Final paper

2018_John-Deere-Annual-Report.pdf

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DEERE & COMPANY 2018 ANNUAL REPORT

John Deere had another strong year in 2018. Net sales and revenues climbed to $37.36 billion — the second-highest level ever. Net income increased 10 percent, to $2.37 billion, or $7.24

2016 2017 2018

$358

$1,283

$1,860

2016 2017 2018

$1,524

$2,159 $2,368

2016 2017 2018

$26,644 $29,738

$37,358

The amounts shown in the charts above represent millions of dollars.

NET INCOME (attributable to Deere & Company)

$2.37 BILLION UP 10%

NET SALES & REVENUES

$37.36 BILLION UP 26%

SHAREHOLDER VALUE ADDED*

$1.86 BILLION UP 45%

John Deere extended its record of strong performance in 2018. Among our achievements, we launched new products with the latest technology and advanced features, expanded our market presence throughout the world, and updated the ambitious strategic plan that will guide our efforts in coming years. We also made progress integrating newly acquired companies expected to play

sales and net income were among the highest in company history.

In 2018, Deere reported net income of $2.37 billion,

history. Net sales and revenues rose 26 percent, to

changes in the U.S. tax code reduced earnings by

cost of capital. It is our primary measure for managing the company and making investment decisions.

At the same time, the company maintained

accounting for the acquisition of the Wirtgen Group, Deere’s equipment operations ended the year with a healthy cash balance and relatively modest debt.

Deere devoted $2.6 billion to research and development and capital expenditures. We also returned nearly $1.8 billion to investors in the form of dividends and share repurchases. The quarterly dividend rate was

equipment, has more than met our expectations in

impact. I construction equipment business.

Similarly, our Blue River Technology operation, acquired in 2017, made good progress testing its breakthrough

The R4030 model represents a lineup of our most accurate and productive 4-series sprayers. Ideal for customers who want to minimize crop and soil impact, it can be

(shown here) up to 132 feet in width.

CHAIRMAN’S MESSAGE

BETTER MARKETS, SOUND BUSINESS MODEL LEAD TO IMPROVED YEAR

JOHN DEERE HAS A FRESH, YOUTHFUL OUTLOOK. WE’RE EAGER TO INNOVATE AND LEAD AND COMMITTED TO SERVING CUSTOMERS BETTER THAN ANYONE ELSE.

Blue River puts Deere in a prime position to develop strong

and to offer these capabilities to customers.

intelligence has the potential to reshape our industry. No one should doubt our resolve to secure and maintain a position of leadership in these areas.

has a fresh and youthful outlook. We’re eager to innovate and lead. We’re committed to serving customers better than anyone else. And though we’re proud of our heritage

to make the future even more promising.

BROAD PRODUCT LINEUP WINNING CUSTOMERS

market conditions and success gaining new customers

demand for new equipment and customer enthusiasm over innovative new products featuring the latest in precision technology drove the improvement.

With help from a stronger economy and the Wirtgen

about two-thirds of the sales growth.

Growth was further boosted by improvements in the North American housing market and sales to the oil and

key equipment categories.

Gator XUV835 and XUV865 models offer our quietest cab, three-wide seating, and heating and air conditioning. The 54-horsepower gas-powered XUV835 and the diesel-powered 23-horsepower XUV865 feature tight turning and optimal weight distribution for off-road performance.

Four new S700 combine models feature our most advanced grain-harvesting technology.

comfort and “smart” technology, leading to

CHAIRMAN’S MESSAGE

GLOBAL TRENDS SUPPORTING GROWTH

PURSUING A FAR-REACHING STRATEGY These factors bode well for Deere’s future and underscore our ambitious operating strategy. The plan was updated in 2018 to put even more emphasis on technology, global growth,

a business and product lineup versatile enough to produce

Under the updated strategy, Deere will build on its global preeminence in agricultural equipment and strengthen its position as a global leader in construction equipment.

Deere’s businesses, though very different, are meant to work together and operate in an integrated manner. Our turf and forestry equipment operations have growth opportunities of their own and help our dealers broaden their customer base. Supporting businesses such as intelligent solutions, parts, and engines help our equipment

divisions deliver better products for customers, while

the world. Together, these businesses aim to produce the highest overall returns for investors.

At the heart of the strategy is an intense commitment to innovation and quality. Throughout our history, both have proved crucial to expanding our global presence and providing customers with exceptional productivity and reliable performance.

management of our products.

to feature a fully integrated grade control system that eliminates vulnerable external antenna masts and cables.

AT THE HEART OF OUR STRATEGY: AN INTENSE COMMITMENT TO INNOVATION AND QUALITY.

IN 2018, JOHN DEERE BROUGHT DOZENS OF PRODUCTS TO MARKET FEATURING IMPROVED POWER AND COMFORT.

New L-Series II skidders (left) and wheeled feller bunchers

solutions for loggers.

Deere’s plans, in addition, reinforce its strong relationship with dealers. Their expertise and connection to customers

advantage — and we are more committed than ever to their success.

ADVANCED TECHNOLOGIES, NEW PRODUCTS SETTING STANDARDS

products that set new standards of performance and drew additional customers to our brand. Highlights included

industry. The division also updated its popular 9R line of

tractors and a crossover Gator utility vehicle with cab.

both compact and utility loaders as well as our biggest reduced tail swing excavator to date. To serve the needs of

motor graders. New forestry products included updated

and computer vision to help farmers apply herbicides with improved accuracy. See & Spray leverages deep learning to identify a variety of plants — both crops and weeds.

wheeled feller bunchers and skidders and new forwarders. As part of its road-construction lineup, Wirtgen introduced a surface miner and an asphalt recycler.

Precision agriculture made major strides in 2018. More and more customers are realizing its productivity-

Our popular AutoTrac precision-guidance systems are now available in about 100 countries, covering areas where the company does the vast majority of its business.

a suite of technologies that allows operators to optimize and automate combine operations.

customers have stored data representing more than

and send alerts when problems arise or are anticipated.

recognition last year, including nine awards from a leading

ADVANCING SUSTAINABILITY IN OUR PRODUCTS AND OPERATIONS

environmentally sustainable manner and developing products that disturb the environment to the least- possible extent.

in our 100-series lawn tractors. It extends engine-oil life and reduces waste oil by up to 60 percent. In another

an “eco-mode” feature that improves fuel economy by as much as 20 percent.

gas emissions, reduced water use, and recycled more

CHAIRMAN’S MESSAGE

Unless indicated otherwise, all capitalized names of products and services are trademarks or service marks of Deere & Company.

Wirtgen Group adds size and scale to Deere’s construction equipment operations. As the world leader in road-construction equipment, Wirtgen supplies a complete range of machines and services for all areas of road construction. Wirtgen’s W220 large milling machine (above) offers a wide range of applications, including pavement removal.

* Number based on estimated quantity of 100-series lawn tractors produced in one year.

and named a leading employer in several countries where we operate. Deere also was honored as corporate partner of the year by the Society of Black Engineers, an important acknowledgement of our commitment to diversity and inclusion.

BEING A POWER FOR GOOD Wherever we operate, Deere and its employees are committed to sharing with others and being a Power for Good. During the year, the company and its foundation made charitable contributions of approximately $38 million, helping improve lives throughout the world. These contributions are made with purpose; they focus on empowering smallholder farmers, helping local communities thrive, and providing educational opportunities for all.

As in past years, Deere employees supported their communities through extensive volunteer efforts. Employees logged nearly 186,000 volunteer hours in 2018, moving closer to our goal of one-million volunteer hours over the six-year period ending in 2022.

In another instance, our tractor factory in Dewas, India, began collecting runoff rain water to overcome an acute water shortage. The collected water is treated and used in daily factory operations.

Well-known for its record of responsible citizenship, Deere earned a number of accolades in 2018. The company was included in a prominent listing of the world’s most-ethical enterprises for the 12th consecutive year, recognized for having one of the world’s top 100 brands,

188,000 GALLONS OF OIL SAVED FROM ENTERING THE ENVIRONMENT EACH YEAR* USING THE EASY CHANGE SYSTEM

185,830 VOLUNTEER HOURS IN 2018

Sales manager Tammy Lee helps rebuild a hurricane-damaged home near Houston, Texas. Her work is part of Habitat Hammers Back, a program launched by Habitat for Humanity. The program focuses on renovating and rebuilding homes damaged by three hurricanes that hit the Gulf Coast and Caribbean in 2017. John Deere committed $1 million to the effort while employees from various Deere locations and dealerships pitched in.

CHAIRMAN’S MESSAGE

Deere has long believed in supporting young people with an interest in agriculture and in 2018 marked 75 years of sponsoring the national FFA student organization. Deere is FFA’s longest-running sponsor.

In addition, Deere expanded its work in support of smallholder farmers in southeast Asia and sub-Saharan Africa. Deere also was named the number-one U.S. company for social innovation by the 2018 American Innovation Index Awards. Sponsored in part by Fordham University, the award recognizes the way a company’s activities and products help society.

GAINING STRENGTH & AGILITY Through its performance in 2018 and other recent years, Deere has shown an improving ability to produce solid

in new products and markets, as well as leadership in

underscores our efforts to control costs and manage assets. Our business model has gained strength and agility, making Deere a more formidable competitor and a better investment.

We are committed to transforming the way our customers

more sustainable — and even more loyal to the John Deere brand. What’s more, we’re committed to doing all these things in a manner that produces value well into the future for our investors and other stakeholders.

Our company has enjoyed great success for many generations. Yet I’m proud to declare my deep belief, once more, that our best days are still to come!

On behalf of the John Deere team,

Samuel R. Allen December 18, 2018

– Net sales and revenues increase to $37.36 billion, up 26%,

– history; tax charges reduce earnings by $704 million.

–

and capital expenditures are $969 million.

– Dividends and share repurchases total nearly $1.8 billion.

eighth increase since 2008. (Rate increased again, by 10%,

$2,859

2016 2017

$3,684

2018

Equipment Operations

$1,908 MM OPERATING PROFIT

$1,248

$1,790

$337 MM SVA*

$3,574

2016 2017

Deere & Company Enterprise

$4,476

2018

$2,609 MM OPERATING PROFIT

$1,860 $1,283$358 MM

SVA*

EQUIPMENT OPERATIONS –

– $3.68 billion, helped by improving markets for agricultural and construction equipment.

– be strong, at $3.28 billion.

– Deere earns nine awards for product innovation from the American Association of Agricultural and Biological

control system.

– Worldwide Parts Services continues to grow, providing superior aftermarket support to global customers and dealers.

– normally found in larger tractors; results in improved maneuverability, cab visibility, and operator comfort.

ENTERPRISE & EQUIPMENT OPERATIONS

New 9000-series self-propelled forage harvesters are our most-advanced ever. They offer crop analysis and documentation capabilities, high forage quality, and exceptional kernel processing.

Improving conditions in both farm and construction markets boosted performance in 2018, helping the company gain customers and expand its global presence.

IMPROVED MARKETS DRIVE STRONG PERFORMANCE

increase in demand for its products worldwide. Customer response to advanced products and precision technologies was particularly strong.

In 2018, Deere acquired PLA, a manufacturer of sprayers, planters, and specialty products for agriculture. PLA, based in Argentina and with facilities in Brazil, allows Deere to better serve markets in Latin America.

2018 HIGHLIGHTS

$2,513

2016 2017 2018

$1,309

$2,816

$1,469

$553 MM SVA*

$1,719 MM OPERATING PROFIT

AGRICULTURE & TURF

RECOVERING MARKETS, ADVANCED PRODUCTS SUPPORT RESULTS

– With stabilization and improvement in global markets, A&T sales

compared with $2.51 billion a year earlier.

–

– products, with headquarters in Spain and a production facility in

used in John Deere spraying equipment, offering versatility, strength, and durability.

– R4044 sprayer joins Deere’s self-propelled applicator lineup. Lighter weight, high-tech machine allows growers to cover more acres per day and make more accurate applications under tough conditions.

– John Deere Operations Center, a set of online tools that provides access to farm information and helps customers manage data, grows to provide coverage of over 125 million acres globally.

New L-Series utility loaders feature an all-new cab, redesigned boom linkages for increased lift

– to $868 million; Wirtgen adds about $3 billion to division sales and

–

eliminates vulnerable masts and cables. Also launched are compact and utility loaders and largest Deere excavator to date.

– New technology for forestry products includes TimberMatic Maps and TimberManager, software tools to enhance machine connectivity and communication.

– Wirtgen acquisition completed; business delivers strong performance

– Strong product sales and expanded distribution network drive gains in China construction market.

2016

$346

$61 2017

$868

$321

2018

$189 MM OPERATING PROFIT

$216 MM SVA*

Construction & Forestry (C&F) performance was bolstered by sales from Wirtgen road-construction business, healthy U.S. housing market, and growth in oil and gas sector.

STRONG CONSTRUCTION SECTOR DRIVES SALES, GROWTH

2018 HIGHLIGHTS

–

equipment sales.

John Deere Financial Services (JDF) reported another year of strong results in 2018, while supporting the sale of company equipment worldwide.

$35

$715

2016 2017

$70

$792

2018

$701 MM OPERATING PROFIT

$21 MM SVA*

FINANCIAL SERVICES DIVISION ENABLES SALES GROWTH, PROFITABLE PERFORMANCE GLOBALLY

Titles and years of service (in parentheses) as of January 1, 2019.

Samuel R. Allen (43)

Jean H. Gilles (38) Senior Vice President (retiring January 2019)

Marc A. Howze (17) r

Mary K.W. Jones (21) Senior Vice President, General Counsel and Public Affairs

Rajesh Kalathur (22)

Divisions

James M. Field (24) President, Worldwide Construction & Forestry and Power Systems

John C. May (21) President, Worldwide Agriculture & Turf Division: Americas and Australia, Global Harvesting and Turf Platforms, and Ag Solutions

Markwart von Pentz (28) President, Worldwide Agriculture & Turf Division: Europe, CIS, Asia, and Africa, Global Tractor and Hay & Forage Platforms, and Advanced Engineering

Cory J. Reed (20) President, John Deere Financial

Deere leadership team shown with a S770 combine and an 8400R tractor at company headquarters in Moline, Illinois.

From left: John C. May, Marc A. Howze, James M. Field, Markwart von Pentz, Samuel R. Allen, Rajesh Kalathur, Cory J. Reed, Mary K.W. Jones, and Jean H. Gilles.

LEADERSHIP TEAM

18 18

Figures in parentheses represent complete years of board service through January 1, 2019. *Elected to the board effective January 1, 2018. Previously served 2007 to 2016.

Samuel R. Allen (9)

Vance D. Coffman (14)

Aerospace, defense, and information technology

Alan C. Heuberger (2)

Private investment management

Charles O. Holliday, Jr.* (9)

Dipak C. Jain (16)

International graduate business school

Michael O. Johanns (3)

Clayton M. Jones (11)

Aviation electronics and communications

Gregory R. Page (5)

Agricultural, food, financial, and industrial products and services

Sherry M. Smith (7)

Retail and wholesale grocery and retail general merchandise products

Dmitri L. Stockton (3)

Power and water, aviation, oil and gas, healthcare, appliances and lighting, energy management, transportation,

Global investments

Sheila G. Talton (3)

Data analytics consulting services for

From left: Michael O. Johanns, Alan C. Heuberger, Charles O. Holliday, Sheila G. Talton, Clayton M. Jones, Samuel R. Allen, Vance D. Coffman, Sherry M. Smith, Gregory R. Page, Dmitri L. Stockton, and Dipak C. Jain.

BOARD OF DIRECTORS

$250

$200

$150

$100

$50

$0 2011 2012 2013 2014 2015 2016 2017 2018

Deere & Company S&P Construction & Farm Machinery & Heavy Trucks S&P 500

2011 2012 2013 2014 2015 2016 2017 2018

Deere & Company $100.00 $111.12 $111.20 $116.76 $109.47 $126.01 $196.71 $199.75

S&P Con & Farm Mach & Hvy Trks $100.00 $97.49 $105.61 $124.62 $92.12 $109.44 $169.08 $147.32

S&P 500 $100.00 $115.21 $146.52 $171.82 $180.75 $188.90 $233.54 $250.70

The graph compares the cumulative total returns of Deere & Company, the S&P 500 Stock Index, and the S&P Construction & Farm Machinery & Heavy Trucks Index over a seven-year period. It assumes $100 was invested on October 28, 2011, and that dividends were reinvested. Deere & Company stock price at October 26, 2018, was $133.00. The Standard & Poor’s 500 Construction & Farm Machinery & Heavy Trucks Index comprises Deere (DE), Caterpillar (CAT), Cummins (CMI), and Paccar (PCAR). The stock performance shown in the graph is not intended to forecast and does not necessarily indicate future price performance.

ANNUAL MEETING The annual meeting of company shareholders will be held at 10 a.m. CT on February 27, 2019, at Deere & Company World Headquarters, One John Deere Place, Moline, Illinois 61265

TRANSFER AGENT & REGISTRAR Send all correspondence, including address

inquiries concerning lost, stolen, or destroyed

Deere & Company Broadridge Corporate Issuer Solutions, Inc. P.O. Box 1342 Brentwood, NY 11717

territories, and Canada).

www.shareholder.broadridge.com/DE

SHAREHOLDER INFORMATION

7-YEAR CUMULATIVE TOTAL RETURN Deere compared to S&P 500 Index and S&P Construction & Farm Machinery & Heavy Trucks Index

DIVIDEND REINVESTMENT & DIRECT PURCHASE PLAN

through the Broadridge Direct Stock Purchase

made automatically through electronic debits.

