SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005

Commission file number 1-4121

DEERE & COMPANY

(Exact name of registrant as specified in its charter)

Delaware		36-2382580
(State of incorporation)		(IRS Employer Identification No.)

One John Deere Place, Moline, Illinois	61265	(309) 765-8000
(Address of principal executive offices)	(Zip Code)	(Telephone Number)

SECURITIES REGISTERED PURSUANT

TO SECTION 12(b) OF THE ACT

Title of each class		Name of each exchange on which registered
Common stock, $1 par value		New York Stock Exchange
5-7/8% Debentures Due 2006 (issued by John Deere B.V., a wholly-owned subsidiary, and guaranteed by Deere & Company)		New York Stock Exchange
8.95% Debentures Due 2019		New York Stock Exchange
8-1/2% Debentures Due 2022		New York Stock Exchange
6.55% Debentures Due 2028		New York Stock Exchange

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

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

Yes ý No o

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

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

Yes ý No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No ý

The aggregate quoted market price of voting stock of registrant held by nonaffiliates at April 30, 2005 was $15,107,184,789. At November 30, 2005, 236,348,154 shares of common stock, $1 par value, of the registrant were outstanding. Documents Incorporated by Reference. Portions of the proxy statement for the annual meeting of stockholders to be held on February 22, 2006 are incorporated by reference in Part III.

PART I

ITEM 1. BUSINESS.

Products

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

The agricultural equipment segment manufactures and distributes a full line of farm equipment and related service parts -- including tractors; combine, cotton and sugarcane harvesters; tillage, seeding and soil preparation machinery; sprayers; hay and forage equipment; material handling equipment; and integrated agricultural management systems technology.

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

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

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

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

John Deere also provides managed health care plans. John Deere’s worldwide agricultural equipment; commercial and consumer equipment; and construction and forestry operations are sometimes referred to as the “Equipment Operations.” The credit, health care and certain miscellaneous service operations are sometimes referred to as “Financial Services.”

Additional information is presented in the discussion of business segment and geographic area results on pages 17 and 18. The John Deere enterprise has manufactured agricultural machinery since 1837. The present Company was incorporated under the laws of Delaware in 1958.

The Company’s Internet address is http://www.JohnDeere.com. Through that address, the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available free of charge as soon as reasonably practicable after they are filed with the Securities and Exchange Commission. The information contained on the Company’s website is not included in, or incorporated by reference into, this Annual Report on Form 10-K.

Market Conditions and Outlook

Company equipment sales are expected to increase by 1 to 3 percent for full-year 2006 and by 11 to 14 percent for the first quarter. Production levels are expected to be down slightly for the year but up about 4 percent in the first quarter. The Company intends to sell its health care operations for a gain of approximately $225 million after-tax. Based on the above, net income is forecast to be around $1.7 billion (approximately $1.5 billion excluding the gain on the sale of the health care operations) for the year and in a range of $175 million to $200 million for the first quarter.

Agricultural Equipment. Although the farm sector is expected to remain in solid financial condition, industry sales in the United States and Canada are forecast to be down 5 to 10 percent in 2006. Factors contributing to the decline include concerns over higher farm input costs, especially for fuel and fertilizer, the absence of United States tax incentives which helped sales in the first part of 2005, and slightly lower cash receipts. Farmers are expected to benefit from debt levels that remain well under control and from rising land values.

In other parts of the world, industry retail sales in Western Europe are forecast to be down about 5 percent for the year. Concerns over higher input costs, government policies and the future direction of farm subsidies are expected to put downward pressure on sales in the region for the year. In South America, industry sales are forecast to be down about 5 percent as a result of a relatively strong Brazilian currency, a reduction in soybean acreage in Brazil and concerns regarding foot-and-mouth disease.

Based on these factors and market conditions, worldwide sales of John Deere agricultural equipment are forecast to be down 2 to 4 percent for the year. Company sales are expected to benefit from a number of newly introduced products, including a line of more-powerful and fuel-efficient large tractors.

Commercial & Consumer Equipment. Sales of John Deere commercial and consumer equipment are forecast to be up 10 to 12 percent for the year with benefit from newly introduced products, an assumed return to more normal weather patterns and a full year of sales from the division’s recent landscapes-business acquisition. Division sales are also expected to be helped by an expanded presence of John Deere products in the mass channel.

Construction & Forestry. Markets for construction equipment are forecast to experience further growth in 2006 as a result of United States economic conditions conducive to a healthy level of construction spending, especially in the nonresidential sector. On this basis, contractors and rental companies are expected to continue updating and expanding their fleets. Forestry equipment markets are projected to remain near last year’s level in the United States and Canada and to be lower in Europe. In this environment, Deere’s worldwide sales of construction and forestry equipment are forecast to rise by 5 to 7 percent for fiscal 2006.

Financial Services. Full-year net income for the Company’s Financial Services operations is forecast to be about $565 million (approximately $340 million excluding the gain on the sale of the health care operations). Net income for the credit operations is expected to improve due to growth in the credit portfolio.

2005 Consolidated Results Compared with 2004

The Company had net income in 2005 of $1,447 million, or $5.87 per share diluted ($5.95 basic), compared with $1,406 million, or $5.56 per share diluted ($5.69 basic), in 2004. Net sales and revenues increased 10 percent to $21,931 million in 2005, compared with $19,986 million in 2004. Net sales of the Equipment Operations increased 10 percent in 2005 to $19,401 million from $17,673 million last year. Net sales in the United States and Canada rose 10 percent in 2005. Outside the United States and Canada, net sales increased by 6 percent excluding currency translation, and by 10 percent on a reported basis.

The Company’s Equipment Operations had net income of $1,096 million in 2005, compared with $1,097 million in 2004. Net income decreased primarily due to higher selling and administrative expenses, increased manufacturing overhead costs related to production system improvements, and higher research and development costs. These factors were partially offset by the margin on higher shipments and lower retirement benefit costs. Improved price realization offset higher raw material costs. In addition, this year’s results benefited from increased interest and investment income, and a lower effective tax rate.

Net income of the Company’s Financial Services operations in 2005 was $345 million, compared with $309 million in 2004. The increase was primarily due to growth in the credit operations portfolio, a lower credit loss provision and increased underwriting margins in health care. Additional information is presented in the following discussion of the credit and “Other” operations.

Additional information on 2005 results is presented on pages 16 - 18.

EQUIPMENT OPERATIONS

Agricultural Equipment

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

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

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

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

An important part of the competition within the agricultural equipment industry during the past decade has come from a diverse variety of short-line and specialty manufacturers with differing manufacturing and marketing methods. Because of industry conditions, especially the merger of certain large integrated

competitors and the global capability of many competitors, the agricultural equipment business continues to undergo significant change and may become even more competitive.

Commercial and Consumer Equipment

John Deere commercial and consumer equipment includes front-engine lawn tractors, lawn and garden tractors, compact utility tractors, utility tractors, zero-turning radius mowers, front mowers and a variety of utility vehicles. A broad line of associated implements for mowing, tilling, snow and debris handling, aerating, and many other residential, commercial, golf and sports turf care applications are also included. The product line also includes walk-behind mowers and other outdoor power products. Retail sales of these commercial and consumer equipment products are influenced by weather conditions, consumer spending patterns and general economic conditions. To increase asset turnover and reduce the average level of field inventories through the year the production and shipment schedules of the Company’s product lines closely correspond to the seasonal pattern of retail sales.

