranty liability by applying historical claims rate experience to the estimated amount of equipment that has been sold and is still under warranty based on dealer inventories and retail sales. The historical claims rate is primarily determined by a review of five-year claims costs and consideration of current quality developments. Variances in claims experience and the type of warranty programs affect these estimates, which are reviewed quarterly.

The product warranty accruals, excluding extended warranty unamortized premiums, at October 31, 2014, 2013 and 2012 were $809 million, $822 million and $733 million, respectively. The changes were due primarily to lower sales volumes in 2014 and higher sales volumes in 2013.

Estimates used to determine the product warranty accruals are significantly affected by the historical percent of warranty claims costs to sales. Over the last five fiscal years, this percent has varied by an average of approximately plus or minus .08 percent, compared to the average warranty costs to sales percent during that period. Holding other assumptions constant, if this estimated cost experience percent were to increase or decrease .08 percent, the warranty accrual at October 31, 2014 would increase or decrease by approximately $35 million.

## Postretirement Benefit Obligations

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

The pension liabilities, net of pension assets, recognized on the balance sheet at October 31, 2014 and 2012 were $743 million and $1,817 million, respectively. The pension assets, net of pension liabilities, at October 31, 2013 were $40 million. The increase in pension net liabilities in 2014 was due primarily to decreases in discount rates and updated mortality assumptions based on the Society of Actuaries' (SOA) RP-2000 base table and mortality projection scale BB. The increase in pension net assets in 2013 was due primarily to the return on plan assets and increases in discount rates, partially offset by interest on the liabilities. The OPEB liabilities, net of OPEB assets, at October 31, 2014, 2013 and 2012 were $5,347 million, $4,769 million and $5,736 million, respectively. The increase in 2014 was due primarily to the change in the mortality assumptions mentioned above and decreases in discount rates, partially offset by a change in the retiree medical credit plan (see Note 7). The decrease in 2013 was due primarily to increases in discount rates and favorable claims experience, partially offset by interest on the liabilities. In October 2014, the SOA finalized new mortality tables (RP-2014) and mortality improvement scale (MP-2014). The company does not expect the effects of the new mortality tables on its mortality assumptions and resulting effects on the consolidated financial statements to be significant when adopted.

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

<table><tr><td></td><td></td><td>October 31, 2014</td><td>2015</td></tr><tr><td>Assumptions</td><td>Percentage Change</td><td>Increase (Decrease) PBO/APBO*</td><td>Increase (Decrease) Expense</td></tr><tr><td>Pension</td><td></td><td></td><td></td></tr><tr><td>Discount rate**</td><td>+/-5</td><td>$ (634)/676</td><td>$ (38)/37</td></tr><tr><td>Expected return on assets</td><td>+/-5</td><td></td><td>(48)/48</td></tr><tr><td>OPEB</td><td></td><td></td><td></td></tr><tr><td>Discount rate**</td><td>+/-5</td><td>(373)/415</td><td>(19)/21</td></tr><tr><td>Expected return on assets</td><td>+/-5</td><td></td><td>(4)/4</td></tr><tr><td>Health care cost trend rate**</td><td>+/-1.0</td><td>835/(639)</td><td>107/(83)</td></tr></table>

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

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

## Goodwill

Goodwill is not amortized and is tested for impairment annually and when events or circumstances change such that it is more likely than not that the fair value of a reporting unit is reduced below its carrying amount. The end of the fiscal third quarter is the annual measurement date. To test for goodwill impairment, the carrying value of each reporting unit is compared with its fair value. If the carrying value of the goodwill is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the implied fair value of the goodwill.

An estimate of the fair value of the reporting unit is determined through a combination of comparable market values for similar businesses and discounted cash flows. These estimates can change significantly based on such factors as the reporting unit’s financial performance, economic conditions, interest rates, growth rates, pricing, changes in business strategies and competition.

Based on this testing, the company identified a reporting unit in 2012 for which the goodwill was impaired. None were impaired in 2014 and 2013. In the fourth quarter of 2012, the company recorded a non-cash charge in cost of sales of $33 million pretax, or $31 million after-tax. The charge was associated with a reporting unit included in the agriculture and turf operating segment. The key factor contributing to the impairment was a decline in the reporting unit’s forecasted financial performance (see Note 5).

A 10 percent decrease in the estimated fair value of the company’s reporting units would have had no impact on the carrying value of goodwill at the annual measurement date in 2014.



## Allowance for Credit Losses

The allowance for credit losses represents an estimate of the losses inherent in the company’s receivable portfolio. The level of the allowance is based on many quantitative and qualitative factors, including historical loss experience by product category, portfolio duration, delinquency trends, economic conditions and credit risk quality. The adequacy of the allowance is assessed quarterly. Different assumptions or changes in economic conditions would result in changes to the allowance for credit losses and the provision for credit losses.

The total allowance for credit losses at October 31, 2014, 2013 and 2012 was $230 million, $240 million and $243 million, respectively. The allowance decreased in 2014, compared to 2013, due primarily to foreign currency translation, and was approximately the same in 2013 compared to 2012.

The assumptions used in evaluating the company’s exposure to credit losses involve estimates and significant judgment. The historical loss experience on the receivable portfolio represents one of the key assumptions involved in determining the allowance for credit losses. Over the last five fiscal years, this percent has varied by an average of approximately plus or minus .16 percent, compared to the average loss experience percent during that period. Holding other assumptions constant, if this estimated loss experience on the receivable portfolio were to increase or decrease .16 percent, the allowance for credit losses at October 31, 2014 would increase or decrease by approximately $60 million.

## Operating Lease Residual Values

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

The total operating lease residual values at October 31, 2014, 2013 and 2012 were $2,786 million, $2,115 million and $1,676 million, respectively. The changes in 2014 and 2013 were due primarily to the increasing levels of operating leases.

Estimates used in determining end of lease market values for equipment on operating leases significantly impact the amount and timing of depreciation expense. If future market values for this equipment were to decrease 10 percent from the company’s present estimates, the total impact would be to increase the company’s annual depreciation for equipment on operating leases by approximately $125 million.

## FINANCIAL INSTRUMENT MARKET 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 financial services 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 functional currencies. The company has entered into agreements related to the management of these foreign currency transaction risks.

## 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 marketable securities are primarily discounted at the applicable benchmark yield curve plus market credit spreads. Cash flows for unsecured borrowings are discounted at the applicable benchmark yield curve plus market credit spreads for similarly rated borrowers. Cash flows for securitized borrowings are discounted at the swap yield curve plus a market credit spread for similarly rated borrowers. Cash flows for interest rate swaps are projected and discounted using forward 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, 2014 would have been approximately $18 million. The net loss from decreasing the interest rates by 10 percent at October 31, 2013 would have been approximately $14 million.

## Foreign Currency Risk

In the equipment operations, the company’s practice is to hedge significant currency exposures. Worldwide foreign currency exposures are reviewed quarterly. Based on the equipment operations’ anticipated and committed foreign currency cash inflows, outflows and hedging policy for the next twelve months, the company estimates that a hypothetical 10 percent weakening of the U.S. dollar relative to other currencies through 2015 would decrease the 2015 expected net cash inflows by $16 million. At October 31, 2013, a hypothetical 10 percent weakening of the U.S. dollar under similar assumptions and calculations indicated a potential $10 million adverse effect on the 2014 net cash inflows.

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



## MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Deere & Company is responsible for establishing and maintaining adequate internal control over financial reporting. Deere & Company’s internal control system was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with generally accepted accounting principles.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation in accordance with generally accepted accounting principles.

Management assessed the effectiveness of the company’s internal control over financial reporting as of October 31, 2014, using the criteria set forth in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management believes that, as of October 31, 2014, the company’s internal control over financial reporting was effective.

The company’s independent registered public accounting firm has issued an audit report on the effectiveness of the company’s internal control over financial reporting. This report appears below.

December 19, 2014

## REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

Deere & Company:

We have audited the accompanying consolidated balance sheets of Deere & Company and subsidiaries (the "Company") as of October 31, 2014 and 2013, and the related statements of consolidated income, comprehensive income, changes in consolidated stockholders' equity, and consolidated cash flows for each of the three years in the period ended October 31, 2014. We also have audited the Company's internal control over financial reporting as of October 31, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2014, based on the criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Deloitte & Touche LLP

Chicago, Illinois

December 19, 2014



<table><tr><td>Net Sales and Revenues</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Net sales</td><td>$32,960.6</td><td>$34,997.9</td><td>$33,500.9</td></tr><tr><td>Finance and interest income</td><td>2,282.1</td><td>2,115.1</td><td>1,981.3</td></tr><tr><td>Other income</td><td>824.2</td><td>682.4</td><td>674.9</td></tr><tr><td>Total</td><td>36,066.9</td><td>37,795.4</td><td>36,157.1</td></tr><tr><td>Costs and Expenses</td><td></td><td></td><td></td></tr><tr><td>Cost of sales</td><td>24,775.8</td><td>25,667.3</td><td>25,007.8</td></tr><tr><td>Research and development expenses</td><td>1,452.0</td><td>1,477.3</td><td>1,433.6</td></tr><tr><td>Selling, administrative and general expenses</td><td>3,284.4</td><td>3,605.5</td><td>3,417.0</td></tr><tr><td>Interest expense</td><td>664.0</td><td>741.3</td><td>782.8</td></tr><tr><td>Other operating expenses</td><td>1,093.3</td><td>820.6</td><td>781.5</td></tr><tr><td>Total</td><td>31,269.5</td><td>32,312.0</td><td>31,422.7</td></tr><tr><td>Income of Consolidated Group before Income Taxes</td><td>4,797.4</td><td>5,483.4</td><td>4,734.4</td></tr><tr><td>Provision for income taxes</td><td>1,626.5</td><td>1,945.9</td><td>1,659.4</td></tr><tr><td>Income of Consolidated Group</td><td>3,170.9</td><td>3,537.5</td><td>3,075.0</td></tr><tr><td>Equity in income (loss) of unconsolidated affiliates</td><td>(7.6)</td><td>.1</td><td>(3.4)</td></tr><tr><td>Net Income</td><td>3,163.3</td><td>3,537.6</td><td>3,071.6</td></tr><tr><td>Less: Net income attributable to noncontrolling interests</td><td>1.6</td><td>.3</td><td>6.9</td></tr><tr><td>Net Income Attributable to Deere &amp; Company</td><td>$ 3,161.7</td><td>$ 3,537.3</td><td>$ 3,064.7</td></tr><tr><td>Per Share Data</td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>$ 8.71</td><td>$ 9.18</td><td>$ 7.72</td></tr><tr><td>Diluted</td><td>$ 8.63</td><td>$ 9.09</td><td>$ 7.63</td></tr><tr><td>Dividends declared</td><td>$ 2.22</td><td>$ 1.99</td><td>$ 1.79</td></tr><tr><td>Average Shares Outstanding</td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>363.0</td><td>385.3</td><td>397.1</td></tr><tr><td>Diluted</td><td>366.1</td><td>389.2</td><td>401.5</td></tr></table>

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



## DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the Years Ended October 31, 2014, 2013 and 2012
(In millions of dollars)

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Net Income</td><td>$ 3,163.3</td><td>$ 3,537.6</td><td>$ 3,071.6</td></tr><tr><td>Other Comprehensive Income (Loss), Net of Income Taxes</td><td></td><td></td><td></td></tr><tr><td>Retirement benefits adjustment</td><td>(684.4)</td><td>1,950.0</td><td>(623.6)</td></tr><tr><td>Cumulative translation adjustment</td><td>(415.5)</td><td>(70.9)</td><td>(270.0)</td></tr><tr><td>Unrealized gain (loss) on derivatives</td><td>2.8</td><td>10.7</td><td>(5.1)</td></tr><tr><td>Unrealized gain (loss) on investments</td><td>6.9</td><td>(11.3)</td><td>4.9</td></tr><tr><td>Other Comprehensive Income (Loss), Net of Income Taxes</td><td>(1,090.2)</td><td>1,878.5</td><td>(893.8)</td></tr><tr><td>Comprehensive Income of Consolidated Group</td><td>2,073.1</td><td>5,416.1</td><td>2,177.8</td></tr><tr><td>Less: Comprehensive income attributable to noncontrolling interests</td><td>1.3</td><td>.4</td><td>6.6</td></tr><tr><td>Comprehensive Income Attributable to Deere &amp; Company</td><td>$ 2,071.8</td><td>$ 5,415.7</td><td>$ 2,171.2</td></tr></table>

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



<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>ASSETS</td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 3,787.0</td><td>$ 3,504.0</td></tr><tr><td>Marketable securities</td><td>1,215.1</td><td>1,624.8</td></tr><tr><td>Receivables from unconsolidated affiliates</td><td>30.2</td><td>31.2</td></tr><tr><td>Trade accounts and notes receivable - net</td><td>3,277.6</td><td>3,758.2</td></tr><tr><td>Financing receivables - net</td><td>27,422.2</td><td>25,632.7</td></tr><tr><td>Financing receivables securitized - net</td><td>4,602.3</td><td>4,153.1</td></tr><tr><td>Other receivables</td><td>1,500.3</td><td>1,464.0</td></tr><tr><td>Equipment on operating leases - net</td><td>4,015.5</td><td>3,152.2</td></tr><tr><td>Inventories</td><td>4,209.7</td><td>4,934.7</td></tr><tr><td>Property and equipment - net</td><td>5,577.8</td><td>5,466.9</td></tr><tr><td>Investments in unconsolidated affiliates</td><td>303.2</td><td>221.4</td></tr><tr><td>Goodwill</td><td>791.2</td><td>844.8</td></tr><tr><td>Other intangible assets - net</td><td>68.8</td><td>77.1</td></tr><tr><td>Retirement benefits</td><td>262.0</td><td>551.1</td></tr><tr><td>Deferred income taxes</td><td>2,776.6</td><td>2,325.4</td></tr><tr><td>Other assets</td><td>1,496.9</td><td>1,274.7</td></tr><tr><td>Assets held for sale</td><td></td><td>505.0</td></tr><tr><td>Total Assets</td><td>$ 61,336.4</td><td>$ 59,521.3</td></tr><tr><td>LIABILITIES AND STOCKHOLDERS&#x27; EQUITY</td><td></td><td></td></tr><tr><td>LIABILITIES</td><td></td><td></td></tr><tr><td>Short-term borrowings</td><td>$ 8,019.2</td><td>$ 8,788.9</td></tr><tr><td>Short-term securitization borrowings</td><td>4,558.5</td><td>4,109.1</td></tr><tr><td>Payables to unconsolidated affiliates</td><td>101.0</td><td>106.9</td></tr><tr><td>Accounts payable and accrued expenses</td><td>8,554.1</td><td>8,973.6</td></tr><tr><td>Deferred income taxes</td><td>160.9</td><td>160.3</td></tr><tr><td>Long-term borrowings</td><td>24,380.7</td><td>21,577.7</td></tr><tr><td>Retirement benefits and other liabilities</td><td>6,496.5</td><td>5,416.7</td></tr><tr><td>Liabilities held for sale</td><td></td><td>120.4</td></tr><tr><td>Total liabilities</td><td>52,270.9</td><td>49,253.6</td></tr><tr><td>Commitments and contingencies (Note 22)</td><td></td><td></td></tr><tr><td>STOCKHOLDERS&#x27; EQUITY</td><td></td><td></td></tr><tr><td>Common stock, $1 par value (authorized - 1,200,000,000 shares; issued - 536,431,204 shares in 2014 and 2013), at paid-in amount</td><td>3,675.4</td><td>3,524.2</td></tr><tr><td>Common stock in treasury, 190,926,805 shares in 2014 and 162,628,440 shares in 2013, at cost</td><td>(12,834.2)</td><td>(10,210.9)</td></tr><tr><td>Retained earnings</td><td>22,004.4</td><td>19,645.6</td></tr><tr><td>Accumulated other comprehensive income (loss)</td><td>(3,783.0)</td><td>(2,693.1)</td></tr><tr><td>Total Deere &amp; Company stockholders&#x27; equity</td><td>9,062.6</td><td>10,265.8</td></tr><tr><td>Noncontrolling interests</td><td>2.9</td><td>1.9</td></tr><tr><td>Total stockholders&#x27; equity</td><td>9,065.5</td><td>10,267.7</td></tr><tr><td>Total Liabilities and Stockholders&#x27; Equity</td><td>$ 61,336.4</td><td>$ 59,521.3</td></tr></table>

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



<table><tr><td>Cash Flows from Operating Activities</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Net income</td><td>$ 3,163.3</td><td>$ 3,537.6</td><td>$ 3,071.6</td></tr><tr><td>Adjustments to reconcile net income to net cash provided by operating activities:</td><td></td><td></td><td></td></tr><tr><td>Provision for credit losses</td><td>38.1</td><td>20.5</td><td>5.1</td></tr><tr><td>Provision for depreciation and amortization</td><td>1,306.5</td><td>1,140.3</td><td>1,004.2</td></tr><tr><td>Impairment charges</td><td>95.9</td><td>102.0</td><td>33.4</td></tr><tr><td>Share-based compensation expense</td><td>78.5</td><td>80.7</td><td>74.5</td></tr><tr><td>Undistributed earnings of unconsolidated affiliates</td><td>9.3</td><td>9.1</td><td>1.8</td></tr><tr><td>Credit for deferred income taxes</td><td>(280.1)</td><td>(172.6)</td><td>(91.8)</td></tr><tr><td>Changes in assets and liabilities:</td><td></td><td></td><td></td></tr><tr><td>Trade, notes and financing receivables related to sales</td><td>(749.0)</td><td>(1,510.2)</td><td>(1,901.6)</td></tr><tr><td>Insurance receivables</td><td>(149.9)</td><td>263.4</td><td>(338.5)</td></tr><tr><td>Inventories</td><td>(297.9)</td><td>(728.4)</td><td>(1,510.2)</td></tr><tr><td>Accounts payable and accrued expenses</td><td>(137.1)</td><td>217.1</td><td>1,061.8</td></tr><tr><td>Accrued income taxes payable/receivable</td><td>342.6</td><td>80.4</td><td>(72.3)</td></tr><tr><td>Retirement benefits</td><td>336.9</td><td>262.0</td><td>63.3</td></tr><tr><td>Other</td><td>(231.2)</td><td>(47.6)</td><td>(233.6)</td></tr><tr><td>Net cash provided by operating activities</td><td>3,525.9</td><td>3,254.3</td><td>1,167.7</td></tr><tr><td>Cash Flows from Investing Activities</td><td></td><td></td><td></td></tr><tr><td>Collections of receivables (excluding receivables related to sales)</td><td>15,319.1</td><td>14,088.0</td><td>13,064.9</td></tr><tr><td>Proceeds from maturities and sales of marketable securities</td><td>1,022.5</td><td>843.9</td><td>240.3</td></tr><tr><td>Proceeds from sales of equipment on operating leases</td><td>1,091.5</td><td>936.7</td><td>799.5</td></tr><tr><td>Proceeds from sales of businesses, net of cash sold</td><td>345.8</td><td>22.0</td><td>30.2</td></tr><tr><td>Cost of receivables acquired (excluding receivables related to sales)</td><td>(17,240.4)</td><td>(17,011.7)</td><td>(15,139.0)</td></tr><tr><td>Purchases of marketable securities</td><td>(614.6)</td><td>(1,026.3)</td><td>(922.2)</td></tr><tr><td>Purchases of property and equipment</td><td>(1,048.3)</td><td>(1,158.4)</td><td>(1,319.2)</td></tr><tr><td>Cost of equipment on operating leases acquired</td><td>(1,611.0)</td><td>(1,216.9)</td><td>(801.8)</td></tr><tr><td>Acquisitions of businesses, net of cash acquired</td><td></td><td>(83.5)</td><td></td></tr><tr><td>Other</td><td>(145.6)</td><td>(214.5)</td><td>43.2</td></tr><tr><td>Net cash used for investing activities</td><td>(2,881.0)</td><td>(4,820.7)</td><td>(4,004.1)</td></tr><tr><td>Cash Flows from Financing Activities</td><td></td><td></td><td></td></tr><tr><td>Increase in total short-term borrowings</td><td>89.2</td><td>2,749.4</td><td>894.9</td></tr><tr><td>Proceeds from long-term borrowings</td><td>8,232.0</td><td>4,734.0</td><td>10,642.0</td></tr><tr><td>Payments of long-term borrowings</td><td>(5,209.1)</td><td>(4,958.5)</td><td>(5,396.0)</td></tr><tr><td>Proceeds from issuance of common stock</td><td>149.5</td><td>174.5</td><td>61.0</td></tr><tr><td>Repurchases of common stock</td><td>(2,731.1)</td><td>(1,531.4)</td><td>(1,587.7)</td></tr><tr><td>Dividends paid</td><td>(786.0)</td><td>(752.9)</td><td>(697.9)</td></tr><tr><td>Excess tax benefits from share-based compensation</td><td>30.8</td><td>50.7</td><td>30.1</td></tr><tr><td>Other</td><td>(63.6)</td><td>(59.3)</td><td>(66.2)</td></tr><tr><td>Net cash provided by (used for) financing activities</td><td>(288.3)</td><td>406.5</td><td>3,880.2</td></tr><tr><td>Effect of Exchange Rate Changes on Cash and Cash Equivalents</td><td>(73.6)</td><td>11.7</td><td>(38.8)</td></tr><tr><td>Net Increase (Decrease) in Cash and Cash Equivalents</td><td>283.0</td><td>(1,148.2)</td><td>1,005.0</td></tr><tr><td>Cash and Cash Equivalents at Beginning of Year</td><td>3,504.0</td><td>4,652.2</td><td>3,647.2</td></tr><tr><td>Cash and Cash Equivalents at End of Year</td><td>$ 3,787.0</td><td>$ 3,504.0</td><td>$ 4,652.2</td></tr></table>

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



<table><tr><td rowspan="2"></td><td colspan="5">Deere &amp; Company Stockholders</td></tr><tr><td>Total Stockholders&#x27; Equity</td><td>Common Stock</td><td>Treasury Stock</td><td>Retained Earnings</td><td>Accumulated Other Comprehensive Income (Loss)</td></tr><tr><td>Balance October 31, 2011</td><td>$ 6,814.9</td><td>$ 3,251.7</td><td>$ (7,292.8)</td><td>$ 14,519.4</td><td>$ (3,678.0)</td></tr><tr><td>Net income</td><td>3,071.6</td><td></td><td></td><td>3,064.7</td><td></td></tr><tr><td>Other comprehensive loss</td><td>(893.8)</td><td></td><td></td><td></td><td>(893.5)</td></tr><tr><td>Repurchases of common stock</td><td>(1,587.7)</td><td></td><td>(1,587.7)</td><td></td><td></td></tr><tr><td>Treasury shares reissued</td><td>66.7</td><td></td><td>66.7</td><td></td><td></td></tr><tr><td>Dividends declared</td><td>(709.2)</td><td></td><td></td><td>(708.9)</td><td></td></tr><tr><td>Stock options and other</td><td>99.5</td><td>100.5</td><td></td><td></td><td></td></tr><tr><td>Balance October 31, 2012</td><td>6,862.0</td><td>3,352.2</td><td>(8,813.8)</td><td>16,875.2</td><td>(4,571.5)</td></tr><tr><td>Net income</td><td>3,537.6</td><td></td><td></td><td>3,537.3</td><td></td></tr><tr><td>Other comprehensive income</td><td>1,878.5</td><td></td><td></td><td></td><td>1,878.4</td></tr><tr><td>Repurchases of common stock</td><td>(1,531.4)</td><td></td><td>(1,531.4)</td><td></td><td></td></tr><tr><td>Treasury shares reissued</td><td>134.3</td><td></td><td>134.3</td><td></td><td></td></tr><tr><td>Dividends declared</td><td>(774.5)</td><td></td><td></td><td>(766.6)</td><td></td></tr><tr><td>Deconsolidation of variable interest entity</td><td>(10.6)</td><td></td><td></td><td></td><td></td></tr><tr><td>Stock options and other</td><td>171.8</td><td>172.0</td><td></td><td>(.3)</td><td></td></tr><tr><td>Balance October 31, 2013</td><td>10,267.7</td><td>3,524.2</td><td>(10,210.9)</td><td>19,645.6</td><td>(2,693.1)</td></tr><tr><td>Net income</td><td>3,163.3</td><td></td><td></td><td>3,161.7</td><td></td></tr><tr><td>Other comprehensive loss</td><td>(1,090.2)</td><td></td><td></td><td></td><td>(1,089.9)</td></tr><tr><td>Repurchases of common stock</td><td>(2,731.1)</td><td></td><td>(2,731.1)</td><td></td><td></td></tr><tr><td>Treasury shares reissued</td><td>107.8</td><td></td><td>107.8</td><td></td><td></td></tr><tr><td>Dividends declared</td><td>(803.7)</td><td></td><td></td><td>(803.4)</td><td></td></tr><tr><td>Stock options and other</td><td>151.7</td><td>151.2</td><td></td><td>.5</td><td></td></tr><tr><td>Balance October 31, 2014</td><td>$ 9,065.5</td><td>$ 3,675.4</td><td>$ (12,834.2)</td><td>$ 22,004.4</td><td>$ (3,783.0)</td></tr></table>

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



## 1. ORGANIZATION AND CONSOLIDATION

## Structure of Operations

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

Equipment Operations – Includes the company’s agriculture and turf operations and construction and forestry operations with financial services reflected on the equity basis.

Financial Services – Includes primarily the company’s financing operations.

Consolidated – Represents the consolidation of the equipment operations and financial services. References to “Deere & Company” or “the company” refer to the entire enterprise.

## Principles of Consolidation

The consolidated financial statements represent primarily the consolidation of all companies in which Deere & Company has a controlling interest. Certain variable interest entities (VIEs) are consolidated since the company has both the power to direct the activities that most significantly impact the VIEs' economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs. Deere & Company records its investment in each unconsolidated affiliated company (generally 20 to 50 percent ownership) at its related equity in the net assets of such affiliate (see Note 10). Other investments (less than 20 percent ownership) are recorded at cost.

## Variable Interest Entities

See Note 13 for VIEs related to securitization of financing receivables.