Deere & Company Broadridge Corporate Issuer Solutions, Inc. P.O. Box 1342 Brentwood, NY 11717

SHAREHOLDER RELATIONS

Deere & Company Shareholder Relations Department

INVESTOR RELATIONS Securities analysts, portfolio managers, and

Deere & Company

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

FORM 10-K

online or upon written request to Deere & Company Shareholder Relations.

AUDITORS Deloitte & Touche LLP Chicago, Illinois

Note:

To create and grow SVA, Deere equipment operations are targeting an operating return on average operating assets (OROA) of 20% at mid-cycle sales volumes and equally ambitious returns at other points in the cycle. (For purposes of this calculation, operating assets are average

with inventories valued at standard cost.)

SVA: FOCUSING ON GROWTH AND SUSTAINABLE PERFORMANCE

DEERE EQUIPMENT OPERATIONS* $MM unless indicated otherwise 2016 2017 2018

Net sales 33,351 Net sales – excluding Wirtgen 23,387 25,885 30,324

Average Assets

With inventories at standard cost –

Operating Return on Assets (OROA)

Asset turns (std cost – Operating margin % – OROA % @ standard cost – Average assets @ std cost –

–

AG & TURF $MM unless indicated otherwise 2016 2017 2018

Average Assets

Operating Return on Assets (OROA)

FINANCIAL SERVICES*** $MM unless indicated otherwise 2016 2017 2018

Net income attributable

Net income attributable to Deere & Company – tax adjusted 530

SVA 21 35 70

CONSTRUCTION & FORESTRY* $MM unless indicated otherwise 2016 2017 2018

Average Assets

With inventories at standard cost –

With inventories at LIFO With inventories at LIFO – excluding Wirtgen 3,147 3,154 3,347 Operating Return on Assets (OROA)

Asset turns (std cost – Operating margin % –

Average assets @ std cost – –

Cost of assets -405 -407 -431

Management’s discussion and analysis .................... 23 Reports of management and

..... 34-35 ......................... 36

............. 41 ......................................... 78

World’s Most Ethical Companies – Ethisphere Institute

Top 10 Innovative Company in U.S. – American Innovation Index

Top 100 Global Brands – Interbrand

Corporate Partner of the Year – National Society of Black Engineers

LGBTQ Employee Resource Group of the Year Finalist – Out & Equal Workplace Advocates

Good Design Award for Design Innovation – Chicago Athenaeum Museum of Architecture and Design

Innovation Partner of the Year – Lowe’s

Best of What’s New Awards – Popular Science magazine

Best Title Sponsor Integration Award – PGA TOUR

Top Employer recognition: - Spain (Top Employers Institute) - Germany (Focus magazine) - Brazil (Great Place to Work Institute)

Top 5 Safest Companies – John Deere Ibérica, Spain – (Business Monitor of Excellence in Prevention, Safety, and Health)

Best of the Automotive Sector – Brazil (AutoData)

Brand of the Year – Brazil (Fenabrave)

The Big and the Best Ones – John Deere Financial, Brazil (EXAME magazine)

Socially Responsible Company – Mexico (Mexican Center for Philanthropy)

AWARDS & RECOGNITION

Deere proudly marked 75 years of sponsoring the national FFA student organization in 2018. Deere is the longest running sponsor of FFA. With more than 8,600 chapters, FFA today has about 670,000 members.

TA BL

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C ON

TE NT

MANAGEMENT’S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS FOR THE YEARS ENDED through pricing and cost management. The company’s performance has allowed for significant investments in newOCTOBER 28, 2018, OCTOBER 29, 2017, AND OCTOBER 30, products and services, especially those focused on precision2016 technologies, and for providing shareholder returns through

OVERVIEW dividend payments and share repurchases. The company believes it remains well positioned to capitalize on the growthOrganization in the world’s agricultural and construction equipment markets.The company’s equipment operations generate revenues and In addition, the company is confident in the present directioncash primarily from the sale of equipment to John Deere and believes it is positioned to deliver improved operatingdealers and distributors. The equipment operations performance and value to its customers and investors in themanufacture and distribute a full line of agricultural future.equipment; a variety of commercial and consumer equipment;

and a broad range of equipment for construction, road 2018 COMPARED WITH 2017

building, and forestry. The company’s financial services primarily provide credit services, which mainly finance sales CONSOLIDATED RESULTS and leases of equipment by John Deere dealers and trade Worldwide net income attributable to Deere & Company in receivables purchased from the equipment operations. In 2018 was $2,368 million, or $7.24 per share diluted ($7.34 addition, financial services offers extended equipment basic), compared with $2,159 million, or $6.68 per share warranties. The information in the following discussion is diluted ($6.76 basic), in 2017. Affecting 2018 net income were presented in a format that includes information grouped as increases to the provision for income taxes of $704 million consolidated, equipment operations, and financial services. The due to the enactment of U.S. tax reform legislation on company also views its operations as consisting of two December 22, 2017 (tax reform) (see Note 8). Worldwide net geographic areas, the U.S. and Canada, and outside the U.S. sales and revenues increased 26 percent to $37,358 million in and Canada. The company’s operating segments consist of 2018, compared with $29,738 million in 2017. Net sales of the agriculture and turf, construction and forestry, and financial worldwide equipment operations rose 29 percent in 2018 to services. $33,351 million from $25,885 million last year. The company’s

acquisition of the Wirtgen Group Holding GmbH (Wirtgen)Trends and Economic Conditions (see Note 4) in December 2017 added 12 percent to net salesThe company’s agriculture and turf equipment sales increased for the year. Sales included price realization of 1 percent with15 percent in 2018 and are forecast to increase about no significant currency translation effect. Equipment net sales3 percent for 2019. Industry agricultural machinery sales in the in the United States and Canada increased 25 percent forU.S. and Canada for 2019 are forecast to be about the same 2018, with Wirtgen adding 4 percent. Outside the U.S. andto 5 percent higher, compared to 2018. Industry sales in the Canada, net sales increased 34 percent for the year, withEuropean Union (EU)28 member nations are forecast to be Wirtgen adding 22 percent. Currency translation had noabout the same in 2019, while South American industry sales material effect.are projected to be about the same to 5 percent higher from

2018 levels. Asian sales are forecast to be about the same or Worldwide equipment operations reported operating profit of decrease slightly in 2019. Industry sales of turf and utility $3,684 million in 2018, compared with $2,859 million in 2017. equipment in the U.S. and Canada are expected to be about Wirtgen, whose results are included in 2018 amounts, had the same to 5 percent higher for 2019. The company’s operating profit of $116 million in 2018. Excluding Wirtgen construction and forestry sales increased 78 percent in 2018, results, the operating profit improvement was primarily driven with Wirtgen (see Note 4) adding 53 percent for the year. The by higher shipment volumes, price realization, and lower segment’s sales are forecast to increase about 15 percent in warranty costs, partially offset by higher production costs and 2019. The forecast includes a full year of Wirtgen sales research and development expenses. Additionally, results in compared to 10 months in 2018. Global forestry industry sales 2017 included an impairment charge for international are expected to increase about 10 percent in 2019 compared construction and forestry operations and a gain on the sale of to 2018. Net income of the company’s financial services SiteOne Landscapes Supply, Inc. (SiteOne) (see Note 5). operations attributable to Deere & Company in 2019 is Net income of the company’s equipment operations was expected to be approximately $630 million. $1,404 million for 2018, compared with $1,707 million in 2017. Items of concern include the uncertainty of the effectiveness In addition to the operating factors mentioned above, income of governmental actions in respect to monetary and fiscal tax adjustments related to tax reform had an unfavorable policies, the impact of sovereign debt, eurozone and Argentine impact of $1,045 million for 2018 (see Note 8). issues, capital market disruptions, trade agreements, changes The financial services operations reported net income in demand and pricing for used equipment, and geopolitical attributable to Deere & Company in 2018 of $942 million, events. Significant fluctuations in foreign currency exchange compared with $477 million in 2017. Net income benefited rates and volatility in the price of many commodities could from a higher average portfolio, a lower provision for credit also impact the company’s results. losses, and lower losses on lease residual values, partially The company concluded another successful year in which the offset by less favorable financing spreads. Income tax performance benefited from a further improvement in market adjustments related to tax reform had a favorable effect of conditions and a favorable customer response to its products. $341 million for 2018. Additional information is presented in At the same time, the company has continued to face cost the following discussion of the ‘‘Worldwide Financial Services pressures for raw materials, which are being addressed Operations.’’

The cost of sales to net sales ratio for 2018 and 2017 was Worldwide Agriculture and Turf Operations 76.7 percent. Price realization and lower warranty claims were The agriculture and turf segment had an operating profit of offset by higher production costs. $2,816 million for the year, compared with $2,513 million in

2017. Net sales increased 15 percent in 2018 due to higherFinance and interest income increased in 2018 due to a larger shipment volumes, price realization, and lower warranty claims.average credit portfolio and higher average interest rates. Currency translation did not have a significant effect on netOther income decreased in 2018 primarily due to the 2017 sales. The operating profit improvement was driven by highergains on the sale of the remaining interest in SiteOne (see shipment volumes, price realization, and lower warranty relatedNote 5), partially offset by higher service income largely from expenses, partially offset by higher production costs andWirtgen (see Note 4). Research and development expenses research and development expenses. Operating profit in 2017increased as a result of new product and improvement included gains on the SiteOne sale (see Note 5).initiatives, and acquisitions. Selling, administrative and general

expenses increased primarily due to the Wirtgen acquisition Worldwide Construction and Forestry Operations and acquisition related costs, partially offset by voluntary The construction and forestry segment operating profit was employee-separation program expenses in 2017 and a lower $868 million in 2018, compared with $346 million in 2017. provision for credit losses. Interest expense increased in 2018 Wirtgen contributed $116 million to operating profit in 2018. due to higher average borrowing rates and higher average Net sales increased 78 percent in 2018, with Wirtgen adding borrowings. Other operating expenses increased in 2018 53 percent for the year. Net sales were also affected by primarily due to higher depreciation of equipment on higher shipment volumes and lower warranty related claims. operating leases, increased cost of services, mainly from Currency translation did not have a material effect on net Wirtgen, and acquisition related costs, partially offset by the sales. Excluding Wirtgen, the operating profit improvements favorable effect of currency translation and lower losses on were primarily driven by higher shipment volumes and lower lease residual values. warranty expenses, partially offset by higher production costs.

Additionally, 2017 included an impairment charge forThe company has several defined benefit pension plans and international operations (see Note 5).other postretirement benefit (OPEB) plans, primarily health

care and life insurance plans. The company’s costs for these Worldwide Financial Services Operations plans in 2018 were $353 million, compared with $347 million The operating profit of the financial services segment was in 2017. The long-term expected return on plan assets, which $792 million in 2018, compared with $715 million in 2017. is reflected in these costs, was an expected gain of Operating profit benefited from a higher average portfolio, a 6.8 percent in 2018 and 7.2 percent in 2017, or $797 million lower provision for credit losses, and lower losses on lease and $807 million, respectively. The actual return was a gain of residual values, partially offset by less favorable financing $322 million in 2018 and $1,563 million in 2017. In 2019, the spreads. Total revenues of the financial services operations, expected return will be approximately 6.5 percent. The including intercompany revenues, increased 12 percent in 2018. company’s costs under these plans in 2019 are expected to The average balance of receivables and leases financed was decrease approximately $125 million. The company makes any 7 percent higher in 2018, compared with 2017. Interest required contributions to the plan assets under applicable expense increased 40 percent in 2018 as a result of higher regulations and voluntary contributions from time to time average borrowing rates and higher average borrowings. The based on the company’s liquidity and ability to make financial services operations’ ratio of earnings to fixed charges tax-deductible contributions. Total company contributions to was 1.87 to 1 in 2018, compared with 2.12 to 1 in 2017. the plans were $1,426 million in 2018 and $428 million in Equipment Operations in U.S. and Canada 2017, which include voluntary contributions and direct benefit The equipment operations in the U.S. and Canada had an payments. The voluntary contributions to plan assets were operating profit of $2,356 million in 2018, compared with $1,305 million in 2018, which included $1,300 million $1,754 million in 2017. Wirtgen, whose results are included in contributions to the U.S. pension and OPEB plans, and 2018, had operating profit of $19 million. The increase was $301 million in 2017. Total company contributions in 2019 are due primarily to higher shipment volumes, price realization, expected to be approximately $210 million, which are primarily and lower warranty expenses, partially offset by higher direct benefit payments. The company has no significant production costs and research and development expenses. Net required contributions to U.S. pension plan assets in 2019 sales increased 25 percent in 2018 due primarily to higher under applicable funding regulations. See the discussion in shipment volumes, with Wirtgen adding 4 percent. The ‘‘Critical Accounting Policies’’ for more information about physical volume of sales, excluding the effect of acquisitions, pension and OPEB benefit obligations. increased 20 percent, compared with 2017. BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS Equipment Operations outside U.S. and Canada The following discussion relates to operating results by The equipment operations outside the U.S. and Canada reportable segment and geographic area. Operating profit is operating profit was $1,328 million in 2018, compared with income before certain external interest expense, certain $1,105 million in 2017. Wirtgen’s operating profit outside the foreign exchange gains or losses, income taxes, and corporate U.S. and Canada was $97 million in 2018. The increase was expenses. However, operating profit of the financial services due primarily to higher shipment volumes, partially offset by segment includes the effect of interest expense and foreign higher production costs and research and development currency exchange gains or losses. expenses. Net sales increased 34 percent in 2018, with

Wirtgen adding 22 percent, compared to 2017. The increase

was primarily the result of higher shipment volumes. The farmers’ confidence and financial condition. These factors physical volume of sales, excluding the effect of acquisitions, include demand for agricultural products, world grain stocks,

weather conditions, soil conditions, harvest yields, prices forincreased 11 percent, compared with 2017. commodities and livestock, crop and livestock productionMARKET CONDITIONS AND OUTLOOK expenses, availability of transport for crops, trade restrictionsCompany equipment sales are projected to increase by about and tariffs, global trade agreements (e.g, the North American7 percent for fiscal 2019 compared with 2018. Included will be Free Trade Agreement), the level of farm product exportsa full year of Wirtgen sales in 2019 versus 10 months in 2018, (including concerns about genetically modified organisms), theadding about 2 percent to the company’s sales in 2019. growth and sustainability of non-food uses for some cropsForeign currency rates are expected to have an unfavorable (including ethanol and biodiesel production), real estate values,translation effect on equipment sales of about 2 percent for available acreage for farming, the land ownership policies ofthe year. Net sales and revenues are projected to increase by governments, changes in government farm programs andabout 7 percent for fiscal 2019 with net income attributable to policies, international reaction to such programs, changes inDeere & Company forecast to be about $3.6 billion. and effects of crop insurance programs, changes in

Agriculture and Turf. The company’s worldwide sales of environmental regulations and their impact on farming agriculture and turf equipment are forecast to increase about practices, animal diseases and their effects on poultry, beef 3 percent for fiscal year 2019, including a negative currency and pork consumption and prices, and crop pests and translation effect of 2 percent. Industry sales of agricultural diseases. equipment in the U.S. and Canada are forecast to be about

Factors affecting the outlook for the company’s turf andthe same to 5 percent higher, helped by replacement demand utility equipment include consumer confidence, weatherfor large equipment and continued demand for small tractors. conditions, customer profitability, labor supply, consumerFull year industry sales in the EU28 member nations are borrowing patterns, consumer purchasing preferences, housingforecast to be about the same as a result of drought starts and supply, infrastructure investment, spending byconditions in key markets. South American industry sales of municipalities and golf courses, and consumable input costs.tractors and combines are projected to be about the same to Consumer spending patterns, real estate and housing prices,5 percent higher benefiting from strength in Brazil. Asian sales the number of housing starts, interest rates and the levels ofare forecast to be about the same to down slightly. Industry public and non-residential construction are important to salessales of turf and utility equipment in the U.S. and Canada are and results of the company’s construction and forestryexpected to be about the same to 5 percent higher for 2019. equipment. Prices for pulp, paper, lumber and structural panels

Construction and Forestry. The company’s worldwide sales of are important to sales of forestry equipment. construction and forestry equipment are anticipated to

All of the company’s businesses and its results are affected byincrease about 15 percent for 2019, with foreign currency rates general economic conditions in the global markets andhaving an unfavorable translation effect of 2 percent. The industries in which the company operates; customerforecast includes a full year of Wirtgen sales, versus confidence in general economic conditions; government10 months in fiscal 2018, with the two additional months spending and taxing; foreign currency exchange rates andadding about 5 percent to division sales for the year. The their volatility, especially fluctuations in the value of the U.S.outlook reflects continued growth in U.S. housing demand as dollar; interest rates; inflation and deflation rates; changes inwell as transportation investment and economic growth weather patterns; the political and social stability of the globalworldwide. In forestry, global industry sales are expected to markets in which the company operates; the effects of, orincrease about 10 percent mainly as a result of improved response to, terrorism and security threats; wars and otherdemand throughout the world, led by the U.S. conflicts; natural disasters; and the spread of major epidemics.