The division manufactures and sells walk-behind mowers in Europe under the SABO brand as well as the John Deere brand. The division also builds products for sale by mass retailers. Since 1999, the Company has built products for sale through The Home Depot stores and in 2006 will begin selling its products through Lowe’s stores.

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

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

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

Construction and Forestry

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

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

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

The Company and Hitachi have a joint venture for the manufacture of hydraulic excavators and track log loaders in the United States and Canada. The Company also distributes Hitachi brands of construction and mining equipment in North, Central and South America. The Company also has supply agreements with Hitachi under which a range of construction, earthmoving, material handling and forestry products manufactured by John Deere in the United States, Canada, Finland and New Zealand are distributed by Hitachi in certain Far East markets.

The division has a number of initiatives in the rent-to-rent, or short-term rental, market for construction, earthmoving and material handling equipment. These include specially designed rental programs for John Deere dealers and expanded cooperation with major, national equipment rental companies.

The Company also owns Nortrax, Inc., Nortrax Investments, Inc. and Ontrac Holdings, Inc. (collectively called Nortrax). Nortrax is an authorized John Deere dealer for construction, earthmoving, material handling and forestry equipment in a variety of markets in the United States and Canada.

Engineering and Research

John Deere makes large expenditures for engineering and research to improve the quality and performance of its products, and to develop new products. Such expenditures were $677 million or 3.5 percent of net sales of equipment in 2005, $612 million or 3.5 percent in 2004, and $577 million, or 4.3 percent in 2003.

Manufacturing

Manufacturing Plants. In the United States and Canada, the Equipment Operations own and operate 20 factory locations and lease and operate another three locations, which contain approximately 29.5 million square feet of floor space. Of these 23 factories, 12 are devoted primarily to agricultural equipment, four to commercial and consumer equipment, one to non-forestry construction equipment, one to construction and forestry equipment, one to engines, two to hydraulic and power train components and two to forestry equipment. Outside the United States and Canada, the Equipment Operations own and operate: agricultural equipment factories in Brazil, China, France, Germany, India, Mexico, the Netherlands and Russia; engine factories in Argentina, France, India and Mexico; a component factory in Spain; commercial and consumer equipment factories in Germany and the Netherlands; and forestry equipment factories in Finland and New Zealand. These factories outside the United States and Canada contain approximately 11.3 million square feet of floor space. The Equipment Operations also have financial interests in other manufacturing organizations, which include agricultural equipment manufacturers in China and the United States, an industrial truck manufacturer in South Africa, the Hitachi joint venture that builds hydraulic excavators and track log loaders in the United States and Canada and a venture that manufactures transaxles and transmissions used in certain commercial and consumer equipment division products. In 2005, the Equipment Operations announced plans to build an additional components factory in China.

The engine factories referred to above manufacture non-road, heavy duty diesel engines mostly for the Company’s Equipment Operations; a significant number of these engines are sold to global original equipment manufacturers.

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

Capacity is adequate to satisfy the Company’s current expectations for retail market demand. The Equipment Operations’ manufacturing strategy involves the implementation of appropriate levels of technology and automation to allow manufacturing processes to remain profitable at varying production levels. Operations are also designed to be flexible enough to accommodate the product design changes required to meet market

conditions. Common manufacturing facilities and techniques are employed in the production of components for agricultural, commercial and consumer and construction and forestry equipment.

In order to utilize manufacturing facilities and technology more effectively, the Equipment Operations pursue continuous improvements in manufacturing processes. These include steps to streamline manufacturing processes and enhance responsiveness to customers. The Company has implemented flexible assembly lines that can handle a wider product mix and deliver products when dealers and customers require them. Additionally, considerable effort is being directed to manufacturing cost reduction through process improvement, product design, advanced manufacturing technology, enhanced environmental management systems, supply management and logistics as well as compensation incentives related to productivity and organizational structure. The Company continues to experience raw materials and fuel cost pressures. The Company has offset and expects to continue to offset any increased costs through the above-described cost reduction measures and through pricing. Significant cost increases, if they occur, could have an adverse effect on our operating results. The Equipment Operations also pursue external sales of selected parts and components that can be manufactured and supplied to third parties on a competitive basis.

Capital Expenditures. The agricultural equipment, commercial and consumer equipment and construction and forestry operations’ capital expenditures totaled $465 million in 2005, compared with $346 million in 2004, and $304 million in 2003. Provisions for depreciation applicable to these operations’ property, plant and equipment during these years were $349 million, $333 million and $306 million, respectively. Capital expenditures for the Equipment Operations in 2006 are currently estimated to be $580 million. The 2006 expenditures will relate primarily to the modernization and restructuring of key manufacturing facilities and will also relate to the development of new products. Future levels of capital expenditures will depend on business conditions.

Patents and Trademarks

John Deere owns a significant number of patents, licenses and trademarks. The Company believes that, in the aggregate, the rights under these patents, licenses and trademarks are generally important to its operations, but does not consider that any patent, license, trademark or related group of them (other than its house trademarks, which include but are not limited to the “John Deere” mark, the leaping deer logo, the “Nothing Runs Like a Deere” slogan and green and yellow equipment colors) is of material importance in relation to John Deere’s business.

Marketing

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

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

The sales branches in the United States and Canada market John Deere products at approximately 3033 dealer locations, most of which are independently owned. Of these, approximately 1600 sell agricultural equipment, while 536 sell construction, earthmoving, material handling and/or forestry equipment. Nortrax owns some of the 536 locations. Commercial and consumer equipment is sold by most John Deere agricultural equipment dealers, a few construction, earthmoving, material handling and forestry equipment dealers, and about 897 commercial and consumer equipment dealers, many of whom also handle competitive

brands and dissimilar lines of products. In addition, certain lawn and garden product lines are sold through various general and mass merchandisers, including The Home Depot and, beginning in 2006, Lowe’s.

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

Trade Accounts and Notes Receivable

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

FINANCIAL SERVICES

Credit Operations

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

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

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

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

The Company has an agreement with the Capital Corporation to make income maintenance payments to the Capital Corporation such that its ratio of earnings before fixed charges to fixed charges is not less than 1.05 to 1 for any fiscal quarter. For 2005 and 2004, the Capital Corporation’s ratios were 1.88 to 1 and 2.23 to 1, respectively, and never less than 1.74 to 1 and 2.19 to 1 for any fiscal quarter of 2005 and 2004, respectively. The Company has also committed to continue to own at least 51 percent of the voting shares of capital stock of the Capital Corporation and to maintain the Capital Corporation’s consolidated tangible net worth at not less than $50 million. The Company’s obligations to make payments to the Capital Corporation under the agreement are independent of whether the Capital Corporation is in default on its indebtedness, obligations or other liabilities. Further, the Company’s obligations under the agreement are not measured by the amount of the Capital Corporation’s indebtedness, obligations or other liabilities. The Company’s obligations to make payments under this agreement are expressly stated not to be a guaranty of any specific indebtedness, obligation or liability of the Capital Corporation and are enforceable only by or in the name of the Capital Corporation. No payments were necessary under this agreement in 2005 or 2004.

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

The Credit Companies also offer to select customers insured international export financing for the purchase of John Deere Products.

Additional information on the Credit Companies appears on pages 17, 18, and 20.