## 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

## Use of Estimates in Financial Statements

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

## Revenue Recognition

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

Financing revenue is recorded over the lives of related receivables using the interest method. Insurance premiums recorded in other income are generally recognized in proportion to the costs expected to be incurred over the contract period. Deferred costs on the origination of financing receivables are recognized as a reduction in finance revenue over the expected lives of the receivables using the interest method. Income and deferred costs on the origination of operating leases are recognized on a straight-line basis over the scheduled lease terms in finance revenue.

## Sales Incentives

At the time a sale is recognized, the company records an estimate of the future sales incentive costs for allowances and financing programs that will be due when a dealer sells the equipment to a retail customer. The estimate is based on historical data, announced incentive programs, field inventory levels and retail sales volumes.

## Product Warranties

At the time a sale is recognized, the company records the estimated future warranty costs. These costs are usually estimated based on historical warranty claims (see Note 22).

## Sales Taxes

The company collects and remits taxes assessed by different governmental authorities that are both imposed on and concurrent with revenue producing transactions between the company and its customers. These taxes may include sales, use, value-added and some excise taxes. The company reports the collection of these taxes on a net basis (excluded from revenues).

## Shipping and Handling Costs

Shipping and handling costs related to the sales of the company’s equipment are included in cost of sales.

## Advertising Costs

Advertising costs are charged to expense as incurred. This expense was $174 million in 2014, $183 million in 2013 and $177 million in 2012.

## Depreciation and Amortization

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

## Securitization of Receivables

Certain financing receivables are periodically transferred to special purpose entities (SPEs) in securitization transactions (see Note 13). These securitizations qualify as collateral for secured borrowings and no gains or losses are recognized at the time of securitization. The receivables remain on the balance



sheet and are classified as “Financing receivables securitized - net.” The company recognizes finance income over the lives of these receivables using the interest method.

## Receivables and Allowances

All financing and trade receivables are reported on the balance sheet at outstanding principal adjusted for any charge-offs, the allowance for credit losses, and any deferred fees or costs on originated financing receivables. Allowances for credit losses are maintained in amounts considered to be appropriate in relation to the receivables outstanding based on collection experience, economic conditions and credit risk quality. Receivables are written-off to the allowance when the account is considered uncollectible.

## Impairment of Long-Lived Assets, Goodwill and Other Intangible Assets

The company evaluates the carrying value of long-lived assets (including property and equipment, goodwill and other intangible assets) when events or circumstances warrant such a review. Goodwill and intangible assets with indefinite lives are tested for impairment annually at the end of the third fiscal quarter each year, or more often if events or circumstances indicate a reduction in the fair value below the carrying value. Goodwill is allocated and reviewed for impairment by reporting units, which consist primarily of the operating segments and certain other reporting units. The goodwill is allocated to the reporting unit in which the business that created the goodwill resides. To test for goodwill impairment, the carrying value of each reporting unit is compared with its fair value. If the carrying value of the goodwill or long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset (see Note 5).

## Derivative Financial Instruments

Derivative Financial Instruments

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

All derivatives are recorded at fair value on the balance sheet. Cash collateral received or paid is not offset against the derivative fair values on the balance sheet. Each derivative is designated as either a cash flow hedge, a fair value hedge, or remains undesignated. Changes in the fair value of derivatives that are designated and effective as cash flow hedges are recorded in other comprehensive income and reclassified to the income statement when the effects of the item being hedged are recognized in the income statement. Changes in the fair value of derivatives that are designated and effective as fair value hedges are recognized currently in net income. These changes are offset in net income to the extent the hedge was effective by fair value changes related to the risk being hedged on the hedged item. Changes in the fair value of undesignated hedges are recognized currently in the income statement. All ineffective changes in derivative fair values are recognized currently in net income.

All designated hedges are formally documented as to the relationship with the hedged item as well as the risk-management strategy. Both at inception and on an ongoing basis the hedging instrument is assessed as to its effectiveness. If and when a derivative is determined not to be highly effective as a hedge, or the underlying hedged transaction is no longer likely to occur, or the hedge designation is removed, or the derivative is terminated, the hedge accounting discussed above is discontinued (see Note 27).

## Foreign Currency Translation

The functional currencies for most of the company’s foreign operations are their respective local currencies. The assets and liabilities of these operations are translated into U.S. dollars at the end of the period exchange rates. The revenues and expenses are translated at weighted-average rates for the period. The gains or losses from these translations are recorded in other comprehensive income. Gains or losses from transactions denominated in a currency other than the functional currency of the subsidiary involved and foreign exchange forward contracts are included in net income. The pretax net losses for foreign exchange in 2014, 2013 and 2012 were $47 million, $26 million and $96 million, respectively.

## 3. NEW ACCOUNTING STANDARDS

## New Accounting Standards Adopted

In the first quarter of 2014, the company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which amends Accounting Standards Codification (ASC) 210, Balance Sheet. This ASU requires entities to disclose gross and net information about both instruments and transactions eligible for offset in the statement of financial position and those subject to an agreement similar to a master netting arrangement. This includes derivatives and other financial securities arrangements. The adoption did not have a material effect on the company’s consolidated financial statements.

In the first quarter of 2014, the company adopted FASB ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which amends ASC 220, Comprehensive Income. This ASU requires the disclosure of amounts reclassified out of accumulated other comprehensive income by component and by net income line item. The disclosure may be provided either parenthetically on the face of the financial statements or in the notes. The company provided the disclosure in the notes. The adoption did not have a material effect on the company’s consolidated financial statements.

In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends ASC 205, Presentation of Financial Statements, and ASC 360, Property, Plant and Equipment. This ASU defines a discontinued



operation as a component or group of components that is disposed of or meets the criteria as held for sale and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results. This ASU requires additional disclosures about discontinued operations and new disclosures for components of an entity that are held for sale or disposed of and are individually significant but do not qualify for presentation as a discontinued operation. Early adoption is permitted for items that have not been reported as disposals or as held for sale in previously issued financial statements. The company early adopted this standard in the second quarter of 2014. As a result, disposals that did not or will not meet the criteria for reporting in discontinued operations are presented in continuing operations.

## New Accounting Standards to be Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The effective date will be the first quarter of fiscal year 2018 using one of two retrospective application methods. The company has not determined the potential effects on the consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which amends ASC 718, Compensation–Stock Compensation. This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Therefore, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The total compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The effective date will be the first quarter of fiscal year 2017. The adoption will not have a material effect on the company’s consolidated financial statements.

## 4. ACQUISITIONS AND DISPOSITIONS

In December 2013, the company closed the sale of 60 percent of its subsidiary John Deere Landscapes, LLC (Landscapes) to a private equity investment firm affiliated with Clayton, Dubilier & Rice, LLC (CD&R). CD&R acquired newly created shares of cumulative convertible participating preferred stock initially representing 60 percent of the outstanding capital stock of Landscapes on an as-converted basis.

At October 31, 2013, the total assets of $505 million and liabilities of $120 million for these operations were classified as held for sale in the consolidated financial statements and written down to realizable value, which consisted of $153 million of trade receivables, $219 million of inventories, $37 million of property and equipment, $106 million of goodwill, $25 million of other intangible assets and $10 million of other assets less a $45 million asset impairment. The related liabilities held for sale consisted of accounts payable and accrued expenses. The total amount of proceeds from the sale at closing was approximately $305 million with no significant gain or loss, which consisted of $174 million equity contribution and third party debt raised by Landscapes.

The equity contribution was in the form of newly issued cumulative convertible participating preferred units representing 60 percent of the voting rights (on an as converted basis), which will rank senior to the company’s common stock as to dividends. The preferred units have an initial liquidation preference of $174 million and accrue dividends at a rate of 12 percent per annum. The liquidation preference is subject to the company’s rights under the stockholders agreement. Due to preferred dividend payment in additional preferred shares over the first two years, CD&R’s ownership will increase over the two-year period.

The company initially retained 40 percent of the Landscapes business in the form of common stock. As of January 2014, the company deconsolidated Landscapes and began reporting the results as an equity investment in unconsolidated affiliates. The fair value of the company’s retained equity investment was approximately $80 million at closing. The fair value was determined using an implied equity value approach. This approach used an option pricing model to determine the value of Landscapes’ total equity based on the liquidation preference of the preferred units of $174 million, as well as the preferred stock’s conversion feature and dividend rights. The value of the company’s common stock of Landscapes was the difference between the total fair value of the Landscapes’ equity and the value of CD&R’s preferred stock. The significant unobservable inputs were the expected term of the investment, assumptions about the form of preferred dividend payments and the assumed volatility of the Landscapes enterprise during the term of the investment. Due to the company’s continuing involvement through its initial 40 percent interest, Landscapes’ historical operating results are presented in continuing operations.



In May 2014, the company closed the sale of the stock and certain assets of the entities that compose the company’s Water operations to FIMI Opportunity Funds. The sale was the result of the company’s intention to invest its resources in growing core businesses. At April 30, 2014, the total assets of $85 million and liabilities of $50 million were classified as held for sale in the consolidated financial statements, which consisted of $57 million of trade receivables, $10 million of other receivables, $49 million of inventories and $5 million of other assets less a $36 million asset impairment. The related liabilities held for sale consisted of accounts payable and accrued expenses of $47 million and retirement benefits and other liabilities of $3 million. The total amount of proceeds from the sale was approximately $35 million with a loss recorded in other operating expenses of $10 million pretax and after-tax in addition to the impairments recorded (see Note 5). The company provides certain business services for a fee during a transition period.

In September 2013, the company acquired Bauer Built Manufacturing Inc., a manufacturer of planters located in Paton, Iowa, for approximately $84 million. The fair values assigned to the assets and liabilities related to the acquired entity were approximately $9 million of receivables, $11 million of inventories, $25 million of property and equipment, $13 million of goodwill, $26 million of identifiable intangible assets, $1 million of other assets and $1 million of liabilities. The identifiable intangibles were primarily related to technology, a non-compete contract, customer relationships and a trademark, which have amortization periods with a weighted-average of seven years. The entity was consolidated and the results of these operations have been included in the company's consolidated financial statements in the agriculture and turf operating segment since the date of acquisition. The pro forma results of operations as if the acquisition had occurred at the beginning of 2013 or comparative fiscal year would not differ significantly from the reported results.

## 5. SPECIAL ITEMS

## Impairments

In the fourth quarter of 2014, the company recorded non-cash charges in cost of sales for the impairment of long-lived assets of $18 million and other assets of $16 million pretax and after-tax. The assets are part of the company’s agriculture and turf operations in China. The impairment is the result of a decline in forecasted financial performance that indicated it was probable the future cash flows would not cover the carrying amount of assets used to manufacture agricultural equipment in that country (see Note 26).

In 2014, the company recorded non-cash charges of $62 million pretax, or $30 million after-tax, related to the Water operations. In the first quarter, a $26 million pretax and after-tax loss was recorded in cost of sales for the impairment of long-lived assets. In the second quarter, an additional non-cash charge of $36 million pretax, or $4 million after-tax, was recorded in other operating expenses for an impairment to write the Water operations down to fair value less costs to sell. The tax benefits recognized resulted primarily from a change in valuation allowances of the Water operations. These operations were included in the company’s agriculture and turf operating segment (see Note 26).

In 2013, the company recorded a non-cash charge for the impairment of long-lived assets of $57 million pretax, or $51 million after-tax. This consists of $50 million pretax, or $44 million after-tax, in the third quarter and $7 million pretax and after-tax in the fourth quarter, related to the company’s Water operations, which were included in the agriculture and turf operating segment. The total pretax impairment loss consisted of $50 million recorded in cost of sales and $7 million in selling, administrative and general expenses. The impairments were due to a decline in the forecasted financial performance and a review of strategic options for the business (see Note 26).

In the fourth quarter of 2013, the company recorded a non-cash charge of $45 million pretax and after-tax in other operating expenses for an impairment to write the Landscapes operations down to realizable value. These operations were included in the agriculture and turf operating segment and classified as held for sale at October 31, 2013 (see Note 4).

In the fourth quarter of 2012, the company recorded a non-cash charge in cost of sales for the impairment of goodwill of $33 million pretax, or $31 million after-tax, related to the company’s Water operations. The goodwill impairment in 2012 was due to a decline in the forecasted financial performance as a result of more complex integration activities. The goodwill in this reporting unit was completely written off in 2012 (see Note 26).

## 6. CASH FLOW INFORMATION

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

The equipment operations sell a significant portion of their trade receivables to financial services. These intercompany cash flows are eliminated in the consolidated cash flows.

All cash flows from the changes in trade accounts and notes receivable (see Note 12) are classified as operating activities in the statement of consolidated cash flows as these receivables arise from sales to the company’s customers. Cash flows from financing receivables that are related to sales to the company’s customers (see Note 12) are also included in operating activities. The remaining financing receivables are related to the financing of equipment sold by independent dealers and are included in investing activities.

The company had the following non-cash operating and investing activities that were not included in the statement of consolidated cash flows. The company transferred inventory to equipment on operating leases of $794 million, $659 million and $563 million in 2014, 2013 and 2012, respectively. The company also had accounts payable related to purchases of property and equipment of $128 million, $198 million and $185 million at October 31, 2014, 2013 and 2012, respectively.



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

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Interest:</td><td></td><td></td><td></td></tr><tr><td>Equipment operations</td><td>$ 506</td><td>$ 511</td><td>$ 420</td></tr><tr><td>Financial services</td><td>454</td><td>502</td><td>638</td></tr><tr><td>Intercompany eliminations</td><td>(268)</td><td>(247)</td><td>(248)</td></tr><tr><td>Consolidated</td><td>$ 692</td><td>$ 766</td><td>$ 810</td></tr><tr><td>Income taxes:</td><td></td><td></td><td></td></tr><tr><td>Equipment operations</td><td>$ 1,640</td><td>$ 1,863</td><td>$ 1,704</td></tr><tr><td>Financial services</td><td>333</td><td>270</td><td>207</td></tr><tr><td>Intercompany eliminations</td><td>(253)</td><td>(179)</td><td>(167)</td></tr><tr><td>Consolidated</td><td>$ 1,720</td><td>$ 1,954</td><td>$ 1,744</td></tr></table>

## 7. PENSION AND OTHER POSTRETIREMENT BENEFITS

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

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

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Pensions</td><td></td><td></td><td></td></tr><tr><td>Service cost</td><td>$ 244</td><td>$ 273</td><td>$ 220</td></tr><tr><td>Interest cost</td><td>480</td><td>439</td><td>465</td></tr><tr><td>Expected return on plan assets</td><td>(776)</td><td>(778)</td><td>(787)</td></tr><tr><td>Amortization of actuarial loss</td><td>177</td><td>265</td><td>202</td></tr><tr><td>Amortization of prior service cost</td><td>25</td><td>12</td><td>47</td></tr><tr><td>Early-retirement benefits</td><td></td><td></td><td>3</td></tr><tr><td>Other postemployment benefits</td><td>5</td><td></td><td></td></tr><tr><td>Settlements/curtailments</td><td>9</td><td>2</td><td>10</td></tr><tr><td>Net cost</td><td>$ 164</td><td>$ 213</td><td>$ 160</td></tr><tr><td>Weighted-average assumptions</td><td></td><td></td><td></td></tr><tr><td>Discount rates</td><td>4.5%</td><td>3.8%</td><td>4.4%</td></tr><tr><td>Rate of compensation increase</td><td>3.8%</td><td>3.9%</td><td>3.9%</td></tr><tr><td>Expected long-term rates of return</td><td>7.5%</td><td>7.8%</td><td>8.0%</td></tr></table>

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

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Health care and life insurance</td><td></td><td></td><td></td></tr><tr><td>Service cost</td><td>$ 44</td><td>$ 58</td><td>$ 49</td></tr><tr><td>Interest cost</td><td>267</td><td>255</td><td>281</td></tr><tr><td>Expected return on plan assets</td><td>(72)</td><td>(84)</td><td>(100)</td></tr><tr><td>Amortization of actuarial loss</td><td>33</td><td>141</td><td>136</td></tr><tr><td>Amortization of prior service credit</td><td>(3)</td><td>(8)</td><td>(15)</td></tr><tr><td>Settlements/curtailments</td><td>(1)</td><td></td><td></td></tr><tr><td>Net cost</td><td>$ 268</td><td>$ 362</td><td>$ 351</td></tr><tr><td>Weighted-average assumptions</td><td></td><td></td><td></td></tr><tr><td>Discount rates</td><td>4.7%</td><td>3.8%</td><td>4.4%</td></tr><tr><td>Expected long-term rates of return</td><td>7.2%</td><td>7.5%</td><td>7.7%</td></tr></table>

For fiscal year 2012, the participants in one of the company’s postretirement health care plans became “almost all” inactive as described by the applicable accounting standards due to additional retirements. As a result, beginning in 2012, the net actuarial loss for this plan in the table above is being amortized over the longer period for the average remaining life expectancy of the inactive participants rather than the average remaining service period of the active participants. The amortization of actuarial loss also decreased in 2012 due to lower expected costs from the prescription drug plan to provide group benefits under Medicare Part D as an alternative to collecting the retiree drug subsidy.

The previous pension cost in net income and other changes in plan assets and benefit obligations in other comprehensive income in millions of dollars were as follows:

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Pensions</td><td></td><td></td><td></td></tr><tr><td>Net cost</td><td>$ 164</td><td>$ 213</td><td>$ 160</td></tr><tr><td>Retirement benefit adjustments included in other comprehensive (income) loss:</td><td></td><td></td><td></td></tr><tr><td>Net actuarial (gain) loss</td><td>940</td><td>(1,481)</td><td>999</td></tr><tr><td>Prior service (credit) cost</td><td>(26)</td><td>5</td><td></td></tr><tr><td>Amortization of actuarial loss</td><td>(177)</td><td>(265)</td><td>(202)</td></tr><tr><td>Amortization of prior service cost</td><td>(25)</td><td>(12)</td><td>(47)</td></tr><tr><td>Settlements/curtailments</td><td>(9)</td><td>(2)</td><td>(10)</td></tr><tr><td>Total (gain) loss recognized in other comprehensive (income) loss</td><td>729</td><td>(1,786)</td><td>745</td></tr><tr><td>Total recognized in comprehensive (income) loss</td><td>$ 893</td><td>$(1,573)</td><td>$ 905</td></tr></table>

The previous postretirement benefits cost in net income and other changes in plan assets and benefit obligations in other comprehensive income in millions of dollars were as follows:

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Health care and life insurance</td><td></td><td></td><td></td></tr><tr><td>Net cost</td><td>$ 268</td><td>$ 362</td><td>$ 351</td></tr><tr><td>Retirement benefit adjustments included in other comprehensive (income) loss:</td><td></td><td></td><td></td></tr><tr><td>Net actuarial (gain) loss</td><td>748</td><td>(1,165)</td><td>335</td></tr><tr><td>Prior service (credit) cost</td><td>(370)</td><td>(2)</td><td>2</td></tr><tr><td>Amortization of actuarial loss</td><td>(33)</td><td>(141)</td><td>(136)</td></tr><tr><td>Amortization of prior service credit</td><td>3</td><td>8</td><td>15</td></tr><tr><td>Settlements/curtailments</td><td>1</td><td></td><td></td></tr><tr><td>Total (gain) loss recognized in other comprehensive (income) loss</td><td>349</td><td>(1,300)</td><td>216</td></tr><tr><td>Total recognized in comprehensive (income) loss</td><td>$ 617</td><td>$ (938)</td><td>$ 567</td></tr></table>



The benefit plan obligations, funded status and the assumptions related to the obligations at October 31 in millions of dollars follow:

<table><tr><td rowspan="2"></td><td colspan="2">Pensions</td><td colspan="2">Health Care and Life Insurance</td></tr><tr><td>2014</td><td>2013</td><td>2014</td><td>2013</td></tr><tr><td>Change in benefit obligations</td><td></td><td></td><td></td><td></td></tr><tr><td>Beginning of year balance</td><td>$ (10,968)</td><td>(11,834)</td><td>$ (5,926)</td><td>$ (7,023)</td></tr><tr><td>Service cost</td><td>(244)</td><td>(273)</td><td>(44)</td><td>(58)</td></tr><tr><td>Interest cost</td><td>(480)</td><td>(439)</td><td>(267)</td><td>(255)</td></tr><tr><td>Actuarial gain (loss)</td><td>(1,306)</td><td>951</td><td>(757)</td><td>1,092</td></tr><tr><td>Amendments</td><td></td><td>26</td><td>370</td><td>2</td></tr><tr><td>Benefits paid</td><td>675</td><td>655</td><td>336</td><td>329</td></tr><tr><td>Health care subsidies</td><td></td><td></td><td>(22)</td><td>(16)</td></tr><tr><td>Other postemployment benefits</td><td>(5)</td><td></td><td></td><td></td></tr><tr><td>Settlements/curtailments</td><td>2</td><td>3</td><td></td><td></td></tr><tr><td>Foreign exchange and other</td><td>136</td><td>(57)</td><td>6</td><td>3</td></tr><tr><td>End of year balance</td><td>(12,190)</td><td>(10,968)</td><td>(6,304)</td><td>(5,926)</td></tr><tr><td>Change in plan assets (fair value)</td><td></td><td></td><td></td><td></td></tr><tr><td>Beginning of year balance</td><td>11,008</td><td>10,017</td><td>1,157</td><td>1,287</td></tr><tr><td>Actual return on plan assets</td><td>1,132</td><td>1,312</td><td>81</td><td>158</td></tr><tr><td>Employer contribution</td><td>87</td><td>301</td><td>51</td><td>37</td></tr><tr><td>Benefits paid</td><td>(675)</td><td>(655)</td><td>(336)</td><td>(329)</td></tr><tr><td>Settlements/curtailments</td><td>(2)</td><td>(3)</td><td></td><td></td></tr><tr><td>Foreign exchange and other</td><td>(103)</td><td>36</td><td>4</td><td>4</td></tr><tr><td>End of year balance</td><td>11,447</td><td>11,008</td><td>957</td><td>1,157</td></tr><tr><td>Funded status</td><td>$ (743)</td><td>$ 40</td><td>$ (5,347)</td><td>$ (4,769)</td></tr><tr><td>Weighted-average assumptions</td><td></td><td></td><td></td><td></td></tr><tr><td>Discount rates</td><td>4.0%</td><td>4.5%</td><td>4.2%</td><td>4.7%</td></tr><tr><td>Rate of compensation increase</td><td>3.8%</td><td>3.8%</td><td></td><td></td></tr></table>

For Medicare eligible salaried retirees that primarily retire after July 1, 1993 and are eligible for postretirement medical benefits, the company’s postretirement benefit plan consists of annual Retiree Medical Credits (RMCs). The RMC is a monetary amount provided to the retirees annually to assist with their medical costs. In October 2014, the RMC plan was modified to change the annual cost sharing provisions. For 2015, the annual RMC amount will not increase and the rate of future changes will continue to be set each year by the company. The net effect of this change on the accumulated postretirement benefit obligation was a decrease of $367 million, which was recognized as a prior service credit in other comprehensive income and will be amortized as a reduction to expense over the active participants’ remaining years of service to full eligibility.
The amounts recognized at October 31 in millions of dollars consist of the following:

<table><tr><td rowspan="2"></td><td colspan="2">Pensions</td><td colspan="2">Health Care and Life Insurance</td></tr><tr><td>2014</td><td>2013</td><td>2014</td><td>2013</td></tr><tr><td>Amounts recognized in balance sheet</td><td></td><td></td><td></td><td></td></tr><tr><td>Noncurrent asset</td><td>$ 262</td><td>$ 551</td><td></td><td></td></tr><tr><td>Current liability</td><td>(51)</td><td>(58)</td><td>(21)</td><td>(21)</td></tr><tr><td>Noncurrent liability</td><td>(954)</td><td>(453)</td><td>(5,326)</td><td>(4,748)</td></tr><tr><td>Total</td><td>$ (743)</td><td>$ 40</td><td>$ (5,347)</td><td>$ (4,769)</td></tr><tr><td>Amounts recognized in accumulated other comprehensive income - pretax</td><td></td><td></td><td></td><td></td></tr><tr><td>Net actuarial loss</td><td>$ 4,266</td><td>$ 3,512</td><td>$ 1,675</td><td>$ 960</td></tr><tr><td>Prior service cost (credit)</td><td>42</td><td>67</td><td>(407)</td><td>(41)</td></tr><tr><td>Total</td><td>$ 4,308</td><td>$ 3,579</td><td>$ 1,268</td><td>$ 919</td></tr></table>

The total accumulated benefit obligations for all pension plans at October 31, 2014 and 2013 was $11,425 million and $10,352 million, respectively.

The accumulated benefit obligations and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $1,381 million and $916 million, respectively, at October 31, 2014 and $680 million and $267 million, respectively, at October 31, 2013. The projected benefit obligations and fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets were $8,213 million and $7,208 million, respectively, at October 31, 2014 and $1,340 million and $829 million, respectively, at October 31, 2013.

The amounts in accumulated other comprehensive income that are expected to be amortized as net expense (income) during fiscal 2015 in millions of dollars follow:

<table><tr><td></td><td>Pensions</td><td>Health Care and Life Insurance</td></tr><tr><td>Net actuarial loss</td><td>$ 222</td><td>$ 93</td></tr><tr><td>Prior service cost (credit)</td><td>25</td><td>(77)</td></tr><tr><td>Total</td><td>$ 247</td><td>$ 16</td></tr></table>

Actuarial gains and losses are recorded in accumulated other comprehensive income (loss). To the extent unamortized gains and losses exceed 10% of the higher of the market-related value of assets or the benefit obligation, the excess is amortized as a component of net periodic cost over the remaining service period of the active participants. For plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of the inactive participants.

The company expects to contribute approximately $78 million to its pension plans and approximately $26 million to its health care and life insurance plans in 2015, which are primarily direct benefit payments for unfunded plans.



The benefits expected to be paid from the benefit plans, which reflect expected future years of service, are as follows in millions of dollars:

<table><tr><td></td><td>Pensions</td><td>Health Care and Life Insurance \( ^{*} \)</td></tr><tr><td>2015</td><td>$ 677</td><td>$ 327</td></tr><tr><td>2016</td><td>670</td><td>334</td></tr><tr><td>2017</td><td>677</td><td>350</td></tr><tr><td>2018</td><td>682</td><td>353</td></tr><tr><td>2019</td><td>684</td><td>353</td></tr><tr><td>2020 to 2024</td><td>3,485</td><td>1,754</td></tr></table>

* Net of prescription drug group benefit subsidy under Medicare Part D.