Financial Services. Fiscal year 2019 net income attributable to Significant changes in market liquidity conditions, changes inDeere & Company for the financial services operations is the company’s credit ratings and any failure to comply withexpected to be approximately $630 million. Excluding the financial covenants in credit agreements could impact access2018 benefit from tax reform, net income is expected to to funding and funding costs, which could reduce thebenefit from a higher average portfolio, partially offset by company’s earnings and cash flows. Financial markethigher selling and administrative expenses, a higher provision conditions could also negatively impact customer access tofor credit losses, and less favorable financing spreads. capital for purchases of the company’s products and customer

SAFE HARBOR STATEMENT confidence and purchase decisions, borrowing and repayment Safe Harbor Statement under the Private Securities Litigation practices, and the number and size of customer loan Reform Act of 1995: Statements under ‘‘Overview,’’ ‘‘Market delinquencies and defaults. A debt crisis, in Europe or Conditions and Outlook,’’ and other forward-looking elsewhere, could negatively impact currencies, global financial statements herein that relate to future events, expectations, markets, social and political stability, funding sources and and trends involve factors that are subject to change, and costs, asset and obligation values, customers, suppliers, risks and uncertainties that could cause actual results to differ demand for equipment, and company operations and results. materially. Some of these risks and uncertainties could affect The company’s investment management activities could be particular lines of business, while others could affect all of the impaired by changes in the equity, bond and other financial company’s businesses. markets, which would negatively affect earnings. The company’s agricultural equipment business is subject to a The anticipated withdrawal of the United Kingdom from the number of uncertainties including the factors that affect European Union and the perceptions as to the impact of the

withdrawal may adversely affect business activity, political product initiatives; changes in customer product preferences stability and economic conditions in the United Kingdom, the and sales mix; gaps or limitations in rural broadband coverage, European Union and elsewhere. The economic conditions and capacity and speed needed to support technology solutions; outlook could be further adversely affected by (i) the oil and energy prices, supplies and volatility; the availability uncertainty concerning the timing and terms of the exit, and cost of freight; actions of competitors in the various (ii) new or modified trading arrangements between the United industries in which the company competes, particularly price Kingdom and other countries, (iii) the risk that one or more discounting; dealer practices especially as to levels of new and other European Union countries could come under increasing used field inventories; changes in demand and pricing for used pressure to leave the European Union, or (iv) the risk that the equipment and resulting impacts on lease residual values; euro as the single currency of the Eurozone could cease to labor relations and contracts; changes in the ability to attract, exist. Any of these developments, or the perception that any train and retain qualified personnel; acquisitions and of these developments are likely to occur, could affect divestitures of businesses; greater than anticipated transaction economic growth or business activity in the United Kingdom costs; the integration of new businesses; the failure or delay or the European Union, and could result in the relocation of in closing or realizing anticipated benefits of acquisitions, joint businesses, cause business interruptions, lead to economic ventures or divestitures; the implementation of organizational recession or depression, and impact the stability of the changes; the failure to realize anticipated savings or benefits financial markets, availability of credit, currency exchange of cost reduction, productivity, or efficiency efforts; rates, interest rates, financial institutions, and political, difficulties related to the conversion and implementation of financial and monetary systems. Any of these developments enterprise resource planning systems; security breaches, could affect our businesses, liquidity, results of operations and cybersecurity attacks, technology failures and other disruptions financial position. to the company’s and suppliers’ information technology

infrastructure; changes in company declared dividends andAdditional factors that could materially affect the company’s common stock issuances and repurchases; changes in the leveloperations, access to capital, expenses and results include and funding of employee retirement benefits; changes inchanges in, uncertainty surrounding and the impact of market values of investment assets, compensation, retirement,governmental trade, banking, monetary and fiscal policies, discount and mortality rates which impact retirement benefitincluding financial regulatory reform and its effects on the costs; and significant changes in health care costs.consumer finance industry, derivatives, funding costs and

other areas, and governmental programs, policies, tariffs and The liquidity and ongoing profitability of John Deere Capital sanctions in particular jurisdictions or for the benefit of Corporation and other credit subsidiaries depend largely on certain industries or sectors; retaliatory actions to such timely access to capital in order to meet future cash flow changes in trade, banking, monetary and fiscal policies; requirements, and to fund operations, costs, and purchases of actions by central banks; actions by financial and securities the company’s products. If general economic conditions regulators; actions by environmental, health and safety deteriorate or capital markets become more volatile, funding regulatory agencies, including those related to engine could be unavailable or insufficient. Additionally, customer emissions, carbon and other greenhouse gas emissions, noise confidence levels may result in declines in credit applications and the effects of climate change; changes to GPS radio and increases in delinquencies and default rates, which could frequency bands or their permitted uses; changes in labor and materially impact write-offs and provisions for credit losses. immigration regulations; changes to accounting standards; The company’s outlook is based upon assumptions relating to changes in tax rates, estimates, laws and regulations and the factors described above, which are sometimes based upon company actions related thereto; changes to and compliance estimates and data prepared by government agencies. Such with privacy regulations; compliance with U.S. and foreign estimates and data are often revised. The company, except as laws when expanding to new markets and otherwise; and required by law, undertakes no obligation to update or revise actions by other regulatory bodies. its outlook, whether as a result of new developments or Other factors that could materially affect results include otherwise. Further information concerning the company and production, design and technological innovations and its businesses, including factors that could materially affect difficulties, including capacity and supply constraints and the company’s financial results, is included in the company’s prices; the loss of or challenges to intellectual property rights other filings with the SEC. whether through theft, infringement, counterfeiting or 2017 COMPARED WITH 2016 otherwise; the availability and prices of strategically sourced materials, components and whole goods; delays or disruptions CONSOLIDATED RESULTS in the company’s supply chain or the loss of liquidity by Worldwide net income attributable to Deere & Company in suppliers; disruptions of infrastructures that support 2017 was $2,159 million, or $6.68 per share diluted ($6.76 communications, operations or distribution; the failure of basic), compared with $1,524 million, or $4.81 per share suppliers or the company to comply with laws, regulations and diluted ($4.83 basic), in 2016. Worldwide net sales and company policy pertaining to employment, human rights, revenues increased 12 percent to $29,738 million in 2017, health, safety, the environment, anti-corruption, privacy and compared with $26,644 million in 2016. Net sales of the data protection and other ethical business practices; events worldwide equipment operations rose 11 percent in 2017 to that damage the company’s reputation or brand; significant $25,885 million from $23,387 million in 2016. Sales included investigations, claims, lawsuits or other legal proceedings; price realization of 1 percent and a favorable currency start-up of new plants and products; the success of new translation effect of 1 percent. Equipment net sales in the

United States and Canada increased 5 percent for 2017. 2016. Net sales increased 9 percent in 2017 due to higher Outside the U.S. and Canada, net sales increased 20 percent shipment volumes, price realization, and the favorable effects for the year, with a favorable currency translation effect of of currency translation. Operating profit was higher due 1 percent for 2017. primarily to increased shipment volumes, a gain on the sale of

the remaining interest in SiteOne (see Note 5), priceWorldwide equipment operations had an operating profit of realization, and a favorable sales mix, partially offset by$2,859 million in 2017, compared with $1,908 million in 2016. increases in production costs, selling, administrative andThe operating profit increase was primarily due to higher general expenses, and warranty related expenses.shipment volumes, a gain on the sale of the remaining

interest in SiteOne (see Note 5), price realization, and a Worldwide Construction and Forestry Operations favorable product mix, partially offset by increases in The construction and forestry segment had an operating profit production costs, selling, administrative and general expenses, of $346 million in 2017, compared with $189 million in 2016. and warranty related expenses. Net sales increased 17 percent for the year on account of

higher shipment volumes, price realization, and the favorableNet income of the company’s equipment operations was effects of currency translation. Operating profit increased$1,707 million for 2017, compared with $1,058 million in 2016. mainly attributable to improved shipment volumes and priceThe operating factors mentioned above affected the results. realization, partially offset by higher warranty expenses,

The financial services operations reported net income increased selling, administrative and general expenses, and attributable to Deere & Company in 2017 of $477 million, higher production costs. compared with $468 million in 2016. The increase was largely

Worldwide Financial Services Operationsdue to lower losses on lease residual values, partially offset by The operating profit of the financial services segment wasless favorable financing spreads and higher selling, $715 million in 2017, compared with $701 million in 2016. Theadministrative and general expenses. Additional information is increase was largely due to lower losses on lease residualpresented in the following discussion of the ‘‘Worldwide values, partially offset by less favorable financing spreads andFinancial Services Operations.’’ higher selling, administrative and general expenses. Total

The cost of sales to net sales ratio for 2017 was 76.7 percent, revenues of the financial services operations, including compared with 77.8 percent in 2016. The improvement was intercompany revenues, increased 9 percent in 2017. The due primarily to price realization and a favorable product mix, average balance of receivables and leases financed was partially offset by increases in production costs and warranty 1 percent higher in 2017, compared with 2016. Interest related expenses. expense increased 25 percent in 2017 as a result of higher

average borrowing rates. The financial services operations’Finance and interest income increased in 2017 due to a larger ratio of earnings to fixed charges was 2.12 to 1 in 2017,average credit portfolio and higher average interest rates. compared with 2.35 to 1 in 2016.Other income increased due primarily to the gain on the sale

of the remaining interest in SiteOne (see Note 5). Selling, Equipment Operations in U.S. and Canada administrative and general expenses increased due primarily to The equipment operations in the U.S. and Canada had an higher incentive compensation expense, higher commissions operating profit of $1,754 million in 2017, compared with paid to dealers on direct sales, and expenses related to $1,328 million in 2016. The increase was due primarily to voluntary employee-separation programs. Interest expense higher shipment volumes, a gain on the sale of the remaining increased due to higher average borrowing rates and higher interest in SiteOne (see Note 5), a favorable sales mix, and average borrowings. Other operating expenses increased price realization, partially offset by increases in production primarily due to higher depreciation of equipment on costs, selling, administrative and general expenses, and operating leases, partially offset by lower losses on lease warranty related expenses. Net sales increased 5 percent due residual values. primarily to higher shipment volumes. The physical volume of

sales increased 5 percent, compared with 2016.The company has several defined benefit pension plans and OPEB plans. The company’s costs for these plans in 2017 were Equipment Operations outside U.S. and Canada $347 million, compared with $312 million in 2016. The The equipment operations outside the U.S. and Canada had an long-term expected return on plan assets, which is reflected operating profit of $1,105 million in 2017, compared with in these costs, was an expected gain of 7.2 percent in 2017 $580 million in 2016. The increase was due primarily to higher and 7.3 percent in 2016, or $807 million in 2017 and shipment volumes and price realization, partially offset by $810 million in 2016. The actual return was a gain of higher production costs and increased selling, administrative $1,563 million in 2017 and $645 million in 2016. Total company and general expenses. Net sales increased 20 percent in 2017 contributions to the plans were $428 million in 2017 and compared to 2016. The increase was primarily the result of $127 million in 2016, which include direct benefit payments for higher shipment volumes, price realization, and the favorable unfunded plans and voluntary contributions to plan assets of effects of foreign currency translation. The physical volume of $301 million in 2017 and $3 million in 2016. sales increased 16 percent, compared with 2016. BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS

Worldwide Agriculture and Turf Operations The agriculture and turf segment had an operating profit of $2,513 million for the year, compared with $1,719 million in

CAPITAL RESOURCES AND LIQUIDITY global funding and liquidity to meet its funding needs. Sources of liquidity for the company include cash and cash

The discussion of capital resources and liquidity has been equivalents, marketable securities, funds from operations, the organized to review separately, where appropriate, the issuance of commercial paper and term debt, the securitization company’s consolidated totals, equipment operations, and of retail notes (both public and private markets), and financial services operations. committed and uncommitted bank lines of credit. The

company’s commercial paper outstanding at October 28, 2018CONSOLIDATED and October 29, 2017 was $3,857 million and $3,439 million,Positive cash flows from consolidated operating activities in respectively, while the total cash and cash equivalents and2018 were $1,820 million. This resulted primarily from net marketable securities position was $4,394 million andincome adjusted for non-cash provisions and an increase in $9,787 million, respectively. The amount of the total cash andaccounts payable and accrued expenses, which were partially cash equivalents and marketable securities held by foreignoffset by an increase in inventories, an increase in receivables subsidiaries was $2,433 million and $3,386 million atrelated to sales, a change in net retirement benefits (see October 28, 2018 and October 29, 2017, respectively.Note 7), and a change in accrued income taxes payable/

receivable. Cash outflows from investing activities were Lines of Credit. The company also has access to bank lines of $8,154 million in 2018, due primarily to acquisitions of credit with various banks throughout the world. Worldwide businesses, net of cash acquired, of $5,245 million (see lines of credit totaled $8,389 million at October 28, 2018, Note 4), the cost of receivables (excluding receivables related $3,724 million of which were unused. For the purpose of to sales) and cost of equipment on operating leases acquired computing unused credit lines, commercial paper and exceeding the collections of receivables and the proceeds from short-term bank borrowings, excluding secured borrowings sales of equipment on operating leases by $1,995 million, and the current portion of long-term borrowings, were purchases of property and equipment of $896 million, and primarily considered to constitute utilization. Included in the purchases of marketable securities exceeding proceeds from total credit lines at October 28, 2018 were 364-day credit maturities and sales by $56 million, partially offset by facility agreements of $1,750 million, expiring in April 2019, proceeds from sales of businesses and unconsolidated and $750 million, expiring in October 2019. In addition, total affiliates, net of cash sold, of $156 million (see Note 4). Cash credit lines included long-term credit facility agreements of inflows from financing activities were $876 million in 2018, $2,500 million, expiring in April 2021, and $2,500 million, due primarily to an increase in borrowings of $2,516 million expiring in April 2022. These credit agreements require John and proceeds from issuance of common stock (resulting from Deere Capital Corporation (Capital Corporation) to maintain its the exercise of stock options) of $217 million, partially offset consolidated ratio of earnings to fixed charges at not less by repurchases of common stock of $958 million and than 1.05 to 1 for each fiscal quarter and the ratio of senior dividends paid of $806 million. Cash and cash equivalents debt, excluding securitization indebtedness, to capital base decreased $5,431 million during 2018. The decrease in cash (total subordinated debt and stockholder’s equity excluding primarily related to the Wirtgen acquisition (see Note 4). accumulated other comprehensive income (loss)) at not more

than 11 to 1 at the end of any fiscal quarter. The creditIn 2018, the company made voluntary contributions of agreements also require the equipment operations to maintain$1,000 million to the U.S. pension and OPEB plans that a ratio of total debt to total capital (total debt andresulted in a tax deduction applicable to the 2017 tax year. stockholders’ equity excluding accumulated otherThe company also made a voluntary contribution of comprehensive income (loss)) of 65 percent or less at the end$300 million in the fourth quarter of 2018 to its U.S. OPEB of each fiscal quarter. Under this provision, the company’splans that resulted in a tax deduction in the 2018 tax year. excess equity capacity and retained earnings balance free ofOver the last three years, operating activities have provided an restriction at October 28, 2018 was $12,368 million.aggregate of $7,790 million in cash. In addition, increases in Alternatively under this provision, the equipment operationsborrowings were $5,721 million, proceeds from issuance of had the capacity to incur additional debt of $22,969 millioncommon stock (resulting from the exercise of stock options) at October 28, 2018. All of these requirements of the creditwere $782 million, proceeds from sales of businesses and agreements have been met during the periods included in theunconsolidated affiliates were $351 million, and proceeds from consolidated financial statements.maturities and sales exceeded purchases of marketable Debt Ratings. To access public debt capital markets, thesecurities by $228 million. The aggregate amount of these company relies on credit rating agencies to assign short-termcash flows was used mainly to acquire businesses of and long-term credit ratings to the company’s securities as an$5,728 million, acquire receivables (excluding receivables indicator of credit quality for fixed income investors. Arelated to sales) and equipment on operating leases that security rating is not a recommendation by the rating agencyexceeded collections of receivables and the proceeds from to buy, sell, or hold company securities. A credit rating agencysales of equipment on operating leases by $3,500 million, pay may change or withdraw company ratings based on itsdividends of $2,331 million, purchase property and equipment assessment of the company’s current and future ability toof $2,136 million, and repurchase common stock of meet interest and principal repayment obligations. Each$1,170 million. Cash and cash equivalents decreased agency’s rating should be evaluated independently of any$258 million over the three-year period. other rating. Lower credit ratings generally result in higherThe company has access to most global capital markets at borrowing costs, including costs of derivative transactions, andreasonable costs and expects to have sufficient sources of reduced access to debt capital markets.