Health Care

In 1985, the Company formed John Deere Health Care, Inc. to commercialize the Company’s expertise in the field of health care benefit management, which had been developed from efforts to manage its own health care costs. John Deere Health Care currently provides health benefit management programs and related administrative services in Illinois, Iowa, Tennessee and Virginia for companies, government entities and individuals as a third-party administrator through its health maintenance organization subsidiary, John Deere Health Plan, Inc. or through its health and accident insurance subsidiary, John Deere Health Insurance, Inc. At October 31, 2005, approximately 480,000 individuals were enrolled in these programs, of which approximately 90,000 were John Deere employees, retirees and their dependents.

The Company recently announced that it has agreed to sell John Deere Health Care to UnitedHealthcare for approximately $500 million. The transaction is subject to certain state and federal regulatory approvals but is projected to close by April 1, 2006.

ENVIRONMENTAL MATTERS

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

EMPLOYEES

At October 31, 2005, John Deere had approximately 47,400 full-time employees, including approximately 27,000 employees in the United States and Canada. From time to time, John Deere also retains consultants, independent contractors, and temporary and part-time workers. Unions are certified as bargaining agents for approximately 39 percent of John Deere’s United States employees. Most of the Company’s United States production and maintenance workers are covered by a collective bargaining agreement with the United Auto Workers (UAW), with an expiration date of September 30, 2009.

Unions also represent the majority of employees at John Deere manufacturing facilities outside the United States.

EXECUTIVE OFFICERS OF THE REGISTRANT

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

Name, age and office (at December 1, 2005), and year elected to office				Principal occupation during last five years other than office of the Company currently held
Robert W. Lane	56	Chairman, President and Chief Executive Officer	2000	Has held this position for the last five years
Samuel R. Allen	52	Division President	2005	2003-2005 President, Global Financial Services and Corporate Human Resources; 2001-2002 Senior Vice President Global Human Resources and Industrial Relations; 1999-2001 Vice President Region I (Latin America, the Far East, Australia and South Africa)
David C. Everitt	53	Division President	2001	1999-2001 Senior Vice President, Region II (Europe, Africa and the Middle East)
James R. Jenkins	60	Senior Vice President and General Counsel	2000	Has held this position for the last five years
John J. Jenkins	60	Division President	2000	Has held this position for the last five years
Nathan J. Jones	49	Senior Vice President and Chief Financial Officer	1998	Has held this position for the last five years
H. J. Markley	55	Division President	2001	2000-2001 Senior Vice President, Worldwide Human Resources

ITEM 2. PROPERTIES.

See “Manufacturing” in Item 1.

The Equipment Operations own 14 facilities housing sales branches, one centralized parts depot, regional parts depots, transfer houses and warehouses throughout the United States and Canada. These facilities contain approximately 4.6 million square feet of floor space. The Equipment Operations also own and occupy buildings housing sales branches, one centralized parts depot and regional parts depots in Australia, Brazil, Europe and New Zealand. These facilities contain approximately 1.3 million square feet of floor space.

Deere & Company administrative offices, research facilities and certain facilities for health care activities, all of which are owned by John Deere, together contain about 2.4 million square feet of floor space and miscellaneous other facilities total 1.0 million square feet.

Overall, the Company owns approximately 49.7 million square feet of facilities and leases approximately 8.9 million additional square feet in various locations.

ITEM 3. LEGAL PROCEEDINGS.

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

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

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

(a) The Company’s common stock is listed on the New York Stock Exchange. See the information concerning quoted prices of the Company’s common stock and the number of stockholders in the second table and the sentence following it, and the data on dividends declared and paid per share in the first table, under the caption “Supplemental Information (Unaudited)” in Note 27 to the Consolidated Financial Statements.

(b) Not applicable

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased (2)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (1)
	(thousands)			(thousands)	(millions)
Aug 1 to Aug 31	1,317	$	66.03	1,317	$	281

Sept 1 to Sept 30	2,275	62.80		2,191	143

Oct 1 to Oct 31	990	60.58		990	83

Total	4,582			4,498

(1).		On December 1, 2004, the Company’s board of directors authorized the repurchase of up to $1 billion of Company common stock.

(2).		Total shares purchased in September 2005 included approximately 67 thousand shares received from officers to exercise certain stock option awards and approximately 17 thousand shares received from these officers to pay the associated payroll taxes. All the shares were valued at the market price of $62.53 per share.

On November 30, 2005, the Company’s board of directors authorized the repurchase of up to 26 million additional shares of common stock. As with the previous plan, repurchases under this plan will be made from time to time, at the Company’s discretion, in the open market or though privately-negotiated transactions.

ITEM 6. SELECTED FINANCIAL DATA.

Financial Summary

(Millions of dollars except per share amounts)	2005		2004		2003		2002*		2001*
For the Year Ended October 31:
Total net sales and revenues	$	21,931	$	19,986	$	15,535	$	13,947	$	13,293
Net income (loss)	$	1,447	$	1,406	$	643	$	319	$	(64	)
Net income (loss) per share - basic	$	5.95	$	5.69	$	2.68	$	1.34	$	(.27	)
Net income (loss) per share - diluted	$	5.87	$	5.56	$	2.64	$	1.33	$	(.27	)
Dividends declared per share	$	1.21	$	1.06	$	.88	$	.88	$	.88
At October 31:
Total assets	$	33,637	$	28,754	$	26,258	$	23,768	$	22,663
Long-term borrowings	$	11,739	$	11,090	$	10,404	$	8,950	$	6,561

*In 2002 and 2001, the Company had special charges of $46 million, or $.18 per share, and $217 million, or $.91 per share, respectively, related to costs of closing and restructuring certain facilities in both years and a voluntary early-retirement program in 2001.

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

See the information under the caption “Management’s Discussion and Analysis” on pages 16 - 24.

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

The Company is exposed to a variety of market risks, including interest rates and currency exchange rates. The Company attempts to actively manage these risks. See the information under “Management’s Discussion and Analysis” on page 24 and in Note 25 to the Consolidated Financial Statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See the consolidated financial statements and notes thereto and supplementary data on pages 25 - 50.

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

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Deere & Company’s internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.

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.

Deere & Company’s management assessed the effectiveness of the company’s internal control over financial reporting as of October 31, 2005. In making this assessment, it used the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management believes that, as of October 31, 2005, the Company’s internal control over financial reporting was effective.

The Company’s independent registered public accounting firm has issued an audit report on management’s assessment of the Company’s internal control over financial reporting. That report is included herein.

ITEM 9B. OTHER INFORMATION

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information regarding directors in the proxy statement dated January 12, 2006 (proxy statement), under the captions “Election of Directors,” “Directors Continuing in Office” and in the third paragraph under the caption “Committees - The Audit Review Committee,” is incorporated herein by reference. Information regarding executive officers is presented in Item 1 of this report under the caption “Executive Officers of the Registrant.”

The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. This code of ethics and the Company’s corporate governance policies are posted on the Company’s website at http://www.JohnDeere.com. The Company intends to satisfy disclosure requirements regarding amendments to or waivers from its code of ethics by posting such information on this website. The charters of the Audit Review, Corporate Governance and Compensation committees of the Company’s Board of Directors are available on the Company’s website as well. This information is also available in print free of charge to any person who requests it.

ITEM 11. EXECUTIVE COMPENSATION.