The annual rates of increase in the per capita cost of covered health care benefits (the health care cost trend rates) used to determine accumulated postretirement benefit obligations were based on the trends for medical and prescription drug claims for pre- and post-65 age groups due to the effects of Medicare. At October 31, 2014, the weighted-average composite trend rates for these obligations were assumed to be a 6.2 percent increase from 2014 to 2015, gradually decreasing to 5 percent from 2022 to 2023 and all future years. The obligations at October 31, 2013 and the cost in 2014 assumed a 6.5 percent increase from 2013 to 2014, gradually decreasing to 5 percent from 2021 to 2022 and all future years. An increase of one percentage point in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligations by 8559 million and the aggregate of service and interest cost component of net periodic postretirement benefits cost for the year by 47 million. A decrease of one percentage point would decrease the obligations by 6585 million and the cost by 35 million.

The discount rate assumptions used to determine the postretirement obligations at October 31, 2014 and 2013 were based on hypothetical AA yield curves represented by a series of annualized individual discount rates. These discount rates represent the rates at which the company’s benefit obligations could effectively be settled at the October 31 measurement dates.

Fair value measurement levels in the following tables are defined in Note 26.
The fair values of the pension plan assets at October 31, 2014 follow in millions of dollars:

<table><tr><td></td><td>Total</td><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Cash and short-term investments</td><td>$ 1,085</td><td>$ 426</td><td>$ 659</td><td></td></tr><tr><td>Equity:</td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. equity securities</td><td>3,084</td><td>3,084</td><td></td><td></td></tr><tr><td>U.S. equity funds</td><td>42</td><td>4</td><td>38</td><td></td></tr><tr><td>International equity securities</td><td>1,972</td><td>1,972</td><td></td><td></td></tr><tr><td>International equity funds</td><td>456</td><td>74</td><td>382</td><td></td></tr><tr><td>Fixed Income:</td><td></td><td></td><td></td><td></td></tr><tr><td>Government and agency securities</td><td>436</td><td>412</td><td>24</td><td></td></tr><tr><td>Corporate debt securities</td><td>324</td><td>1</td><td>323</td><td></td></tr><tr><td>Mortgage-backed securities</td><td>96</td><td>11</td><td>85</td><td></td></tr><tr><td>Fixed income funds</td><td>1,080</td><td>127</td><td>953</td><td></td></tr><tr><td>Real estate</td><td>574</td><td>132</td><td>8</td><td>$ 434</td></tr><tr><td>Private equity/venture capital</td><td>1,578</td><td></td><td></td><td>1,578</td></tr><tr><td>Hedge funds</td><td>593</td><td></td><td></td><td>593</td></tr><tr><td>Other investments</td><td>324</td><td>3</td><td>321</td><td></td></tr><tr><td>Derivative contracts - assets*</td><td>322</td><td>14</td><td>308</td><td></td></tr><tr><td>Derivative contracts - liabilities**</td><td>(39)</td><td>(9)</td><td>(30)</td><td></td></tr><tr><td>Receivables, payables and other</td><td>(3)</td><td>(3)</td><td></td><td></td></tr><tr><td>Securities lending collateral</td><td>847</td><td></td><td>847</td><td></td></tr><tr><td>Securities lending liability</td><td>(847)</td><td></td><td>(847)</td><td></td></tr><tr><td>Securities sold short</td><td>(477)</td><td>(477)</td><td></td><td></td></tr><tr><td>Total net assets</td><td>$ 11,447</td><td>$ 5,771</td><td>$ 3,071</td><td>$ 2,605</td></tr></table>

* Includes contracts for interest rates of $246 million, foreign currency of $61 million, equity of $11 million and other of $4 million.

** Includes contracts for interest rates of $6 million, foreign currency of $25 million and other of $8 million.

The fair values of the health care assets at October 31, 2014 follow in millions of dollars:

<table><tr><td></td><td>Total</td><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Cash and short-term investments</td><td>$ 55</td><td>$ 37</td><td>$ 18</td><td></td></tr><tr><td>Equity:</td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. equity securities</td><td>223</td><td>223</td><td></td><td></td></tr><tr><td>U.S. equity funds</td><td>87</td><td>87</td><td></td><td></td></tr><tr><td>International equity securities</td><td>57</td><td>57</td><td></td><td></td></tr><tr><td>International equity funds</td><td>121</td><td></td><td>121</td><td></td></tr><tr><td>Fixed Income:</td><td></td><td></td><td></td><td></td></tr><tr><td>Government and agency securities</td><td>164</td><td>159</td><td>5</td><td></td></tr><tr><td>Corporate debt securities</td><td>33</td><td></td><td>33</td><td></td></tr><tr><td>Mortgage-backed securities</td><td>13</td><td></td><td>13</td><td></td></tr><tr><td>Fixed income funds</td><td>70</td><td>1</td><td>69</td><td></td></tr><tr><td>Real estate</td><td>17</td><td>5</td><td></td><td>$ 12</td></tr><tr><td>Private equity/venture capital</td><td>44</td><td></td><td></td><td>44</td></tr><tr><td>Hedge funds</td><td>72</td><td></td><td>56</td><td>16</td></tr><tr><td>Other investments</td><td>9</td><td></td><td>9</td><td></td></tr><tr><td>Derivative contracts - assets*</td><td>5</td><td></td><td>5</td><td></td></tr><tr><td>Derivative contracts - liabilities**</td><td>(1)</td><td></td><td>(1)</td><td></td></tr><tr><td>Receivables, payables and other</td><td>1</td><td>1</td><td></td><td></td></tr><tr><td>Securities lending collateral</td><td>126</td><td></td><td>126</td><td></td></tr><tr><td>Securities lending liability</td><td>(126)</td><td></td><td>(126)</td><td></td></tr><tr><td>Securities sold short</td><td>(13)</td><td>(13)</td><td></td><td></td></tr><tr><td>Total net assets</td><td>$ 957</td><td>$ 557</td><td>$ 328</td><td>$ 72</td></tr></table>

* Includes contracts for interest rates of $3 million and foreign currency of $2 million.

** Includes contracts for foreign currency of $1 million.



The fair values of the pension plan assets at October 31, 2013 follow in millions of dollars:

<table><tr><td></td><td>Total</td><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Cash and short-term investments......\(</td><td>1,190</td><td>$</td><td>317</td><td>$ 873</td></tr><tr><td>Equity:</td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. equity securities......</td><td>3,321</td><td>3,321</td><td></td><td></td></tr><tr><td>U.S. equity funds......</td><td>47</td><td>5</td><td>42</td><td></td></tr><tr><td>International equity securities ......</td><td>1,953</td><td>1,953</td><td></td><td></td></tr><tr><td>International equity funds ......</td><td>481</td><td>68</td><td>413</td><td></td></tr><tr><td>Fixed Income:</td><td></td><td></td><td></td><td></td></tr><tr><td>Government and agency securities......</td><td>391</td><td>370</td><td>21</td><td></td></tr><tr><td>Corporate debt securities......</td><td>278</td><td></td><td>278</td><td></td></tr><tr><td>Mortgage-backed securities ......</td><td>106</td><td>14</td><td>92</td><td></td></tr><tr><td>Fixed income funds ......</td><td>601</td><td>91</td><td>510</td><td></td></tr><tr><td>Real estate......</td><td>550</td><td>110</td><td>12</td><td>$ 428</td></tr><tr><td>Private equity/venture capital ......</td><td>1,416</td><td></td><td></td><td>1,416</td></tr><tr><td>Hedge funds......</td><td>529</td><td></td><td>379</td><td>150</td></tr><tr><td>Other investments ......</td><td>389</td><td>3</td><td>386</td><td></td></tr><tr><td>Derivative contracts - assets* ......</td><td>769</td><td>10</td><td>759</td><td></td></tr><tr><td>Derivative contracts - liabilities** ......</td><td>(591)</td><td>(6)</td><td>(585)</td><td></td></tr><tr><td>Receivables, payables and other ......</td><td>14</td><td>14</td><td></td><td></td></tr><tr><td>Securities lending collateral......</td><td>716</td><td></td><td>716</td><td></td></tr><tr><td>Securities lending liability......</td><td>(716)</td><td></td><td>(716)</td><td></td></tr><tr><td>Securities sold short......</td><td>(436)</td><td>(436)</td><td></td><td></td></tr><tr><td>Total net assets......</td><td>$ 11,008</td><td>$ 5,834</td><td>$ 3,180</td><td>$ 1,994</td></tr></table>

* Includes contracts for interest rates of $749 million, foreign currency of $10 million, equity of $9 million and other of $1 million.

** Includes contracts for interest rates of $563 million, foreign currency of $22 million and other of $6 million.

The fair values of the health care assets at October 31, 2013 follow in millions of dollars:

<table><tr><td></td><td>Total</td><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Cash and short-term investments......\(</td><td>58</td><td>$</td><td>29</td><td>$ 29</td></tr><tr><td>Equity:</td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. equity securities......</td><td>298</td><td>298</td><td></td><td></td></tr><tr><td>U.S. equity funds......</td><td>84</td><td>84</td><td></td><td></td></tr><tr><td>International equity securities ......</td><td>71</td><td>71</td><td></td><td></td></tr><tr><td>International equity funds ......</td><td>187</td><td></td><td>187</td><td></td></tr><tr><td>Fixed Income:</td><td></td><td></td><td></td><td></td></tr><tr><td>Government and agency securities...</td><td>184</td><td>180</td><td>4</td><td></td></tr><tr><td>Corporate debt securities......</td><td>33</td><td></td><td>33</td><td></td></tr><tr><td>Mortgage-backed securities ......</td><td>11</td><td></td><td>11</td><td></td></tr><tr><td>Fixed income funds ......</td><td>58</td><td></td><td>58</td><td></td></tr><tr><td>Real estate......</td><td>52</td><td>6</td><td>31</td><td>$ 15</td></tr><tr><td>Private equity/venture capital ......</td><td>48</td><td></td><td></td><td>48</td></tr><tr><td>Hedge funds......</td><td>71</td><td></td><td>66</td><td>5</td></tr><tr><td>Other investments ......</td><td>13</td><td></td><td>13</td><td></td></tr><tr><td>Derivative contracts - assets* ......</td><td>4</td><td></td><td>4</td><td></td></tr><tr><td>Derivative contracts - liabilities** ......</td><td>(1)</td><td></td><td>(1)</td><td></td></tr><tr><td>Receivables, payables and other ......</td><td>1</td><td>1</td><td></td><td></td></tr><tr><td>Securities lending collateral......</td><td>109</td><td></td><td>109</td><td></td></tr><tr><td>Securities lending liability......</td><td>(109)</td><td></td><td>(109)</td><td></td></tr><tr><td>Securities sold short......</td><td>(15)</td><td>(15)</td><td></td><td></td></tr><tr><td>Total net assets......</td><td>$ 1,157</td><td>$ 654</td><td>$ 435</td><td>$ 68</td></tr></table>

* Includes contracts for interest rates of $3 million and foreign currency of $1 million.

** Includes contracts for foreign currency of $1 million.

A reconciliation of Level 3 pension and health care asset fair value measurements in millions of dollars follows:

<table><tr><td></td><td>Total</td><td>Real Estate</td><td>Private Equity/ Venture Capital</td><td>Hedge Funds</td></tr><tr><td>October 31, 2012*</td><td>$ 1,969</td><td>$ 436</td><td>$ 1,373</td><td>$ 160</td></tr><tr><td>Realized gain</td><td>58</td><td></td><td>51</td><td>7</td></tr><tr><td>Change in unrealized gain</td><td>220</td><td>68</td><td>142</td><td>10</td></tr><tr><td>Purchases, sales and settlements - net</td><td>(185)</td><td>(61)</td><td>(102)</td><td>(22)</td></tr><tr><td>October 31, 2013*</td><td>2,062</td><td>443</td><td>1,464</td><td>155</td></tr><tr><td>Realized gain</td><td>105</td><td>1</td><td>77</td><td>27</td></tr><tr><td>Change in unrealized gain (loss)</td><td>153</td><td>20</td><td>145</td><td>(12)</td></tr><tr><td>Purchases, sales and settlements - net</td><td>212</td><td>(18)</td><td>(64)</td><td>294</td></tr><tr><td>Transfers in</td><td>145</td><td></td><td></td><td>145</td></tr><tr><td>October 31, 2014*</td><td>$ 2,677</td><td>$ 446</td><td>$ 1,622</td><td>$ 609</td></tr></table>

* Health care Level 3 assets represent approximately 3 percent to 4 percent of the reconciliation amounts for 2014, 2013 and 2012.

Fair values are determined as follows:

Cash and Short-Term Investments – Includes accounts that are valued based on the account value, which approximates fair value, and investment funds that are valued on the fund’s net asset value (NAV) based on the fair value of the underlying securities. Also included are securities that are valued using a market approach (matrix pricing model) in which all significant inputs are observable or can be derived from or corroborated by observable market data.

Equity Securities and Funds – The values are determined primarily by closing prices in the active market in which the equity investment trades, or the fund’s NAV, based on the fair value of the underlying securities.

Fixed Income Securities and Funds – The securities are valued using either a market approach (matrix pricing model) in which all significant inputs are observable or can be derived from or corroborated by observable market data such as interest rates, yield curves, volatilities, credit risk and prepayment speeds, or they are valued using the closing prices in the active market in which the fixed income investment trades. Fixed income funds are valued using the NAV, based on the fair value of the underlying securities.

Real Estate, Venture Capital, Private Equity, Hedge Funds and Other – Certain of the investments, which are structured as limited partnerships, are valued at estimated fair value based on their proportionate share of the limited partnership’s fair value that is determined by the general partner. The general partner values these investments using a combination of NAV, an income approach (primarily estimated cash flows discounted over the expected holding period), or market approach (primarily the valuation of similar securities and properties). Real estate investment trusts are valued at the closing prices in the active markets in which the investment trades. Real estate investment funds, certain hedge funds and other investments are valued at NAV, based on the fair value of the underlying securities.



Interest Rate, Foreign Currency and Other Derivative Instruments – The derivatives are valued using either an income approach (discounted cash flow) using market observable inputs, including swap curves and both forward and spot exchange rates, or a market approach (closing prices in the active market in which the derivative instrument trades).

The primary investment objective for the pension plan assets is to maximize the growth of these assets to meet the projected obligations to the beneficiaries over a long period of time, and to do so in a manner that is consistent with the company's earnings strength and risk tolerance. The primary investment objective for the health care plan assets is to provide the company with the financial flexibility to pay the projected obligations to beneficiaries. The asset allocation policy is the most important decision in managing the assets and it is reviewed regularly. The asset allocation policy considers the company's financial strength and long-term asset class risk/return expectations since the obligations are long-term in nature. The current target allocations for pension assets are approximately 48 percent for equity securities, 24 percent for debt securities, 5 percent for real estate and 23 percent for other investments. The target allocations for health care assets are approximately 54 percent for equity securities, 28 percent for debt securities, 3 percent for real estate and 15 percent for other investments. The allocation percentages above include the effects of combining derivatives with other investments to manage asset allocations and exposures to interest rates and foreign currency exchange. The assets are well diversified and are managed by professional investment firms as well as by investment professionals who are company employees. As a result of the company's diversified investment policy, there were no significant concentrations of risk.

The expected long-term rate of return on plan assets reflects management’s expectations of long-term average rates of return on funds invested to provide for benefits included in the projected benefit obligations. A market related value of plan assets is used to calculate the expected return on assets. The market related value recognizes changes in the fair value of pension plan assets systematically over a five-year period. The market related value of the health care and life insurance plan assets equal fair value. The expected return is based on the outlook for inflation and for returns in multiple asset classes, while also considering historical returns, asset allocation and investment strategy. The company’s approach has emphasized the long-term nature of the return estimate such that the return assumption is not changed significantly unless there are fundamental changes in capital markets that affect the company’s expectations for returns over an extended period of time (i.e., 10 to 20 years). The average annual return of the company’s U.S. pension fund was approximately 8.8 percent during the past ten years and approximately 9.7 percent during the past 20 years. Since return premiums over inflation and total returns for major asset classes vary widely even over ten-year periods, recent history is not necessarily indicative of long-term future expected returns. The company’s systematic methodology for determining the long-term rate of return for the company’s investment strategies supports the long-term expected return assumptions.

The company has created certain Voluntary Employees’ Beneficiary Association trusts (VEBAs) for the funding of postretirement health care benefits. The future expected asset returns for these VEBAs are lower than the expected return on the other pension and health care plan assets due to investment in a higher proportion of liquid securities. These assets are in addition to the other postretirement health care plan assets that have been funded under Section 401(h) of the U.S. Internal Revenue Code and maintained in a separate account in the company’s pension plan trust.

The company has defined contribution plans related to employee investment and savings plans primarily in the U.S. The company’s contributions and costs under these plans were $184 million in 2014, $178 million in 2013 and $155 million in 2012. The contribution rate varies primarily based on the company’s performance in the prior year and employee participation in the plans.

## 8. INCOME TAXES

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

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Current:</td><td></td><td></td><td></td></tr><tr><td>U.S.:</td><td></td><td></td><td></td></tr><tr><td>Federal</td><td>$ 1,217</td><td>$ 1,405</td><td>$ 1,277</td></tr><tr><td>State</td><td>126</td><td>145</td><td>119</td></tr><tr><td>Foreign</td><td>564</td><td>569</td><td>355</td></tr><tr><td>Total current</td><td>1,907</td><td>2,119</td><td>1,751</td></tr><tr><td>Deferred:</td><td></td><td></td><td></td></tr><tr><td>U.S.:</td><td></td><td></td><td></td></tr><tr><td>Federal</td><td>(189)</td><td>(117)</td><td>(76)</td></tr><tr><td>State</td><td>(11)</td><td>(11)</td><td>(7)</td></tr><tr><td>Foreign</td><td>(80)</td><td>(45)</td><td>(9)</td></tr><tr><td>Total deferred</td><td>(280)</td><td>(173)</td><td>(92)</td></tr><tr><td>Provision for income taxes</td><td>$ 1,627</td><td>$ 1,946</td><td>$ 1,659</td></tr></table>

Based upon the location of the company’s operations, the consolidated income before income taxes in the U.S. in 2014, 2013 and 2012 was $3,219 million, $4,124 million and $3,582 million, respectively, and in foreign countries was $1,578 million, $1,359 million and $1,152 million, respectively. Certain foreign operations are branches of Deere & Company and are subject to U.S. as well as foreign income tax regulations. The pretax income by location and the preceding analysis of the income tax provision by taxing jurisdiction are not directly related.



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

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>U.S. federal income tax provision at a statutory rate of 35 percent</td><td>$ 1,679</td><td>$ 1,919</td><td>$ 1,657</td></tr><tr><td>Increase (decrease) resulting from:</td><td></td><td></td><td></td></tr><tr><td>State and local income taxes, net of federal income tax benefit</td><td>75</td><td>87</td><td>73</td></tr><tr><td>German branch deferred tax write-off</td><td>56</td><td></td><td></td></tr><tr><td>Nontaxable foreign partnership (earnings) losses</td><td>(305)</td><td>43</td><td>(172)</td></tr><tr><td>Nondeductible impairment charges</td><td>32</td><td>29</td><td>6</td></tr><tr><td>Research and business tax credits</td><td>(99)</td><td>(56)</td><td>(10)</td></tr><tr><td>Tax rates on foreign earnings</td><td>(71)</td><td>(34)</td><td>(69)</td></tr><tr><td>Valuation allowance on foreign deferred taxes</td><td>363</td><td>(14)</td><td>200</td></tr><tr><td>Other-net</td><td>(47)</td><td>(84)</td><td>(26)</td></tr><tr><td>Provision for income taxes</td><td>$ 1,627</td><td>$ 1,946</td><td>$ 1,659</td></tr></table>

At October 31, 2014, accumulated earnings in certain subsidiaries outside the U.S. totaled $4,677 million for which no provision for U.S. income taxes or foreign withholding taxes has been made, because it is expected that such earnings will be reinvested outside the U.S. indefinitely. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable. At October 31, 2014, the amount of cash and cash equivalents and marketable securities held by these foreign subsidiaries was $1,025 million.

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

<table><tr><td></td><td colspan="2">2014</td><td colspan="2">2013</td></tr><tr><td></td><td>Deferred Tax Assets</td><td>Deferred Tax Liabilities</td><td>Deferred Tax Assets</td><td>Deferred Tax Liabilities</td></tr><tr><td>Other postretirement</td><td></td><td></td><td></td><td></td></tr><tr><td>benefit liabilities</td><td>$ 1,968</td><td></td><td>$ 1,777</td><td></td></tr><tr><td>Tax over book depreciation</td><td></td><td>$ 542</td><td></td><td>$ 582</td></tr><tr><td>Accrual for sales allowances</td><td>654</td><td></td><td>602</td><td></td></tr><tr><td>Lease transactions</td><td></td><td>404</td><td></td><td>424</td></tr><tr><td>Tax loss and tax credit carryforwards</td><td>514</td><td></td><td>371</td><td></td></tr><tr><td>Accrual for employee benefits</td><td>229</td><td></td><td>234</td><td></td></tr><tr><td>Pension liability - net</td><td>160</td><td></td><td></td><td></td></tr><tr><td>Pension asset - net</td><td></td><td></td><td></td><td>137</td></tr><tr><td>Share-based compensation</td><td>145</td><td></td><td>142</td><td></td></tr><tr><td>Inventory</td><td>22</td><td></td><td>161</td><td></td></tr><tr><td>Goodwill and other intangible assets</td><td></td><td>89</td><td></td><td>100</td></tr><tr><td>Allowance for credit losses</td><td>73</td><td></td><td>69</td><td></td></tr><tr><td>Deferred gains on distributed foreign earnings</td><td>32</td><td></td><td>26</td><td></td></tr><tr><td>Deferred compensation</td><td>47</td><td></td><td>44</td><td></td></tr><tr><td>Undistributed foreign earnings</td><td></td><td>26</td><td></td><td>26</td></tr><tr><td>Other items</td><td>586</td><td>116</td><td>419</td><td>157</td></tr><tr><td>Less valuation allowances</td><td>(637)</td><td></td><td>(254)</td><td></td></tr><tr><td>Deferred income tax assets and liabilities</td><td>$ 3,793</td><td>$ 1,177</td><td>$ 3,591</td><td>$ 1,426</td></tr></table>

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

At October 31, 2014, certain tax loss and tax credit carryforwards of $514 million, of which $101 million are capital losses, were available with $207 million expiring from 2015 through 2034 and $307 million with an indefinite carryforward period.

In March 2013, the company changed the corporate structure of most of its German operations from a branch to a subsidiary of Deere & Company. The change provides the company increased flexibility and efficiency in funding growth in international operations. As a result, the tax status of these operations has changed. Formerly, as a branch these earnings were taxable in the U.S. as earned. As a subsidiary, these earnings will now be taxable in the U.S. if they are distributed to Deere & Company as dividends, which is the same as the company’s other foreign subsidiaries. The earnings of the new German subsidiary remain taxable in Germany. Due to the change in tax status and the expectation that the German subsidiary’s earnings are indefinitely reinvested, the deferred tax assets and liabilities related to U.S. taxable temporary differences for the previous German branch were written off. The effect of this write-off was a decrease in net deferred tax assets and a charge to the income tax provision of $56 million during the second fiscal quarter of 2013.

A reconciliation of the total amounts of unrecognized tax benefits at October 31 in millions of dollars follows:

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Beginning of year balance</td><td>$ 272</td><td>$ 265</td><td>$ 199</td></tr><tr><td>Increases to tax positions taken during the current year</td><td>28</td><td>30</td><td>46</td></tr><tr><td>Increases to tax positions taken during prior years</td><td>20</td><td>24</td><td>54</td></tr><tr><td>Decreases to tax positions taken during prior years</td><td>(84)</td><td>(51)</td><td>(14)</td></tr><tr><td>Decreases due to lapse of statute of limitations</td><td>(4)</td><td>(5)</td><td>(9)</td></tr><tr><td>Foreign exchange</td><td>(19)</td><td>9</td><td>(11)</td></tr><tr><td>End of year balance</td><td>$ 213</td><td>$ 272</td><td>$ 265</td></tr></table>

The amount of unrecognized tax benefits at October 31, 2014 that would affect the effective tax rate if the tax benefits were recognized was $71 million. The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was only related to timing. The company expects that any reasonably possible change in the amounts of unrecognized tax benefits in the next twelve months would not be significant.



The company files its tax returns according to the tax laws of the jurisdictions in which it operates, which includes the U.S. federal jurisdiction, and various state and foreign jurisdictions. The U.S. Internal Revenue Service has completed the examination of the company’s federal income tax returns for periods prior to 2009. The years 2009 through 2012 federal income tax returns are currently under examination. Various state and foreign income tax returns, including major tax jurisdictions in Canada and Germany, also remain subject to examination by taxing authorities.

The company’s policy is to recognize interest related to income taxes in interest expense and interest income, and recognize penalties in selling, administrative and general expenses. During 2014, 2013 and 2012, the total amount of expense from interest and penalties was $11 million, $9 million and $6 million and the interest income was $4 million, $4 million and $1 million, respectively. At October 31, 2014 and 2013, the liability for accrued interest and penalties totaled $54 million and $49 million and the receivable for interest was $2 million and $2 million, respectively.