The senior long-term and short-term debt ratings and outlook (LIFO) method. The ratios of inventories on a first-in, first-out currently assigned to unsecured company securities by the (FIFO) basis (see Note 15), which approximates current cost, to rating agencies engaged by the company are as follows: fiscal year cost of sales were 30 percent and 27 percent at

October 28, 2018 and October 29, 2017, respectively. Senior Total interest-bearing debt of the equipment operations was

Long-Term Short-Term Outlook $6,224 million at the end of 2018, compared with Fitch Ratings ........................... A F1 Stable $5,866 million at the end of 2017 and $4,814 million at the Moody’s Investors Service, Inc. ... A2 Prime-1 Stable end of 2016. The ratio of total debt to total capital (total Standard & Poor’s ..................... A A-1 Stable interest-bearing debt and stockholders’ equity) at the end of

2018, 2017, and 2016 was 36 percent, 38 percent, and Trade accounts and notes receivable primarily arise from sales 42 percent, respectively. of goods to independent dealers. Trade receivables increased Property and equipment cash expenditures for the equipmentby $1,079 million in 2018 due primarily to higher shipment operations in 2018 were $893 million, compared withvolumes and the Wirtgen acquisition. The ratio of trade $591 million in 2017. Capital expenditures in 2019 areaccounts and notes receivable at October 28, 2018 and estimated to be $1,150 million.October 29, 2017 to fiscal year net sales was 15 percent in

In December 2017, the company acquired Wirtgen for a cashboth 2018 and 2017. Total worldwide agriculture and turf purchase price of $5,136 million, excluding cash acquired. Thereceivables increased $219 million and construction and acquisition and transaction expenses were financed from aforestry receivables increased $860 million. The collection combination of cash and new debt financing, which consistedperiod for trade receivables averages less than 12 months. The of medium-term notes, including e850 million issued inpercentage of trade receivables outstanding for a period September 2017 (see Note 4).exceeding 12 months was 2 percent at October 28, 2018 and

1 percent at October 29, 2017. FINANCIAL SERVICES The financial services operations rely on their ability to raiseDeere & Company’s stockholders’ equity was $11,288 million at substantial amounts of funds to finance their receivable andOctober 28, 2018, compared with $9,557 million at October 29, lease portfolios. Their primary sources of funds for this2017. The increase of $1,731 million resulted from net income purpose are a combination of commercial paper, term debt,attributable to Deere & Company of $2,368 million, a change in securitization of retail notes, equity capital, and borrowingsthe retirement benefits adjustment of $1,052 million, and an from Deere & Company.increase in common stock of $194 million, which were partially

offset by an increase in treasury stock of $851 million, The cash provided by operating and financing activities was dividends declared of $834 million, and a change in the used for investing activities. Cash flows from the financial cumulative translation adjustment of $195 million. services’ operating activities, including intercompany cash

flows, were $1,643 million in 2018. Cash used by investingEQUIPMENT OPERATIONS activities totaled $4,839 million in 2018 due primarily to theThe company’s equipment businesses are capital intensive and cost of receivables (excluding trade and wholesale) and cost ofare subject to seasonal variations in financing requirements for equipment on operating leases acquired exceeding collectionsinventories and certain receivables from dealers. The of these receivables and the proceeds from sales of equipmentequipment operations sell a significant portion of their trade on operating leases by $3,472 million, an increase in tradereceivables to financial services. To the extent necessary, receivables and wholesale notes of $1,222 million, andfunds provided from operations are supplemented by external purchases of marketable securities exceeding proceeds fromfinancing sources. maturities and sales by $68 million. Cash provided byCash provided by operating activities of the equipment financing activities totaled $2,767 million in 2018, representingoperations during 2018, including intercompany cash flows, primarily an increase in external borrowings of $2,515 millionwas $3,279 million due primarily to net income adjusted for and an increase in borrowings from Deere & Company ofnon-cash provisions, an increase in accounts payable and $748 million, partially offset by dividends paid to Deere &accrued expenses, and a change in accrued income taxes Company of $464 million. Cash and cash equivalentspayable/receivable, partially offset by a change in net decreased $457 million.retirement benefits (see Note 7), an increase in inventories, Over the last three years, the operating activities, includingand an increase in trade receivables and Equipment intercompany cash flows, have provided $5,380 million inOperations’ financing receivables. cash. In addition, an increase in total borrowings ofOver the last three years, these operating activities, including $4,083 million and a capital investment from Deere &intercompany cash flows, have provided an aggregate of Company of $49 million provided cash inflows. These amounts$8,629 million in cash. have been used mainly to fund receivables (excluding trade

Trade receivables held by the equipment operations increased and wholesale) and equipment on operating lease acquisitions, by $497 million during 2018. The equipment operations sell a which exceeded collections and the proceeds from sales of significant portion of their trade receivables to financial equipment on operating leases, by $7,264 million, pay services (see previous consolidated discussion). dividends to Deere & Company of $1,391 million, fund an Inventories increased by $2,245 million in 2018 due primarily increase in trade receivables and wholesale notes of to the Wirtgen acquisition and higher production volumes, $1,110 million, and purchase $104 million of marketable partially offset by the effect of foreign currency translation. securities in excess of maturities and sales. Cash and cash Most of these inventories are valued on the last-in, first-out equivalents decreased $553 million over the three-year period.

Receivables and equipment on operating leases increased by AGGREGATE CONTRACTUAL OBLIGATIONS $2,987 million in 2018, compared with 2017. Total acquisition

The payment schedule for the company’s contractualvolumes of receivables (excluding trade and wholesale notes) obligations at October 28, 2018 in millions of dollars is asand cost of equipment on operating leases increased follows:11 percent in 2018, compared with 2017. The volumes of

financing leases, retail notes, revolving charge accounts, and Less Moreoperating leases increased approximately 29 percent, than 2&3 4&5 than14 percent, 4 percent, and 4 percent, respectively. During Total 1 year years years 5 years

2018, the amount of trade receivables and wholesale notes On-balance-sheetincreased 17 percent and 12 percent, respectively. At Debt*October 28, 2018 and October 29, 2017, net receivables and

Equipment operations** $ 6,252 $ 1,470 $ 594 $ 1,687 $ 2,501leases administered, which include receivables administered but Financial services** 36,462 11,756 13,473 7,392 3,841 not owned, were $42,985 million and $40,001 million,

Total ................. 42,714 13,226 14,067 9,079 6,342respectively. Interest relating to debt*** 5,328 1,059 1,592 898 1,779

Total external interest-bearing debt of the financial services Accounts payable ....... 3,360 3,243 85 29 3 operations was $36,033 million at the end of 2018, compared Capital leases ............ 30 11 15 3 1

Off-balance-sheetwith $34,179 million at the end of 2017 and $30,797 million at Purchase obligations ... 2,937 2,889 21 22 5the end of 2016. Total external borrowings have changed Operating leases ........ 383 110 143 84 46generally corresponding with the level of the receivable and

lease portfolio, the level of cash and cash equivalents, the Total ....................... $ 54,752 $ 20,538 $ 15,923 $ 10,115 $ 8,176 change in payables owed to Deere & Company, and the * Principal payments. change in investment from Deere & Company. The financial ** Payments related to securitization borrowings of $3,963 million classified services operations’ ratio of total interest-bearing debt to total as short-term on the balance sheet related to the securitization of retail

notes are included in this table based on the expected payment schedulestockholder’s equity was 7.5 to 1 at the end of 2018, and 7.6 (see Note 18).to 1 at the end of 2017 and 2016.

*** Includes projected payments related to interest rate swaps. The Capital Corporation has a revolving credit agreement to

The previous table does not include unrecognized tax benefitutilize bank conduit facilities to securitize retail notes (see liabilities of approximately $279 million at October 28, 2018,Note 13). At October 28, 2018, the facility had a total capacity, since the timing of future payments is not reasonablyor ‘‘financing limit,’’ of up to $3,500 million of secured estimable at this time (see Note 8). For additional informationfinancings at any time. The facility was renewed in November regarding pension and OPEB obligations, short-term2018 with a capacity of $3,500 million. After a two-year borrowings, long-term borrowings, and lease obligations, seerevolving period, unless the banks and Capital Corporation Notes 7, 18, 20, and 21, respectively.agree to renew, Capital Corporation would liquidate the

secured borrowings over time as payments on the retail notes CRITICAL ACCOUNTING POLICIES are collected. At October 28, 2018, $1,364 million of

The preparation of the company’s consolidated financialshort-term securitization borrowings was outstanding under statements in conformity with accounting principles generallythe agreement. accepted in the U.S. requires management to make estimatesDuring 2018, the financial services operations issued and assumptions that affect reported amounts of assets,$2,601 million and retired $2,838 million of retail note liabilities, revenues, and expenses. Changes in these estimatessecuritization borrowings. During 2018, the financial services and assumptions could have a significant effect on theoperations also issued $8,139 million and retired financial statements. The accounting policies below are those$6,082 million of long-term borrowings, which were primarily management believes are the most critical to the preparationmedium-term notes. of the company’s financial statements and require the most

OFF-BALANCE-SHEET ARRANGEMENTS difficult, subjective, or complex judgments. The company’s other accounting policies are described in the Notes to the

At October 28, 2018, the company had approximately Consolidated Financial Statements. $357 million of guarantees issued primarily to banks outside

Sales Incentivesthe U.S. and Canada related to third-party receivables for the At the time a sale to a dealer is recognized, the companyretail financing of John Deere and Wirtgen equipment. The records an estimate of the future sales incentive costs forincrease from October 29, 2017 primarily relates to the allowances and financing programs that will be due when theWirtgen acquisition. The company may recover a portion of dealer sells the equipment to a retail customer. The estimateany required payments incurred under these agreements from is based on historical data, announced incentive programs,repossession of the equipment collateralizing the receivables. field inventory levels, and retail sales volumes. The final costThe maximum remaining term of the receivables guaranteed at of these programs and the amount of accrual required for aOctober 28, 2018 was approximately seven years. specific sale are fully determined when the dealer sells the equipment to the retail customer. This is due to numerous programs available at any particular time and new programs

that may be announced after the company records the sale. increase in pension net assets in 2018 was due primarily to Changes in the mix and types of programs affect these increases in discount rates and contributions to a U.S. pension estimates, which are reviewed quarterly. plan (see Note 7), partially offset by interest on the liabilities.

The decrease in pension net liabilities in 2017 was dueThe sales incentive accruals at October 28, 2018, October 29, primarily to the return on plan assets, partially offset by2017, and October 30, 2016 were $1,850 million, interest on the liabilities and service cost. The OPEB liabilities,$1,581 million, and $1,391 million, respectively. The increases in net of OPEB assets, at October 28, 2018, October 29, 2017,2018 and 2017 were related primarily to higher sales volumes. and October 30, 2016 were $4,753 million, $5,623 million, and

The estimation of the sales incentive accrual is impacted by $6,065 million, respectively. The decrease in OPEB net many assumptions. One of the key assumptions is the liabilities in 2018 was due primarily to increases in discount historical percent of sales incentive costs to retail sales from rates and contributions to the U.S. OPEB plans (see Note 7). dealers. Over the last five fiscal years, this percent has varied The decrease in OPEB net liabilities in 2017 was due primarily by an average of approximately plus or minus 1.1 percent, to a contribution to a U.S. OPEB plan. compared to the average sales incentive costs to retail sales

The effect of hypothetical changes to selected assumptions onpercent during that period. Holding other assumptions the company’s major U.S. retirement benefit plans would be asconstant, if this estimated cost experience percent were to follows in millions of dollars:increase or decrease 1.1 percent, the sales incentive accrual at

October 28, 2018 would increase or decrease by approximately October 28, 2018 2019$90 million.

Increase Increase Product Warranties Percentage (Decrease) (Decrease) At the time a sale is recognized, the company records the Assumptions Change PBO/APBO* Expense estimated future warranty costs. The company generally Pension determines its total warranty liability by applying historical Discount rate**................. +/-.5 $ (608)/691 $ (38)/44 claims rate experience to the estimated amount of equipment Expected return on assets ... +/-.5 (55)/55 that has been sold and is still under warranty based on dealer OPEB

Discount rate**................. +/-.5 (289)/319 (7)/14inventories and retail sales. The historical claims rate is Expected return on assets ... +/-.5 (3)/3primarily determined by a review of five-year claims costs and Health care costconsideration of current quality developments. Variances in

trend rate** .................. +/-1.0 625/(495) 84/(44)claims experience and the type of warranty programs affect * Projected benefit obligation (PBO) for pension plans and accumulatedthese estimates, which are reviewed quarterly.

postretirement benefit obligation (APBO) for OPEB plans. ** Pretax impact on service cost, interest cost, and amortization of gains orThe product warranty accruals, excluding extended warranty

losses.unamortized premiums, at October 28, 2018, October 29, 2017, and October 30, 2016 were $1,146 million,

Goodwill$1,007 million, and $779 million, respectively. The increases in Goodwill is not amortized and is tested for impairment2018 and 2017 were due primarily to higher sales volumes. annually and when events or circumstances change such that Estimates used to determine the product warranty accruals are it is more likely than not that the fair value of a reporting significantly affected by the historical percent of warranty unit is reduced below its carrying amount. The end of the claims costs to sales. Over the last five fiscal years, this fiscal third quarter is the annual measurement date. To test percent has varied by an average of approximately plus or for goodwill impairment, the carrying value of each reporting minus .13 percent, compared to the average warranty costs to unit is compared with its fair value. If the carrying value of sales percent during that period. Holding other assumptions the goodwill is considered impaired, a loss is measured as the constant, if this estimated cost experience percent were to excess of the reporting unit’s carrying value over the fair increase or decrease .13 percent, the warranty accrual at value, with a limit of the goodwill allocated to that reporting October 28, 2018 would increase or decrease by approximately unit. $50 million. An estimate of the fair value of the reporting unit is Postretirement Benefit Obligations determined through a combination of comparable market Pension and other postretirement benefit (OPEB), primarily values for similar businesses and discounted cash flows. These health care and life insurance plans, obligations are based on estimates can change significantly based on such factors as various assumptions used by the company’s actuaries in the reporting unit’s financial performance, economic calculating these amounts. These assumptions include discount conditions, interest rates, growth rates, pricing, changes in rates, health care cost trend rates, expected return on plan business strategies, and competition. assets, compensation increases, retirement rates, mortality

Based on this testing, the company has not identified arates, and other factors. Actual results that differ from the reporting unit for which the goodwill was impaired in 2018,assumptions and changes in assumptions affect future 2017, or 2016. For all reporting units, except for the recentlyexpenses and obligations. acquired Wirtgen reporting unit (see Note 4), a 10 percent

The pension assets, net of pension liabilities, recognized on decrease in the estimated fair value would have had no effect the balance sheet at October 28, 2018 were $494 million. The on the carrying value of goodwill at the annual measurement pension liabilities, net of pension assets, recognized on the date in 2018. The Wirtgen reporting unit exceeded acquisition balance sheet at October 29, 2017 and October 30, 2016 were projections in 2018 and expects to meet future projections. $1,073 million, and $1,949 million, respectively. The

Allowance for Credit Losses Income Taxes The allowance for credit losses represents an estimate of the The company’s income tax provision, deferred income tax losses inherent in the company’s receivable portfolio. The level assets and liabilities, and liabilities for uncertain tax benefits of the allowance is based on many quantitative and qualitative represent the company’s best estimate of current and future factors, including historical net loss experience by product income taxes to be paid. The annual tax rate is based on category, portfolio duration, delinquency trends, economic income tax laws, statutory tax rates, taxable income levels, conditions in the company’s major markets and geographies, and tax planning opportunities available in various jurisdictions and credit risk quality. The company has an established where the company operates. These tax laws are complex, and process to calculate a range of possible outcomes and require significant judgment to determine the consolidated determine the adequacy of the allowance. The adequacy of provision for income taxes. Changes in tax laws, regulations, the allowance is assessed quarterly. Different assumptions or statutory tax rates, and estimates of the company’s future changes in economic conditions would result in changes to taxable income levels could result in actual realization of the allowance for credit losses and the provision for credit deferred taxes being materially different from amounts losses. provided for in the consolidated financial statements. The total allowance for credit losses at October 28, 2018, Deferred income taxes represent temporary differences October 29, 2017, and October 30, 2016 was $248 million, between the tax and the financial reporting basis of assets $243 million, and $226 million, respectively. The allowance and liabilities, which will result in taxable or deductible increases in 2018 and 2017 were due primarily to growth in amounts in the future. Deferred tax assets also include loss the receivable portfolio. carryforwards and tax credits. These assets are regularly

assessed for the likelihood of recoverability from estimatedThe assumptions used in evaluating the company’s exposure future taxable income, reversal of deferred tax liabilities, andto credit losses involve estimates and significant judgment. tax planning strategies. To the extent the company determinesThe historical loss experience on the receivable portfolio that it is more likely than not a deferred income tax asset willrepresents one factor used in determining the allowance for not be realized, a valuation allowance is established. Thecredit losses. Compared to the average loss experience over recoverability analysis of the deferred income tax assets andthe last five fiscal years, this percent has varied by an average the related valuation allowances requires significant judgmentof approximately plus or minus .06 percent, compared to the and relies on estimates.average loss experience percent during that period. Holding

other factors constant, if this estimated loss experience on the Uncertain tax positions are determined based on whether it is receivable portfolio were to increase or decrease .06 percent, more likely than not the tax positions will be sustained based the allowance for credit losses at October 28, 2018 would on the technical merits of the position. For those positions increase or decrease by approximately $21 million. that meet the more likely than not criteria, an estimate of the

largest amount of tax benefit that is greater than 50 percentOperating Lease Residual Values likely to be realized upon ultimate settlement with the relatedThe carrying value of equipment on operating leases is tax authority is recognized. The ultimate resolution of the taxaffected by the estimated fair values of the equipment at the position could take many years and result in a payment that isend of the lease (residual values). Upon termination of the significantly different from the original estimate.lease, the equipment is either purchased by the lessee or sold

to a third party, in which case the company may record a gain Tax reform included additional requirements effective for the or a loss for the difference between the estimated residual company in 2019. Those provisions include a tax on global value and the sale price. The residual values are dependent on intangible low-taxed income (GILTI), a tax determined by base current economic conditions and are reviewed when events or erosion and anti-abuse tax benefits (BEAT) from certain circumstances necessitate an evaluation. Changes in residual payments between a U.S. corporation and foreign subsidiaries, value assumptions would affect the amount of depreciation a limitation of certain executive compensation, a deduction for expense and the amount of investment in equipment on foreign derived intangible income (FDII), and interest expense operating leases. limitations. These new provisions require interpretation and

will use estimates to determine the liability and benefits. TheThe total operating lease residual values at October 28, 2018, company’s accounting policy election is to treat the taxes dueOctober 29, 2017, and October 30, 2016 were $5,089 million, on future U.S. inclusions in taxable income under GILTI as a$4,679 million, and $4,347 million, respectively. The changes period cost when incurred.in 2018 and 2017 were due primarily to the increasing levels of

operating leases. A provision for foreign withholding taxes has not been recorded on undistributed profits of the company’s non-U.S.Estimates used in determining end of lease market values for subsidiaries that are determined to be indefinitely reinvestedequipment on operating leases significantly impact the amount outside the U.S. If management intentions change in theand timing of depreciation expense. Hypothetically, if future future, there may be a significant impact on the provision formarket values for this equipment were to decrease 10 percent income taxes in the period the change occurs. For furtherfrom the company’s present estimates, the total effect would information on income taxes, see Note 8 to the consolidatedbe to increase the company’s annual depreciation for financial statements.equipment on operating leases by approximately $185 million.