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

(a) Securities authorized for issuance under equity compensation plans.

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

(b) Security ownership of certain beneficial owners.

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

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

(d) Change in control.

None.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information in the proxy statement under the caption “Fees Paid to the Independent Registered Public Accounting Firm” is incorporated herein by reference

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

		Page
(1)	Financial Statements

	Statement of Consolidated Income for the years ended October 31, 2005, 2004 and 2003	25

	Consolidated Balance Sheet, October 31, 2005 and 2004	26

	Statement of Consolidated Cash Flows for the years ended October 31, 2005, 2004 and 2003	27

	Statement of Changes in Consolidated Stockholders’ Equity for the years ended October 31, 2003, 2004 and 2005	28

	Notes to Consolidated Financial Statements	29

MANAGEMENT’S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS FOR THE YEARS ENDED OCTOBER 31, 2005, 2004 AND 2003

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 construction and forestry equipment. The company’s Financial Services primarily provide credit services and managed health care plans. The credit operations primarily finance sales and leases of equipment by John Deere dealers and trade receivables purchased from the Equipment Operations. The health care operations provide managed health care services for the company and certain outside customers. The information in the following discussion is presented in a format that includes information grouped as the Equipment Operations, Financial Services and consolidated. The company also views its operations as consisting of two geographic areas, the U.S. and Canada, and outside the U.S. and Canada.

Trends and Economic Conditions

The company’s businesses are currently affected by the following key trends and economic conditions. Although the farm sector is expected to remain in solid financial condition, industry sales in the U.S. and Canada are forecast to be down 5 to 10 percent in 2006. In other parts of the world, industry retail sales in Western Europe and South America are each forecast to be down approximately 5 percent for the year. The company’s agricultural equipment sales were up 9 percent for 2005 and are forecast to be down approximately 2 to 4 percent in 2006. The company’s commercial and consumer equipment sales declined 4 percent in 2005 reflecting the impact of unfavorable weather conditions. Sales of commercial and consumer equipment are forecast to be up 10 to 12 percent in 2006 benefiting primarily from newly introduced products and an assumed return to more normal weather patterns. Markets for construction equipment are forecast to experience further growth in 2006 as a result of U.S. economic conditions. On this basis, contractors and rental companies are expected to continue updating and expanding their fleets. Forestry equipment markets are projected to remain near last year’s level in the U.S. and Canada and to be lower in Europe. The company’s construction and forestry sales increased 24 percent in 2005 and are forecast to increase 5 to 7 percent in 2006. Net income for the company’s credit operations is expected to improve due to growth in the credit portfolio.

Items of concern include the availability and price of raw materials that require a high content of natural gas and petroleum, and large tires used on some agricultural and construction equipment. Another item of uncertainty affecting farm cash receipts is the potential impact on farm subsidies and farmer confidence in both Europe and the U.S. as a result of the negotiations at the World Trade Organization and budget pressures in both regions. Producing engines that continue to meet high performance standards, yet also comply with increasingly stringent emissions regulations is one of the company’s major priorities. There is also risk related to the success of new product introduction initiatives and customer acceptance of new products.

The company’s 2005 results reflect its strategies for building a business that can produce strong levels of cash flow in all types of conditions. In addition to producing record earnings for the year, the company continued to bring advanced new products to market and fund its global growth plans. In 2005, the company also returned approximately $1.2 billion to stockholders through share repurchases and dividends. Consistent with the company’s focus on disciplined asset management, inventories have been controlled by substantial production cutbacks. This helps set the stage for the successful introduction of important new products in 2006.

2005 COMPARED WITH 2004

CONSOLIDATED RESULTS

Worldwide net income in 2005 was $1,447 million, or $5.87 per share diluted ($5.95 basic), compared with $1,406 million, or $5.56 per share diluted ($5.69 basic), in 2004. Net sales and revenues increased 10 percent to $21,931 million in 2005, compared with $19,986 million in 2004. Net sales of the Equipment Operations increased 10 percent in 2005 to $19,401 million from $17,673 million last year. Net sales in the U.S. and Canada rose 10 percent in 2005. Outside the U.S. and Canada, net sales increased by 6 percent excluding currency translation, and by 10 percent on a reported basis.

Worldwide Equipment Operations, which exclude the Financial Services operations, had an operating profit of $1,842 million in 2005, compared with $1,905 million in 2004. Operating profit decreased primarily due to higher selling and administrative expenses, increased manufacturing overhead costs related to production system improvements, and higher research and development costs. These factors were partially offset by the margin on higher shipments and lower retirement benefit costs. Improved price realization offset higher raw material costs.

The Equipment Operations’ net income was $1,096 million in 2005, compared with $1,097 million in 2004. The same operating factors mentioned above affected these results. However, the decrease in operating profit was substantially offset by increased interest and investment income, and a lower effective tax rate.

Net income of the company’s Financial Services operations in 2005 was $345 million, compared with $309 million in 2004. The increase was primarily due to growth in the credit operations portfolio, a lower credit loss provision and increased underwriting margins in health care. Additional information is presented in the following discussion of the credit and “Other” operations.

The cost of sales to net sales ratio for 2005 was 78.2 percent, compared to 76.8 percent last year. The increase was primarily due to higher raw material costs and increased manufacturing overhead costs, partially offset by improved price realization and lower retirement benefit costs.

Finance and interest income increased this year primarily due to growth in the credit operations portfolio and higher financing rates. Health care premium revenue decreased due to lower enrollment, while claims costs are lower due to unusually high claims in the prior year and the lower enrollment this year.

Other income increased this year primarily due to an increase in service income, increased investment income from marketable securities due to investments made by the Equipment Operations and other miscellaneous gains, partially offset by lower gains on retail note sales and a gain on the sale of an equipment rental company last year. Research and development costs increased this year due to a higher level of new product development and exchange rate fluctuations. Selling, administrative and general expenses increased primarily due to increased marketing expenses, acquisitions of businesses and exchange rate fluctuations. Interest expense increased due to higher average borrowings and borrowing rates. Other operating expenses were higher primarily as a result of an increase in service expenses.

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 2005 were $538 million, compared to $596 million in 2004. The long-term expected return on plan assets, which is reflected in these costs, was an expected gain of 8.5 percent in both years, or $744 million in 2005, compared to $671 million in 2004. The actual return was a gain of $1,057 million in 2005, compared to a gain of $654 million in 2004. In 2006, the expected return will be approximately 8.4 percent. The total unrecognized losses related to the plans at October 31, 2005 and 2004 were $3,969 million and $5,149 million, respectively. The company expects the decrease in postretirement benefit costs in 2006 to be approximately $75 million pretax, compared with 2005, caused by an increase in the discount rate assumptions and increased funding. 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 $859 million in 2005 and $1,852 million in 2004, which include direct benefit payments for unfunded plans. These contributions also included voluntary contributions to the U.S. plan assets of $556 million in 2005 and $1,551 million in 2004. Total company contributions in 2006 are expected to be approximately $960 million, including voluntary contributions to U.S. plan assets of approximately $875 million. See the following discussion of “Critical Accounting Policies” for postretirement benefit obligations.

BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS

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

Worldwide Agricultural Equipment Operations

The agricultural equipment segment had an operating profit of $970 million in 2005, compared with $1,072 million in 2004. Net sales increased 9 percent this year due to improved price realization, higher shipments and the translation effect of currency exchange rates. The decrease in operating profit was primarily a result of increases in manufacturing overhead costs, research and development costs, and selling and administrative expenses. Partially offsetting these factors were the margin on higher shipments and lower retirement benefit costs. Improved price realization offset the increase in raw material costs.

Worldwide Commercial and Consumer Equipment Operations

The commercial and consumer equipment segment had an operating profit of $183 million in 2005, compared with $246 million in 2004. Net sales decreased 4 percent for the year reflecting the impact of unfavorable weather conditions on the sale of consumer riding equipment during the critical selling season. The lower operating profit was primarily due to lower shipments and production volumes in response to a weaker retail environment. Improved price realization more than offset an increase in raw material costs.

Worldwide Construction and Forestry Operations

The construction and forestry segment had an operating profit of $689 million in 2005, compared with $587 million in 2004. Sales increased 24 percent for the year reflecting strong activity at the retail level. The operating profit improvement was primarily due to higher sales and efficiencies related to stronger production volumes. Improved price realization offset the impact of higher raw material costs. The results last year included a $30 million pretax gain from the sale of an equipment rental company.

Worldwide Credit Operations

The operating profit of the credit operations was $491 million in 2005, compared with $466 million in 2004. The increase in operating profit was primarily due to growth in the portfolio, as well as a lower credit loss provision, partially offset by lower financing spreads and lower gains on retail note sales. Total revenues of the credit operations increased 13 percent in 2005, primarily reflecting the larger portfolio and higher average finance rates. The average balance of receivables and leases financed was 19 percent higher in 2005, compared with 2004. An increase in average borrowings and higher interest rates in 2005 resulted in a 44 percent increase in interest expense, compared with 2004. The credit operations’ ratio of earnings to fixed charges was 1.86 to 1 in 2005, compared to 2.12 to 1 in 2004.

Worldwide Other Operations

The company’s other operations, which consisted primarily of the health care operations, had an operating profit of $41 million in 2005, compared with $5 million last year. The increase was primarily due to an improved underwriting margin. Last year’s margins were adversely affected by unusually high claims costs.

Equipment Operations in U.S. and Canada

The equipment operations in the U.S. and Canada had an operating profit of $1,298 million in 2005, compared with $1,284 million in 2004. The increase was primarily due to the margin on higher shipments and lower retirement benefit costs. Partially offsetting these factors were increases in manufacturing overhead costs, selling and administrative expenses, and research and development costs. Improved price realization offset the increase in raw material costs. Sales increased due to higher shipments, reflecting strong retail demand in construction and forestry equipment, and improved price realization in all equipment segments. Sales increased 10 percent in 2005 while the physical volume increased 5 percent, compared to 2004.

Equipment Operations outside U.S. and Canada

The equipment operations outside the U.S. and Canada had an operating profit of $544 million in 2005, compared with $621 million in 2004. The decrease was primarily due to the effects of

increases in manufacturing overhead costs, selling and administrative expenses, and research and development costs. Improved price realization substantially offset the increase in raw material costs. Sales increased from the translation effect of currency exchange rates, increased volume and improvements in price realization. Sales were 10 percent higher than last year, while the physical volume increased 3 percent in 2005, compared with 2004.

MARKET CONDITIONS AND OUTLOOK

Company equipment sales are expected to increase by 1 to 3 percent for fiscal year 2006 and by 11 to 14 percent for the first quarter, compared to the same periods in 2005. Production levels are expected to be down slightly for the year, but up about 4 percent in the quarter. As previously announced, the company will sell its health care operations for a gain of approximately $225 million after-tax (see Note 27). Based on the above, net income is forecast to be around $1.7 billion (approximately $1.5 billion excluding the gain on the sale of the health care operations) for the year and in a range of $175 million to $200 million for the first quarter.

Agricultural Equipment. Although the farm sector is expected to remain in solid condition, industry sales in the U.S. and Canada are forecast to be down 5 to 10 percent in 2006. Factors contributing to the decline include concerns over higher farm input costs, especially for fuel and fertilizer, the absence of U.S. tax incentives which helped sales in the first part of 2005, and slightly lower cash receipts. Farmers are expected to benefit from debt levels that remain well under control and from rising land values.

Based on these factors and market conditions, worldwide sales of the company’s agricultural equipment are forecast to be down 2 to 4 percent for the year. Company sales are expected to benefit from a number of newly introduced products, including a line of more powerful and fuel efficient large tractors.

Commercial and Consumer Equipment. Sales of the company’s commercial and consumer equipment are forecast to be up 10 to 12 percent for the year with the benefit from newly introduced products, an assumed return to more normal weather patterns and a full year of sales from the segment’s recent landscapes-business acquisition (see Note 1). Segment sales are also expected to be helped by an expanded presence of the company’s products in the mass channel.

Construction and Forestry. Markets for construction equipment are forecast to experience further growth in 2006 as a result of U.S. economic conditions conducive to a healthy level of construction spending, especially in the nonresidential sector. On this basis, contractors and rental companies are expected to continue updating and expanding their fleets. Forestry equipment markets are projected to remain near last year’s level in the U.S. and Canada and to be lower in Europe. In this environment, the company’s worldwide sales of construction and forestry equipment are forecast to rise by 5 to 7 percent for fiscal 2006.

Financial Services. Fiscal year net income in 2006 for the company’s Financial Services operations, which primarily include its credit and health care operations, is forecast to be about $565 million (approximately $340 million excluding the gain on the sale of the health care operations). Net income for the credit operations is expected to improve due to growth in the credit portfolio.

SAFE HARBOR STATEMENT

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

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

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

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

All of the company’s businesses and its reported results are affected by general economic conditions in and the political stability of global markets in which the company operates; production, design and technological difficulties, including capacity and supply constraints and prices, including for supply commodities such as steel and rubber; the success of new product introduction initiatives and customer acceptance of new products; oil and energy prices and supplies; the availability and cost of freight; trade, monetary and fiscal policies of various countries, wars and other international conflicts and the threat thereof; actions by the U.S. Federal Reserve Board and other central banks; actions by the U.S. Securities and Exchange Commission; actions by environmental regulatory agencies, including those related to engine emissions and the risk of global warming; actions by other regulatory bodies; actions by rating agencies;

capital market disruptions; inflation and deflation rates, interest rate levels and foreign currency exchange rates; customer borrowing and repayment practices, and the number of customer loan delinquencies and defaults; actions of competitors in the various industries in which the company competes, particularly price discounting; dealer practices especially as to levels of new and used field inventories; labor relations; changes to accounting standards; the effects of terrorism and the response thereto; and legislation affecting the sectors in which the company operates. Company results are also affected by changes in the level of employee retirement benefits, changes in market values of investment assets and the level of interest rates, which impact retirement benefit costs, and significant changes in health care costs. Other factors that could affect results are changes in company declared dividends, acquisitions and divestitures of businesses, common stock issuances and repurchases, and the issuance and retirement of company debt.

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

2004 COMPARED WITH 2003

CONSOLIDATED RESULTS

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

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

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

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

The cost of sales to net sales ratio for 2004 was 76.8 percent, compared to 80.5 percent in 2003. The decrease in the ratio was primarily due to manufacturing efficiencies related to higher production and sales, and improved price realization. Partially offsetting these factors were the higher employee performance bonus provision and increased costs for raw material, such as steel and rubber.