## 9. OTHER INCOME AND OTHER OPERATING EXPENSES

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

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Other income</td><td></td><td></td><td></td></tr><tr><td>Insurance premiums and fees earned</td><td>$ 297</td><td>$ 252</td><td>$ 248</td></tr><tr><td>Revenues from services</td><td>276</td><td>256</td><td>233</td></tr><tr><td>Investment income</td><td>17</td><td>15</td><td>14</td></tr><tr><td>Other</td><td>234</td><td>159</td><td>180</td></tr><tr><td>Total</td><td>$ 824</td><td>$ 682</td><td>$ 675</td></tr><tr><td>Other operating expenses</td><td></td><td></td><td></td></tr><tr><td>Depreciation of equipment on operating leases</td><td>$ 494</td><td>$ 389</td><td>$ 339</td></tr><tr><td>Insurance claims and expenses</td><td>324</td><td>204</td><td>245</td></tr><tr><td>Cost of services</td><td>151</td><td>143</td><td>122</td></tr><tr><td>Other</td><td>124</td><td>85</td><td>76</td></tr><tr><td>Total</td><td>$ 1,093</td><td>$ 821</td><td>$ 782</td></tr></table>

The company issues insurance policies for crop insurance and extended equipment warranties. The crop insurance subsidiary utilizes reinsurance to limit its losses and reduce its exposure to claims. Although reinsurance contracts permit recovery of certain claims from reinsurers, the insurance subsidiary is not relieved of its primary obligation to the policyholders. The premiums ceded by the crop insurance subsidiary in 2014, 2013 and 2012 were $288 million, $337 million and $251 million, and claims recoveries on the ceded business were $304 million, $294 million and $493 million, respectively. The amounts from reinsurance are netted against the insurance premiums and fees earned and the insurance claims and expenses in the table above.

## 10. UNCONSOLIDATED AFFILIATED COMPANIES

Unconsolidated affiliated companies are companies in which Deere & Company generally owns 20 percent to 50 percent of the outstanding voting shares. Deere & Company does not control these companies and accounts for its investments in them on the equity basis. The investments in these companies primarily consist of Bell Equipment Limited (32 percent ownership), Deere-Hitachi Construction Machinery Corporation (50 percent ownership), Ashok Leyland John Deere Construction Equipment Company Private Limited (50 percent ownership), Deere-Hitachi Maquinas de Construcao do Brasil S.A. (50 percent ownership) and John Deere Landscapes, LLC (38 percent ownership). The unconsolidated affiliated companies primarily manufacture or market equipment and landscapes products. Deere & Company’s share of the income or loss of these companies is reported in the consolidated income statement under “Equity in income (loss) of unconsolidated affiliates.” The investment in these companies is reported in the consolidated balance sheet under “Investments in unconsolidated affiliates.”

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

<table><tr><td>Operations</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Sales</td><td>$ 3,082</td><td>$ 2,299</td><td>$ 2,722</td></tr><tr><td>Net income (loss)</td><td>1</td><td>10</td><td>(1)</td></tr><tr><td>Deere &amp; Company&#x27;s equity in net income (loss)</td><td>(8)</td><td></td><td>(3)</td></tr><tr><td>Financial Position</td><td>2014</td><td>2013</td><td></td></tr><tr><td>Total assets</td><td>$ 2,101</td><td>$ 1,566</td><td></td></tr><tr><td>Total external borrowings</td><td>648</td><td>550</td><td></td></tr><tr><td>Total net assets</td><td>842</td><td>547</td><td></td></tr><tr><td>Deere &amp; Company&#x27;s share of the net assets</td><td>303</td><td>221</td><td></td></tr></table>

Consolidated retained earnings at October 31, 2014 include undistributed earnings of the unconsolidated affiliates of $152 million. Dividends from unconsolidated affiliates were $1 million in 2014, $10 million in 2013 and $2 million in 2012.



## 11. MARKETABLE SECURITIES

All marketable securities are classified as available-for-sale, with unrealized gains and losses shown as a component of stockholders' equity. Realized gains or losses from the sales of marketable securities are based on the specific identification method.

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

<table><tr><td></td><td>Amortized Cost</td><td>Gross Unrealized Gains</td><td>Gross Unrealized Losses</td><td>Fair Value</td></tr><tr><td>2014</td><td></td><td></td><td></td><td></td></tr><tr><td>Equity fund</td><td>39</td><td>6</td><td>45</td><td></td></tr><tr><td>Fixed income fund</td><td>10</td><td></td><td>10</td><td></td></tr><tr><td>U.S. government debt securities</td><td>806</td><td>3</td><td>1</td><td>808</td></tr><tr><td>Municipal debt securities</td><td>31</td><td>3</td><td>34</td><td></td></tr><tr><td>Corporate debt securities</td><td>167</td><td>7</td><td>2</td><td>172</td></tr><tr><td>Mortgage-backed securities</td><td>145</td><td>3</td><td>2</td><td>146</td></tr><tr><td>Marketable securities</td><td>1,198</td><td>22</td><td>5</td><td>1,215</td></tr><tr><td>2013</td><td></td><td></td><td></td><td></td></tr><tr><td>Equity fund</td><td>18</td><td>2</td><td>20</td><td></td></tr><tr><td>U.S. government debt securities</td><td>1,309</td><td>5</td><td>2</td><td>1,312</td></tr><tr><td>Municipal debt securities</td><td>34</td><td>2</td><td>36</td><td></td></tr><tr><td>Corporate debt securities</td><td>135</td><td>6</td><td>3</td><td>138</td></tr><tr><td>Mortgage-backed securities</td><td>121</td><td>2</td><td>4</td><td>119</td></tr><tr><td>Marketable securities</td><td>1,617</td><td>17</td><td>9</td><td>1,625</td></tr></table>

* Primarily issued by U.S. government sponsored enterprises.

The contractual maturities of debt securities at October 31, 2014 in millions of dollars follow:

<table><tr><td></td><td>Amortized Cost</td><td>Fair Value</td></tr><tr><td>Due in one year or less</td><td>722</td><td>723</td></tr><tr><td>Due after one through five years</td><td>90</td><td>93</td></tr><tr><td>Due after five through 10 years</td><td>140</td><td>143</td></tr><tr><td>Due after 10 years</td><td>52</td><td>55</td></tr><tr><td>Mortgage-backed securities</td><td>145</td><td>146</td></tr><tr><td>Debt securities</td><td>1,149</td><td>1,160</td></tr></table>

Actual maturities may differ from contractual maturities because some securities may be called or prepaid. Because of the potential for prepayment on mortgage-backed securities, they are not categorized by contractual maturity. Proceeds from the sales of available-for-sale securities were $6 million in 2014, $7 million in 2013 and $7 million in 2012. Realized gains, realized losses, the increase (decrease) in net unrealized gains or losses and unrealized losses that have been continuous for over twelve months were not significant in 2014, 2013 and 2012. Unrealized losses at October 31, 2014 and 2013 were primarily the result of an increase in interest rates and were not recognized in income due to the ability and intent to hold to maturity. There were no impairment write-downs in the periods reported.

## 12. RECEIVABLES

## Trade Accounts and Notes Receivable

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

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Trade accounts and notes:</td><td></td><td></td></tr><tr><td>Agriculture and turf</td><td>$ 2,633</td><td>$ 3,127</td></tr><tr><td>Construction and forestry</td><td>645</td><td>631</td></tr><tr><td>Trade accounts and notes receivable—net</td><td>$ 3,278</td><td>$ 3,758</td></tr></table>

At October 31, 2014 and 2013, dealer notes included in the previous table were $61 million and $75 million, and the allowance for credit losses was $55 million and $67 million, respectively.

The equipment operations sell a significant portion of their trade receivables to financial services and provide compensation to these operations at approximate market rates of interest.

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

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



## Financing Receivables

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

<table><tr><td></td><td colspan="2">2014</td><td colspan="2">2013</td></tr><tr><td></td><td colspan="2">Unrestricted/Securitized</td><td colspan="2">Unrestricted/Securitized</td></tr><tr><td>Retail notes:</td><td></td><td></td><td></td><td></td></tr><tr><td>Equipment:</td><td></td><td></td><td></td><td></td></tr><tr><td>Agriculture and turf</td><td>$ 16,970</td><td>$ 3,975</td><td>$16,209</td><td>$ 3,602</td></tr><tr><td>Construction and forestry</td><td>1,951</td><td>697</td><td>1,449</td><td>607</td></tr><tr><td>Total</td><td>18,921</td><td>4,672</td><td>17,658</td><td>4,209</td></tr><tr><td>Wholesale notes</td><td>5,390</td><td></td><td>4,802</td><td></td></tr><tr><td>Revolving charge accounts</td><td>2,603</td><td></td><td>2,593</td><td></td></tr><tr><td>Financing leases (direct and sales-type)</td><td>1,558</td><td></td><td>1,513</td><td></td></tr><tr><td>Operating loans</td><td></td><td></td><td>32</td><td></td></tr><tr><td>Total financing receivables</td><td>28,472</td><td>4,672</td><td>26,598</td><td>4,209</td></tr><tr><td>Less:</td><td></td><td></td><td></td><td></td></tr><tr><td>Unearned finance income:</td><td></td><td></td><td></td><td></td></tr><tr><td>Equipment notes</td><td>753</td><td>56</td><td>665</td><td>42</td></tr><tr><td>Financing leases</td><td>136</td><td></td><td>141</td><td></td></tr><tr><td>Total</td><td>889</td><td>56</td><td>806</td><td>42</td></tr><tr><td>Allowance for credit losses</td><td>161</td><td>14</td><td>159</td><td>14</td></tr><tr><td>Financing receivables - net</td><td>$ 27,422</td><td>$ 4,602</td><td>$25,633</td><td>$ 4,153</td></tr></table>

The residual values for investments in financing leases at October 31, 2014 and 2013 totaled $112 million and $94 million, respectively.

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

Financing receivables at October 31 related to the company’s sales of equipment that were included in the table above consisted of the following in millions of dollars:

<table><tr><td></td><td colspan="2">2014</td><td colspan="2">2013</td></tr><tr><td></td><td colspan="2">Unrestricted</td><td colspan="2">Unrestricted</td></tr><tr><td>Retail notes*:</td><td></td><td></td><td></td><td></td></tr><tr><td>Equipment:</td><td></td><td></td><td></td><td></td></tr><tr><td>Agriculture and turf</td><td>$ 2,125</td><td></td><td>$ 2,042</td><td></td></tr><tr><td>Construction and forestry</td><td>403</td><td></td><td>364</td><td></td></tr><tr><td>Total</td><td>2,528</td><td></td><td>2,406</td><td></td></tr><tr><td>Wholesale notes</td><td>5,390</td><td></td><td>4,802</td><td></td></tr><tr><td>Sales-type leases</td><td>844</td><td></td><td>826</td><td></td></tr><tr><td>Total</td><td>$ 8,762</td><td></td><td>$ 8,034</td><td></td></tr></table>

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

(continued)

<table><tr><td></td><td colspan="2">2014</td><td colspan="2">2013</td></tr><tr><td></td><td colspan="2">Unrestricted</td><td colspan="2">Unrestricted</td></tr><tr><td>Less:</td><td></td><td></td><td></td><td></td></tr><tr><td>Unearned finance income:</td><td></td><td></td><td></td><td></td></tr><tr><td>Equipment notes</td><td>$ 212</td><td></td><td>$ 191</td><td></td></tr><tr><td>Sales-type leases</td><td>57</td><td></td><td>58</td><td></td></tr><tr><td>Total</td><td>269</td><td></td><td>249</td><td></td></tr><tr><td>Financing receivables related to the company&#x27;s sales of equipment</td><td>$ 8,493</td><td></td><td>$ 7,785</td><td></td></tr></table>

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

<table><tr><td></td><td colspan="2">2014</td><td colspan="2">2013</td></tr><tr><td></td><td colspan="2">Unrestricted/Securitized</td><td colspan="2">Unrestricted/Securitized</td></tr><tr><td>Due in months:</td><td></td><td></td><td></td><td></td></tr><tr><td>0 - 12</td><td>$ 14,357</td><td>$ 1,878</td><td>$13,343</td><td>$ 1,663</td></tr><tr><td>13 - 24</td><td>5,254</td><td>1,331</td><td>4,879</td><td>1,177</td></tr><tr><td>25 - 36</td><td>4,053</td><td>880</td><td>3,750</td><td>808</td></tr><tr><td>37 - 48</td><td>2,819</td><td>457</td><td>2,620</td><td>422</td></tr><tr><td>49 - 60</td><td>1,575</td><td>120</td><td>1,610</td><td>130</td></tr><tr><td>Thereafter</td><td>414</td><td>6</td><td>396</td><td>9</td></tr><tr><td>Total</td><td>$ 28,472</td><td>$ 4,672</td><td>$26,598</td><td>$ 4,209</td></tr></table>

The maximum terms for retail notes are generally seven years for agriculture and turf equipment and five years for construction and forestry equipment. The maximum term for financing leases is generally five years, while the average term for wholesale notes is less than twelve months.

At October 31, 2014 and 2013, the unpaid balances of receivables administered but not owned were $54 million and $82 million, respectively. At October 31, 2014 and 2013, worldwide financing receivables administered, which include financing receivables administered but not owned, totaled $32,078 million and $29,868 million, respectively.

Past due balances of financing receivables still accruing finance income represent the total balance held (principal plus accrued interest) with any payment amounts 30 days or more past the contractual payment due date. Non-performing financing receivables represent loans for which the company has ceased accruing finance income. These receivables are generally 120 days delinquent and the estimated uncollectible amount, after charging the dealer’s withholding account, has been written off to the allowance for credit losses. Finance income for non-performing receivables is recognized on a cash basis. Accrual of finance income is generally resumed when the receivable becomes contractually current and collections are reasonably assured.



An age analysis of past due financing receivables that are still accruing interest and non-performing financing receivables at October 31, 2014 follows in millions of dollars:

<table><tr><td></td><td>30-59 Days Past Due</td><td>60-89 Days Past Due</td><td>90 Days or Greater Past Due</td><td>Total Past Due</td></tr><tr><td>Retail Notes:</td><td></td><td></td><td></td><td></td></tr><tr><td>Agriculture and turf ......</td><td>$ 93</td><td>$ 34</td><td>$ 28</td><td>$ 155</td></tr><tr><td>Construction and forestry</td><td>54</td><td>16</td><td>7</td><td>77</td></tr><tr><td>Other:</td><td></td><td></td><td></td><td></td></tr><tr><td>Agriculture and turf ......</td><td>23</td><td>12</td><td>2</td><td>37</td></tr><tr><td>Construction and forestry</td><td>12</td><td>3</td><td>4</td><td>19</td></tr><tr><td>Total</td><td>$ 182</td><td>$ 65</td><td>$ 41</td><td>$ 288</td></tr><tr><td></td><td>Total Past Due</td><td>Total Non-Performing</td><td>Current</td><td>Total Financing Receivables</td></tr><tr><td>Retail Notes:</td><td></td><td></td><td></td><td></td></tr><tr><td>Agriculture and turf ......</td><td>$ 155</td><td>$ 107</td><td>$ 19,966</td><td>$ 20,228</td></tr><tr><td>Construction and forestry</td><td>77</td><td>17</td><td>2,462</td><td>2,556</td></tr><tr><td>Other:</td><td></td><td></td><td></td><td></td></tr><tr><td>Agriculture and turf ......</td><td>37</td><td>15</td><td>8,208</td><td>8,260</td></tr><tr><td>Construction and forestry</td><td>19</td><td>2</td><td>1,134</td><td>1,155</td></tr><tr><td>Total</td><td>$ 288</td><td>$ 141</td><td>$ 31,770</td><td>32,199</td></tr><tr><td>Less allowance for credit losses</td><td></td><td></td><td></td><td>175</td></tr><tr><td>Total financing receivables - net</td><td></td><td></td><td></td><td>$ 32,024</td></tr></table>

An age analysis of past due financing receivables that are still accruing interest and non-performing financing receivables at October 31, 2013 follows in millions of dollars:

<table><tr><td></td><td>30-59 Days Past Due</td><td>60-89 Days Past Due</td><td>90 Days or Greater Past Due</td><td>Total Past Due</td></tr><tr><td>Retail Notes:</td><td></td><td></td><td></td><td></td></tr><tr><td>Agriculture and turf......</td><td>$ 75</td><td>$ 26</td><td>$ 20</td><td>$ 121</td></tr><tr><td>Construction and forestry</td><td>39</td><td>14</td><td>9</td><td>62</td></tr><tr><td>Other:</td><td></td><td></td><td></td><td></td></tr><tr><td>Agriculture and turf......</td><td>28</td><td>9</td><td>5</td><td>42</td></tr><tr><td>Construction and forestry</td><td>12</td><td>4</td><td>3</td><td>19</td></tr><tr><td>Total</td><td>$ 154</td><td>$ 53</td><td>$ 37</td><td>$ 244</td></tr></table>

(continued)

<table><tr><td></td><td>Total Past Due</td><td>Total Non-Performing</td><td>Current</td><td>Total Financing Receivables</td></tr><tr><td>Retail Notes:</td><td></td><td></td><td></td><td></td></tr><tr><td>Agriculture and turf ......</td><td>$ 121</td><td>$ 102</td><td>$ 18,942</td><td>$ 19,165</td></tr><tr><td>Construction and forestry</td><td>62</td><td>12</td><td>1,921</td><td>1,995</td></tr><tr><td>Other:</td><td></td><td></td><td></td><td></td></tr><tr><td>Agriculture and turf ......</td><td>42</td><td>13</td><td>7,613</td><td>7,668</td></tr><tr><td>Construction and forestry</td><td>19</td><td>3</td><td>1,109</td><td>1,131</td></tr><tr><td>Total</td><td>$ 244</td><td>$ 130</td><td>$ 29,585</td><td>29,959</td></tr><tr><td>Less allowance for credit losses</td><td></td><td></td><td></td><td>173</td></tr><tr><td>Total financing receivables - net</td><td></td><td></td><td></td><td>$29,786</td></tr></table>

An analysis of the allowance for credit losses and investment in financing receivables follows in millions of dollars:

<table><tr><td></td><td>Retail Notes</td><td>Revolving Charge Accounts</td><td>Other</td><td>Total</td></tr><tr><td>2014</td><td></td><td></td><td></td><td></td></tr><tr><td>Allowance:</td><td></td><td></td><td></td><td></td></tr><tr><td>Beginning of year</td><td></td><td></td><td></td><td></td></tr><tr><td>balance</td><td>$ 101</td><td>$ 41</td><td>$ 31</td><td>$ 173</td></tr><tr><td>Provision</td><td>18</td><td>11</td><td>2</td><td>31</td></tr><tr><td>Write-offs</td><td>(16)</td><td>(26)</td><td>(7)</td><td>(49)</td></tr><tr><td>Recoveries</td><td>11</td><td>15</td><td></td><td>26</td></tr><tr><td>Translation adjustments</td><td>(5)</td><td></td><td>(1)</td><td>(6)</td></tr><tr><td>End of year balance*</td><td>$ 109</td><td>$ 41</td><td>$ 25</td><td>$ 175</td></tr><tr><td>Financing receivables:</td><td></td><td></td><td></td><td></td></tr><tr><td>End of year balance</td><td>$ 22,784</td><td>$ 2,603</td><td>$ 6,812</td><td>$32,199</td></tr><tr><td>Balance individually</td><td></td><td></td><td></td><td></td></tr><tr><td>evaluated</td><td>$ 26</td><td></td><td>$ 1</td><td>$ 27</td></tr></table>

* Individual allowances were not significant.

<table><tr><td>2013</td><td></td><td></td><td></td><td></td></tr><tr><td>Allowance:</td><td></td><td></td><td></td><td></td></tr><tr><td>Beginning of year</td><td></td><td></td><td></td><td></td></tr><tr><td>balance</td><td>$ 110</td><td>$ 40</td><td>$ 27</td><td>$ 177</td></tr><tr><td>Provision (credit)</td><td>(2)</td><td>5</td><td>7</td><td>10</td></tr><tr><td>Write-offs</td><td>(11)</td><td>(21)</td><td>(3)</td><td>(35)</td></tr><tr><td>Recoveries</td><td>9</td><td>17</td><td>1</td><td>27</td></tr><tr><td>Translation adjustments</td><td>(5)</td><td></td><td>(1)</td><td>(6)</td></tr><tr><td>End of year balance*</td><td>$ 101</td><td>$ 41</td><td>$ 31</td><td>$ 173</td></tr><tr><td>Financing receivables:</td><td></td><td></td><td></td><td></td></tr><tr><td>End of year balance</td><td>$ 21,160</td><td>$ 2,593</td><td>$ 6,206</td><td>$29,959</td></tr><tr><td>Balance individually</td><td></td><td></td><td></td><td></td></tr><tr><td>evaluated</td><td>$ 21</td><td></td><td>$ 33</td><td>$ 54</td></tr></table>

(continued)



<table><tr><td></td><td>Retail Notes</td><td>Revolving Charge Accounts</td><td>Other</td><td>Total</td></tr><tr><td>2012</td><td></td><td></td><td></td><td></td></tr><tr><td>Allowance:</td><td></td><td></td><td></td><td></td></tr><tr><td>Beginning of year</td><td></td><td></td><td></td><td></td></tr><tr><td>balance</td><td>$ 130</td><td>$ 40</td><td>$ 27</td><td>$ 197</td></tr><tr><td>Provision (credit)</td><td>(12)</td><td>8</td><td>3</td><td>(1)</td></tr><tr><td>Write-offs</td><td>(8)</td><td>(30)</td><td>(4)</td><td>(42)</td></tr><tr><td>Recoveries</td><td>10</td><td>22</td><td>1</td><td>33</td></tr><tr><td>Translation adjustments</td><td>(10)</td><td></td><td></td><td>(10)</td></tr><tr><td>End of year balance*</td><td>$ 110</td><td>$ 40</td><td>$ 27</td><td>$ 177</td></tr><tr><td>Financing receivables:</td><td></td><td></td><td></td><td></td></tr><tr><td>End of year balance</td><td>$ 18,251</td><td>$ 2,488</td><td>$ 5,215</td><td>$25,954</td></tr><tr><td>Balance individually evaluated</td><td>$ 11</td><td>$ 1</td><td>$ 1</td><td>$ 13</td></tr></table>

 \( ^{*} \)  Individual allowances were not significant.

Past-due amounts over 30 days represented .90 percent and .82 percent of the receivables financed at October 31, 2014 and 2013, respectively. The allowance for credit losses represented .54 percent and .58 percent of financing receivables outstanding at October 31, 2014 and 2013, respectively. In addition, at October 31, 2014 and 2013, the company’s financial services operations had $196 million and $197 million, respectively, of deposits withheld from dealers and merchants available for potential credit losses.

Financing receivables are considered impaired when it is probable the company will be unable to collect all amounts due according to the contractual terms. Receivables reviewed for impairment generally include those that are either past due, or have provided bankruptcy notification, or require significant collection efforts. Receivables, which are impaired, are generally classified as non-performing.

An analysis of the impaired financing receivables at October 31 follows in millions of dollars:

<table><tr><td></td><td>Recorded Investment</td><td>Unpaid Principal Balance</td><td>Specific Allowance</td><td>Average Recorded Investment</td></tr><tr><td>2014*</td><td></td><td></td><td></td><td></td></tr><tr><td>Receivables with specific allowance***</td><td>$ 9</td><td>$ 9</td><td>$ 2</td><td>$ 10</td></tr><tr><td>Receivables without a specific allowance***</td><td>6</td><td>6</td><td></td><td>7</td></tr><tr><td>Total</td><td>$ 15</td><td>$ 15</td><td>$ 2</td><td>$ 17</td></tr><tr><td>Agriculture and turf</td><td>$ 12</td><td>$ 12</td><td>$ 2</td><td>$ 13</td></tr><tr><td>Construction and forestry</td><td>$ 3</td><td>$ 3</td><td></td><td>$ 4</td></tr><tr><td></td><td></td><td></td><td></td><td></td></tr></table>

(continued)

<table><tr><td></td><td>Recorded Investment</td><td>Unpaid Principal Balance</td><td>Specific Allowance</td><td>Average Recorded Investment</td></tr><tr><td>2013*</td><td></td><td></td><td></td><td></td></tr><tr><td>Receivables with specific allowance**</td><td>$ 18</td><td>$ 18</td><td>$ 4</td><td>$ 19</td></tr><tr><td>Receivables without a specific allowance***</td><td>8</td><td>8</td><td></td><td>8</td></tr><tr><td>Total</td><td>$ 26</td><td>$ 26</td><td>$ 4</td><td>$ 27</td></tr><tr><td>Agriculture and turf</td><td>$ 23</td><td>$ 23</td><td>$ 4</td><td>$ 24</td></tr><tr><td>Construction and forestry</td><td>$ 3</td><td>$ 3</td><td></td><td>$ 3</td></tr></table>

* Finance income recognized was not material.

** Primarily operating loans and retail notes.

*** Primarily retail notes.

A troubled debt restructuring is generally the modification of debt in which a creditor grants a concession it would not otherwise consider to a debtor that is experiencing financial difficulties. These modifications may include a reduction of the stated interest rate, an extension of the maturity dates, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. During 2014, 2013 and 2012, the company identified 66, 92 and 138 financing receivable contracts, primarily operating loans and retail notes, as troubled debt restructurings with aggregate balances of $3 million, $16 million and $5 million pre-modification and $2 million, $15 million and $4 million post-modification, respectively. During these same periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At October 31, 2014, the company had no commitments to lend additional funds to borrowers whose accounts were modified in troubled debt restructurings.

## Other Receivables

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

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Taxes receivable</td><td>$ 697</td><td>$ 868</td></tr><tr><td>Reinsurance receivables</td><td>502</td><td>351</td></tr><tr><td>Insurance premium receivables</td><td>23</td><td>24</td></tr><tr><td>Other</td><td>278</td><td>221</td></tr><tr><td>Other receivables</td><td>$ 1,500</td><td>$ 1,464</td></tr></table>

Reinsurance and insurance premium receivables are associated with the financial services’ crop insurance subsidiary (see Note 9).



## 13. SECURITIZATION OF FINANCING RECEIVABLES

The company, as a part of its overall funding strategy, periodically transfers certain financing receivables (retail notes) into variable interest entities (VIEs) that are special purpose entities (SPEs), or a non-VIE banking operation, as part of its asset-backed securities programs (securitizations). The structure of these transactions is such that the transfer of the retail notes did not meet the criteria of sales of receivables, and is, therefore, accounted for as a secured borrowing. SPEs utilized in securitizations of retail notes differ from other entities included in the company’s consolidated statements because the assets they hold are legally isolated. Use of the assets held by the SPEs or the non-VIE is restricted by terms of the documents governing the securitization transactions.