FINANCIAL INSTRUMENT MARKET RISK INFORMATION market credit spreads for similarly rated borrowers, cash flows for securitized borrowings are discounted at the swap yield

The company is naturally exposed to various interest rate and curve plus a market credit spread for similarly rated borrowers, foreign currency risks. As a result, the company enters into and cash flows for interest rate swaps are projected and derivative transactions to manage certain of these exposures discounted using forward rates from the swap yield curve at that arise in the normal course of business and not for the the repricing dates. The net loss in these financial purpose of creating speculative positions or trading. The instruments’ fair values which would be caused by decreasing company’s financial services operations manage the the interest rates by 10 percent from the market rates at relationship of the types and amounts of their funding October 28, 2018 would have been approximately $21 million. sources to their receivable and lease portfolio in an effort to The net loss from increasing the interest rates by 10 percent diminish risk due to interest rate and foreign currency at October 29, 2017 would have been approximately fluctuations while responding to favorable financing $4 million. opportunities. In addition, the company has interest rate

Foreign Currency Riskexposure at certain equipment operations units for below In the equipment operations, the company’s practice is tomarket retail financing programs that are used as sales hedge significant currency exposures. Worldwide foreignincentives and are offered for extended periods. Accordingly, currency exposures are reviewed quarterly. Based on thefrom time to time, these operations enter into interest rate equipment operations’ anticipated and committed foreignswap agreements to manage their interest rate exposure. The currency cash inflows, outflows, and hedging policy for thecompany also has foreign currency exposures at some of its next twelve months, the company estimates that aforeign and domestic operations related to buying, selling, and hypothetical 10 percent strengthening of the U.S. dollarfinancing in currencies other than the functional currencies. relative to other currencies through 2019 would decrease theThe company has entered into agreements related to the 2019 expected net cash inflows by approximately $55 million.management of these foreign currency transaction risks. At October 29, 2017, a hypothetical 10 percent strengthening

Interest Rate Risk of the U.S. dollar under similar assumptions and calculations Quarterly, the company uses a combination of cash flow indicated a potential $78 million adverse effect on the 2018 models to assess the sensitivity of its financial instruments net cash inflows. with interest rate exposure to changes in market interest

In the financial services operations, the company’s policy is torates. The models calculate the effect of adjusting interest hedge the foreign currency risk if the currency of therates as follows: cash flows for financing receivables are borrowings does not match the currency of the receivablediscounted at the current prevailing rate for each receivable portfolio. As a result, a hypothetical 10 percent adverseportfolio, cash flows for marketable securities are primarily change in the value of the U.S. dollar relative to all otherdiscounted at the applicable benchmark yield curve plus foreign currencies would not have a material effect on themarket credit spreads, cash flows for unsecured borrowings financial services cash flows.are discounted at the applicable benchmark yield curve plus

REPORT OF INDEPENDENT MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER REGISTERED PUBLIC ACCOUNTING FIRM FINANCIAL REPORTING

To the stockholders and the Board of Directors of Deere & The management of Deere & Company (the ‘‘company’’) is Company: responsible for establishing and maintaining adequate internal

control over financial reporting. The company’s internal controlOpinion on the Financial Statements system was designed to provide reasonable assurance regardingWe have audited the accompanying consolidated balance sheets the preparation and fair presentation of published financialof Deere & Company and subsidiaries (the ‘‘Company’’) as of statements in accordance with generally accepted accountingOctober 28, 2018 and October 29, 2017, the related statements principles.of consolidated income, consolidated comprehensive income,

changes in consolidated stockholders’ equity, and consolidated All internal control systems, no matter how well designed, have cash flows for each of the three years in the period ended inherent limitations. Therefore, even those systems determined to October 28, 2018, and the related notes (collectively referred to be effective can provide only reasonable assurance with respect as the ‘‘financial statements’’). In our opinion, the financial to financial statement preparation and presentation in accordance statements present fairly, in all material respects, the financial with generally accepted accounting principles. position of the Company as of October 28, 2018, and U.S. Securities and Exchange Commission guidance allows October 29, 2017, and the results of its operations and its cash companies to exclude acquisitions from management’s report on flows for each of the three years in the period ended internal control over financial reporting for the first year after October 28, 2018, in conformity with accounting principles the acquisition when it is not possible to conduct an assessment. generally accepted in the United States of America. In December 2017, the company acquired the stock and certain We have also audited, in accordance with the standards of the assets of substantially all of the business of Wirtgen Group Public Company Accounting Oversight Board (United States) Holding GmbH (Wirtgen) (see Note 4). Due to Wirtgen’s global (PCAOB), the Company’s internal control over financial reporting operations, management has excluded Wirtgen from the annual as of October 28, 2018, based on criteria established in Internal assessment of the effectiveness of internal control over financial Control – Integrated Framework (2013) issued by the Committee reporting as of October 28, 2018. Wirtgen represents 9 percent of Sponsoring Organizations of the Treadway Commission and of both the consolidated total assets and consolidated net sales our report dated December 17, 2018, expressed an unqualified and revenues of Deere & Company as of and for the year ended opinion on the Company’s internal control over financial October 28, 2018. reporting. Management assessed the effectiveness of the company’s Basis for Opinion internal control over financial reporting as of October 28, 2018, These financial statements are the responsibility of the using the criteria set forth in Internal Control—Integrated Company’s management. Our responsibility is to express an Framework (2013) issued by the Committee of Sponsoring opinion on the Company’s financial statements based on our Organizations of the Treadway Commission. Based on that audits. We are a public accounting firm registered with the assessment, management believes that, as of October 28, 2018, PCAOB and are required to be independent with respect to the the company’s internal control over financial reporting was Company in accordance with the U.S. federal securities laws and effective. the applicable rules and regulations of the Securities and The company’s independent registered public accounting firm has Exchange Commission and the PCAOB. issued an audit report on the effectiveness of the company’s We conducted our audits in accordance with the standards of internal control over financial reporting. This report appears the PCAOB. Those standards require that we plan and perform below. the audit to obtain reasonable assurance about whether the December 17, 2018 financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. DELOITTE & TOUCHE LLP Chicago, Illinois December 17, 2018 We have served as the Company’s auditor since 1910.

REPORT OF INDEPENDENT We conducted our audit in accordance with the standards of the REGISTERED PUBLIC ACCOUNTING FIRM PCAOB. Those standards require that we plan and perform the

audit to obtain reasonable assurance about whether effective To the stockholders and the Board of Directors of Deere & internal control over financial reporting was maintained in all Company: material respects. Our audit included obtaining an understanding

of internal control over financial reporting, assessing the risk thatOpinion on Internal Control over Financial Reporting a material weakness exists, testing and evaluating the design andWe have audited the internal control over financial reporting of operating effectiveness of internal control based on the assessedDeere & Company and subsidiaries (the ‘‘Company’’) as of risk, and performing such other procedures as we consideredOctober 28, 2018, based on criteria established in Internal necessary in the circumstances. We believe that our auditControl—Integrated Framework (2013) issued by the Committee of provides a reasonable basis for our opinion.Sponsoring Organizations of the Treadway Commission (COSO). In

our opinion, the Company maintained, in all material respects, Definition and Limitations of Internal Control over Financial effective internal control over financial reporting as of Reporting October 28, 2018, based on criteria established in Internal A company’s internal control over financial reporting is a process Control—Integrated Framework (2013) issued by COSO. designed to provide reasonable assurance regarding the reliability

of financial reporting and the preparation of financial statementsWe have also audited, in accordance with the standards of the for external purposes in accordance with generally acceptedPublic Company Accounting Oversight Board (United States) accounting principles. A company’s internal control over financial(PCAOB), the consolidated financial statements as of and for the reporting includes those policies and procedures that (1) pertainyear ended October 28, 2018, of the Company and our report to the maintenance of records that, in reasonable detail,dated December 17, 2018, expressed an unqualified opinion on accurately and fairly reflect the transactions and dispositions ofthose financial statements. the assets of the company; (2) provide reasonable assurance thatAs described in Management’s Report on Internal Control Over transactions are recorded as necessary to permit preparation ofFinancial Reporting, management excluded from its assessment financial statements in accordance with generally acceptedthe internal control over financial reporting at the acquired accounting principles, and that receipts and expenditures of theentities and assets of Wirtgen Group Holding GmbH (‘‘Wirtgen’’), company are being made only in accordance with authorizationswhich was acquired in December 2017 and whose financial of management and directors of the company; and (3) providestatements constitute 9 percent of both total assets and net reasonable assurance regarding prevention or timely detection ofsales and revenues of the consolidated financial statement unauthorized acquisition, use, or disposition of the company’samounts as of and for the year ended October 28, 2018. assets that could have a material effect on the financialAccordingly, our audit did not include the internal control over statements.financial reporting at Wirtgen. Because of its inherent limitations, internal control over financial

Basis for Opinion reporting may not prevent or detect misstatements. Also,The Company’s management is responsible for maintaining projections of any evaluation of effectiveness to future periodseffective internal control over financial reporting and for its are subject to the risk that controls may become inadequateassessment of the effectiveness of internal control over financial because of changes in conditions, or that the degree ofreporting, included in the accompanying Management’s Report compliance with the policies or procedures may deteriorate.on Internal Control over Financial Reporting. Our responsibility is DELOITTE & TOUCHE LLPto express an opinion on the Company’s internal control over Chicago, Illinoisfinancial reporting based on our audit. We are a public

accounting firm registered with the PCAOB and are required to December 17, 2018 be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

DEERE & COMPANY STATEMENT OF CONSOLIDATED INCOME For the Years Ended October 28, 2018, October 29, 2017, and October 30, 2016 (In millions of dollars)

2018 2017 2016

Net Sales and Revenues Net sales ....................................................................................................................... $ 33,350.7 $ 25,885.1 $ 23,387.3 Finance and interest income .............................................................................................. 3,106.6 2,731.5 2,511.2 Other income ................................................................................................................. 900.4 1,121.1 745.5

Total ...................................................................................................................... 37,357.7 29,737.7 26,644.0

Costs and Expenses Cost of sales .................................................................................................................. 25,571.2 19,866.2 18,196.1 Research and development expenses .................................................................................... 1,657.6 1,372.5 1,393.7 Selling, administrative and general expenses .......................................................................... 3,455.5 3,097.8 2,791.2 Interest expense .............................................................................................................. 1,203.6 899.5 763.7 Other operating expenses .................................................................................................. 1,399.1 1,347.9 1,275.3

Total ...................................................................................................................... 33,287.0 26,583.9 24,420.0

Income of Consolidated Group before Income Taxes............................................................... 4,070.7 3,153.8 2,224.0 Provision for income taxes................................................................................................. 1,726.9 971.1 700.1

Income of Consolidated Group........................................................................................... 2,343.8 2,182.7 1,523.9 Equity in income (loss) of unconsolidated affiliates ................................................................. 26.8 (23.5) (2.4)

Net Income ................................................................................................................... 2,370.6 2,159.2 1,521.5 Less: Net income (loss) attributable to noncontrolling interests ........................................... 2.2 .1 (2.4)

Net Income Attributable to Deere & Company ...................................................................... $ 2,368.4 $ 2,159.1 $ 1,523.9

Per Share Data Basic .......................................................................................................................... .. $ 7.34 $ 6.76 $ 4.83 Diluted.......................................................................................................................... $ 7.24 $ 6.68 $ 4.81 Dividends declared........................................................................................................... $ 2.58 $ 2.40 $ 2.40 Average Shares Outstanding Basic .......................................................................................................................... .. 322.6 319.5 315.2 Diluted.......................................................................................................................... 327.3 323.3 316.6

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

DEERE & COMPANY STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME For the Years Ended October 28, 2018, October 29, 2017, and October 30, 2016 (In millions of dollars)

2018 2017 2016

Net Income ......................................................................................................................... $ 2,370.6 $ 2,159.2 $ 1,521.5 Other Comprehensive Income (Loss), Net of Income Taxes

Retirement benefits adjustment ............................................................................................ 1,052.4 828.8 (907.6) Cumulative translation adjustment ......................................................................................... (195.4) 230.6 9.0 Unrealized gain on derivatives .............................................................................................. 9.1 3.7 2.9 Unrealized loss on investments ............................................................................................. (13.3) (.6) (.9)

Other Comprehensive Income (Loss), Net of Income Taxes ........................................................... 852.8 1,062.5 (896.6) Comprehensive Income of Consolidated Group ........................................................................... 3,223.4 3,221.7 624.9 Less: Comprehensive income (loss) attributable to noncontrolling interests ......................................... 2.1 .3 (2.4) Comprehensive Income Attributable to Deere & Company ............................................................ $ 3,221.3 $ 3,221.4 $ 627.3

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

DEERE & COMPANY CONSOLIDATED BALANCE SHEET As of October 28, 2018 and October 29, 2017 (In millions of dollars except per share amounts)

2018 2017

ASSETS Cash and cash equivalents .................................................................................................................. $ 3,904.0 $ 9,334.9 Marketable securities ......................................................................................................................... 490.1 451.6 Receivables from unconsolidated affiliates............................................................................................... 21.7 35.9 Trade accounts and notes receivable – net ............................................................................................. 5,004.3 3,924.9 Financing receivables – net ................................................................................................................. 27,054.1 25,104.1 Financing receivables securitized – net .................................................................................................. 4,021.4 4,158.8 Other receivables .............................................................................................................................. 1,735.5 1,200.0 Equipment on operating leases – net .................................................................................................... 7,165.4 6,593.7 Inventories .................................................................................................................... .................. 6,148.9 3,904.1 Property and equipment – net ............................................................................................................. 5,867.5 5,067.7 Investments in unconsolidated affiliates ................................................................................................. 207.3 182.5 Goodwill ............................................................................................................................... .......... 3,100.7 1,033.3 Other intangible assets – net .............................................................................................................. 1,562.4 218.0 Retirement benefits ........................................................................................................................... 1,298.3 538.2 Deferred income taxes .......................................................................................................... ............. 808.0 2,415.0 Other assets ............................................................................................................................... ..... 1,718.4 1,623.6 Total Assets ............................................................................................................................... ...... $ 70,108.0 $ 65,786.3

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES Short-term borrowings ....................................................................................................................... $ 11,061.4 $ 10,035.3 Short-term securitization borrowings ..................................................................................................... 3,957.3 4,118.7 Payables to unconsolidated affiliates ..................................................................................................... 128.9 121.9 Accounts payable and accrued expenses ................................................................................................. 10,111.0 8,417.0 Deferred income taxes .......................................................................................................... ............. 555.8 209.7 Long-term borrowings ........................................................................................................................ 27,237.4 25,891.3 Retirement benefits and other liabilities ................................................................................................. 5,751.0 7,417.9

Total liabilities ............................................................................................................................ 58,802.8 56,211.8

Commitments and contingencies (Note 22) Redeemable noncontrolling interest (Note 4) ........................................................................................... 14.0 14.0