Finance and interest income decreased in 2004 primarily due to a decrease in rental income on operating leases and lower average finance rates. Health care premiums and fees increased, compared to 2003, primarily due to higher insured enrollment, while health care claims and costs increased primarily due to higher medical costs and an increase in enrollment. Other income increased in 2004 primarily due to service income related to Nortrax, Inc., Nortrax Investments, Inc. and Ontrac Holdings, Inc. (collectively called Nortrax), which were consolidated in 2004, and a gain from the sale of the company’s 49 percent ownership in Sunstate Equipment Co., LLC, an equipment rental company. Selling, administrative and general expenses were higher in 2004 primarily due to a higher employee performance bonus provision, the consolidation of Nortrax and foreign currency exchange rate effects. Other operating expenses increased primarily as a result of the consolidation of Nortrax and an increase in service expense.

BUSINESS SEGMENT RESULTS

Worldwide Agricultural Equipment Operations

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

Worldwide Commercial and Consumer Equipment Operations

The commercial and consumer equipment segment had an operating profit of $246 million in 2004, compared with $227 million in 2003. Net sales increased 16 percent in 2004 primarily due to higher volumes. The improved operating profit was primarily due to higher sales and production volumes. Partially offsetting these factors were an increase in the performance bonus provision in addition to higher costs for freight and raw materials.

Worldwide Construction and Forestry Operations

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

Worldwide Credit Operations

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

Worldwide Other Operations

The company’s other operations, which consisted primarily of the health care operations, had an operating profit of $5 million in 2004, compared with $30 million in 2003. The decrease was primarily due to increased medical claims costs and a higher performance bonus provision related to overall company profitability.

CAPITAL RESOURCES AND LIQUIDITY

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

EQUIPMENT OPERATIONS

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

Cash provided by operating activities during 2005 was $1,661 million primarily due to net income adjusted for non-cash provisions and an increase in accounts payable and accrued expenses. The operating cash flows, a decrease in receivables from Financial Services of $1,133 million, a decrease in cash and cash equivalents of $1,016 million, proceeds from maturities and sales of marketable securities of $1,016 million, and proceeds from the issuance of common stock of $154 million (which were the result of the exercise of stock options) were used primarily to purchase marketable securities of $3,175 million, repurchase common stock for $919 million, fund purchases of property and equipment of $467 million, pay dividends to stockholders of $290 million and acquire businesses for $170 million.

Over the last three years, operating activities have provided an aggregate of $4,248 million in cash. In addition, proceeds from maturities and sales of marketable securities were $1,016 million, proceeds from the issuance of common stock were $579 million and the proceeds from sales of businesses were $163 million. The aggregate amount of these cash flows was used mainly to purchase marketable securities of $3,175 million, fund purchases of property and equipment of $1,116 million, repurchase common stock for $1,112 million, pay dividends to stockholders of $747 million, increase receivables from Financial Services by $473 million, decrease borrowings by $433 million and acquire businesses for $373 million. Cash and cash equivalents also decreased $1,306 million over the three-year period.

Trade receivables held by the Equipment Operations increased by $92 million during 2005. The Equipment Operations sell a significant portion of their trade receivables to the credit operations (see following consolidated discussion).

Inventories increased by $136 million in 2005. Most of these inventories are valued on the last-in, first-out (LIFO) method. The ratios of inventories on a first-in, first-out (FIFO) basis, which approximates current cost, to fiscal year cost of sales were 22 percent at October 31, 2005 and 2004.

Total interest-bearing debt of the Equipment Operations was $3,101 million at the end of 2005, compared with $3,040 million at the end of 2004 and $3,304 million at the end of 2003. The ratio of total debt to total capital (total interest-bearing debt and stockholders’ equity) at the end of 2005, 2004 and 2003 was 31 percent, 32 percent and 45 percent, respectively.

During 2005, the Equipment Operations retired $77 million of long-term borrowings.

Capital expenditures for the Equipment Operations in 2006 are estimated to be approximately $580 million.

FINANCIAL SERVICES

The Financial Services’ credit operations rely on their ability to raise substantial amounts of funds to finance their receivable and lease portfolios. Their primary sources of funds for this purpose are a combination of commercial paper, term debt, securitization of retail notes through secured financings or sales, and equity capital.

Cash flows from the company’s Financial Services operating activities were $585 million in 2005. Cash provided by financing activities totaled $2,770 million in 2005, representing primarily a $2,372 million increase in long-term borrowings and a $1,718 million increase in short-term borrowings, partially offset by a $1,177 million decrease in borrowings from the Equipment Operations and the payment of $167 million of dividends to Deere & Company. The cash provided by operating and financing activities was used primarily to increase receivables and leases. Cash used by investing activities totaled $3,310 million in 2005, primarily due to receivable and lease acquisitions exceeding collections and sales of equipment on operating leases by $3,302 million. Cash and cash equivalents also increased $48 million.

Over the last three years, the Financial Services operating activities have provided $1,933 million in cash. In addition, an increase in borrowings of $4,485 million, the sale of receivables of $4,407 million and the sale of equipment on operating leases of $1,352 million have provided cash inflows. These amounts have been used mainly to fund receivable and lease acquisitions, which exceeded collections by $11,202 million, and the payment of dividends to Deere & Company of $859 million. Cash and cash equivalents also increased $138 million over the three-year period.

Receivables and leases increased by $3,057 million in 2005, compared with 2004. Acquisition volumes of receivables and leases increased 9 percent in 2005, compared with 2004. The volumes of wholesale notes, leases, trade receivables, retail notes and revolving charge accounts increased approximately 23 percent, 16 percent, 11 percent, 5 percent and 5 percent, respectively. The credit operations had proceeds from sales of receivables of $133 million during 2005, compared with $2,334 million in 2004 (see Note 10). At October 31, 2005 and 2004, net receivables and leases administered, which include receivables previously sold but still administered, were $20,298 million and $18,620 million, respectively.

Trade receivables held by the credit operations decreased by $144 million in 2005. The Equipment Operations sell a significant portion of their trade receivables to the credit operations (see following consolidated discussion).

Total external interest-bearing debt of the credit operations was $15,522 million at the end of 2005, which included $1,474 million of secured borrowings, compared with $11,508 million at the end of 2004 and $11,447 million at the end of 2003. Total external borrowings have increased generally corresponding with the level of the receivable and lease portfolio, the level of cash and cash equivalents and the change in payables owed to the Equipment Operations. The credit subsidiaries’ ratio of total interest-bearing debt to total stockholder’s equity was 7.2 to 1 at the end of 2005, 6.4 to 1 at the end of 2004 and 5.6 to 1 at the end of 2003. The ratio of total interest-bearing debt, excluding secured borrowings, to stockholder’s equity was 6.5 to 1 at October 31, 2005.

The credit operations utilize a revolving bank conduit facility, special purpose entity (SPE), to securitize floating rate retail notes. This facility has the capacity, or “purchase limit, “of up to $2 billion in secured financings or sales outstanding at any time. Multiple bank conduits participate in this facility, which has no final maturity date. Instead, upon the credit operations’ request each bank conduit may elect to renew its commitment on an annual basis. If this facility is not renewed, the credit operations would liquidate the securitizations as the retail notes are collected. At October 31, 2005 $1,755 million was outstanding under the facility of which $695 million was recorded on the balance sheet (see Note 10).