In securitizations of retail notes related to secured borrowings, the retail notes are transferred to certain SPEs or to a non-VIE banking operation, which in turn issue debt to investors. The resulting secured borrowings are recorded as “Short-term securitization borrowings” on the balance sheet. The securitized retail notes are recorded as “Financing receivables securitized – net” on the balance sheet. The total restricted assets on the balance sheet related to these securitizations include the financing receivables securitized less an allowance for credit losses, and other assets primarily representing restricted cash. For those securitizations in which retail notes are transferred into SPEs, the SPEs supporting the secured borrowings are consolidated unless the company does not have both the power to direct the activities that most significantly impact the SPEs’ economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the SPEs. No additional support to these SPEs beyond what was previously contractually required has been provided during the reporting periods.

In certain securitizations, the company consolidates the SPEs since it has both the power to direct the activities that most significantly impact the SPEs' economic performance through its role as servicer of all the receivables held by the SPEs, and the obligation through variable interests in the SPEs to absorb losses or receive benefits that could potentially be significant to the SPEs. The restricted assets (retail notes securitized, allowance for credit losses and other assets) of the consolidated SPEs totaled $3,011 million and $2,626 million at October 31, 2014 and 2013, respectively. The liabilities (short-term securitization borrowings and accrued interest) of these SPEs totaled $2,942 million and $2,547 million at October 31, 2014 and 2013, respectively. The credit holders of these SPEs do not have legal recourse to the company's general credit.
In certain securitizations, the company transfers retail notes to a non-VIE banking operation, which is not consolidated since the company does not have a controlling interest in the entity. The company’s carrying values and interests related to the securitizations with the unconsolidated non-VIE were restricted assets (retail notes securitized, allowance for credit losses and other assets) of $368 million and $353 million at October 31, 2014 and 2013, respectively. The liabilities (short-term securitization borrowings and accrued interest) were $351 million and $338 million at October 31, 2014 and 2013, respectively.

In certain securitizations, the company transfers retail notes into bank-sponsored, multi-seller, commercial paper conduits, which are SPEs that are not consolidated. The company does not service a significant portion of the conduits' receivables, and therefore, does not have the power to direct the activities that most significantly impact the conduits' economic performance. These conduits provide a funding source to the company (as well as other transferors into the conduit) as they fund the retail notes through the issuance of commercial paper. The company's carrying values and variable interest related to these conduits were restricted assets (retail notes securitized, allowance for credit losses and other assets) of $1,331 million and $1,274 million at October 31, 2014 and 2013, respectively. The liabilities (short-term securitization borrowings and accrued interest) related to these conduits were $1,267 million and $1,225 million at October 31, 2014 and 2013, respectively.

The company’s carrying amount of the liabilities to the unconsolidated conduits, compared to the maximum exposure to loss related to these conduits, which would only be incurred in the event of a complete loss on the restricted assets, was as follows at October 31 in millions of dollars:

<table><tr><td></td><td>2014</td></tr><tr><td>Carrying value of liabilities</td><td>$ 1,267</td></tr><tr><td>Maximum exposure to loss</td><td>1,331</td></tr></table>

The total assets of unconsolidated VIEs related to securiti-
zations were approximately $40 billion at October 31, 2014.

The components of consolidated restricted assets related to secured borrowings in securitization transactions at October 31 were as follows in millions of dollars:

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Financing receivables securitized (retail notes)</td><td>$ 4,616</td><td>$ 4,167</td></tr><tr><td>Allowance for credit losses</td><td>(14)</td><td>(14)</td></tr><tr><td>Other assets</td><td>108</td><td>100</td></tr><tr><td>Total restricted securitized assets</td><td>$ 4,710</td><td>$ 4,253</td></tr></table>



The components of consolidated secured borrowings and other liabilities related to securitizations at October 31 were as follows in millions of dollars:

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Short-term securitization borrowings</td><td>$4,559</td><td>$4,109</td></tr><tr><td>Accrued interest on borrowings</td><td>1</td><td>1</td></tr><tr><td>Total liabilities related to restricted securitized assets</td><td>$4,560</td><td>$4,110</td></tr></table>

The secured borrowings related to these restricted securitized retail notes are obligations that are payable as the retail notes are liquidated. Repayment of the secured borrowings depends primarily on cash flows generated by the restricted assets. Due to the company’s short-term credit rating, cash collections from these restricted assets are not required to be placed into a segregated collection account until immediately prior to the time payment is required to the secured creditors. At October 31, 2014, the maximum remaining term of all securitized retail notes was approximately six years.

## 14. EQUIPMENT ON OPERATING LEASES

Operating leases arise primarily from the leasing of John Deere equipment to retail customers. Initial lease terms generally range from four to 60 months. Net equipment on operating leases totaled $4,016 million and $3,152 million at October 31, 2014 and 2013, respectively. The equipment is depreciated on a straight-line basis over the terms of the lease. The accumulated depreciation on this equipment was $634 million and $545 million at October 31, 2014 and 2013, respectively. The corresponding depreciation expense was $494 million in 2014, $389 million in 2013 and $339 million in 2012.

Future payments to be received on operating leases totaled $1,553 million at October 31, 2014 and are scheduled in millions of dollars as follows: 2015 – $635, 2016 – $448, 2017 – $280, 2018 – $155 and 2019 – $35.

## 15. INVENTORIES

Most inventories owned by Deere & Company and its U.S. equipment subsidiaries are valued at cost, on the “last-in, first-out” (LIFO) basis. Remaining inventories are generally valued at the lower of cost, on the “first-in, first-out” (FIFO) basis, or market. The value of gross inventories on the LIFO basis represented 65 percent and 63 percent of worldwide gross inventories at FIFO value at October 31, 2014 and 2013 respectively. The pretax favorable income effect from the liquidation of LIFO inventory during 2014 was approximately $13 million. If all inventories had been valued on a FIFO basis, estimated inventories by major classification at October 31 in millions of dollars would have been as follows:

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Raw materials and supplies</td><td>$ 1,724</td><td>$ 1,954</td></tr><tr><td>Work-in-process</td><td>654</td><td>753</td></tr><tr><td>Finished goods and parts</td><td>3,360</td><td>3,757</td></tr><tr><td>Total FIFO value</td><td>5,738</td><td>6,464</td></tr><tr><td>Less adjustment to LIFO value</td><td>1,528</td><td>1,529</td></tr><tr><td>Inventories</td><td>$ 4,210</td><td>$ 4,935</td></tr></table>

## 16. PROPERTY AND DEPRECIATION

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

<table><tr><td></td><td>Useful Lives* (Years)</td><td>2014</td><td>2013</td></tr><tr><td>Equipment Operations</td><td></td><td></td><td></td></tr><tr><td>Land</td><td></td><td>$ 120</td><td>$ 123</td></tr><tr><td>Buildings and building equipment</td><td>23</td><td>3,037</td><td>2,875</td></tr><tr><td>Machinery and equipment</td><td>11</td><td>5,089</td><td>4,931</td></tr><tr><td>Dies, patterns, tools, etc</td><td>8</td><td>1,552</td><td>1,492</td></tr><tr><td>All other</td><td>5</td><td>889</td><td>866</td></tr><tr><td>Construction in progress</td><td></td><td>530</td><td>728</td></tr><tr><td>Total at cost</td><td></td><td>11,217</td><td>11,015</td></tr><tr><td>Less accumulated depreciation</td><td></td><td>5,694</td><td>5,606</td></tr><tr><td>Total</td><td></td><td>5,523</td><td>5,409</td></tr><tr><td>Financial Services</td><td></td><td></td><td></td></tr><tr><td>Land</td><td></td><td>4</td><td>4</td></tr><tr><td>Buildings and building equipment</td><td>27</td><td>71</td><td>71</td></tr><tr><td>All other</td><td>6</td><td>37</td><td>36</td></tr><tr><td>Total at cost</td><td></td><td>112</td><td>111</td></tr><tr><td>Less accumulated depreciation</td><td></td><td>57</td><td>53</td></tr><tr><td>Total</td><td></td><td>55</td><td>58</td></tr><tr><td>Property and equipment-net</td><td></td><td>$5,578</td><td>$ 5,467</td></tr></table>

Total property and equipment additions in 2014, 2013 and 2012 were $1,016 million, $1,158 million and $1,376 million and depreciation was $696 million, $637 million and $555 million, respectively. Capitalized interest was $6 million, $13 million and $7 million in the same periods, respectively. The cost of leased property and equipment under capital leases of $36 million and $58 million and accumulated depreciation of $15 million and $29 million at October 31, 2014 and 2013, respectively, is included in property and equipment.

Capitalized software has an estimated useful life of three years. The amounts of total capitalized software costs, including purchased and internally developed software, classified as “Other Assets” at October 31, 2014 and 2013 were $912 million and $778 million, less accumulated amortization of $656 million and $584 million, respectively. Amortization of these software costs was $106 million in 2014, $93 million in 2013 and $89 million in 2012. The cost of leased software assets under capital leases amounting to $77 million and $46 million at October 31, 2014 and 2013, respectively, is included in other assets.

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



## 17. GOODWILL AND OTHER INTANGIBLE ASSETS-NET

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

<table><tr><td></td><td>Agriculture and Turf</td><td>Construction and Forestry</td><td>Total</td></tr><tr><td>Balance at October 31, 2012</td><td>$ 686</td><td>$ 584</td><td>$ 1,270</td></tr><tr><td>Less accumulated impairment losses</td><td>349</td><td></td><td>349</td></tr><tr><td>Net balance</td><td>337</td><td>584</td><td>921</td></tr><tr><td>Reclassification to assets held for sale**</td><td>(395)</td><td></td><td>(395)</td></tr><tr><td>Acquisition*</td><td>13</td><td></td><td>13</td></tr><tr><td>Translation adjustments and other</td><td>(2)</td><td>19</td><td>17</td></tr><tr><td>Balance at October 31, 2013</td><td>302</td><td>603</td><td>905</td></tr><tr><td>Less accumulated impairment losses**</td><td>60</td><td></td><td>60</td></tr><tr><td>Net balance</td><td>242</td><td>603</td><td>845</td></tr><tr><td>Divestiture***</td><td>(60)</td><td></td><td>(60)</td></tr><tr><td>Translation adjustments and other</td><td>(7)</td><td>(47)</td><td>(54)</td></tr><tr><td>Balance at October 31, 2014</td><td>235</td><td>556</td><td>791</td></tr><tr><td>Less accumulated impairment losses***</td><td></td><td></td><td></td></tr><tr><td>Goodwill</td><td>$ 235</td><td>$ 556</td><td>$ 791</td></tr></table>

 \( ^{*} \)  See Note 4.

** Accumulated impairment losses were also reduced by $289 million related to Landscapes reclassification to held for sale (see Note 4).

***Accumulated impairment losses were also reduced by $60 million related to the sale of the Water operations (see Note 4).

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

<table><tr><td></td><td>Useful Lives* (Years)</td><td>2014</td><td>2013</td></tr><tr><td>Amortized intangible assets:</td><td></td><td></td><td></td></tr><tr><td>Customer lists and relationships</td><td>15</td><td>$ 20</td><td>$ 20</td></tr><tr><td>Technology, patents, trademarks and other</td><td>19</td><td>90</td><td>88</td></tr><tr><td>Total at cost</td><td></td><td>110</td><td>108</td></tr><tr><td>Less accumulated amortization**</td><td></td><td>45</td><td>35</td></tr><tr><td>Total</td><td></td><td>65</td><td>73</td></tr><tr><td>Unamortized intangible assets:</td><td></td><td></td><td></td></tr><tr><td>Licenses</td><td></td><td>4</td><td>4</td></tr><tr><td>Other intangible assets-net</td><td></td><td>$ 69</td><td>$ 77</td></tr></table>

* Weighted-averages

** Accumulated amortization at 2014 and 2013 for customer lists and relationships was $9 million and $8 million and technology, patents, trademarks and other was $36 million and $27 million, respectively.
Other intangible assets are stated at cost less accumulated amortization. The amortization of other intangible assets in 2014, 2013 and 2012 was $11 million, $22 million and $21 million, respectively. The estimated amortization expense for the next five years is as follows in millions of dollars: 2015 – $10, 2016 – $9, 2017 – $9, 2018 – $5 and 2019 – $5.

## 18. TOTAL SHORT-TERM BORROWINGS

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

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Equipment Operations</td><td></td><td></td></tr><tr><td>Commercial paper</td><td>$ 45</td><td></td></tr><tr><td>Notes payable to banks</td><td>146</td><td>$ 259</td></tr><tr><td>Long-term borrowings due within one year</td><td>243</td><td>821</td></tr><tr><td>Total</td><td>434</td><td>1,080</td></tr><tr><td>Financial Services</td><td></td><td></td></tr><tr><td>Commercial paper</td><td>2,588</td><td>3,162</td></tr><tr><td>Notes payable to banks</td><td>267</td><td>139</td></tr><tr><td>Long-term borrowings due within one year</td><td>4,730</td><td>4,408</td></tr><tr><td>Total</td><td>7,585</td><td>7,709</td></tr><tr><td>Short-term borrowings</td><td>8,019</td><td>8,789</td></tr><tr><td>Financial Services</td><td></td><td></td></tr><tr><td>Short-term securitization borrowings</td><td>4,559</td><td>4,109</td></tr><tr><td>Total short-term borrowings</td><td>$ 12,578</td><td>$ 12,898</td></tr></table>

* Includes unamortized fair value adjustments related to interest rate swaps.

The short-term securitization borrowings for financial services are secured by financing receivables (retail notes) on the balance sheet (see Note 13). Although these securitization borrowings are classified as short-term since payment is required if the retail notes are liquidated early, the payment schedule for these borrowings of $4,559 million at October 31, 2014 based on the expected liquidation of the retail notes in millions of dollars is as follows: 2015 - $2,383, 2016 - $1,342, 2017 - $636, 2018 - $176, 2019 - $21 and 2020 - $1.

The weighted-average interest rates on total short-term borrowings, excluding current maturities of long-term borrowings, at October 31, 2014 and 2013 were 1.0 percent and .8 percent, respectively.

Lines of credit available from U.S. and foreign banks were $6,413 million at October 31, 2014. At October 31, 2014, $3,367 million of these worldwide lines of credit were unused. For the purpose of computing the unused credit lines, commercial paper and short-term bank borrowings, excluding secured borrowings and the current portion of long-term borrowings, were primarily considered to constitute utilization. Included in the above lines of credit were long-term credit facility agreements for $2,500 million, expiring in April 2018, and $2,500 million, expiring in April 2019. The agreements are mutually extendable and the annual facility fees are not significant. These credit agreements require Capital Corporation



to maintain its consolidated ratio of earnings to fixed charges at not less than 1.05 to 1 for each fiscal quarter and the ratio of senior debt, excluding securitization indebtedness, to capital base (total subordinated debt and stockholder's equity excluding accumulated other comprehensive income (loss)) at not more than 11 to 1 at the end of any fiscal quarter. The credit agreements also require the equipment operations to maintain a ratio of total debt to total capital (total debt and stockholders' equity excluding accumulated other comprehensive income (loss)) of 65 percent or less at the end of each fiscal quarter. Under this provision, the company's excess equity capacity and retained earnings balance free of restriction at October 31, 2014 was $10,115 million. Alternatively under this provision, the equipment operations had the capacity to incur additional debt of $18,785 million at October 31, 2014. All of these requirements of the credit agreements have been met during the periods included in the consolidated financial statements.

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

## 19. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Equipment Operations</td><td></td><td></td></tr><tr><td>Accounts payable:</td><td></td><td></td></tr><tr><td>Trade payables</td><td>$ 1,661</td><td>$ 2,174</td></tr><tr><td>Dividends payable</td><td>210</td><td>192</td></tr><tr><td>Other</td><td>208</td><td>197</td></tr><tr><td>Accrued expenses:</td><td></td><td></td></tr><tr><td>Dealer sales discounts</td><td>1,551</td><td>1,491</td></tr><tr><td>Employee benefits</td><td>1,350</td><td>1,408</td></tr><tr><td>Product warranties</td><td>809</td><td>822</td></tr><tr><td>Unearned revenue</td><td>355</td><td>368</td></tr><tr><td>Other</td><td>1,374</td><td>1,339</td></tr><tr><td>Total</td><td>7,518</td><td>7,991</td></tr><tr><td>Financial Services</td><td></td><td></td></tr><tr><td>Accounts payable:</td><td></td><td></td></tr><tr><td>Deposits withheld from dealers and merchants</td><td>196</td><td>197</td></tr><tr><td>Other</td><td>468</td><td>368</td></tr><tr><td>Accrued expenses:</td><td></td><td></td></tr><tr><td>Unearned revenue</td><td>647</td><td>551</td></tr><tr><td>Accrued interest</td><td>103</td><td>130</td></tr><tr><td>Employee benefits</td><td>87</td><td>86</td></tr><tr><td>Insurance claims reserve*</td><td>247</td><td>197</td></tr><tr><td>Other</td><td>279</td><td>321</td></tr><tr><td>Total</td><td>2,027</td><td>1,850</td></tr><tr><td>Eliminations**</td><td>991</td><td>867</td></tr><tr><td>Accounts payable and accrued expenses</td><td>$ 8,554</td><td>$ 8,974</td></tr></table>

 \( ^{*} \)  See Note 9.

** Primarily trade receivable valuation accounts which are reclassified as accrued expenses by the equipment operations as a result of their trade receivables being sold to financial services.

## 20. LONG-TERM BORROWINGS

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

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Equipment Operations</td><td></td><td></td></tr><tr><td>Notes and debentures:</td><td></td><td></td></tr><tr><td>4.375% notes due 2019</td><td>$ 750</td><td>$ 750</td></tr><tr><td>8-1/2% debentures due 2022</td><td>105</td><td>105</td></tr><tr><td>2.60% notes due 2022</td><td>1,000</td><td>1,000</td></tr><tr><td>6.55% debentures due 2028</td><td>200</td><td>200</td></tr><tr><td>5.375% notes due 2029</td><td>500</td><td>500</td></tr><tr><td>8.10% debentures due 2030</td><td>250</td><td>250</td></tr><tr><td>7.125% notes due 2031</td><td>300</td><td>300</td></tr><tr><td>3.90% notes due 2042</td><td>1,250</td><td>1,250</td></tr><tr><td>Other notes</td><td>288</td><td>516</td></tr><tr><td>Total</td><td>$ 4,643</td><td>$ 4,871</td></tr></table>

(continued)



<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Financial Services</td><td></td><td></td></tr><tr><td>Notes and debentures:</td><td></td><td></td></tr><tr><td>Medium-term notes due 2015 - 2024:</td><td></td><td></td></tr><tr><td>(principal $17,939 - 2014, $15,055 - 2013)</td><td></td><td></td></tr><tr><td>Average interest rates of 1.2% - 2014 and 2013</td><td>$ 18,141*</td><td>$ 15,316*</td></tr><tr><td>2.75% senior note due 2022: ($500 principal)</td><td></td><td></td></tr><tr><td>Swapped $500 to variable interest rate of .9% - 2014 and 2013</td><td>498*</td><td>491*</td></tr><tr><td>Other notes</td><td>1,099</td><td>900</td></tr><tr><td>Total</td><td>19,738</td><td>16,707</td></tr><tr><td>Long-term borrowings**</td><td>$ 24,381</td><td>$ 21,578</td></tr></table>

* Includes unamortized fair value adjustments related to interest rate swaps.

** All interest rates are as of year end.

The approximate principal amounts of the equipment operations’ long-term borrowings maturing in each of the next five years in millions of dollars are as follows: 2015 – $243, 2016 – $197, 2017 – $73, 2018 – $24 and 2019 – $751. The approximate principal amounts of the financial services’ long-term borrowings maturing in each of the next five years in millions of dollars are as follows: 2015 – $4,724, 2016 – $5,220, 2017 – $4,279, 2018 – $3,432 and 2019 – $2,949.

## 21. LEASES

At October 31, 2014, future minimum lease payments under capital leases amounted to $87 million as follows: 2015 – $39, 2016 – $32, 2017 – $10, 2018 – $3, 2019 – $1, and later years $2. Total rental expense for operating leases was $205 million in 2014, $237 million in 2013 and $215 million in 2012. At October 31, 2014, future minimum lease payments under operating leases amounted to $371 million as follows: 2015 – $121, 2016 – $79, 2017 – $55, 2018 – $38, 2019 – $32, and later years $46.

## 22. COMMITMENTS AND CONTINGENCIES

The company generally determines its warranty liability by applying historical claims rate experience to the estimated amount of equipment that has been sold and is still under warranty based on dealer inventories and retail sales. The historical claims rate is primarily determined by a review of five-year claims costs and current quality developments.

The premiums for the company’s extended warranties are primarily recognized in income in proportion to the costs expected to be incurred over the contract period. The unamortized extended warranty premiums (deferred revenue) included in the following table totaled $425 million and $342 million at October 31, 2014 and 2013, respectively.
A reconciliation of the changes in the warranty liability and unearned premiums in millions of dollars follows:

<table><tr><td rowspan="2"></td><td colspan="2">Warranty Liability/Unearned Premiums</td></tr><tr><td>2014</td><td>2013</td></tr><tr><td>Beginning of year balance</td><td>$ 1,164</td><td>$ 1,025</td></tr><tr><td>Payments</td><td>(792)</td><td>(736)</td></tr><tr><td>Amortization of premiums received</td><td>(142)</td><td>(120)</td></tr><tr><td>Accruals for warranties</td><td>797</td><td>821</td></tr><tr><td>Premiums received</td><td>228</td><td>170</td></tr><tr><td>Foreign exchange</td><td>(21)</td><td>4</td></tr><tr><td>End of year balance</td><td>$1,234</td><td>$ 1,164</td></tr></table>

At October 31, 2014, the company had approximately $210 million of guarantees issued primarily to banks outside the U.S. related to third-party receivables for the retail financing of John Deere equipment. The company may recover a portion of any required payments incurred under these agreements from repossession of the equipment collateralizing the receivables. At October 31, 2014, the company had accrued losses of approximately $7 million under these agreements. The maximum remaining term of the receivables guaranteed at October 31, 2014 was approximately six years.

At October 31, 2014, the company had commitments of approximately $237 million for the construction and acquisition of property and equipment. At October 31, 2014, the company also had pledged or restricted assets of $102 million, primarily as collateral for borrowings and restricted other assets. In addition, see Note 13 for restricted assets associated with borrowings related to securitizations.

The company also had other miscellaneous contingencies totaling approximately $70 million at October 31, 2014, for which it believes the probability for payment is substantially remote. The accrued liability for these contingencies was not material at October 31, 2014.

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, trademark and environmental matters. The company believes the reasonably possible range of losses for these unresolved legal actions in addition to the amounts accrued would not have a material effect on its financial statements.

## 23. CAPITAL STOCK

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

<table><tr><td></td><td>Number of Shares Issued</td><td>Amount</td></tr><tr><td>Balance at October 31, 2011</td><td>536.4</td><td>$ 3,252</td></tr><tr><td>Stock options and other</td><td></td><td>100</td></tr><tr><td>Balance at October 31, 2012</td><td>536.4</td><td>3,352</td></tr><tr><td>Stock options and other</td><td></td><td>172</td></tr><tr><td>Balance at October 31, 2013</td><td>536.4</td><td>3,524</td></tr><tr><td>Stock options and other</td><td></td><td>151</td></tr><tr><td>Balance at October 31, 2014</td><td>536.4</td><td>$ 3,675</td></tr></table>



The number of common shares the company is authorized to issue is 1,200 million. The number of authorized preferred shares, none of which has been issued, is nine million.

The Board of Directors at its meeting in December 2013 authorized the repurchase of up to $8,000 million of additional common stock (93.5 million shares based on the October 31, 2014 closing common stock price of $85.54 per share). At October 31, 2014, this repurchase program had $6,230 million (72.8 million shares at the same price) remaining to be repurchased. Repurchases of the company’s common stock under this plan will be made from time to time, at the company’s discretion, in the open market.

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

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Net income attributable to Deere &amp; Company</td><td>$ 3,161.7</td><td>$ 3,537.3</td><td>$ 3,064.7</td></tr><tr><td>Less income allocable to participating securities</td><td>1.0</td><td>.9</td><td>.8</td></tr><tr><td>Income allocable to common stock</td><td>$ 3,160.7</td><td>$ 3,536.4</td><td>$ 3,063.9</td></tr><tr><td>Average shares outstanding</td><td>363.0</td><td>385.3</td><td>397.1</td></tr><tr><td>Basic per share</td><td>$ 8.71</td><td>$ 9.18</td><td>$ 7.72</td></tr><tr><td>Average shares outstanding</td><td>363.0</td><td>385.3</td><td>397.1</td></tr><tr><td>Effect of dilutive stock options</td><td>3.1</td><td>3.9</td><td>4.4</td></tr><tr><td>Total potential shares outstanding</td><td>366.1</td><td>389.2</td><td>401.5</td></tr><tr><td>Diluted per share</td><td>$ 8.63</td><td>$ 9.09</td><td>$ 7.63</td></tr></table>

All stock options outstanding were included in the computation during 2014, 2013 and 2012, except 2.4 million options in 2014, 2.4 million in 2013 and 1.8 million in 2012 that had an antidilutive effect under the treasury stock method.

## 24. STOCK OPTION AND RESTRICTED STOCK AWARDS

The company issues stock options and restricted stock awards to key employees under plans approved by stockholders. Restricted stock is also issued to nonemployee directors for their services as directors under a plan approved by stockholders. Options are awarded with the exercise price equal to the market price and become exercisable in one to three years after grant. Options expire ten years after the date of grant. Restricted stock awards generally vest after three years. The compensation cost for stock options, service based restricted stock units and market/service based restricted stock units, which is based on the fair value at the grant date, is recognized on a straight-line basis over the requisite period the employee is required to render service. The compensation cost for performance/service based units, which is based on the fair value at the grant date, is recognized over the employees' requisite service period and periodically adjusted for the probable number of shares to be awarded. According to these plans at October 31, 2014, the company is authorized to grant an additional 7.2 million shares related to stock options or restricted stock.