STOCKHOLDERS’ EQUITY Common stock, $1 par value (authorized – 1,200,000,000 shares;

issued – 536,431,204 shares in 2018 and 2017), at paid-in amount ........................................................... 4,474.2 4,280.5 Common stock in treasury, 217,975,806 shares in 2018 and 214,589,902 shares in 2017, at cost ........................ (16,311.8) (15,460.8) Retained earnings ............................................................................................................................. 27,553.0 25,301.3 Accumulated other comprehensive income (loss)....................................................................................... (4,427.6) (4,563.7) Total Deere & Company stockholders’ equity ........................................................................................... 11,287.8 9,557.3 Noncontrolling interests ...................................................................................................................... 3.4 3.2

Total stockholders’ equity ................................................................................................................ 11,291.2 9,560.5 Total Liabilities and Stockholders’ Equity .............................................................................................. $ 70,108.0 $ 65,786.3

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

DEERE & COMPANY STATEMENT OF CONSOLIDATED CASH FLOWS For the Years Ended October 28, 2018, October 29, 2017, and October 30, 2016 (In millions of dollars)

2018 2017 2016

Cash Flows from Operating Activities Net income ................................................................................................................ $ 2,370.6 $ 2,159.2 $ 1,521.5 Adjustments to reconcile net income to net cash provided by operating activities:

Provision for credit losses ........................................................................................... 90.8 98.3 94.3 Provision for depreciation and amortization .................................................................... 1,927.1 1,715.5 1,559.8 Impairment charges ................................................................................................... 39.8 85.1 Share-based compensation expense .............................................................................. 83.8 68.1 70.6 Gain on sale of affiliates and investments ...................................................................... (25.1) (375.1) (74.5) Undistributed earnings of unconsolidated affiliates ........................................................... (26.3) (14.4) (1.9) Provision for deferred income taxes .............................................................................. 1,479.9 100.1 282.7 Changes in assets and liabilities:

Trade, notes and financing receivables related to sales ................................................... (1,531.1) (838.9) 335.2 Inventories ........................................................................................................... (1,772.3) (1,305.3) (106.1) Accounts payable and accrued expenses ..................................................................... 722.3 968.0 (155.2) Accrued income taxes payable/receivable ..................................................................... (466.2) (84.2) 7.0 Retirement benefits ............................................................................................... (1,026.1) (31.9) 238.6

Other ..................................................................................................................... (7.1) (299.4) (87.4) Net cash provided by operating activities ................................................................ 1,820.3 2,199.8 3,769.7

Cash Flows from Investing Activities Collections of receivables (excluding receivables related to sales) ............................................ 15,589.3 14,671.1 14,611.4 Proceeds from maturities and sales of marketable securities .................................................. 76.6 404.2 169.4 Proceeds from sales of equipment on operating leases ......................................................... 1,482.7 1,440.8 1,256.2 Proceeds from sales of businesses and unconsolidated affiliates, net of cash sold ...................... 155.6 113.9 81.1 Cost of receivables acquired (excluding receivables related to sales)......................................... (17,013.3) (15,221.8) (13,954.5) Acquisitions of businesses, net of cash acquired ................................................................. (5,245.0) (284.2) (198.5) Purchases of marketable securities ................................................................................... (132.8) (118.0) (171.2) Purchases of property and equipment .............................................................................. (896.4) (594.9) (644.4) Cost of equipment on operating leases acquired ................................................................. (2,053.7) (1,997.4) (2,310.7) Other ........................................................................................................................ (117.4) (58.0) (16.0)

Net cash used for investing activities...................................................................... (8,154.4) (1,644.3) (1,177.2)

Cash Flows from Financing Activities Increase (decrease) in total short-term borrowings .............................................................. 473.2 1,310.6 (1,213.6) Proceeds from long-term borrowings ................................................................................ 8,287.8 8,702.2 5,070.7 Payments of long-term borrowings .................................................................................. (6,245.3) (5,397.0) (5,267.6) Proceeds from issuance of common stock ......................................................................... 216.9 528.7 36.0 Repurchases of common stock ........................................................................................ (957.9) (6.2) (205.4) Dividends paid ............................................................................................................ (805.8) (764.0) (761.3) Other ........................................................................................................................ (92.5) (87.8) (64.7)

Net cash provided by (used for) financing activities ................................................... 876.4 4,286.5 (2,405.9) Effect of Exchange Rate Changes on Cash and Cash Equivalents .......................................... 26.8 157.1 (13.0) Net Increase (Decrease) in Cash and Cash Equivalents ........................................................ (5,430.9) 4,999.1 173.6 Cash and Cash Equivalents at Beginning of Year................................................................ 9,334.9 4,335.8 4,162.2 Cash and Cash Equivalents at End of Year ........................................................................ $ 3,904.0 $ 9,334.9 $ 4,335.8

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

DEERE & COMPANY STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY For the Years Ended October 30, 2016, October 29, 2017, and October 28, 2018 (In millions of dollars)

Total Stockholders’ Equity

Deere & Company Stockholders

Accumulated Total Other Redeemable

Stockholders’ Common Treasury Retained Comprehensive Noncontrolling Noncontrolling Equity Stock Stock Earnings Income (Loss) Interests Interest

Balance November 1, 2015 ............... $ 6,757.6 $ 3,825.6 $ (15,497.6) $23,144.8 $ (4,729.4) $ 14.2

Net income (loss) ........................... 1,521.5 1,523.9 (2.4) Other comprehensive loss ................ (896.6) (896.6) Repurchases of common stock .......... (205.4) (205.4) Treasury shares reissued .................. 25.9 25.9 Dividends declared ......................... (758.0) (757.1) (.9) Acquisition (Note 4) ....................... $ 14.0 Stock options and other .................. 85.8 86.2 (.3) (.1) Balance October 30, 2016 ............... 6,530.8 3,911.8 (15,677.1) 23,911.3 (5,626.0) 10.8 14.0

Net income .................................. 2,159.2 2,159.1 .1 Other comprehensive income ............ 1,062.5 1,062.3 .2 Repurchases of common stock .......... (6.2) (6.2) Treasury shares reissued .................. 222.5 222.5 Dividends declared ......................... (770.4) (769.2) (1.2) Stock options and other .................. 362.1 368.7 .1 (6.7) Balance October 29, 2017 ............... 9,560.5 4,280.5 (15,460.8) 25,301.3 (4,563.7) 3.2 14.0

Net income .................................. 2,369.4 2,368.4 1.0 1.2 Other comprehensive income (loss) .... 852.8 852.9 (.1) Repurchases of common stock .......... (957.9) (957.9) Treasury shares reissued .................. 106.9 106.9 Dividends declared ......................... (835.8) (833.8) (2.0) (1.2) Acquisition (Note 4) ....................... 1.1 1.1 Stock options and other .................. 194.2 193.7 .3 .2 ASU No. 2018-02 adoption* ............. 716.8 (716.8) Balance October 28, 2018 ............... $ 11,291.2 $ 4,474.2 $ (16,311.8) $27,553.0 $ (4,427.6) $ 3.4 $ 14.0

* See Note 3.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND CONSOLIDATION 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Structure of Operations The following are significant accounting policies in addition to The information in the notes and related commentary are those included in other notes to the consolidated financial presented in a format that includes data grouped as follows: statements. Equipment Operations – Includes the company’s agriculture Use of Estimates in Financial Statements and turf operations and construction and forestry operations The preparation of financial statements in conformity with with financial services reflected on the equity basis. accounting principles generally accepted in the U.S. requires

management to make estimates and assumptions that affectFinancial Services – Includes primarily the company’s financing the reported amounts and related disclosures. Actual resultsoperations. could differ from those estimates.

Consolidated – Represents the consolidation of the equipment Revenue Recognitionoperations and financial services. References to ‘‘Deere & Sales of equipment and service parts are recorded when theCompany’’ or ‘‘the company’’ refer to the entire enterprise. sales price is determinable and the risks and rewards of

Principles of Consolidation ownership are transferred to independent parties based on the The consolidated financial statements represent primarily the sales agreements in effect. In the U.S. and most international consolidation of all companies in which Deere & Company has locations, this transfer occurs primarily when goods are a controlling interest. Certain variable interest entities (VIEs) shipped. In Canada and some other international locations, are consolidated since the company is the primary beneficiary. certain goods are shipped to dealers on a consignment basis The primary beneficiary has both the power to direct the under which the risks and rewards of ownership are not activities that most significantly impact the VIEs’ economic transferred to the dealer. Accordingly, in these locations, sales performance and the obligation to absorb losses or the right are not recorded until a retail customer has purchased the to receive benefits that could potentially be significant to the goods. In all cases, when a sale is recorded by the company, VIEs. Deere & Company records its investment in each no significant uncertainty exists surrounding the purchaser’s unconsolidated affiliated company (generally 20 to 50 percent obligation to pay. No right of return exists on sales of ownership) at its related equity in the net assets of such equipment. In select instances, equipment is transferred to a affiliate (see Note 10). Other investments (less than customer or a financial institution with a significant residual 20 percent ownership) are recorded at cost. value guarantee or with an obligation to repurchase the Fiscal Year equipment for a specified amount, which is exercisable at the The company uses a 52/53 week fiscal year ending on the last customer’s option. Those arrangements are accounted for as Sunday in the reporting period. The fiscal year ends for 2018, leases. When the operating lease criteria are met, no sale is 2017, and 2016 were October 28, 2018, October 29, 2017, and recorded at the time of the equipment transfer and the October 30, 2016, respectively. All fiscal years contained difference between sale price and the specified amount is 52 weeks. recognized as revenue on a straight-line basis until the

customer’s option expires. Service parts and certainVariable Interest Entities attachments returns are estimable and accrued at the time aThe company consolidates certain VIEs related to retail note sale is recognized. The company makes appropriate provisionssecuritizations (see Note 13). based on experience for costs such as doubtful receivables,

The company also has an interest in a joint venture that sales incentives, and product warranty. manufactures construction equipment in Brazil for local and

Financing revenue is recorded over the lives of relatedoverseas markets. The joint venture is a VIE, but the company receivables using the interest method. Extended warrantyis not the primary beneficiary. Therefore, the entity’s financial premiums recorded in other income are generally recognized inresults are not fully consolidated in the company’s proportion to the costs expected to be incurred over theconsolidated financial statements, but are included on the contract period. Deferred costs on the origination of financingequity basis. The maximum exposure to losses at October 28, receivables are recognized as a reduction in finance revenue2018 in millions of dollars follows: over the expected lives of the receivables using the interest

October 2018 method. Income and deferred costs on the origination of operating leases are recognized on a straight-line basis overReceivables from unconsolidated affiliates .............. $ 2 the scheduled lease terms in finance revenue.Loan guarantee ................................................ 25

Total .............................................................. $ 27

Sales Incentives are written-off to the allowance when the account is At the time a sale is recognized, the company records an considered uncollectible (see Note 12). estimate of the future sales incentive costs for allowances and Impairment of Long-Lived Assets, Goodwill, and Other financing programs that will be due when a dealer sells the Intangible Assets equipment to a retail customer. The estimate is based on The company evaluates the carrying value of long-lived assets historical data, announced incentive programs, field inventory (including equipment on operating leases, property and levels, and retail sales volumes. equipment, goodwill, and other intangible assets) when events Product Warranties or circumstances warrant such a review. Goodwill and At the time a sale is recognized, the company records the intangible assets with indefinite lives are tested for impairment estimated future warranty costs. These costs are usually annually at the end of the third quarter of each fiscal year, estimated based on historical warranty claims and and more often if events or circumstances indicate a reduction consideration of current quality developments (see Note 22). in the fair value below the carrying value. Goodwill is

allocated and reviewed for impairment by reporting units,Sales Taxes which consist primarily of the operating segments and certainThe company collects and remits taxes assessed by different other reporting units. Goodwill is allocated to the reportinggovernmental authorities that are both imposed on and unit in which the business that created the goodwill resides.concurrent with revenue producing transactions between the To test for goodwill impairment, the carrying value of eachcompany and its customers. These taxes may include sales, reporting unit is compared with its fair value. If the carryinguse, value-added, and some excise taxes. The company reports value of the goodwill is considered impaired, the impairment isthe collection of these taxes on a net basis (excluded from measured as the excess of the reporting unit’s carrying valuerevenues). over the fair value, with a limit of the goodwill allocated to

Shipping and Handling Costs that reporting unit. If the carrying value of the long-lived Shipping and handling costs related to the sales of the asset is considered impaired, a loss is recognized based on the company’s equipment are included in cost of sales. amount by which the carrying value exceeds the fair value of

the asset (see Notes 5 and 26).Advertising Costs Advertising costs are charged to expense as incurred. This Derivative Financial Instruments expense was $188 million in 2018, $169 million in 2017, and It is the company’s policy that derivative transactions are $169 million in 2016. executed only to manage exposures arising in the normal

course of business and not for the purpose of creatingDepreciation and Amortization speculative positions or trading. The company’s financialProperty and equipment, capitalized software, and other services operations manage the relationship of the types andintangible assets are generally stated at cost less accumulated amounts of their funding sources to their receivable and leasedepreciation or amortization. These assets are depreciated portfolio in an effort to diminish risk due to interest rate andover their estimated useful lives generally using the foreign currency fluctuations, while responding to favorablestraight-line method. Equipment on operating leases is financing opportunities. The company also has foreigndepreciated over the terms of the leases using the currency exposures at some of its foreign and domesticstraight-line method. Property and equipment expenditures for operations related to buying, selling, and financing innew and revised products, increased capacity, and the currencies other than the functional currencies. In addition,replacement or major renewal of significant items are the company has interest rate exposure at certain equipmentcapitalized. Expenditures for maintenance, repairs, and minor operations units for below market retail financing programsrenewals are generally charged to expense as incurred. that are used as sales incentives and are offered for extended

Securitization of Receivables periods.Certain financing receivables are periodically transferred to All derivatives are recorded at fair value on the balance sheet.special purpose entities (SPEs) in securitization transactions Cash collateral received or paid is not offset against the(see Note 13). These securitizations qualify as collateral for derivative fair values on the balance sheet. Each derivative issecured borrowings and no gains or losses are recognized at designated as either a cash flow hedge or a fair value hedgethe time of securitization. The receivables remain on the or remains undesignated. Changes in the fair value ofbalance sheet and are classified as ‘‘Financing receivables derivatives that are designated and effective as cash flowsecuritized – net.’’ The company recognizes finance income hedges are recorded in other comprehensive income (OCI) andover the lives of these receivables using the interest method. reclassified to the income statement when the effects of the

Receivables and Allowances item being hedged are recognized in the income statement.All financing and trade receivables are reported on the balance Changes in the fair value of derivatives that are designatedsheet at outstanding principal adjusted for any charge-offs, and effective as fair value hedges are recognized currently inthe allowance for credit losses, and any deferred fees or costs net income. These changes are offset in net income to theon originated financing receivables. Allowances for credit extent the hedge was effective by fair value changes relatedlosses are maintained in amounts considered to be appropriate to the risk being hedged on the hedged item. Changes in thein relation to the receivables outstanding based on collection fair value of undesignated hedges are recognized currently inexperience, economic conditions in the company’s major the income statement. All ineffective changes in derivative fairmarkets and geographies, and credit risk quality. Receivables values are recognized currently in net income.