During 2005, the credit operations issued $3,805 million and retired $1,433 million of long-term borrowings, which were primarily medium-term notes.

Capital expenditures for Financial Services in 2006 are estimated to be approximately $290 million, primarily related to the company’s wind energy entities (see Note 1).

CONSOLIDATED

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 through secured financings or sales, and committed and uncommitted bank lines of credit.

Because of the multiple funding sources that have been and continue to be available to the company, the company expects to have sufficient sources of liquidity to meet its funding needs. The company’s worldwide commercial paper outstanding at October 31, 2005 and 2004 was approximately $2.2 billion and $1.9 billion, respectively, while the total cash and cash equivalents position was $2.3 billion and $3.2 billion, respectively. The company has for many years accessed diverse funding sources, including short-term and long-term unsecured debt capital markets globally, as well as public and private securitization markets in the U.S. and Canada.

The company also has access to bank lines of credit with various U.S. and foreign banks. Some of the lines are available to both Deere & Company and John Deere Capital Corporation. Worldwide lines of credit totaled $2,594 million at October 31, 2005, $272 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 considered to constitute utilization. Included in the total credit lines at October 31, 2005 were long-term credit facility agreements of $1,250 million, expiring in February 2009, and $625 million, expiring in February 2010, for a total of $1,875 million long-term.

The credit agreement requires 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. At October 31, 2005, the ratio was 31 percent. Under this provision, the company’s excess equity capacity and retained earnings balance free of restriction at October 31, 2005 was $5,208 million. Alternatively under this provision, the Equipment Operations had the capacity to incur additional debt of $9,673 million at October 31, 2005.

To access public debt capital markets, the company relies on credit rating agencies to assign short-term and long-term credit ratings to the company’s securities as an indicator of credit quality for fixed income investors. A security rating is not a recommendation by the rating agency to buy, sell or hold company securities. A credit rating agency may change or withdraw company ratings based on its assessment of the company’s current and

future ability to meet interest and principal repayment obligations. Lower credit ratings generally result in higher borrowing costs and reduced access to debt capital markets.

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

	Senior
	Long-Term	Short-Term	Outlook

Moody’s Investors Service, Inc.	A3	Prime-2	Stable

Standard & Poor’s	A-	A-2	Positive

Marketable securities increased by $2,203 million during 2005. This is primarily due to the Equipment Operations investing a portion of their cash and cash equivalents into marketable securities in 2005. The Equipment Operations marketable securities are in addition to those held by the Financial Services operations.

Trade accounts and notes receivable primarily arise from sales of goods to dealers. Trade receivables decreased by $89 million in 2005. The ratios of trade accounts and notes receivable at October 31 to fiscal year net sales were 16 percent in 2005, compared with 18 percent in 2004. Total worldwide agricultural equipment trade receivables decreased $64 million, commercial and consumer equipment receivables decreased $92 million and construction and forestry receivables increased $67 million. The collection period for trade receivables averages less than 12 months. The percentage of trade receivables outstanding for a period exceeding 12 months was 2 percent at October 31, 2005 and 2004.

Stockholders’ equity was $6,852 million at October 31, 2005, compared with $6,393 million at October 31, 2004. The increase of $459 million resulted primarily from net income of $1,447 million, partially offset by an increase in treasury stock of $703 million and dividends declared of $293 million.

OFF-BALANCE-SHEET ARRANGEMENTS

The company’s credit operations have periodically securitized and sold retail notes to special purpose entities (SPEs) in securitizations of retail notes. The credit operations used these SPEs in a manner consistent with conventional practices in the securitization industry to isolate the retail notes for the benefit of securitization investors. The use of the SPEs enabled these operations to access the highly liquid and efficient securitization markets for the sales of these types of financial assets. The amounts of funding the company chooses to obtain from securitizations reflect such factors as capital market accessibility, relative costs of funding sources and assets available for securitization. The company’s total exposure to recourse provisions related to securitized retail notes, which were sold in prior periods, was $151 million and the total assets held by the SPEs related to these securitizations were $1,923 million at October 31, 2005.

At October 31, 2005, the company had guaranteed approximately $40 million of residual values for two operating leases related to an administrative office and a manufacturing building. The company is obligated at the end of each lease term to pay to the lessor any reduction in market value of the leased property up to the guaranteed residual value. The company recognizes the expense for these future estimated lease payments over the terms of the operating leases and had accrued losses of $10 million related to these agreements at October 31, 2005. The leases have terms expiring in 2006 and 2007.

At October 31, 2005, the company had approximately $145 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, 2005, the company had accrued losses of approximately $2 million under these agreements. The maximum remaining term of the receivables guaranteed at October 31, 2005 was approximately eight years.

The company’s credit operations offer crop insurance products through a managing general agency agreement (MGA) with an insurance company. The credit operations have guaranteed certain obligations under the MGA, including the obligation to pay the insurance company for any uncollected premiums. At October 31, 2005, the maximum exposure for uncollected premiums was approximately $14 million. Substantially all of the insurance risk under the MGA has been mitigated by public (U.S. Department of Agriculture) and private reinsurance. In the event of a complete crop failure on every policy and the default of all the public and private reinsurance, the company would be required to reimburse the insurance company approximately $633 million at October 31, 2005. The company believes the likelihood of this event is extremely remote. At October 31, 2005, the company’s accrued probable losses are approximately $.1 million under this agreement.

AGGREGATE CONTRACTUAL OBLIGATIONS

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

			Less							More
			than			1-3		3-5		than
	Total		1 year			years		years		5 years
Debt*
Equipment Operations	$	3,058	$	676		$	9	$	522	$	1,851
Financial Services	15,471		6,199		**	5,239		1,874		2,159
Total	18,529		6,875			5,248		2,396		4,010
Purchase obligations	2,567		2,546			12		8		1
Operating leases	358		93			132		59		74
Capital leases	20		12			2		2		4

Contractual obligations	$	21,474	$	9,526		$	5,394	$	2,465	$	4,089

* Principal payments.

** See Note 16.

CRITICAL ACCOUNTING POLICIES

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

Sales Incentives

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

The sales incentive accruals at October 31, 2005, 2004 and 2003 were $592 million, $540 million and $444 million, respectively. The increases in 2005 and 2004 were primarily due to the increases in sales.

The estimation of the sales incentive accrual is impacted by many assumptions. One of the key assumptions is the historical percentage of sales incentive costs to settlements from dealers. Over the last five fiscal years, this percent has varied by approximately plus or minus .5 percent, compared to the average sales incentive costs to settlements percentage during that period. Holding other assumptions constant, if this cost experience percentage were to increase or decrease .5 percent, the sales incentive accrual at October 31, 2005 would increase or decrease by approximately $25 million.

Product Warranties

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

The product warranty accruals at October 31, 2005, 2004 and 2003 were $535 million, $458 million and $389 million, respectively. The increases in 2005 and 2004 were primarily due to the increases in sales volume and special warranty programs.