The fair value of each option award was estimated on the date of grant using a binomial lattice option valuation model. Expected volatilities are based on implied volatilities from traded call options on the company’s stock. The expected volatilities are constructed from the following three components: the starting implied volatility of short-term call options traded within a few days of the valuation date; the predicted implied volatility of long-term call options; and the trend in implied volatilities over the span of the call options’ time to maturity. The company uses historical data to estimate option exercise behavior and employee termination within the valuation model. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rates utilized for periods throughout the contractual life of the options are based on U.S. Treasury security yields at the time of grant.

The assumptions used for the binomial lattice model to determine the fair value of options follow:

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Risk-free interest rate</td><td>.03% - 2.9%</td><td>.04% - 1.7%</td><td>.01% - 2.0%</td></tr><tr><td>Expected dividends</td><td>2.3%</td><td>2.3%</td><td>1.9%</td></tr><tr><td>Expected volatility</td><td>25.9% - 32.0%</td><td>26.6% - 32.5%</td><td>34.1% - 41.9%</td></tr><tr><td>Weighted-average volatility</td><td>31.9%</td><td>32.4%</td><td>33.6%</td></tr><tr><td>Expected term (in years)</td><td>7.3 - 7.4</td><td>7.3 - 7.9</td><td>6.8 - 7.8</td></tr></table>

Stock option activity at October 31, 2014 and changes during 2014 in millions of dollars and shares follow:

<table><tr><td></td><td>Shares</td><td>Exercise Price*</td><td>Remaining Contractual Term (Years)</td><td>Aggregate Intrinsic Value</td></tr><tr><td>Outstanding at beginning of year</td><td>15.7</td><td>$ 64.82</td><td></td><td></td></tr><tr><td>Granted</td><td>2.4</td><td>87.46</td><td></td><td></td></tr><tr><td>Exercised</td><td>(3.0)</td><td>48.53</td><td></td><td></td></tr><tr><td>Expired or forfeited</td><td>(.2)</td><td>85.99</td><td></td><td></td></tr><tr><td>Outstanding at end of year</td><td>14.9</td><td>71.64</td><td>6.06</td><td>$ 218.4</td></tr><tr><td>Exercisable at end of year</td><td>9.0</td><td>67.02</td><td>5.21</td><td>171.5</td></tr></table>

* Weighted-averages

The weighted-average grant-date fair values of options granted during 2014, 2013 and 2012 were $24.74, $23.73 and $22.51, respectively. The total intrinsic values of options exercised during 2014, 2013 and 2012 were $125 million, $183 million and $88 million, respectively. During 2014, 2013 and 2012, cash received from stock option exercises was $149 million, $175 million and $61 million with tax benefits of $46 million, $68 million and $33 million, respectively.

The company granted 236 thousand, 254 thousand and 266 thousand restricted stock units to employees and nonemployee directors in 2014, 2013 and 2012, of which 102 thousand, 110 thousand and 122 thousand are subject to service based only conditions, 67 thousand, 72 thousand and 72 thousand are subject to performance/service based conditions, 67 thousand, 72 thousand and 72 thousand are subject to market/service based conditions, respectively. The service based only units award one share of common stock for each unit at the end of the vesting period and include dividend equivalent payments.



The performance/service based units are subject to a performance metric based on the company’s compound annual revenue growth rate, compared to a benchmark group of companies over the vesting period. The market/service based units are subject to a market related metric based on total shareholder return, compared to the same benchmark group of companies over the vesting period. The performance/service based units and the market/service based units both award common stock in a range of zero to 200 percent for each unit granted based on the level of the metric achieved and do not include dividend equivalent payments over the vesting period. The weighted-average fair values of the service based only units at the grant dates during 2014, 2013 and 2012 were $87.16, $86.88 and $75.27 per unit, respectively, based on the market price of a share of underlying common stock. The fair value of the performance/service based units at the grant date during 2014, 2013 and 2012 were $81.53, $80.73 and $70.14 per unit, respectively, based on the market price of a share of underlying common stock excluding dividends. The fair value of the market/service based units at the grant date during 2014, 2013 and 2012 were $116.86, $106.75 and $92.85 per unit, respectively, based on a lattice valuation model excluding dividends.

The company’s nonvested restricted shares at October 31, 2014 and changes during 2014 in millions of shares follow:

<table><tr><td></td><td>Shares</td><td>Grant-Date Fair Value \( ^{*} \)</td></tr><tr><td>Service based only</td><td></td><td></td></tr><tr><td>Nonvested at beginning of year</td><td>.3</td><td>$ 81.00</td></tr><tr><td>Granted</td><td>.1</td><td>87.16</td></tr><tr><td>Vested</td><td>(1)</td><td>81.67</td></tr><tr><td>Nonvested at end of year</td><td>.3</td><td>83.00</td></tr><tr><td>Performance/service and market/service based</td><td></td><td></td></tr><tr><td>Nonvested at beginning of year</td><td>.4</td><td>$ 88.86</td></tr><tr><td>Granted</td><td>.1</td><td>99.20</td></tr><tr><td>Vested</td><td>(1)</td><td>76.17</td></tr><tr><td>Performance change</td><td>.1</td><td>76.17</td></tr><tr><td>Expired or forfeited</td><td>(1)</td><td>107.10</td></tr><tr><td>Nonvested at end of year</td><td>.4</td><td>91.30</td></tr><tr><td>* Weighted-averages</td><td></td><td></td></tr></table>

During 2014, 2013 and 2012, the total share-based compensation expense was $79 million, $81 million and $75 million, respectively, with recognized income tax benefits of $29 million, $30 million and $28 million, respectively. At October 31, 2014, there was $44 million of total unrecognized compensation cost from share-based compensation arrangements granted under the plans, which is related to nonvested shares. This compensation is expected to be recognized over a weighted-average period of approximately two years. The total grant-date fair values of stock options and restricted shares vested during 2014, 2013 and 2012 were $69 million, $68 million and $76 million, respectively.

The company currently uses shares that have been repurchased through its stock repurchase programs to satisfy share option exercises. At October 31, 2014, the company had 191 million shares in treasury stock and 73 million shares remaining to be repurchased under its current publicly announced repurchase program (see Note 23).

## 25. OTHER COMPREHENSIVE INCOME ITEMS

The after-tax changes in accumulated other comprehensive income at October 31 in millions of dollars follow:

<table><tr><td></td><td>Retirement Benefits Adjustment</td><td>Cumulative Translation Adjustment</td><td>Unrealized Gain (Loss) on Derivatives</td><td>Unrealized Gain (Loss) on Investments</td><td>Total Accumulated Other Comprehensive Income (Loss)</td></tr><tr><td>2011.....</td><td>$ (4,135)</td><td>$ 454</td><td>$ (9)</td><td>$ 12</td><td>$ (3,678)</td></tr><tr><td>Period Change...</td><td>(624)</td><td>(270)</td><td>(5)</td><td>5</td><td>(894)</td></tr><tr><td>2012.....</td><td>(4,759)</td><td>184</td><td>(14)</td><td>17</td><td>(4,572)</td></tr><tr><td>Period Change...</td><td>1,950</td><td>(71)</td><td>11</td><td>(11)</td><td>1,879</td></tr><tr><td>2013.....</td><td>(2,809)</td><td>113</td><td>(3)</td><td>6</td><td>(2,693)</td></tr><tr><td>Period Change...</td><td>(684)</td><td>(416)</td><td>3</td><td>7</td><td>(1,090)</td></tr><tr><td>2014.....</td><td>$ (3,493)</td><td>$ (303)</td><td></td><td>$ 13</td><td>$ (3,783)</td></tr></table>

Following are amounts recorded in and reclassifications out of other comprehensive income (loss), and the income tax effects, in millions of dollars:

<table><tr><td></td><td>Before Tax Amount</td><td>Tax (Expense) Credit</td><td>After Tax Amount</td></tr><tr><td>2014</td><td></td><td></td><td></td></tr><tr><td>Cumulative translation adjustment:</td><td></td><td></td><td></td></tr><tr><td>Unrealized (loss) on translation adjustment</td><td>$ (427)</td><td>$ 2</td><td>$ (425)</td></tr><tr><td>Reclassification of loss to Other operating expenses*</td><td>9</td><td></td><td>9</td></tr><tr><td>Net unrealized (loss) on translation adjustment</td><td>(418)</td><td>2</td><td>(416)</td></tr><tr><td>Unrealized gain (loss) on derivatives:</td><td></td><td></td><td></td></tr><tr><td>Unrealized hedging (loss)</td><td>(14)</td><td>5</td><td>(9)</td></tr><tr><td>Reclassification of realized (gain) loss to:</td><td></td><td></td><td></td></tr><tr><td>Interest rate contracts -</td><td></td><td></td><td></td></tr><tr><td>Interest expense</td><td>13</td><td>(5)</td><td>8</td></tr><tr><td>Foreign exchange contracts -</td><td></td><td></td><td></td></tr><tr><td>Other operating expenses</td><td>6</td><td>(2)</td><td>4</td></tr><tr><td>Net unrealized gain on derivatives</td><td>5</td><td>(2)</td><td>3</td></tr><tr><td>Unrealized gain (loss) on investments:</td><td></td><td></td><td></td></tr><tr><td>Unrealized holding gain</td><td>10</td><td>(3)</td><td>7</td></tr><tr><td>Net unrealized gain on investments</td><td>10</td><td>(3)</td><td>7</td></tr><tr><td>Retirement benefits adjustment:</td><td></td><td></td><td></td></tr><tr><td>Pensions</td><td></td><td></td><td></td></tr><tr><td>Net actuarial (loss)</td><td>(940)</td><td>343</td><td>(597)</td></tr><tr><td>Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income:**</td><td></td><td></td><td></td></tr><tr><td>Actuarial loss</td><td>177</td><td>(64)</td><td>113</td></tr><tr><td>Prior service cost</td><td>25</td><td>(9)</td><td>16</td></tr><tr><td>Settlements/curtailments</td><td>9</td><td>(3)</td><td>6</td></tr></table>

(continued)



<table><tr><td></td><td>Before Tax Amount</td><td>Tax (Expense) Credit</td><td>After Tax Amount</td></tr><tr><td>Health care and life insurance</td><td></td><td></td><td></td></tr><tr><td>Net actuarial (loss) and prior service credit</td><td>$ (378)</td><td>$ 138</td><td>$ (240)</td></tr><tr><td>Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income:**</td><td></td><td></td><td></td></tr><tr><td>Actuarial loss</td><td>33</td><td>(12)</td><td>21</td></tr><tr><td>Prior service (credit)</td><td>(3)</td><td>1</td><td>(2)</td></tr><tr><td>Settlements/curtailments</td><td>(1)</td><td></td><td>(1)</td></tr><tr><td>Net unrealized (loss) on retirement benefits adjustment</td><td>(1,078)</td><td>394</td><td>(684)</td></tr><tr><td>Total other comprehensive income (loss)</td><td>$ (1,481)</td><td>$ 391</td><td>$ (1,090)</td></tr></table>

* Represents the accumulated translation adjustments related to the foreign subsidiaries of the Water operations that were sold (see Note 4).

** These accumulated other comprehensive income amounts are included in net periodic postretirement costs. See Note 7 for additional detail.

<table><tr><td colspan="4">2013</td></tr><tr><td>Cumulative translation adjustment</td><td>$ (74)</td><td>$ 3</td><td>$ (71)</td></tr><tr><td>Unrealized gain (loss) on derivatives:</td><td></td><td></td><td></td></tr><tr><td>Unrealized hedging gain</td><td>43</td><td>(14)</td><td>29</td></tr><tr><td>Reclassification of realized (gain) loss to:</td><td></td><td></td><td></td></tr><tr><td>Interest rate contracts -</td><td></td><td></td><td></td></tr><tr><td>Interest expense</td><td>22</td><td>(8)</td><td>14</td></tr><tr><td>Foreign exchange contracts -</td><td></td><td></td><td></td></tr><tr><td>Other operating expenses</td><td>(49)</td><td>17</td><td>(32)</td></tr><tr><td>Net unrealized gain on derivatives</td><td>16</td><td>(5)</td><td>11</td></tr><tr><td>Unrealized gain (loss) on investments:</td><td></td><td></td><td></td></tr><tr><td>Unrealized holding (loss)</td><td>(17)</td><td>6</td><td>(11)</td></tr><tr><td>Net unrealized (loss) on investments</td><td>(17)</td><td>6</td><td>(11)</td></tr><tr><td>Retirement benefits adjustment:</td><td></td><td></td><td></td></tr><tr><td>Pensions</td><td></td><td></td><td></td></tr><tr><td>Net actuarial gain and prior service credit</td><td>1,507</td><td>(552)</td><td>955</td></tr><tr><td>Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income:*</td><td></td><td></td><td></td></tr><tr><td>Actuarial loss</td><td>265</td><td>(101)</td><td>164</td></tr><tr><td>Prior service cost</td><td>12</td><td>(6)</td><td>6</td></tr><tr><td>Settlements/curtailments</td><td>2</td><td></td><td>2</td></tr><tr><td>Health care and life insurance</td><td></td><td></td><td></td></tr><tr><td>Net actuarial gain and prior service credit</td><td>1,167</td><td>(426)</td><td>741</td></tr><tr><td>Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income:*</td><td></td><td></td><td></td></tr><tr><td>Actuarial loss</td><td>141</td><td>(54)</td><td>87</td></tr><tr><td>Prior service (credit)</td><td>(8)</td><td>3</td><td>(5)</td></tr><tr><td>Net unrealized gain on retirement benefits adjustment</td><td>3,086</td><td>(1,136)</td><td>1,950</td></tr><tr><td>Total other comprehensive income (loss)</td><td>$ 3,011</td><td>$ (1,132)</td><td>$ 1,879</td></tr></table>

* These accumulated other comprehensive income amounts are included in net periodic postretirement costs. See Note 7 for additional detail.

<table><tr><td></td><td>Before Tax Amount</td><td>Tax (Expense) Credit</td><td>After Tax Amount</td></tr><tr><td>2012</td><td></td><td></td><td></td></tr><tr><td>Cumulative translation adjustment</td><td>$ (272)</td><td>$ 2</td><td>$ (270)</td></tr><tr><td>Unrealized gain (loss) on derivatives:</td><td></td><td></td><td></td></tr><tr><td>Unrealized hedging (loss)</td><td>(61)</td><td>21</td><td>(40)</td></tr><tr><td>Reclassification of realized (gain) loss to:</td><td></td><td></td><td></td></tr><tr><td>Interest rate contracts -</td><td></td><td></td><td></td></tr><tr><td>Interest expense</td><td>16</td><td>(6)</td><td>10</td></tr><tr><td>Foreign exchange contracts -</td><td></td><td></td><td></td></tr><tr><td>Other operating expenses</td><td>38</td><td>(13)</td><td>25</td></tr><tr><td>Net unrealized (loss) on derivatives</td><td>(7)</td><td>2</td><td>(5)</td></tr><tr><td>Unrealized gain (loss) on investments:</td><td></td><td></td><td></td></tr><tr><td>Unrealized holding gain</td><td>7</td><td>(2)</td><td>5</td></tr><tr><td>Net unrealized gain on investments</td><td>7</td><td>(2)</td><td>5</td></tr><tr><td>Retirement benefits adjustment:</td><td></td><td></td><td></td></tr><tr><td>Pensions</td><td></td><td></td><td></td></tr><tr><td>Net actuarial (loss) and prior service (cost)</td><td>(1,004)</td><td>359</td><td>(645)</td></tr><tr><td>Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income:*</td><td></td><td></td><td></td></tr><tr><td>Actuarial loss</td><td>202</td><td>(73)</td><td>129</td></tr><tr><td>Prior service cost</td><td>47</td><td>(17)</td><td>30</td></tr><tr><td>Settlements/curtailments</td><td>10</td><td>(2)</td><td>8</td></tr><tr><td>Health care and life insurance</td><td></td><td></td><td></td></tr><tr><td>Net actuarial (loss) and prior service (cost)</td><td>(337)</td><td>118</td><td>(219)</td></tr><tr><td>Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income:*</td><td></td><td></td><td></td></tr><tr><td>Actuarial loss</td><td>136</td><td>(54)</td><td>82</td></tr><tr><td>Prior service (credit)</td><td>(15)</td><td>6</td><td>(9)</td></tr><tr><td>Net unrealized (loss) on retirement benefits adjustment</td><td>(961)</td><td>337</td><td>(624)</td></tr><tr><td>Total other comprehensive income (loss)</td><td>$ (1,233)</td><td>$ 339</td><td>$ (894)</td></tr></table>

* These accumulated other comprehensive income amounts are included in net periodic postretirement costs. See Note 7 for additional detail.

The noncontrolling interests’ comprehensive income was $1.3 million in 2014, $4 million in 2013 and $6.6 million in 2012, which consisted of net income of $1.6 million in 2014, $3 million in 2013 and $6.9 million in 2012 and cumulative translation adjustments of $(.3) million in 2014, $1 million in 2013 and $(.3) million in 2012.



## 26. FAIR VALUE MEASUREMENTS

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

<table><tr><td rowspan="2"></td><td colspan="2">2014</td><td colspan="2">2013</td></tr><tr><td>Carrying Value</td><td>Fair Value*</td><td>Carrying Value</td><td>Fair Value*</td></tr><tr><td>Financing receivables - net</td><td>$ 27,422</td><td>$ 27,337</td><td>$ 25,633</td><td>$ 25,572</td></tr><tr><td>Financing receivables securitized - net</td><td>$ 4,602</td><td>$ 4,573</td><td>$ 4,153</td><td>$ 4,124</td></tr><tr><td>Short-term securitization borrowings</td><td>$ 4,559</td><td>$ 4,562</td><td>$ 4,109</td><td>$ 4,113</td></tr><tr><td>Long-term borrowings due within one year:</td><td></td><td></td><td></td><td></td></tr><tr><td>Equipment operations</td><td>$ 243</td><td>$ 233</td><td>$ 821</td><td>$ 837</td></tr><tr><td>Financial services</td><td>4,730</td><td>4,743</td><td>4,408</td><td>4,441</td></tr><tr><td>Total</td><td>$ 4,973</td><td>$ 4,976</td><td>$ 5,229</td><td>$ 5,278</td></tr><tr><td>Long-term borrowings:</td><td></td><td></td><td></td><td></td></tr><tr><td>Equipment operations</td><td>$ 4,643</td><td>$ 5,095</td><td>$ 4,871</td><td>$ 5,141</td></tr><tr><td>Financial services</td><td>19,738</td><td>19,886</td><td>16,707</td><td>16,887</td></tr><tr><td>Total</td><td>$ 24,381</td><td>$ 24,981</td><td>$ 21,578</td><td>$ 22,028</td></tr></table>

* Fair value measurements above were Level 3 for all financing receivables and Level 2 for all borrowings.

Fair values of the financing receivables that were issued long-term were based on the discounted values of their related cash flows at interest rates currently being offered by the company for similar financing receivables. The fair values of the remaining financing receivables approximated the carrying amounts.

Fair values of long-term borrowings and short-term securitization borrowings were based on current market quotes for identical or similar borrowings and credit risk, or on the discounted values of their related cash flows at current market interest rates. Certain long-term borrowings have been swapped to current variable interest rates. The carrying values of these long-term borrowings included adjustments related to fair value hedges.
Assets and liabilities measured at October 31 at fair value on a recurring basis in millions of dollars follow:

<table><tr><td></td><td>2014*</td><td>2013*</td></tr><tr><td>Marketable securities</td><td></td><td></td></tr><tr><td>Equity fund</td><td>$ 45</td><td>$ 20</td></tr><tr><td>Fixed income fund</td><td>10</td><td></td></tr><tr><td>U.S. government debt securities</td><td>808</td><td>1,312</td></tr><tr><td>Municipal debt securities</td><td>34</td><td>36</td></tr><tr><td>Corporate debt securities</td><td>172</td><td>138</td></tr><tr><td>Mortgage-backed securities**</td><td>146</td><td>119</td></tr><tr><td>Total marketable securities</td><td>1,215</td><td>1,625</td></tr><tr><td>Other assets</td><td></td><td></td></tr><tr><td>Derivatives:</td><td></td><td></td></tr><tr><td>Interest rate contracts</td><td>319</td><td>347</td></tr><tr><td>Foreign exchange contracts</td><td>18</td><td>32</td></tr><tr><td>Cross-currency interest rate contracts</td><td>16</td><td>15</td></tr><tr><td>Total assets**</td><td>$ 1,568</td><td>$ 2,019</td></tr><tr><td>Accounts payable and accrued expenses</td><td></td><td></td></tr><tr><td>Derivatives:</td><td></td><td></td></tr><tr><td>Interest rate contracts</td><td>$ 81</td><td>$ 120</td></tr><tr><td>Foreign exchange contracts</td><td>29</td><td>42</td></tr><tr><td>Cross-currency interest rate contracts</td><td></td><td>17</td></tr><tr><td>Total liabilities</td><td>$ 110</td><td>$ 179</td></tr></table>

* All measurements above were Level 2 measurements except for Level 1 measurements of U.S. government debt securities of $741 million and $1,247 million at October 31, 2014 and 2013, respectively, and the equity fund of $45 million and $20 million at October 31, 2014 and 2013, respectively, and the fixed income fund of $10 million at October 31, 2014. There were no transfers between Level 1 and Level 2 during 2014, 2013 and 2012.

** Primarily issued by U.S. government sponsored enterprises.

*** Excluded from this table were cash equivalents, which were carried at cost that approximates fair value. The cash equivalents consist primarily of money market funds that were Level 1 measurements.

Fair value, nonrecurring, Level 3 measurements from impairments at October 31 in millions of dollars follow:

<table><tr><td rowspan="2"></td><td colspan="2">Fair Value*</td><td colspan="2">Losses*</td></tr><tr><td>2014</td><td>2013</td><td>2014</td><td>2013</td></tr><tr><td>Property and equipment - net</td><td>$ 53</td><td>$ 36</td><td>$ 44</td><td>$ 48</td></tr><tr><td>Goodwill</td><td></td><td></td><td></td><td>$ 33</td></tr><tr><td>Other intangible assets - net</td><td></td><td></td><td></td><td>$ 9</td></tr><tr><td>Other assets</td><td>$ 15</td><td></td><td>$ 16</td><td></td></tr><tr><td>Assets held for sale - Water operations</td><td></td><td></td><td>$ 36</td><td></td></tr><tr><td colspan="5">* See financing receivables with specific allowances in Note 12 that were not significant. See Note 5 for impairments.</td></tr></table>

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



Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the company uses various methods including market and income approaches. The company utilizes valuation models and techniques that maximize the use of observable inputs. The models are industry-standard models that consider various assumptions including time values and yield curves as well as other economic measures. These valuation techniques are consistently applied.

The following is a description of the valuation methodologies the company uses to measure certain financial instruments on the balance sheet and nonmonetary assets at fair value:

Marketable Securities – The portfolio of investments is primarily valued on a market approach (matrix pricing model) in which all significant inputs are observable or can be derived from or corroborated by observable market data such as interest rates, yield curves, volatilities, credit risk and prepayment speeds.

Derivatives – The company’s derivative financial instruments consist of interest rate swaps and caps, foreign currency forwards and swaps and cross-currency interest rate swaps. The portfolio is valued based on an income approach (discounted cash flow) using market observable inputs, including swap curves and both forward and spot exchange rates for currencies.

Financing Receivables – Specific reserve impairments are based on the fair value of the collateral, which is measured using a market approach (appraisal values or realizable values). Inputs include a selection of realizable values (see Note 12).

Goodwill – The impairment is based on the implied fair value measured as the difference between the fair value of the reporting unit and the fair value of the unit’s identifiable net assets. An estimate of the fair value of the reporting unit is determined by an income approach (discounted cash flows), which includes inputs such as interest rates.

Property and Equipment-Net – The impairments are measured at the lower of the carrying amount, or fair value. The valuations were based on a cost approach. The inputs include replacement cost estimates adjusted for physical deterioration and economic obsolescence.

Other Intangible Assets-Net – The impairments are measured at the lower of the carrying amount, or fair value. The valuations were based on an income approach (discounted cash flows). The inputs include estimates of future cash flows.

Other Assets – The impairments are measured at the lower of the carrying amount, or fair value. The valuations were based on a market approach. The inputs include sales of comparable assets.

Assets Held For Sale-Water Operations – The impairment of the disposal group was measured at the lower of carrying amount, or fair value less cost to sell. Fair value was based on the probable sale price. The inputs included estimates of the final sale price (see Note 5).

## 27. DERIVATIVE INSTRUMENTS

## Cash Flow Hedges

Certain interest rate and cross-currency interest rate contracts (swaps) were designated as hedges of future cash flows from borrowings. The total notional amounts of the receive-variable/pay-fixed interest rate contracts at October 31, 2014 and 2013 were $3,050 million and $3,100 million, respectively. The total notional amounts of the cross-currency interest rate contracts were $70 million and $816 million at October 31, 2014 and 2013, respectively. The effective portions of the fair value gains or losses on these cash flow hedges were recorded in other comprehensive income (OCI) and subsequently reclassified into interest expense or other operating expenses (foreign exchange) in the same periods during which the hedged transactions affected earnings. These amounts offset the effects of interest rate or foreign currency exchange rate changes on the related borrowings. Any ineffective portions of the gains or losses on all cash flow interest rate contracts designated as cash flow hedges were recognized currently in interest expense or other operating expenses (foreign exchange) and were not material during any years presented. The cash flows from these contracts were recorded in operating activities in the statement of consolidated cash flows.

The amount of loss recorded in OCI at October 31, 2014 that is expected to be reclassified to interest expense or other operating expenses in the next twelve months if interest rates or exchange rates remain unchanged is approximately $6 million after-tax. These contracts mature in up to 47 months. There were no gains or losses reclassified from OCI to earnings based on the probability that the original forecasted transaction would not occur.

## Fair Value Hedges

Certain interest rate contracts (swaps) were designated as fair value hedges of borrowings. The total notional amounts of the receive-fixed/pay-variable interest rate contracts at October 31, 2014 and 2013 were $8,798 million and $7,380 million, respectively. The effective portions of the fair value gains or losses on these contracts were offset by fair value gains or losses on the hedged items (fixed-rate borrowings). Any ineffective portions of the gains or losses were recognized currently in interest expense. The ineffective portions were a loss of $2 million in 2014 and none in 2013. The cash flows from these contracts were recorded in operating activities in the statement of consolidated cash flows.