All designated hedges are formally documented as to the disclose provisional amounts related to tax reform. In addition, relationship with the hedged item as well as the the ASU allows for a measurement period up to one year after risk-management strategy. Both at inception and on an the enactment date of tax reform to complete the related ongoing basis the hedging instrument is assessed as to its accounting requirements and was effective when issued. The effectiveness. If and when a derivative is determined not to company will complete the adjustments related to tax reform be highly effective as a hedge, the underlying hedged within the allowed period. The effects of tax reform on the transaction is no longer likely to occur, the hedge designation company’s consolidated financial statements are outlined in is removed, or the derivative is terminated, the hedge Note 8. accounting discussed above is discontinued (see Note 27). In February 2018, the FASB issued ASU No. 2018-02, Foreign Currency Translation Reclassification of Certain Tax Effects from Accumulated Other The functional currencies for most of the company’s foreign Comprehensive Income, which amends ASC 220, Income operations are their respective local currencies. The assets and Statement – Reporting Comprehensive Income. Included in the liabilities of these operations are translated into U.S. dollars at provisions of tax reform is a reduction of the corporate the end of the period exchange rates. The revenues and income tax rate from 35 percent to 21 percent. Accounting expenses are translated at weighted-average rates for the principles generally accepted in the U.S. require that deferred period. The gains or losses from these translations are taxes are remeasured to the new corporate tax rate in the recorded in OCI. Gains or losses from transactions period legislation is enacted. The deferred tax adjustment is denominated in a currency other than the functional currency recorded in the provision for income taxes, including items for of the subsidiary involved and foreign exchange forward which the tax effects were originally recorded in OCI. This contracts are included in net income. The pretax net loss for treatment results in the items in OCI not reflecting the foreign exchange in 2018, 2017, and 2016 was $8 million, appropriate tax rate, which are referred to as stranded tax $62 million, and $38 million, respectively. effects. This ASU allows a reclassification from accumulated

OCI to retained earnings for stranded tax effects resulting3. NEW ACCOUNTING STANDARDS from tax reform. The company early adopted this ASU in the

New Accounting Standards Adopted fourth quarter of 2018. The stranded tax effects reclassified In the first quarter of 2018, the company early adopted from OCI to retained earnings were $717 million. Financial Accounting Standards Board (FASB) Accounting

New Accounting Standards to be Adopted Standard Update (ASU) No. 2017-07, Improving the In May 2014, the FASB issued ASU No. 2014-09, Revenue Presentation of Net Periodic Pension Cost and Net Periodic from Contracts with Customers (Topic 606), which supersedes Postretirement Benefit Cost, which amends Accounting the revenue recognition requirements in ASC 605, Revenue Standards Codification (ASC) 715, Compensation – Retirement Recognition. This ASU is based on the principle that revenue Benefits. This ASU required that employers report only the is recognized to depict the transfer of goods or services to service cost component of the total defined benefit pension customers in an amount that reflects the consideration to and OPEB cost in the same income statement lines as which the entity expects to be entitled in exchange for those compensation for the participating employees. The other goods or services. The ASU also requires additional disclosure components of these benefit costs are reported outside of about the nature, amount, timing, and uncertainty of revenue. operating profit in the income statement line other operating The FASB issued several amendments clarifying various expenses. The ASU was adopted on a retrospective basis that aspects of the ASU, including revenue transactions that increased operating profit in fiscal years 2018, 2017, and 2016 involve a third party, goods or services that are immaterial in by $15 million, $31 million, and $20 million, respectively. The the context of the contract, and licensing arrangements. The income statement line changes for fiscal years 2017 and 2016 company will adopt the ASU effective the first quarter of were cost of sales decreased $67 million and $53 million, fiscal year 2019 using a modified-retrospective approach. The research and development expenses increased $5 million and ASU requires that a gross asset and liability rather than a net $5 million, selling, administrative and general expenses liability be recorded for the value of estimated service parts increased $31 million and $28 million, and other operating returns and the related refund liability. The gross asset will be expenses increased $31 million and $20 million, respectively. In recorded in other assets for the inventory value of estimated addition, only the service cost component of the benefit costs parts returns and the gross liability will be recorded in is eligible for capitalization, which was adopted beginning the accounts payable and accrued expenses for the estimated first quarter of 2018. dealer refund. The estimated increase in other assets and In the first quarter of 2018, the company adopted ASU accounts payable and accrued expenses will be approximately No. 2016-07, Simplifying the Transition to the Equity Method $110 million. In addition, certain revenue disclosures will be of Accounting, which amends ASC 323, Investments – Equity expanded to include contract liabilities and disaggregated Method and Joint Ventures, which did not have a material revenue by geographic regions and major product and services effect on the company’s consolidated financial statements. lines. The adoption will not have other material effects on the

company’s consolidated financial statements.In March 2018, the FASB issued ASU No. 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff In January 2016, the FASB issued ASU No. 2016-01, Accounting Bulletin No. 118, which amends ASC 740, Income Recognition and Measurement of Financial Assets and Taxes. This ASU incorporates SEC Staff Accounting Bulletin Financial Liabilities, which amends ASC 825-10, Financial No. 118, which was also issued in December 2017, into the Instruments – Overall. This ASU changes the treatment for ASC. The ASU provides guidance on when to record and available-for-sale equity investments by recognizing unrealized

fair value changes directly in net income and no longer in provides guidance on the statement of cash flows other comprehensive income. The effective date will be the presentation of certain transactions where diversity in practice first quarter of fiscal year 2019. The ASU will be adopted with exists. The effective date will be the first quarter of fiscal a cumulative-effect adjustment to the balance sheet. The year 2019 and will be adopted using a retrospective transition available-for-sale equities balance at October 28, 2018 is approach. The adoption will not have a material effect on the $46 million with an unrealized gain of $10 million. As a result, company’s consolidated financial statements. the adoption will not have a material effect on the company’s In October 2016, the FASB issued ASU No. 2016-16, Intra- consolidated financial statements. Entity Transfers of Assets Other Than Inventory, which amends In February 2016, the FASB issued ASU No. 2016-02, Leases ASC 740, Income Taxes. This ASU requires that the income tax (Topic 842), which supersedes ASC 840, Leases. The ASU’s consequences of an intra-entity asset transfer other than primary change is the requirement for lessee entities to inventory are recognized at the time of the transfer. The recognize a lease liability for payments and a right of use effective date will be the first quarter of fiscal year 2019. The asset during the term of operating lease arrangements. The ASU will be adopted using a modified-retrospective transition ASU does not significantly change the lessee’s recognition, approach. The adoption will not have a material effect on the measurement, and presentation of expenses and cash flows company’s consolidated financial statements. from the previous accounting standard. Lessors’ accounting In November 2016, the FASB issued ASU No. 2016-18, under the ASC is largely unchanged from the previous Restricted Cash, which amends ASC 230, Statement of Cash accounting standard. In July 2018, the FASB issued ASU Flows. This ASU requires that a statement of cash flows No. 2018-10, Codification Improvements to Topic 842, Leases explain the change during the reporting period in the total of and ASU No. 2018-11, Leases: Targeted Improvements. Both cash, cash equivalents, and restricted cash or restricted cash ASUs amend ASC 842, Leases. The provisions impacting the equivalents. The effective date will be the first quarter of company in these ASUs are an option that will not require fiscal year 2019 and will be adopted using a retrospective prior periods to be restated at the adoption date and an transition approach. The adoption will not have a material option for lessors, if certain criteria are met, to avoid effect on the company’s consolidated financial statements. separating the lease and nonlease components (such as

In January 2017, the FASB issued ASU No. 2017-01, Clarifyingpreventative maintenance services) in an agreement. In the Definition of a Business, which amends ASC 805, BusinessDecember 2018, the FASB issued ASU No. 2018-20, Narrow- Combinations. This ASU provides further guidance on theScope Improvements for Lessors. This ASU provides an definition of a business to determine whether transactionselection for lessors to exclude sales and related taxes from should be accounted for as acquisitions of assets orconsideration in the contract, requires lessors to exclude from businesses. The effective date will be the first quarter of fiscalrevenue and expense lessor costs paid directly to a third party year 2019. The ASU will be adopted on a prospective basisby lessees, and clarifies lessors accounting for variable and will not have a material effect on the company’spayments related to both lease and nonlease components. The consolidated financial statements.effective date will be the first quarter of fiscal year 2020,

with early adoption permitted. The company is evaluating the In March 2017, the FASB issued ASU No. 2017-08, Premium potential effects on the consolidated financial statements and Amortization on Purchased Callable Debt Securities, which plans to adopt the ASU using the modified-retrospective amends ASC 310-20, Receivables – Nonrefundable Fees and approach that will not require prior periods to be restated. Other Costs. This ASU reduces the amortization period for

certain callable debt securities held at a premium to theIn June 2016, the FASB issued ASU No. 2016-13, Measurement earliest call date. The treatment of securities held at aof Credit Losses on Financial Instruments, which establishes discount is unchanged. The effective date is the first quarterASC 326, Financial Instruments – Credit Losses. The ASU of fiscal year 2020, with early adoption permitted. Therevises the measurement of credit losses for financial assets adoption will not have a material effect on the company’smeasured at amortized cost from an incurred loss consolidated financial statements.methodology to an expected loss methodology. The ASU

affects trade receivables, debt securities, net investment in In May 2017, the FASB issued ASU No. 2017-09, Scope of leases, and most other financial assets that represent a right Modification Accounting, which amends ASC 718, to receive cash. Additional disclosures about significant Compensation – Stock Compensation. This ASU provides estimates and credit quality are also required. In November guidance about which changes to the terms of a share-based 2018, the FASB issued ASU No. 2018-19, Codification payment award should be accounted for as a modification. A Improvements to Topic 326, Financial Instruments – Credit change to an award should be accounted for as a modification Losses. This ASU clarifies that receivables from operating unless the fair value of the modified award is the same as the leases are accounted for using the lease guidance and not as original award, the vesting conditions do not change, and the financial instruments. The effective date will be the first classification as an equity or liability instrument does not quarter of fiscal year 2021, with early adoption permitted change. The ASU will be adopted on a prospective basis. The beginning in fiscal year 2020. The ASU will be adopted using effective date is the first quarter of fiscal year 2019. The a modified-retrospective approach. The company is evaluating adoption will not have a material effect on the company’s the potential effects on the consolidated financial statements. consolidated financial statements. In August 2016, the FASB issued ASU No. 2016-15, In August 2017, the FASB issued ASU No. 2017-12, Targeted Classification of Certain Cash Receipts and Cash Payments, Improvements to Accounting for Hedging Activities, which which amends ASC 230, Statement of Cash Flows. This ASU amends ASC 815, Derivatives and Hedging. The purpose of

this ASU is to better align a company’s risk management Computing Arrangement That Is a Service Contract, which activities and financial reporting for hedging relationships, amends ASC 350-40, Intangibles – Goodwill and Other – simplify the hedge accounting requirements, and improve the Internal-Use Software. This ASU requires customers in a disclosures of hedging arrangements. The effective date is hosting arrangement that is a service contract to evaluate the fiscal year 2020, with early adoption permitted. The company implementation costs of the hosting arrangement using the will adopt the ASU in the first quarter of fiscal year 2019 and guidance to develop internal-use software. The project the adoption will not have a material effect on the company’s development stage determines the implementation costs that consolidated financial statements. are capitalized or expensed. Capitalized implementation costs

are amortized over the term of the service arrangement andIn June 2018, the FASB issued ASU No. 2018-07, are presented in the same income statement line item as theImprovements to Nonemployee Share-Based Payment service contract costs. The effective date will be the firstAccounting, which amends ASC 718, Compensation – Stock quarter of fiscal year 2021, with early adoption permitted. TheCompensation. This ASU requires that most of the guidance company will adopt the ASU on a prospective basis. Therelated to stock compensation granted to employees be company is evaluating the potential effects on the company’sfollowed for non-employees, including the measurement date, consolidated financial statements.valuation approach, and performance conditions. The expense

is recognized in the same period as though cash were paid for In October 2018, the FASB issued ASU No. 2018-16, Inclusion the good or service. The effective date is the first quarter of of the Secured Overnight Financing Rate (SOFR) Overnight fiscal year 2020, with early adoption permitted, including in Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge interim periods. The ASU will be adopted using a modified- Accounting Purposes, which amends ASC 815, Derivatives and retrospective transition approach. The adoption will not have a Hedging. This ASU adds the OIS rate based on SOFR to the material effect on the consolidated financial statements. list of permissible benchmark rates for hedge accounting

purposes. The company will early adopt the ASU in the firstIn August 2018, the FASB issued ASU No. 2018-13, Disclosure quarter of fiscal year 2019. The adoption will not have aFramework – Changes to the Disclosure Requirements for Fair material effect on the company’s consolidated financialValue Measurement, which amends ASC 820, Fair Value statements.Measurement. This ASU modifies the disclosure requirements

for fair value measurements by removing, modifying, or adding 4. ACQUISITIONS AND DISPOSITIONS certain disclosures. The effective date is the first quarter of

Acquisitionsfiscal year 2021, with early adoption permitted for the PLAremoved disclosures and delayed adoption until fiscal year On September 26, 2018, the company acquired PLA, a2021 permitted for the new disclosures. The removed and privately-held manufacturer of sprayers, planters, and specialtymodified disclosures will be adopted on a retrospective basis products for agriculture. PLA is based in Argentina, withand the new disclosures will be adopted on a prospective manufacturing facilities in Las Rosas, Argentina and Canoas,basis. The company will early adopt the ASU in the first Brazil. The total cash purchase price before the finalquarter of fiscal year 2019. The adoption will not have a adjustment, net of cash acquired of $1 million, was $74 millionmaterial effect on the company’s consolidated financial with $4 million retained by the company as escrow to securestatements. indemnity obligations. In addition to the cash purchase price,In August 2018, the FASB issued ASU No. 2018-14, Disclosure the company assumed $30 million of liabilities. The preliminaryFramework – Changes to the Disclosure Requirements for asset and liability fair values at the acquisition date in millionsDefined Benefit Plans, which amends ASC 715-20, of dollars follow:Compensation – Retirement Benefits – Defined Benefit

Plans – General. This ASU modifies the disclosure September 2018 requirements for employers that sponsor defined benefit

Trade accounts and notes receivable ................ $ 6pension or other postretirement plans by removing and adding Other receivables ......................................... 14certain disclosures for these plans. The eliminated disclosures Inventories ................................................. 19

include (a) the amounts in accumulated OCI expected to be Property and equipment ................................ 1 recognized in net periodic benefit costs over the next fiscal Goodwill .................................................... 43 year and (b) the effects of a one-percentage-point change in Other intangible assets.................................. 21 assumed health care cost trend rates on the net periodic Total assets ............................................. $ 104 benefit costs and the benefit obligation for postretirement

Short-term borrowings .................................. $ 8health care benefits. The new disclosures include the interest Accounts payable and accrued expenses ............ 17crediting rates for cash balance plans, and an explanation of Deferred income taxes .................................. 5significant gains and losses related to changes in benefit

Total liabilities .......................................... $ 30obligations. The effective date is fiscal year 2021, with early adoption permitted. The company will early adopt the ASU in fiscal year 2019. The adoption will not have a material effect The identified intangible assets were primarily related to on the company’s consolidated financial statements. technology, trademarks, and customer relationships. The

goodwill is not expected to be deductible for tax purposes.In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud

King Agro asset and liability fair values at the acquisition date in millions In March 2018, the company acquired King Agro, a privately of dollars follow: held manufacturer of carbon fiber technology products with

December 2017headquarters in Valencia, Spain and a production facility in Campana, Argentina. The total cash purchase price, net of Receivables from unconsolidated affiliates ......... $ 5

Trade accounts and notes receivable ................ 449cash acquired of $3 million, was $40 million, excluding a loan Financing receivables .................................... 43to King Agro of $4 million that was forgiven on the Financing receivables securitized ..................... 125acquisition date. In addition to the cash purchase price, the Other receivables ......................................... 98company assumed $11 million of liabilities. The asset and Inventories ................................................. 1,536liability fair values at the acquisition date in millions of dollars Property and equipment ................................ 752

follow: Investments in unconsolidated affiliates ............ 19 Goodwill .................................................... 2,068

March 2018 Other intangible assets.................................. 1,442

Trade accounts and notes receivable ................ $ 2 Deferred income taxes .................................. 26 Other receivables ......................................... 2 Other assets ............................................... 215 Inventories ................................................. 5 Total assets ............................................. $ 6,778Property and equipment ................................ 5 Goodwill .................................................... 28 Short-term borrowings .................................. $ 285 Other intangible assets.................................. 13 Short-term securitization borrowings ................ 127

Accounts payable and accrued expenses ............ 719Total assets ............................................. $ 55 Deferred income taxes .................................. 430

Short-term borrowings .................................. $ 2 Long-term borrowings .................................. 50 Accounts payable and accrued expenses ............ 4 Retirement benefits and other liabilities ............ 30 Deferred income taxes .................................. 4 Total liabilities .......................................... $ 1,641Long-term borrowings .................................. 1

Noncontrolling interests ................................ $ 1Total liabilities .......................................... $ 11

The identifiable intangible assets’ fair values in millions ofThe identifiable intangibles were primarily related to trade dollars and weighted-average useful lives in years follows:name and technology, which have a weighted-average

amortization period of ten years. The goodwill is not expected Weighted- to be deductible for tax purposes. Average Fair

Useful Lives ValuesWirtgen In December 2017, the company acquired Wirtgen, which was Customer lists and relationships .................... 16 $ 519 a privately-held international company and is the leading Technology, patents, trademarks, and other ..... 19 $ 923 manufacturer worldwide of road construction equipment.