Estimates used to determine the product warranty accruals are significantly affected by the historical percentage of warranty claims costs to sales. Over the last five fiscal years, this loss experience percent has varied by approximately plus or minus .2 percent, compared to the average warranty costs to sales percentage during that period. Holding other assumptions constant, if this estimated cost experience percentage were to increase or decrease .2 percent, the warranty accrual at October 31, 2005 would increase or decrease by approximately $55 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 net assets (liabilities) recognized on the balance sheet at October 31, 2005, 2004 and 2003 were $1,986 million, $1,894 million and $(1,419) million, respectively. The OPEB liabilities on these dates were $2,455 million, $2,623 million and $2,385 million, respectively. The increase in the pension net assets and decrease in the OPEB liability during 2005 were primarily related to voluntary company contributions to plan assets. The change from a pension liability to a pension asset during 2004 was primarily due to the elimination of certain minimum pension liabilities as a result of voluntary company contributions and the return on plan assets during 2004.

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

		October 31, 2005		2006
		Increase		Increase
	Percentage	(Decrease)		(Decrease)
Assumptions	Change	PBO/APBO*		Expense
Pension
Discount rate**	+/-.5	$	(384)/422	$	(29)/30
Expected return on assets	+/-.5			(38)/38
OPEB
Discount rate**	+/-.5	(322)/342		(45)/50
Expected return on assets	+/-.5			(7)/7
Health care cost trend rate**	+/-1.0	647/(570)		144/(126)

* 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.

Allowance for Credit Losses

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

The total allowance for credit losses at October 31, 2005, 2004 and 2003 was $194 million, $201 million and $207 million, respectively. The decreases in 2005 and 2004 were primarily due to improved credit quality and delinquency trends.

The assumptions used in evaluating the company’s exposure to credit losses involve estimates and significant judgment. The historical loss experience on the receivable portfolios represents one of the key assumptions involved in determining the allowance for credit losses. Over the last five fiscal years, the average loss experience has fluctuated between 2 basis points and 15 basis points in any given fiscal year over the applicable prior period. Holding other estimates constant, a 5 basis point increase or decrease in estimated loss experience on the receivable portfolios would result in an increase or decrease of approximately $9 million to the allowance for credit losses at October 31, 2005.

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, 2005, 2004 and 2003 were $812 million, $803 million and $913 million, respectively. The changes in 2005 and 2004 were primarily due to the changes in the level of operating leases.

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

FINANCIAL INSTRUMENT RISK INFORMATION

The company is naturally exposed to various interest rate and foreign currency risks. As a result, the company enters into derivative transactions to manage certain of these exposures that arise in the normal course of business and not for the purpose of creating speculative positions or trading. The company’s credit operations manage the relationship of the types and amounts of their funding sources to their receivable and lease portfolio in an effort to diminish risk due to interest rate and foreign currency fluctuations, while responding to favorable financing opportunities. Accordingly, from time to time, these operations enter into interest rate swap agreements to manage their interest rate exposure. The company also has foreign currency exposures at some of its foreign and domestic operations related to buying, selling and financing in currencies other than the local currencies. The company has entered into agreements related to the management of these currency transaction risks. The credit risk under these interest rate and foreign currency agreements is not considered to be significant.

Interest Rate Risk

Quarterly, the company uses a combination of cash flow models to assess the sensitivity of its financial instruments with interest rate exposure to changes in market interest rates. The models calculate the effect of adjusting interest rates as follows. Cash flows for financing receivables are discounted at the current prevailing rate for each receivable portfolio. Cash flows for marketable securities are primarily discounted at the treasury yield curve. Cash flows for borrowings are discounted at the treasury yield curve plus a market credit spread for similarly rated borrowers. Cash flows for securitized borrowings are discounted at the industrial composite bond curve for similarly rated borrowers. Cash flows for interest rate swaps are projected and discounted using forecasted rates from the swap yield curve at the repricing dates. The net loss in these financial instruments’ fair values which would be caused by decreasing the interest rates by 10 percent from the market rates at October 31, 2005 and 2004 would have been approximately $39 million and $42 million, respectively.

Foreign Currency Risk

In the Equipment Operations, it is the company’s practice to hedge significant currency exposures. Worldwide foreign currency exposures are reviewed quarterly. Based on the Equipment Operations anticipated and committed foreign currency cash inflows and outflows for the next twelve months and the foreign currency derivatives at year end, the company estimates that a hypothetical 10 percent strengthening of the U.S. dollar relative to other currencies through 2006 would decrease the 2006 expected net cash inflows by $48 million. At last year end, a hypothetical 10 percent weakening of the U.S. dollar under similar assumptions and calculations indicated a potential $18 million adverse effect on the 2005 net cash inflows.

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

DEERE & COMPANY

STATEMENT OF CONSOLIDATED INCOME

For the Years Ended October 31, 2005, 2004 and 2003

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

	2005		2004		2003
Net Sales and Revenues
Net sales	$	19,401.4	$	17,673.0	$	13,349.1
Finance and interest income	1,439.5		1,195.7		1,275.6
Health care premiums and fees	724.9		766.2		664.5
Other income	364.7		351.2		245.4
Total	21,930.5		19,986.1		15,534.6

Costs and Expenses
Cost of sales	15,163.4		13,567.5		10,752.7
Research and development expenses	677.3		611.6		577.3
Selling, administrative and general expenses	2,218.6		2,117.4		1,744.2
Interest expense	761.0		592.1		628.5
Health care claims and costs	573.9		650.3		536.1
Other operating expenses	380.5		333.5		324.5
Total	19,774.7		17,872.4		14,563.3

Income of Consolidated Group before Income Taxes	2,155.8		2,113.7		971.3
Provision for income taxes	715.1		708.5		336.9
Income of Consolidated Group	1,440.7		1,405.2		634.4

Equity in Income of Unconsolidated Affiliates
Credit	.6		.6		.2
Other	5.5		.3		8.5
Total	6.1		.9		8.7

Net Income	$	1,446.8	$	1,406.1	$	643.1

Per Share Data
Net income – basic	$	5.95	$	5.69	$	2.68
Net income – diluted	$	5.87	$	5.56	$	2.64
Dividends declared	$	1.21	$	1.06	$	.88

Average Shares Outstanding
Basic	243.3		247.2		240.2
Diluted	246.4		253.1		243.3

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

DEERE & COMPANY

CONSOLIDATED BALANCE SHEET

As of October 31, 2005 and 2004

(In millions of dollars except per share amounts)

	2005		2004
ASSETS
Cash and cash equivalents	$	2,258.2	$	3,181.1
Marketable securities	2,449.7		246.7
Receivables from unconsolidated affiliates	18.4		17.6
Trade accounts and notes receivable - net	3,117.8		3,206.9
Financing receivables - net	12,869.4		11,232.6
Restricted financing receivables - net	1,457.9
Other receivables	561.1		663.0
Equipment on operating leases - net	1,335.6		1,296.9
Inventories	2,134.9		1,999.1
Property and equipment - net	2,364.8		2,161.6
Investments in unconsolidated affiliates	106.7		106.9
Goodwill	1,088.5		973.6
Other intangible assets - net	18.3		21.7
Prepaid pension costs	2,662.7		2,493.1
Other assets	430.9		515.4
Deferred income taxes	628.1		528.1
Deferred charges	133.8		109.7

Total Assets	$	33,636.8	$	28,754.0

LIABILITIES AND STOCKHOLDERS’ EQUITY

		Page
(2)	Schedule to Consolidated Financial Statements

	Schedule II - Valuation and Qualifying Accounts for the years ended October 31, 2005, 2004 and 2003	55

(3)	Exhibits

	See the “Index to Exhibits” on pages 56 – 58 of this report.

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