The gains (losses) on these contracts and the underlying borrowings recorded in interest expense follow in millions of dollars:

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Interest rate contracts*</td><td>$ (13)</td><td>$ (244)</td></tr><tr><td>Borrowings**</td><td>11</td><td>244</td></tr></table>

* Includes changes in fair values of interest rate contracts excluding net accrued interest income of $168 million and $155 million during 2014 and 2013, respectively.
** Includes adjustments for fair values of hedged borrowings excluding accrued interest expense of $267 million and $261 million during 2014 and 2013, respectively.



## Derivatives Not Designated as Hedging Instruments

The company has certain interest rate contracts (swaps and caps), foreign exchange contracts (forwards and swaps) and cross-currency interest rate contracts (swaps), which were not formally designated as hedges. These derivatives were held as economic hedges for underlying interest rate or foreign currency exposures primarily for certain borrowings and purchases or sales of inventory. The total notional amounts of the interest rate swaps at October 31, 2014 and 2013 were $6,317 million and $5,627 million, the foreign exchange contracts were $3,524 million and $3,800 million and the cross-currency interest rate contracts were $98 million and $85 million, respectively. At October 31, 2014 and 2013, there were also $1,703 million and $1,641 million, respectively, of interest rate caps purchased and the same amounts sold at the same capped interest rate to facilitate borrowings through securitization of retail notes. The fair value gains or losses from the interest rate contracts were recognized currently in interest expense and the gains or losses from foreign exchange contracts in cost of sales or other operating expenses, generally offsetting over time the expenses on the exposures being hedged. The cash flows from these non-designated contracts were recorded in operating activities in the statement of consolidated cash flows.

Fair values of derivative instruments in the consolidated balance sheet at October 31 in millions of dollars follow:

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Other Assets</td><td></td><td></td></tr><tr><td>Designated as hedging instruments:</td><td></td><td></td></tr><tr><td>Interest rate contracts</td><td>266</td><td>295</td></tr><tr><td>Cross-currency interest rate contracts</td><td>13</td><td>14</td></tr><tr><td>Total designated</td><td>279</td><td>309</td></tr><tr><td>Not designated as hedging instruments:</td><td></td><td></td></tr><tr><td>Interest rate contracts</td><td>53</td><td>52</td></tr><tr><td>Foreign exchange contracts</td><td>18</td><td>32</td></tr><tr><td>Cross-currency interest rate contracts</td><td>3</td><td>1</td></tr><tr><td>Total not designated</td><td>74</td><td>85</td></tr><tr><td>Total derivatives</td><td>353</td><td>394</td></tr><tr><td>Accounts Payable and Accrued Expenses</td><td></td><td></td></tr><tr><td>Designated as hedging instruments:</td><td></td><td></td></tr><tr><td>Interest rate contracts</td><td>35</td><td>71</td></tr><tr><td>Cross-currency interest rate contracts</td><td></td><td>16</td></tr><tr><td>Total designated</td><td>35</td><td>87</td></tr><tr><td>Not designated as hedging instruments:</td><td></td><td></td></tr><tr><td>Interest rate contracts</td><td>46</td><td>49</td></tr><tr><td>Foreign exchange contracts</td><td>29</td><td>42</td></tr><tr><td>Cross-currency interest rate contracts</td><td></td><td>1</td></tr><tr><td>Total not designated</td><td>75</td><td>92</td></tr><tr><td>Total derivatives</td><td>110</td><td>179</td></tr></table>

The classification and gains (losses) including accrued interest expense related to derivative instruments on the statement of consolidated income consisted of the following in millions of dollars:

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Fair Value Hedges</td><td></td><td></td><td></td></tr><tr><td>Interest rate contracts – Interest expense .....</td><td>$ 155</td><td>$ (89)</td><td>$ 335</td></tr><tr><td>Cash Flow Hedges</td><td></td><td></td><td></td></tr><tr><td>Recognized in OCI</td><td></td><td></td><td></td></tr><tr><td>(Effective Portion):</td><td></td><td></td><td></td></tr><tr><td>Interest rate contracts – OCI (pretax)*</td><td>(10)</td><td>(15)</td><td>(28)</td></tr><tr><td>Foreign exchange contracts – OCI (pretax)*</td><td>(4)</td><td>58</td><td>(33)</td></tr><tr><td>Reclassified from OCI</td><td></td><td></td><td></td></tr><tr><td>(Effective Portion):</td><td></td><td></td><td></td></tr><tr><td>Interest rate contracts – Interest expense*</td><td>(13)</td><td>(22)</td><td>(16)</td></tr><tr><td>Foreign exchange contracts – Other expense*</td><td>(6)</td><td>49</td><td>(38)</td></tr><tr><td>Recognized Directly in Income (Ineffective Portion)</td><td>**</td><td>**</td><td>**</td></tr></table>

<table><tr><td>Interest rate contracts – Interest expense*</td><td>$ 3</td><td>$ (6)</td><td>$ (13)</td></tr><tr><td>Foreign exchange contracts – Cost of sales</td><td>25</td><td>35</td><td>(12)</td></tr><tr><td>Foreign exchange contracts – Other expense*</td><td>79</td><td>20</td><td>7</td></tr><tr><td>Total not designated</td><td>$ 107</td><td>$ 49</td><td>$ (18)</td></tr></table>

* Includes interest and foreign exchange gains (losses) from cross-currency interest rate contracts.

** The amounts are not significant.

## Counterparty Risk and Collateral

Certain of the company’s derivative agreements contain credit support provisions that may require the company to post collateral based on the size of the net liability positions and credit ratings. The aggregate fair value of all derivatives with credit-risk-related contingent features that were in a net liability position at October 31, 2014 and October 31, 2013, was $57 million and $91 million, respectively. The company, due to its credit rating and amounts of net liability position, has not posted any collateral. If the credit-risk-related contingent features were triggered, the company would be required to post collateral up to an amount equal to this liability position, prior to considering applicable netting provisions.

Derivative instruments are subject to significant concentrations of credit risk to the banking sector. The company manages individual counterparty exposure by setting limits that consider the credit rating of the counterparty, the credit default swap spread of the counterparty and other financial commitments and exposures between the company and the counterparty banks. All interest rate derivatives are transacted under International Swaps and Derivatives Association (ISDA) documentation. Some of these agreements include credit support provisions. Each master agreement permits the net settlement of amounts owed in the event of default or termination.



Derivatives are recorded without offsetting for netting arrangements or collateral. The impact on the derivative assets and liabilities related to netting arrangements and any collateral received or paid follows:

<table><tr><td></td><td>Gross Amounts Recognized</td><td>Netting Arrangements</td><td>Collateral Received</td><td>Net Amount</td></tr><tr><td>2014</td><td></td><td></td><td></td><td></td></tr><tr><td>Derivatives:</td><td></td><td></td><td></td><td></td></tr><tr><td>Assets</td><td>$ 353</td><td>$ (76)</td><td>$ (5)</td><td>$ 272</td></tr><tr><td>Liabilities</td><td>110</td><td>(76)</td><td></td><td>34</td></tr><tr><td>2013</td><td></td><td></td><td></td><td></td></tr><tr><td>Derivatives:</td><td></td><td></td><td></td><td></td></tr><tr><td>Assets</td><td>$ 394</td><td>$ (120)</td><td>$ (8)</td><td>$ 266</td></tr><tr><td>Liabilities</td><td>179</td><td>(120)</td><td></td><td>59</td></tr></table>

## 28. SEGMENT AND GEOGRAPHIC AREA DATA FOR THE YEARS ENDED OCTOBER 31, 2014, 2013 AND 2012

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

The agriculture and turf segment primarily manufactures and distributes a full line of agriculture and turf equipment and related service parts – including large, medium and utility tractors; loaders; combines, corn pickers, cotton and sugarcane harvesters and related front-end equipment and sugarcane loaders; tillage, seeding and application equipment, including sprayers, nutrient management and soil preparation machinery; hay and forage equipment, including self-propelled forage harvesters and attachments, balers and mowers; turf and utility equipment, including riding lawn equipment and walk-behind mowers, golf course equipment, utility vehicles, and commercial mowing equipment, along with a broad line of associated implements; integrated agricultural management systems technology and solutions; and other outdoor power products.

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

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

The financial services segment primarily finances sales and leases by John Deere dealers of new and used agriculture and turf equipment and construction and forestry equipment. In addition, the financial services segment provides wholesale financing to dealers of the foregoing equipment, finances retail revolving charge accounts and offers crop risk mitigation products and extended equipment warranties. The company signed an agreement in December 2014 to sell the stock of the Crop Insurance operations (see note 30).
Because of integrated manufacturing operations and common administrative and marketing support, a substantial number of allocations must be made to determine operating segment and geographic area data. Intersegment sales and revenues represent sales of components and finance charges, which are generally based on market prices.

Information relating to operations by operating segment in millions of dollars follows. In addition to the following unaffiliated sales and revenues by segment, intersegment sales and revenues in 2014, 2013 and 2012 were as follows: agriculture and turf net sales of $89 million, $69 million and $84 million, construction and forestry net sales of $1 million, $2 million and $1 million, and financial services revenues of $228 million, $220 million and $219 million, respectively.

<table><tr><td>OPERATING SEGMENTS</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Net sales and revenues</td><td></td><td></td><td></td></tr><tr><td>Unaffiliated customers:</td><td></td><td></td><td></td></tr><tr><td>Agriculture and turf net sales</td><td>$ 26,380</td><td>$ 29,132</td><td>$ 27,123</td></tr><tr><td>Construction and forestry</td><td></td><td></td><td></td></tr><tr><td>net sales</td><td>6,581</td><td>5,866</td><td>6,378</td></tr><tr><td>Total net sales</td><td>32,961</td><td>34,998</td><td>33,501</td></tr><tr><td>Financial services revenues</td><td>2,577</td><td>2,349</td><td>2,235</td></tr><tr><td>Other revenues*</td><td>529</td><td>448</td><td>421</td></tr><tr><td>Total</td><td>$ 36,067</td><td>$ 37,795</td><td>$ 36,157</td></tr></table>

* Other revenues are primarily the equipment operations' revenues for finance and interest income, and other income as disclosed in Note 31, net of certain intercompany eliminations.

<table><tr><td colspan="4">Operating profit</td></tr><tr><td>Agriculture and turf</td><td>$ 3,649</td><td>$ 4,680</td><td>$ 3,921</td></tr><tr><td>Construction and forestry</td><td>648</td><td>378</td><td>476</td></tr><tr><td>Financial services*</td><td>921</td><td>870</td><td>712</td></tr><tr><td>Total operating profit</td><td>5,218</td><td>5,928</td><td>5,109</td></tr><tr><td>Interest income</td><td>57</td><td>55</td><td>43</td></tr><tr><td>Investment income</td><td>2</td><td>2</td><td>2</td></tr><tr><td>Interest expense</td><td>(289)</td><td>(297)</td><td>(231)</td></tr><tr><td>Foreign exchange losses from equipment operations* financing activities</td><td>(2)</td><td>(8)</td><td>(11)</td></tr><tr><td>Corporate expenses - net</td><td>(196)</td><td>(197)</td><td>(181)</td></tr><tr><td>Income taxes</td><td>(1,627)</td><td>(1,946)</td><td>(1,659)</td></tr><tr><td>Total</td><td>(2,055)</td><td>(2,391)</td><td>(2,037)</td></tr><tr><td>Net income</td><td>3,163</td><td>3,537</td><td>3,072</td></tr><tr><td>Less: Net income attributable to noncontrolling interests</td><td>1</td><td></td><td>7</td></tr><tr><td>Net income attributable to Deere &amp; Company</td><td>$ 3,162</td><td>$ 3,537</td><td>$ 3,065</td></tr></table>

* Operating profit of the financial services business segment includes the effect of its interest expense and foreign exchange gains or losses.

(continued)



<table><tr><td>OPERATING SEGMENTS</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Interest income*</td><td></td><td></td><td></td></tr><tr><td>Agriculture and turf</td><td>$ 17</td><td>$ 24</td><td>$ 29</td></tr><tr><td>Construction and forestry</td><td>1</td><td>2</td><td>2</td></tr><tr><td>Financial services</td><td>1,754</td><td>1,668</td><td>1,610</td></tr><tr><td>Corporate</td><td>57</td><td>55</td><td>43</td></tr><tr><td>Intercompany</td><td>(268)</td><td>(247)</td><td>(248)</td></tr><tr><td>Total</td><td>$ 1,561</td><td>$ 1,502</td><td>$ 1,436</td></tr></table>

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

<table><tr><td>Interest expense</td><td></td><td></td><td></td></tr><tr><td>Agriculture and turf</td><td>$ 175</td><td>$ 167</td><td>$ 168</td></tr><tr><td>Construction and forestry</td><td>37</td><td>36</td><td>36</td></tr><tr><td>Financial services</td><td>431</td><td>488</td><td>596</td></tr><tr><td>Corporate</td><td>289</td><td>297</td><td>231</td></tr><tr><td>Intercompany</td><td>(268)</td><td>(247)</td><td>(248)</td></tr><tr><td>Total</td><td>$ 664</td><td>$ 741</td><td>$ 783</td></tr></table>

<table><tr><td colspan="5">Depreciation* and amortization expense</td></tr><tr><td>Agriculture and turf</td><td>$ 681</td><td>$ 627</td><td>$ 550</td><td></td></tr><tr><td>Construction and forestry</td><td>115</td><td>106</td><td>93</td><td></td></tr><tr><td>Financial services</td><td>511</td><td>407</td><td>361</td><td></td></tr><tr><td>Total</td><td>$ 1,307</td><td>$ 1,140</td><td>$ 1,004</td><td></td></tr></table>

* Includes depreciation for equipment on operating leases.

<table><tr><td colspan="5">Equity in income (loss) of unconsolidated affiliates</td></tr><tr><td>Agriculture and turf</td><td>$ 8</td><td>$ (1)</td><td>$ (2)</td><td></td></tr><tr><td>Construction and forestry</td><td>(18)</td><td></td><td>(2)</td><td></td></tr><tr><td>Financial services</td><td>2</td><td>1</td><td>1</td><td></td></tr><tr><td>Total</td><td>$ (8)</td><td></td><td>$ (3)</td><td></td></tr></table>

<table><tr><td colspan="5">Identifiable operating assets</td></tr><tr><td>Agriculture and turf</td><td>$ 9,442</td><td>$ 10,799</td><td>$ 10,429</td><td></td></tr><tr><td>Construction and forestry</td><td>3,405</td><td>3,461</td><td>3,365</td><td></td></tr><tr><td>Financial services</td><td>42,784</td><td>38,646</td><td>34,495</td><td></td></tr><tr><td>Corporate*</td><td>5,705</td><td>6,615</td><td>7,977</td><td></td></tr><tr><td>Total</td><td>$ 61,336</td><td>$ 59,521</td><td>$ 56,266</td><td></td></tr></table>

* Corporate assets are primarily the equipment operations' retirement benefits, deferred income tax assets, marketable securities and cash and cash equivalents as disclosed in Note 31, net of certain intercompany eliminations.

<table><tr><td colspan="5">Capital additions</td></tr><tr><td>Agriculture and turf</td><td>$ 868</td><td>$ 981</td><td>$ 1,145</td><td></td></tr><tr><td>Construction and forestry</td><td>145</td><td>174</td><td>228</td><td></td></tr><tr><td>Financial services</td><td>3</td><td>3</td><td>3</td><td></td></tr><tr><td>Total</td><td>$ 1,016</td><td>$ 1,158</td><td>$ 1,376</td><td></td></tr></table>

<table><tr><td colspan="5">Investments in unconsolidated affiliates</td></tr><tr><td>Agriculture and turf</td><td>$ 110</td><td>$ 24</td><td>$ 32</td><td></td></tr><tr><td>Construction and forestry</td><td>182</td><td>187</td><td>174</td><td></td></tr><tr><td>Financial services</td><td>11</td><td>10</td><td>9</td><td></td></tr><tr><td>Total</td><td>$ 303</td><td>$ 221</td><td>$ 215</td><td></td></tr></table>

The company views and has historically disclosed its operations as consisting of two geographic areas, the U.S. and Canada, and outside the U.S. and Canada, shown below in millions of dollars. No individual foreign country’s net sales and revenues were material for disclosure purposes.

<table><tr><td>GEOGRAPHIC AREAS</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Net sales and revenues</td><td></td><td></td><td></td></tr><tr><td>Unaffiliated customers:</td><td></td><td></td><td></td></tr><tr><td>U.S. and Canada:</td><td></td><td></td><td></td></tr><tr><td>Equipment operations</td><td></td><td></td><td></td></tr><tr><td>net sales (87%)*</td><td>$20,171</td><td>$21,821</td><td>$20,807</td></tr><tr><td>Financial services revenues (78%)*</td><td>2,220</td><td>2,031</td><td>1,930</td></tr><tr><td>Total</td><td>22,391</td><td>23,852</td><td>22,737</td></tr><tr><td>Outside U.S. and Canada:</td><td></td><td></td><td></td></tr><tr><td>Equipment operations net sales</td><td>12,790</td><td>13,177</td><td>12,694</td></tr><tr><td>Financial services revenues</td><td>357</td><td>318</td><td>305</td></tr><tr><td>Total</td><td>13,147</td><td>13,495</td><td>12,999</td></tr><tr><td>Other revenues</td><td>529</td><td>448</td><td>421</td></tr><tr><td>Total</td><td>$36,067</td><td>$37,795</td><td>$36,157</td></tr></table>

* The percentages indicate the approximate proportion of each amount that relates to the U.S. only and are based upon a three-year average for 2014, 2013 and 2012.

<table><tr><td colspan="5">Operating profit</td></tr><tr><td>U.S. and Canada:</td><td></td><td></td><td></td><td></td></tr><tr><td>Equipment operations</td><td>$ 3,311</td><td>$ 4,062</td><td>$ 3,836</td><td></td></tr><tr><td>Financial services</td><td>727</td><td>706</td><td>566</td><td></td></tr><tr><td>Total</td><td>4,038</td><td>4,768</td><td>4,402</td><td></td></tr><tr><td>Outside U.S. and Canada:</td><td></td><td></td><td></td><td></td></tr><tr><td>Equipment operations</td><td>986</td><td>996</td><td>561</td><td></td></tr><tr><td>Financial services</td><td>194</td><td>164</td><td>146</td><td></td></tr><tr><td>Total</td><td>1,180</td><td>1,160</td><td>707</td><td></td></tr><tr><td>Total</td><td>$ 5,218</td><td>$ 5,928</td><td>$ 5,109</td><td></td></tr></table>

<table><tr><td colspan="5">Property and equipment</td></tr><tr><td>U.S.</td><td>$ 3,154</td><td>$ 2,997</td><td>$ 2,742</td><td></td></tr><tr><td>Germany</td><td>640</td><td>647</td><td>568</td><td></td></tr><tr><td>Other countries</td><td>1,784</td><td>1,823</td><td>1,702</td><td></td></tr><tr><td>Total</td><td>$ 5,578</td><td>$ 5,467</td><td>$ 5,012</td><td></td></tr></table>

## 29. SUPPLEMENTAL INFORMATION (UNAUDITED)

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

<table><tr><td></td><td>First Quarter</td><td>Second Quarter</td><td>Third Quarter</td><td>Fourth Quarter</td></tr><tr><td>2014 Market price</td><td></td><td></td><td></td><td></td></tr><tr><td>High</td><td>$ 91.33</td><td>$ 93.89</td><td>$ 94.53</td><td>$ 87.16</td></tr><tr><td>Low</td><td>$ 81.50</td><td>$ 84.05</td><td>$ 85.11</td><td>$ 80.01</td></tr><tr><td>2013 Market price</td><td></td><td></td><td></td><td></td></tr><tr><td>High</td><td>$ 93.47</td><td>$ 95.05</td><td>$ 93.77</td><td>$ 85.10</td></tr><tr><td>Low</td><td>$ 82.83</td><td>$ 82.56</td><td>$ 80.90</td><td>$ 80.99</td></tr></table>



At October 31, 2014, there were 24,138 holders of record of the company’s $1 par value common stock.

Quarterly information with respect to net sales and revenues and earnings is shown in the following schedule. The company’s fiscal year ends in October and its interim periods (quarters) end in January, April and July. Such information is shown in millions of dollars except for per share amounts.

<table><tr><td></td><td>First Quarter</td><td>Second Quarter</td><td>Third Quarter</td><td>Fourth Quarter</td></tr><tr><td>2014*</td><td></td><td></td><td></td><td></td></tr><tr><td>Net sales and revenues</td><td>$ 7,654</td><td>$ 9,948</td><td>$ 9,500</td><td>$ 8,965</td></tr><tr><td>Net sales</td><td>6,949</td><td>9,246</td><td>8,723</td><td>8,043</td></tr><tr><td>Gross profit</td><td>1,753</td><td>2,374</td><td>2,112</td><td>1,946</td></tr><tr><td>Income before income taxes</td><td>965</td><td>1,464</td><td>1,292</td><td>1,076</td></tr><tr><td>Net income attributable to Deere &amp; Company</td><td>681</td><td>981</td><td>851</td><td>649</td></tr><tr><td>Per share data:</td><td></td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>1.83</td><td>2.67</td><td>2.35</td><td>1.84</td></tr><tr><td>Diluted</td><td>1.81</td><td>2.65</td><td>2.33</td><td>1.83</td></tr><tr><td>Dividends declared</td><td>.51</td><td>.51</td><td>.60</td><td>.60</td></tr><tr><td>Dividends paid</td><td>.51</td><td>.51</td><td>.51</td><td>.60</td></tr><tr><td>2013*</td><td></td><td></td><td></td><td></td></tr><tr><td>Net sales and revenues</td><td>$ 7,421</td><td>$10,913</td><td>$10,010</td><td>$ 9,451</td></tr><tr><td>Net sales</td><td>6,793</td><td>10,265</td><td>9,316</td><td>8,624</td></tr><tr><td>Gross profit</td><td>1,778</td><td>2,783</td><td>2,478</td><td>2,292</td></tr><tr><td>Income before income taxes</td><td>946</td><td>1,744</td><td>1,549</td><td>1,244</td></tr><tr><td>Net income attributable to Deere &amp; Company</td><td>650</td><td>1,084</td><td>996</td><td>807</td></tr><tr><td>Per share data:</td><td></td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>1.67</td><td>2.79</td><td>2.58</td><td>2.13</td></tr><tr><td>Diluted</td><td>1.65</td><td>2.76</td><td>2.56</td><td>2.11</td></tr><tr><td>Dividends declared</td><td>.46</td><td>.51</td><td>.51</td><td>.51</td></tr><tr><td>Dividends paid</td><td>.46</td><td>.46</td><td>.51</td><td>.51</td></tr></table>

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

* See Note 5 for “Special Items.”

## 30. SUBSEQUENT EVENTS

A quarterly dividend of $.60 per share was declared at the Board of Directors meeting on December 3, 2014, payable on February 2, 2015 to stockholders of record on December 31, 2014.

In December 2014, the company’s financial services operations issued Australian dollar denominated medium-term notes of $227 million due in December 2019.

In December 2014, the company entered into an agreement to sell all of the stock of its wholly-owned subsidiaries, John Deere Insurance Company and John Deere Risk Protection, Inc. (collectively, the Crop Insurance operations) to Farmers Mutual Hail Insurance Company of Iowa. The Crop Insurance operations provide crop risk mitigation products and are included in the financial services operating segment. The company is projecting to close the sale by March 2015. As of October 31, 2014, the Crop Insurance operations had total assets of approximately $725 million consisting primarily of accounts receivable and marketable securities. The Crop Insurance operations also had total liabilities of approximately $605 million, consisting primarily of accounts payable and accrued expenses, and policy claims and reserves. The planned sale is a result of the company’s intention to invest its resources in growing its core businesses. The company does not anticipate a significant pretax or after-tax gain or loss resulting from the probable sale.



## 31. SUPPLEMENTAL CONSOLIDATING DATA

## INCOME STATEMENT

For the Years Ended October 31, 2014, 2013 and 2012

(In millions of dollars)

<table><tr><td rowspan="2"></td><td colspan="3">EQUIPMENT OPERATIONS*</td><td colspan="3">FINANCIAL SERVICES</td></tr><tr><td>2014</td><td>2013</td><td>2012</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Net Sales and Revenues</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net sales</td><td>$32,960.6</td><td>$34,997.9</td><td>$33,500.9</td><td></td><td></td><td></td></tr><tr><td>Finance and interest income</td><td>76.5</td><td>80.8</td><td>74.0</td><td>$2,475.0</td><td>$2,280.5</td><td>$2,155.7</td></tr><tr><td>Other income</td><td>622.6</td><td>549.1</td><td>493.2</td><td>330.2</td><td>288.4</td><td>298.8</td></tr><tr><td>Total</td><td>33,659.7</td><td>35,627.8</td><td>34,068.1</td><td>2,805.2</td><td>2,568.9</td><td>2,454.5</td></tr><tr><td>Costs and Expenses</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Cost of sales</td><td>24,777.8</td><td>25,668.8</td><td>25,009.2</td><td></td><td></td><td></td></tr><tr><td>Research and development expenses</td><td>1,452.0</td><td>1,477.3</td><td>1,433.6</td><td></td><td></td><td></td></tr><tr><td>Selling, administrative and general expenses</td><td>2,765.1</td><td>3,143.9</td><td>2,988.8</td><td>529.2</td><td>473.2</td><td>439.3</td></tr><tr><td>Interest expense</td><td>289.4</td><td>297.1</td><td>231.1</td><td>430.9</td><td>487.6</td><td>596.4</td></tr><tr><td>Interest compensation to Financial Services</td><td>212.1</td><td>202.7</td><td>203.6</td><td></td><td></td><td></td></tr><tr><td>Other operating expenses</td><td>285.4</td><td>223.7</td><td>178.1</td><td>925.6</td><td>739.0</td><td>708.1</td></tr><tr><td>Total</td><td>29,781.8</td><td>31,013.5</td><td>30,044.4</td><td>1,885.7</td><td>1,699.8</td><td>1,743.8</td></tr><tr><td>Income of Consolidated Group before Income Taxes</td><td>3,877.9</td><td>4,614.3</td><td>4,023.7</td><td>919.5</td><td>869.1</td><td>710.7</td></tr><tr><td>Provision for income taxes</td><td>1,329.6</td><td>1,640.7</td><td>1,407.6</td><td>296.9</td><td>305.2</td><td>251.8</td></tr><tr><td>Income of Consolidated Group</td><td>2,548.3</td><td>2,973.6</td><td>2,616.1</td><td>622.6</td><td>563.9</td><td>458.9</td></tr><tr><td>Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Financial Services</td><td>624.5</td><td>565.0</td><td>460.3</td><td>1.9</td><td>1.1</td><td>1.4</td></tr><tr><td>Other</td><td>(9.5)</td><td>(1.0)</td><td>(4.8)</td><td></td><td></td><td></td></tr><tr><td>Total</td><td>615.0</td><td>564.0</td><td>455.5</td><td>1.9</td><td>1.1</td><td>1.4</td></tr><tr><td>Net Income</td><td>3,163.3</td><td>3,537.6</td><td>3,071.6</td><td>624.5</td><td>565.0</td><td>460.3</td></tr><tr><td>Less: Net income attributable to noncontrolling interests</td><td>1.6</td><td>.3</td><td>6.9</td><td></td><td></td><td></td></tr><tr><td>Net Income Attributable to Deere &amp; Company</td><td>$ 3,161.7</td><td>$ 3,537.3</td><td>$ 3,064.7</td><td>$ 624.5</td><td>$ 565.0</td><td>$ 460.3</td></tr></table>

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

The supplemental consolidating data is presented for informational purposes. The “Equipment Operations” reflect the basis of consolidation described in Note 1 to the consolidated financial statements. The consolidated group data in the “Equipment Operations” income statement reflect the results of the agriculture and turf operations and construction and forestry operations. Transactions between the “Equipment Operations” and “Financial Services” have been eliminated to arrive at the consolidated financial statements.



## 31. SUPPLEMENTAL CONSOLIDATING DATA (continued)

## BALANCE SHEET

As of October 31, 2014 and 2013 (In millions of dollars except per share amounts)

<table><tr><td rowspan="2"></td><td colspan="2">EQUIPMENT OPERATIONS*</td><td colspan="2">FINANCIAL SERVICES</td></tr><tr><td>2014</td><td>2013</td><td>2014</td><td>2013</td></tr><tr><td>ASSETS</td><td></td><td></td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 2,569.2</td><td>$ 3,023.3</td><td>$ 1,217.8</td><td>$ 480.8</td></tr><tr><td>Marketable securities</td><td>700.4</td><td>1,207.2</td><td>514.7</td><td>417.6</td></tr><tr><td>Receivables from unconsolidated subsidiaries and affiliates</td><td>3,663.9</td><td>3,502.0</td><td></td><td></td></tr><tr><td>Trade accounts and notes receivable - net</td><td>706.0</td><td>1,061.8</td><td>3,554.4</td><td>3,555.9</td></tr><tr><td>Financing receivables - net</td><td>18.5</td><td>16.5</td><td>27,403.7</td><td>25,616.2</td></tr><tr><td>Financing receivables securitized - net</td><td></td><td></td><td>4,602.3</td><td>4,153.1</td></tr><tr><td>Other receivables</td><td>848.0</td><td>983.1</td><td>659.0</td><td>486.6</td></tr><tr><td>Equipment on operating leases - net</td><td></td><td></td><td>4,015.5</td><td>3,152.2</td></tr><tr><td>Inventories</td><td>4,209.7</td><td>4,934.7</td><td></td><td></td></tr><tr><td>Property and equipment - net</td><td>5,522.5</td><td>5,408.5</td><td>55.3</td><td>58.4</td></tr><tr><td>Investments in unconsolidated subsidiaries and affiliates</td><td>5,106.5</td><td>4,569.0</td><td>10.9</td><td>10.2</td></tr><tr><td>Goodwill</td><td>791.2</td><td>844.8</td><td></td><td></td></tr><tr><td>Other intangible assets - net</td><td>64.8</td><td>73.1</td><td>4.0</td><td>4.0</td></tr><tr><td>Retirement benefits</td><td>263.5</td><td>517.7</td><td>32.9</td><td>37.5</td></tr><tr><td>Deferred income taxes</td><td>2,981.9</td><td>2,575.4</td><td>64.9</td><td>51.3</td></tr><tr><td>Other assets</td><td>850.6</td><td>654.3</td><td>648.2</td><td>622.2</td></tr><tr><td>Assets held for sale</td><td></td><td>505.0</td><td></td><td></td></tr><tr><td>Total Assets</td><td>$ 28,296.7</td><td>$ 29,876.4</td><td>$ 42,783.6</td><td>$ 38,646.0</td></tr><tr><td>LIABILITIES AND STOCKHOLDERS&#x27; EQUITY</td><td></td><td></td><td></td><td></td></tr><tr><td>LIABILITIES</td><td></td><td></td><td></td><td></td></tr><tr><td>Short-term borrowings</td><td>$ 434.1</td><td>$ 1,080.4</td><td>$ 7,585.1</td><td>$ 7,708.5</td></tr><tr><td>Short-term securitization borrowings</td><td></td><td></td><td>4,558.5</td><td>4,109.1</td></tr><tr><td>Payables to unconsolidated subsidiaries and affiliates</td><td>101.0</td><td>106.9</td><td>3,633.7</td><td>3,470.8</td></tr><tr><td>Accounts payable and accrued expenses</td><td>7,518.4</td><td>7,990.9</td><td>2,027.0</td><td>1,849.8</td></tr><tr><td>Deferred income taxes</td><td>87.1</td><td>92.4</td><td>344.1</td><td>369.1</td></tr><tr><td>Long-term borrowings</td><td>4,642.5</td><td>4,870.9</td><td>19,738.2</td><td>16,706.8</td></tr><tr><td>Retirement benefits and other liabilities</td><td>6,448.1</td><td>5,346.8</td><td>82.8</td><td>74.1</td></tr><tr><td>Liabilities held for sale</td><td></td><td>120.4</td><td></td><td></td></tr><tr><td>Total liabilities</td><td>19,231.2</td><td>19,608.7</td><td>37,969.4</td><td>34,288.2</td></tr><tr><td>Commitments and contingencies (Note 22)</td><td></td><td></td><td></td><td></td></tr><tr><td>STOCKHOLDERS&#x27; EQUITY</td><td></td><td></td><td></td><td></td></tr><tr><td>Common stock, $1 par value (authorized - 1,200,000,000 shares; issued - 536,431,204 shares in 2014 and 2013), at paid-in amount</td><td>3,675.4</td><td>3,524.2</td><td>2,023.1</td><td>1,956.3</td></tr><tr><td>Common stock in treasury, 190,926,805 shares in 2014 and 162,628,440 shares in 2013, at cost</td><td>(12,834.2)</td><td>(10,210.9)</td><td></td><td></td></tr><tr><td>Retained earnings</td><td>22,004.4</td><td>19,645.6</td><td>2,811.8</td><td>2,337.3</td></tr><tr><td>Accumulated other comprehensive income (loss)</td><td>(3,783.0)</td><td>(2,693.1)</td><td>(20.7)</td><td>64.2</td></tr><tr><td>Total Deere &amp; Company stockholders&#x27; equity</td><td>9,062.6</td><td>10,265.8</td><td>4,814.2</td><td>4,357.8</td></tr><tr><td>Noncontrolling interests</td><td>2.9</td><td>1.9</td><td></td><td></td></tr><tr><td>Total stockholders&#x27; equity</td><td>9,065.5</td><td>10,267.7</td><td>4,814.2</td><td>4,357.8</td></tr><tr><td>Total Liabilities and Stockholders&#x27; Equity</td><td>$ 28,296.7</td><td>$ 29,876.4</td><td>$ 42,783.6</td><td>$ 38,646.0</td></tr></table>

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

The supplemental consolidating data is presented for informational purposes. The “Equipment Operations” reflect the basis of consolidation described in Note 1 to the consolidated financial statements. Transactions between the “Equipment Operations” and “Financial Services” have been eliminated to arrive at the consolidated financial statements.



## 31. SUPPLEMENTAL CONSOLIDATING DATA (continued)

## STATEMENT OF CASH FLOWS

For the Years Ended October 31, 2014, 2013 and 2012 (In millions of dollars)

<table><tr><td rowspan="2"></td><td colspan="3">EQUIPMENT OPERATIONS*</td><td colspan="3">FINANCIAL SERVICES</td></tr><tr><td>2014</td><td>2013</td><td>2012</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Cash Flows from Operating Activities</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 3,163.3</td><td>$ 3,537.6</td><td>$ 3,071.6</td><td>$ 624.5</td><td>$ 565.0</td><td>$ 460.3</td></tr><tr><td>Adjustments to reconcile net income to net cash provided by operating activities:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Provision (credit) for credit losses</td><td>2.9</td><td>10.8</td><td>6.0</td><td>35.2</td><td>9.7</td><td>(.9)</td></tr><tr><td>Provision for depreciation and amortization</td><td>795.7</td><td>733.0</td><td>643.1</td><td>574.9</td><td>492.2</td><td>439.2</td></tr><tr><td>Impairment charges</td><td>95.9</td><td>102.0</td><td>33.4</td><td></td><td></td><td></td></tr><tr><td>Undistributed earnings of unconsolidated subsidiaries and affiliates</td><td>(463.4)</td><td>(369.0)</td><td>(413.7)</td><td>(1.7)</td><td>(.9)</td><td>(1.3)</td></tr><tr><td>Provision (credit) for deferred income taxes</td><td>(236.4)</td><td>(204.6)</td><td>(115.7)</td><td>(43.7)</td><td>32.0</td><td>23.9</td></tr><tr><td>Changes in assets and liabilities:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Trade receivables</td><td>231.5</td><td>26.1</td><td>(255.0)</td><td></td><td></td><td></td></tr><tr><td>Insurance receivables</td><td></td><td></td><td></td><td>(149.9)</td><td>263.4</td><td>(338.5)</td></tr><tr><td>Inventories</td><td>496.2</td><td>(69.6)</td><td>(947.6)</td><td></td><td></td><td></td></tr><tr><td>Accounts payable and accrued expenses</td><td>(277.0)</td><td>470.5</td><td>887.0</td><td>263.3</td><td>(207.9)</td><td>382.1</td></tr><tr><td>Accrued income taxes payable/receivable</td><td>330.5</td><td>84.2</td><td>(102.7)</td><td>12.1</td><td>(3.8)</td><td>30.4</td></tr><tr><td>Retirement benefits</td><td>323.0</td><td>241.6</td><td>71.2</td><td>13.9</td><td>20.4</td><td>(7.9)</td></tr><tr><td>Other</td><td>70.0</td><td>106.0</td><td>70.5</td><td>(7.7)</td><td>73.5</td><td>(109.9)</td></tr><tr><td>Net cash provided by operating activities</td><td>4,532.2</td><td>4,668.6</td><td>2,948.1</td><td>1,320.9</td><td>1,243.6</td><td>877.4</td></tr><tr><td>Cash Flows from Investing Activities</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Collections of receivables (excluding trade and wholesale)</td><td></td><td></td><td></td><td>16,772.0</td><td>15,440.0</td><td>14,320.7</td></tr><tr><td>Proceeds from maturities and sales of marketable securities</td><td>1,000.1</td><td>800.1</td><td>200.1</td><td>22.4</td><td>43.8</td><td>40.2</td></tr><tr><td>Proceeds from sales of equipment on operating leases</td><td></td><td></td><td></td><td>1,091.5</td><td>936.7</td><td>799.5</td></tr><tr><td>Proceeds from sales of businesses, net of cash sold</td><td>345.8</td><td>22.0</td><td>30.2</td><td></td><td></td><td></td></tr><tr><td>Cost of receivables acquired (excluding trade and wholesale)</td><td></td><td></td><td></td><td>(19,015.3)</td><td>(18,792.7)</td><td>(16,730.2)</td></tr><tr><td>Purchases of marketable securities</td><td>(504.1)</td><td>(911.1)</td><td>(802.2)</td><td>(110.5)</td><td>(115.2)</td><td>(120.0)</td></tr><tr><td>Purchases of property and equipment</td><td>(1,045.2)</td><td>(1,155.2)</td><td>(1,316.2)</td><td>(3.1)</td><td>(3.2)</td><td>(3.1)</td></tr><tr><td>Cost of equipment on operating leases acquired</td><td></td><td></td><td></td><td>(2,684.2)</td><td>(2,107.2)</td><td>(1,562.0)</td></tr><tr><td>Increase in investment in Financial Services</td><td>(66.8)</td><td>(121.6)</td><td>(264.1)</td><td></td><td></td><td></td></tr><tr><td>Acquisitions of businesses, net of cash acquired</td><td></td><td>(83.5)</td><td></td><td></td><td></td><td></td></tr><tr><td>Increase in trade and wholesale receivables</td><td></td><td></td><td></td><td>(782.0)</td><td>(1,152.7)</td><td>(1,518.5)</td></tr><tr><td>Other</td><td>(98.6)</td><td>(120.0)</td><td>(95.6)</td><td>(47.1)</td><td>(94.5)</td><td>138.8</td></tr><tr><td>Net cash used for investing activities</td><td>(368.8)</td><td>(1,569.3)</td><td>(2,247.8)</td><td>(4,756.3)</td><td>(5,845.0)</td><td>(4,634.6)</td></tr><tr><td>Cash Flows from Financing Activities</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Increase (decrease) in total short-term borrowings</td><td>(65.8)</td><td>36.0</td><td>(36.4)</td><td>155.0</td><td>2,713.5</td><td>931.3</td></tr><tr><td>Change in intercompany receivables/payables</td><td>(367.5)</td><td>(2,007.2)</td><td>45.5</td><td>367.5</td><td>2,007.2</td><td>(45.5)</td></tr><tr><td>Proceeds from long-term borrowings</td><td>60.7</td><td>282.9</td><td>2,521.5</td><td>8,171.3</td><td>4,451.1</td><td>8,120.5</td></tr><tr><td>Payments of long-term borrowings</td><td>(819.1)</td><td>(191.0)</td><td>(220.1)</td><td>(4,390.0)</td><td>(4,767.4)</td><td>(5,175.9)</td></tr><tr><td>Proceeds from issuance of common stock</td><td>149.5</td><td>174.5</td><td>61.0</td><td></td><td></td><td></td></tr><tr><td>Repurchases of common stock</td><td>(2,731.1)</td><td>(1,531.4)</td><td>(1,587.7)</td><td></td><td></td><td></td></tr><tr><td>Capital investment from Equipment Operations</td><td></td><td></td><td></td><td>66.8</td><td>121.6</td><td>264.1</td></tr><tr><td>Dividends paid</td><td>(786.0)</td><td>(752.9)</td><td>(697.9)</td><td>(150.0)</td><td>(186.0)</td><td>(43.5)</td></tr><tr><td>Excess tax benefits from share-based compensation</td><td>30.8</td><td>50.7</td><td>30.1</td><td></td><td></td><td></td></tr><tr><td>Other</td><td>(27.7)</td><td>(40.1)</td><td>(32.7)</td><td>(35.9)</td><td>(19.2)</td><td>(33.6)</td></tr><tr><td>Net cash provided by (used for) financing activities</td><td>(4,556.2)</td><td>(3,978.5)</td><td>83.3</td><td>4,184.7</td><td>4,320.8</td><td>4,017.4</td></tr><tr><td>Effect of Exchange Rate Changes on Cash and Cash Equivalents</td><td>(61.3)</td><td>(5.4)</td><td>(63.2)</td><td>(12.3)</td><td>17.1</td><td>24.4</td></tr><tr><td>Net Increase (Decrease) in Cash and Cash Equivalents</td><td>(454.1)</td><td>(884.6)</td><td>720.4</td><td>737.0</td><td>(263.5)</td><td>284.6</td></tr><tr><td>Cash and Cash Equivalents at Beginning of Year</td><td>3,023.3</td><td>3,907.9</td><td>3,187.5</td><td>480.8</td><td>744.3</td><td>459.7</td></tr><tr><td>Cash and Cash Equivalents at End of Year</td><td>$ 2,569.2</td><td>$ 3,023.3</td><td>$ 3,907.9</td><td>$ 1,217.8</td><td>$ 480.8</td><td>$ 744.3</td></tr></table>

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

The supplemental consolidating data is presented for informational purposes. The “Equipment Operations” reflect the basis of consolidation described in Note 1 to the consolidated financial statements. Transactions between the “Equipment Operations” and “Financial Services” have been eliminated to arrive at the consolidated financial statements.



<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td><td>2011</td><td>2010</td><td>2009</td><td>2008</td><td>2007</td><td>2006</td><td>2005</td></tr><tr><td>Net sales and revenues</td><td>$36,067</td><td>$37,795</td><td>$36,157</td><td>$32,013</td><td>$26,005</td><td>$23,112</td><td>$28,438</td><td>$24,082</td><td>$22,148</td><td>$21,191</td></tr><tr><td>Net sales</td><td>32,961</td><td>34,998</td><td>33,501</td><td>29,466</td><td>23,573</td><td>20,756</td><td>25,803</td><td>21,489</td><td>19,884</td><td>19,401</td></tr><tr><td>Finance and interest income</td><td>2,282</td><td>2,115</td><td>1,981</td><td>1,923</td><td>1,825</td><td>1,842</td><td>2,068</td><td>2,055</td><td>1,777</td><td>1,440</td></tr><tr><td>Research and development expenses</td><td>1,452</td><td>1,477</td><td>1,434</td><td>1,226</td><td>1,052</td><td>977</td><td>943</td><td>817</td><td>726</td><td>677</td></tr><tr><td>Selling, administrative and general expenses</td><td>3,284</td><td>3,606</td><td>3,417</td><td>3,169</td><td>2,969</td><td>2,781</td><td>2,960</td><td>2,621</td><td>2,324</td><td>2,086</td></tr><tr><td>Interest expense</td><td>664</td><td>741</td><td>783</td><td>759</td><td>811</td><td>1,042</td><td>1,137</td><td>1,151</td><td>1,018</td><td>761</td></tr><tr><td>Income from continuing operations*</td><td>3,162</td><td>3,537</td><td>3,065</td><td>2,800</td><td>1,865</td><td>873</td><td>2,053</td><td>1,822</td><td>1,453</td><td>1,414</td></tr><tr><td>Net income*</td><td>3,162</td><td>3,537</td><td>3,065</td><td>2,800</td><td>1,865</td><td>873</td><td>2,053</td><td>1,822</td><td>1,694</td><td>1,447</td></tr><tr><td>Return on net sales</td><td>9.6%</td><td>10.1%</td><td>9.1%</td><td>9.5%</td><td>7.9%</td><td>4.2%</td><td>8.0%</td><td>8.5%</td><td>8.5%</td><td>7.5%</td></tr><tr><td>Return on beginning Deere &amp; Company stockholders&#x27; equity</td><td>30.8%</td><td>51.7%</td><td>45.1%</td><td>44.5%</td><td>38.7%</td><td>13.4%</td><td>28.7%</td><td>24.3%</td><td>24.7%</td><td>22.6%</td></tr><tr><td>Comprehensive income (loss)*</td><td>2,072</td><td>5,416</td><td>2,171</td><td>2,502</td><td>2,079</td><td>(1,333)</td><td>1,303</td><td>2,201</td><td>1,795</td><td>1,463</td></tr><tr><td>Income per share from continuing operations - basic*</td><td>$ 8.71</td><td>$ 9.18</td><td>$ 7.72</td><td>$ 6.71</td><td>$ 4.40</td><td>$ 2.07</td><td>$ 4.76</td><td>$ 4.05</td><td>$ 3.11</td><td>$ 2.90</td></tr><tr><td>- diluted*</td><td>8.63</td><td>9.09</td><td>7.63</td><td>6.63</td><td>4.35</td><td>2.06</td><td>4.70</td><td>4.00</td><td>3.08</td><td>2.87</td></tr><tr><td>Net income per share - basic*</td><td>8.71</td><td>9.18</td><td>7.72</td><td>6.71</td><td>4.40</td><td>2.07</td><td>4.76</td><td>4.05</td><td>3.63</td><td>2.97</td></tr><tr><td>- diluted*</td><td>8.63</td><td>9.09</td><td>7.63</td><td>6.63</td><td>4.35</td><td>2.06</td><td>4.70</td><td>4.00</td><td>3.59</td><td>2.94</td></tr><tr><td>Dividends declared per share</td><td>2.22</td><td>1.99</td><td>1.79</td><td>1.52</td><td>1.16</td><td>1.12</td><td>1.06</td><td>.91</td><td>.78</td><td>.60½</td></tr><tr><td>Dividends paid per share</td><td>2.13</td><td>1.94</td><td>1.74</td><td>1.41</td><td>1.14</td><td>1.12</td><td>1.03</td><td>.85½</td><td>.74</td><td>.59</td></tr><tr><td>Average number of common shares outstanding (in millions) - basic</td><td>363.0</td><td>385.3</td><td>397.1</td><td>417.4</td><td>424.0</td><td>422.8</td><td>431.1</td><td>449.3</td><td>466.8</td><td>486.6</td></tr><tr><td>- diluted</td><td>366.1</td><td>389.2</td><td>401.5</td><td>422.4</td><td>428.6</td><td>424.4</td><td>436.3</td><td>455.0</td><td>471.6</td><td>492.9</td></tr><tr><td>Total assets</td><td>$61,336</td><td>$59,521</td><td>$56,266</td><td>$48,207</td><td>$43,267</td><td>$41,133</td><td>$38,735</td><td>$38,576</td><td>$34,720</td><td>$33,637</td></tr><tr><td>Trade accounts and notes receivable - net</td><td>3,278</td><td>3,758</td><td>3,799</td><td>3,295</td><td>3,464</td><td>2,617</td><td>3,235</td><td>3,055</td><td>3,038</td><td>3,118</td></tr><tr><td>Financing receivables - net</td><td>27,422</td><td>25,633</td><td>22,159</td><td>19,924</td><td>17,682</td><td>15,255</td><td>16,017</td><td>15,631</td><td>14,004</td><td>12,869</td></tr><tr><td>Financing receivables securitized - net</td><td>4,602</td><td>4,153</td><td>3,618</td><td>2,905</td><td>2,238</td><td>3,108</td><td>1,645</td><td>2,289</td><td>2,371</td><td>1,458</td></tr><tr><td>Equipment on operating leases - net</td><td>4,016</td><td>3,152</td><td>2,528</td><td>2,150</td><td>1,936</td><td>1,733</td><td>1,639</td><td>1,705</td><td>1,494</td><td>1,336</td></tr><tr><td>Inventories</td><td>4,210</td><td>4,935</td><td>5,170</td><td>4,371</td><td>3,063</td><td>2,397</td><td>3,042</td><td>2,337</td><td>1,957</td><td>2,135</td></tr><tr><td>Property and equipment - net</td><td>5,578</td><td>5,467</td><td>5,012</td><td>4,352</td><td>3,791</td><td>4,532</td><td>4,128</td><td>3,534</td><td>2,764</td><td>2,343</td></tr><tr><td>Short-term borrowings:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Equipment operations</td><td>434</td><td>1,080</td><td>425</td><td>528</td><td>85</td><td>490</td><td>218</td><td>130</td><td>282</td><td>678</td></tr><tr><td>Financial services</td><td>7,585</td><td>7,709</td><td>5,968</td><td>6,324</td><td>5,241</td><td>3,537</td><td>6,621</td><td>7,495</td><td>5,436</td><td>4,732</td></tr><tr><td>Total</td><td>8,019</td><td>8,789</td><td>6,393</td><td>6,852</td><td>5,326</td><td>4,027</td><td>6,839</td><td>7,625</td><td>5,718</td><td>5,410</td></tr><tr><td>Short-term securitization borrowings:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Financial services</td><td>4,559</td><td>4,109</td><td>3,575</td><td>2,777</td><td>2,209</td><td>3,132</td><td>1,682</td><td>2,344</td><td>2,403</td><td>1,474</td></tr><tr><td>Long-term borrowings:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Equipment operations</td><td>4,643</td><td>4,871</td><td>5,445</td><td>3,167</td><td>3,329</td><td>3,073</td><td>1,992</td><td>1,973</td><td>1,969</td><td>2,423</td></tr><tr><td>Financial services</td><td>19,738</td><td>16,707</td><td>17,008</td><td>13,793</td><td>13,486</td><td>14,319</td><td>11,907</td><td>9,825</td><td>9,615</td><td>9,316</td></tr><tr><td>Total</td><td>24,381</td><td>21,578</td><td>22,453</td><td>16,960</td><td>16,815</td><td>17,392</td><td>13,899</td><td>11,798</td><td>11,584</td><td>11,739</td></tr><tr><td>Total Deere &amp; Company stockholders&#x27; equity</td><td>9,063</td><td>10,266</td><td>6,842</td><td>6,800</td><td>6,290</td><td>4,819</td><td>6,533</td><td>7,156</td><td>7,491</td><td>6,852</td></tr><tr><td>Book value per share*</td><td>$ 26.23</td><td>$ 27.46</td><td>$ 17.64</td><td>$ 16.75</td><td>$ 14.90</td><td>$ 11.39</td><td>$ 15.47</td><td>$ 16.28</td><td>$ 16.48</td><td>$ 14.46</td></tr><tr><td>Capital expenditures</td><td>$ 1,004</td><td>$ 1,132</td><td>$ 1,360</td><td>$ 1,050</td><td>$ 795</td><td>$ 767</td><td>$ 1,117</td><td>$ 1,025</td><td>$ 774</td><td>$ 512</td></tr><tr><td>Number of employees (at year end)</td><td>59,623</td><td>67,044</td><td>66,859</td><td>61,278</td><td>55,650</td><td>51,262</td><td>56,653</td><td>52,022</td><td>46,549</td><td>47,423</td></tr><tr><td colspan="11">* Attributable to Deere &amp; Company.</td></tr></table>



Deere & Company
One John Deere Place
Moline, Illinois 61265
(309) 765-8000
www.JohnDeere.com