The goodwill is not deductible for tax purposes.Headquartered in Germany, Wirtgen has six brands across the road construction sector spanning processing, mixing, paving, Wirtgen’s results are incorporated in the company’s compaction, and rehabilitation. Wirtgen sells products in more consolidated financial statements using a one-month lag than 100 countries and had approximately 8,200 employees at period and are included in the construction and forestry the acquisition date. segment. The net sales and revenues and operating profit

included in the company’s statement of consolidated income inThe total cash purchase price, net of cash acquired of 2018 was $3,181 million and $116 million, respectively. During$191 million, was $5,136 million, a portion of which is held in 2018, the company recognized $56 million of acquisitionescrow to secure certain indemnity obligations of Wirtgen. In related costs, which were recorded $30 million in selling,addition to the cash purchase price, the company assumed administrative and general expenses and $26 million in other$1,641 million in liabilities, which represented substantially all operating expenses.of Wirtgen’s liabilities. The company financed the acquisition

and associated transaction expenses from a combination of The unaudited pro forma consolidated net sales and revenues cash and new debt financing, which consisted of medium-term and net income are prepared as if the acquisition closed at notes, including e850 million issued in September 2017. The the beginning of fiscal year 2017 and follow in millions of

dollars:

2018 2017

Net sales and revenues ...................... $ 37,822 $ 32,946 Net income attributable to

Deere & Company ......................... $ 2,637 $ 2,272

The pro forma amounts have been calculated using policies $3 million. The asset and liability fair values at the acquisition date in millions of dollars follow:consistent with the company’s accounting policies and include

the additional expense from the amortization from the March 2016allocated purchase price adjustments. The pro forma results

Trade accounts and notes receivable ................ $ 2exclude acquisition related costs incurred in both years and Inventories ................................................. 33assume the medium-term notes used to fund the acquisition Property and equipment ................................ 17were issued in fiscal year 2016 at the interest rate of the Goodwill .................................................... 33actual notes. In addition, the pro forma results for the year Other intangible assets.................................. 22

ended October 29, 2017 include nonrecurring pretax expenses Other assets ............................................... 3 of $291 million for the higher cost basis from the inventory

Total assets ............................................. $ 110fair value adjustment and $84 million for the amortization of Accounts payable and accrued expenses, andidentifiable intangible assets. Anticipated synergies or other

Total liabilities .......................................... $ 43expected benefits of the acquisition are not included in the pro forma results. As a result, the unaudited pro forma Redeemable noncontrolling interest .................. $ 14 financial information may not be indicative of the results for future operations or the results if the acquisition closed at the The identifiable intangibles were primarily related to beginning of fiscal year 2017. technology, trade name and customer relationships, which

have a weighted average amortization period of eight years.Blue River The goodwill is deductible for tax purposes. If certain eventsIn September 2017, the company acquired Blue River occur, the minority interest holder has the right to exercise aTechnology (Blue River), which is based in Sunnyvale, California put option that would require the company to purchase thefor an acquisition cost of approximately $284 million, net of holder’s membership interest. The company also has a callcash acquired of $4 million and $21 million funded to escrow option exercisable after a certain period of time. The put andfor post-acquisition expenses. Blue River has designed and call options cannot be separated from the noncontrollingintegrated computer vision and machine learning technology interest. Due to the redemption features, the minority interestto optimize the use of farm inputs. Machine learning holder’s value is classified as a redeemable noncontrollingtechnologies could eventually be applied to a wide range of interest in the company’s consolidated balance sheet.the company’s products. The asset and liability fair values at Monosemthe acquisition date in millions of dollars follow: In February 2016, the company acquired Monosem for a cost

September 2017 of approximately $146 million, net of cash acquired of $20 million. Monosem, with four facilities in France and twoTrade accounts and notes receivable ................ $ 1 in the U.S., is the European market leader in precisionProperty and equipment ................................ 2

Goodwill .................................................... 193 planters. The asset and liability fair values at the acquisition Other intangible assets.................................. 125 date in millions of dollars follow:

Total assets ............................................. $ 321 February 2016

Accounts payable and accrued expenses ............ $ 1 Trade accounts and notes receivable ................ $ 5 Deferred income taxes .................................. 36 Other receivables ......................................... 2

Total liabilities .......................................... $ 37 Inventories ................................................. 29 Property and equipment ................................ 24 Goodwill .................................................... 62The identifiable intangibles were primarily related to in-process Other intangible assets.................................. 42

research and development, which will not be amortized until Other assets ............................................... 23 the research and development efforts are complete or end.

Total assets ............................................. $ 187 The goodwill is not deductible for tax purposes. Blue River is

Accounts payable and accrued expenses ............ $ 22included in the company’s agriculture and turf operating Deferred income taxes .................................. 19 segment.

Total liabilities .......................................... $ 41 Hagie In March 2016, the company acquired an 80 percent interest The identifiable intangibles were primarily related to trade in Hagie Manufacturing Company, LLC, the U.S. market leader name, customer relationships and technology, which have a in high-clearance sprayers located in Clarion, Iowa, for a cost weighted average amortization period of nine years. The of approximately $53 million, net of cash acquired of goodwill is not deductible for tax purposes.

For the acquisitions, the goodwill was the result of future cash flows and related fair value exceeding the fair value of the identified assets and liabilities. For the acquisitions other than Wirtgen, the results of these operations have been included in the company’s consolidated financial statements in the agriculture and turf operating segment and the pro forma results of operations as if these acquisitions had occurred at the beginning of the current or comparative fiscal year would not differ significantly from the reported results.

Dispositions the carrying amount of the net assets. The assets are part of In May 2018, the company sold construction and forestry retail the financial services operations (see Note 26). locations in Michigan, Minnesota, and Wisconsin. At the time Voluntary Employee-Separation Programs of the sale, total assets were $74 million and liabilities were During the fourth quarter of 2016, the company announced approximately $2 million. The assets consisted of trade voluntary employee-separation programs as part of its effort accounts and notes receivable – net of $3 million, inventory to reduce operating costs. The programs provided for cash of $52 million, property and equipment – net of $11 million, payments based on previous years of service. The expense and goodwill of $8 million. The liabilities consisted of was recorded in the period the employees accepted the $2 million of accounts payable and accrued expenses. The separation offer. The programs’ total pretax expenses were total proceeds from the sale will be approximately $84 million, $113 million, of which $11 million was recorded in the fourth with $67 million received in 2018. The remaining sales price is quarter of 2016 and $102 million in 2017. The total 2017due based on standard payment terms of new equipment sales expenses were allocated approximately 30 percent cost ofto independent dealers or refinanced wholesale terms. A sales, 16 percent research and development, and 54 percentpretax gain of $12 million was recorded in other income in the selling, administrative and general. In addition, the expensesconstruction and forestry segment. were allocated 75 percent to agriculture and turf operations, In November 2017, the company sold its construction and 17 percent to the construction and forestry operations, and forestry retail locations in Florida. At the time of the sale, 8 percent to the financial services operations. Savings from total assets were $93 million and liabilities were $1 million. these programs were estimated to be approximately The assets consisted of inventory of $61 million, property and $70 million in 2017. equipment – net of $21 million, goodwill of $10 million, and

Sale of Investment in Unconsolidated Affiliate$1 million of other assets. The liabilities consisted of $1 million In December 2016, the company sold approximately 38 percentof accounts payable and accrued expenses. The total proceeds of its interest in SiteOne Landscape Supply, Inc. (SiteOne)from the sale will be approximately $105 million, with resulting in gross proceeds of $114 million and a gain of$89 million received in 2018. The remaining sales price is due $105 million pretax or $66 million after-tax. In April 2017, thebased on standard payment terms of new equipment sales to company sold an additional 68 percent of its then remainingindependent dealers or refinanced wholesale terms. A pretax interest in SiteOne resulting in gross proceeds of $184 milliongain of $13 million was recorded in other income in the and a gain of $176 million pretax or $111 million after-tax. Inconstruction and forestry segment. July 2017, the company sold its remaining interest in SiteOne

For the retail location dispositions, the company sells resulting in gross proceeds of $98 million and a gain of equipment, service parts, and provides other services to the $94 million pretax or $59 million after-tax. The gains were purchasers as independent dealers. recorded in other income in the agriculture and turf operating 5. SPECIAL ITEMS segment.

After the December 2016 sale, the company retainedImpairments approximately a 15 percent ownership interest in SiteOne andIn the fourth quarter of 2017, the company recorded a approximately a 5 percent ownership interest after the Aprilnon-cash charge of $40 million pretax in equity in loss of sale. Prior to April 2017, the company’s representation on theunconsolidated affiliates for an other than temporary decline SiteOne board of directors allowed the company to exercisein value of an investment in an international construction

equipment manufacturer with a $14 million income tax benefit significant influence, and therefore, the investment in SiteOne recorded in the provision for income taxes (see Note 26). was accounted for using the equity method. In March 2017,

the company reduced its representation on the SiteOne boardIn the fourth quarter of 2016, the company recorded a of directors. As a result, beginning April 2017 the investmentnon-cash charge in cost of sales for the impairment of in SiteOne was recorded as an available-for-sale security andlong-lived assets of $13 million pretax and after-tax. The presented in marketable securities.assets are part of the company’s construction and forestry

operations in China. The impairment is the result of a decline In May 2016, the company received a distribution of in forecasted financial performance that indicated it was $60 million from SiteOne that reduced the company’s probable the future cash flows would not cover the carrying investment in unconsolidated affiliates. The distribution amount of assets used to manufacture construction equipment included $4 million of a return on investment, which is shown in that country. In addition, the company recorded a non-cash in the statement of consolidated cash flows in undistributed charge of $12 million, pretax and after-tax, in equity in loss of earnings of unconsolidated affiliates in net cash provided by unconsolidated affiliates for an other than temporary decline operating activities and $56 million of a return of investment in value of an investment in a construction equipment joint shown in other cash flows from investing activities. In May venture in Brazil (see Note 26). 2016, the company also sold approximately 30 percent of its

interest in SiteOne in an initial public offering and terminatedIn 2016, the company recorded non-cash charges in other a service agreement resulting in gross proceeds ofoperating expenses of approximately $31 million pretax for the approximately $81 million with a total gain of $75 millionimpairment of equipment on operating leases and pretax or $47 million after-tax. The gain was recorded in otherapproximately $29 million pretax on matured operating lease income in the agriculture and turf operating segment. Theinventory recorded in other assets. The impairment was the company retained approximately a 24 percent ownershipresult of lower estimated values of used agriculture and interest in SiteOne after the May 2016 sale.construction equipment than originally estimated with the

probable effect that the future cash flows would not cover

6. CASH FLOW INFORMATION 7. PENSION AND OTHER POSTRETIREMENT BENEFITS

For purposes of the statement of consolidated cash flows, the The company has several defined benefit pension plans and company considers investments with purchased maturities of other postretirement benefit (OPEB) plans, primarily health three months or less to be cash equivalents. Substantially all care and life insurance plans, covering its U.S. employees and of the company’s short-term borrowings, excluding the current employees in certain foreign countries. The company uses an maturities of long-term borrowings, mature or may require October 31 measurement date for these plans. payment within three months or less. The components of net periodic pension cost and the The equipment operations sell a significant portion of their assumptions related to the cost consisted of the following in trade receivables to financial services. These intercompany millions of dollars and in percents: cash flows are eliminated in the consolidated cash flows.

2018 2017 2016 All cash flows from the changes in trade accounts and notes

Pensionsreceivable (see Note 12) are classified as operating activities in Service cost .................................. $ 293 $ 274 $ 254the statement of consolidated cash flows as these receivables Interest cost.................................. 390 361 391

arise from sales to the company’s customers. Cash flows from Expected return on plan assets ......... (775) (790) (775) financing receivables that are related to sales to the Amortization of actuarial loss ............ 226 247 211 company’s customers (see Note 12) are also included in Amortization of prior service cost ...... 12 12 16 operating activities. The remaining financing receivables are Other postemployment benefits ......... 2 related to the financing of equipment sold by independent Settlements/curtailments .................. 8 2 11 dealers and are included in investing activities. Net cost ...................................... $ 154 $ 106 $ 110 The company had the following non-cash operating and Weighted-average assumptions investing activities that were not included in the statement of Discount rates – service cost ............ 3.5% 3.5% 4.3% consolidated cash flows. The company transferred inventory to Discount rates – interest cost ........... 3.2% 3.0% 3.4% equipment on operating leases of $855 million, $801 million, Rate of compensation increase .......... 3.8% 3.8% 3.8%

Expected long-term rates of return .... 6.9% 7.3% 7.3%and $685 million in 2018, 2017, and 2016, respectively. The company also had accounts payable related to purchases of

The components of net periodic OPEB cost and theproperty and equipment of $183 million, $108 million, and assumptions related to the cost consisted of the following in$114 million at October 28, 2018, October 29, 2017, and millions of dollars and in percents:October 30, 2016, respectively.

2018 2017 2016Cash payments for interest and income taxes consisted of the following in millions of dollars:

OPEB Service cost .................................. $ 45 $ 42 $ 38

2018 2017 2016 Interest cost.................................. 191 194 204 Expected return on plan assets ......... (22) (17) (35)Interest: Amortization of actuarial loss ............ 62 99 73Equipment operations ................ $ 581 $ 506 $ 442 Amortization of prior service credit .... (77) (77) (78)Financial services ...................... 926 665 524

Intercompany eliminations ........... (331) (268) (240) Net cost ...................................... $ 199 $ 241 $ 202 Consolidated ............................... $ 1,176 $ 903 $ 726

Weighted-average assumptions Discount rates – service cost ............ 4.3% 4.7% 5.0%Income taxes: Discount rates – interest cost ........... 3.3% 3.2% 3.5%Equipment operations ................ $ 625 $ 898 $ 314 Expected long-term rates of return .... 5.7% 6.3% 6.6%Financial services ...................... 387 92 (26)

Intercompany eliminations ........... (300) (9) 104 The spot yield curve approach is used to estimate the service

Consolidated ............................... $ 712 $ 981 $ 392 and interest cost components of the net periodic pension and OPEB costs by applying the specific spot rates along the yield curve used to determine the benefit plan obligations to relevant projected cash outflows. The components of net periodic pension and OPEB cost excluding the service component are included in the line item other operating expenses in the Statement of Consolidated Income.

The previous pension cost in net income and other changes in The benefit plan obligations, funded status, and the assumptions plan assets and benefit obligations in other comprehensive related to the obligations at October 28, 2018 and October 29, income in millions of dollars were as follows: 2017, respectively, in millions of dollars follow:

Pensions OPEB2018 2017 2016 2018 2017 2018 2017Pensions

Net cost ....................................... $ 154 $ 106 $ 110 Change in benefit obligations Retirement benefit adjustments Beginning of year balance ... $ (13,166) $ (13,086) $ (6,162) $ (6,500)

included in other comprehensive Service cost ...................... (293) (274) (45) (42) (income) loss: Interest cost ..................... (390) (361) (191) (194)

Net actuarial (gain) loss ............ (553) (702) 1,140 Actuarial gain (loss) ............ 1,012 (35) 624 280 Prior service cost ..................... 1 Amendments .................... (5) Amortization of actuarial loss ..... (226) (247) (211) Benefits paid .................... 711 704 317 312 Amortization of prior service cost (12) (12) (16) Health care subsidies .......... (12) (9) Settlements/curtailments ........... (8) (2) (14) Settlements/curtailments ..... 2

Acquisition* ...................... (29)Total (gain) loss recognized in Foreign exchange and other 47 (116) 2 (9)other comprehensive

(income) loss .................... (799) (963) 900 End of year balance ........... (12,108) (13,166) (5,472) (6,162) Total recognized in comprehensive Change in plan assets (fair

(income) loss .............................. $ (645) $ (857) $ 1,010 value) Beginning of year balance ... 12,093 11,137 539 435 Actual return on plan assets 316 1,517 6 46The previous OPEB cost in net income and other changes in Employer contribution ......... 938 62 488 366plan assets and benefit obligations in other comprehensive Benefits paid .................... (711) (704) (317) (312)income in millions of dollars were as follows: Settlements ...................... (2) Foreign exchange and other (34) 83 3 42018 2017 2016 End of year balance ........... 12,602 12,093 719 539

OPEB Net cost ....................................... $ 199 $ 241 $ 202 Funded status .................. $ 494 $ (1,073) $ (4,753) $ (5,623) Retirement benefit adjustments

Weighted-average assumptionsincluded in other comprehensive Discount rates ................... 4.1% 3.6% 4.5% 3.7%(income) loss: Rate of compensation increase 3.8% 3.8%Net actuarial (gain) loss ............ (608) (309) 496 * See Note 4.Prior service cost (credit) ........... 5 (3)

Amortization of actuarial loss ..... (62) (99) (73) In 2018, the company made voluntary contributions ofAmortization of prior service credit 77 77 78 $870 million to a U.S. pension plan and $430 million to its

Total (gain) loss recognized in U.S. OPEB plans. other comprehensive

The mortality assumptions for the 2018 and 2017 benefit plan(income) loss .................... (588) (331) 498 obligations reflect the most recent tables issued by theTotal recognized in comprehensive Society of Actuaries at that time.(income) loss .............................. $ (389) $ (90) $ 700 The amounts recognized at October 28, 2018 and October 29, 2017, respectively, in millions of dollars consist of the following:

Pensions OPEB 2018 2017 2018 2017

Amounts recognized in balance sheet

Noncurrent asset .................. $ 1,298 $ 538 Current liability .................... (36) (40) $ (34) $ (63) Noncurrent liability ............... (768) (1,571) (4,719) (5,560) Total .................................. $ 494 $ (1,073) $ (4,753) $ (5,623)

Amounts recognized in accumulated other comprehensive income – pretax

Net actuarial loss ................. $ 3,571 $ 4,358 $ 787 $ 1,457 Prior service cost (credit) ........ 43 55 (100) (182) Total .................................. $ 3,614 $ 4,413 $ 687 $ 1,275

The total accumulated benefit obligations for all pension plans 2019, gradually decreasing to 4.8 percent from 2024 to 2025 at October 28, 2018 and October 29, 2017, were and all future years. The 2017 obligations and the cost in 2018 $11,485 million and $12,416 million, respectively. assumed an 8.9 percent increase from 2017 to 2018, gradually

decreasing to 4.8 percent from 2024 to 2025 and all futureThe accumulated benefit obligations and fair value of plan years. An increase of one percentage point in the assumedassets for pension plans with accumulated benefit obligations health care cost trend rate would increase the accumulatedin excess of plan assets were $1,710 million and $1,015 million, postretirement benefit obligations by $644 million and therespectively, at October 28, 2018 and $8,234 million and aggregate of service and interest cost component of net$7,345 million, respectively, at October 29, 2017. The periodic OPEB cost for the year by $33 million. A decrease ofprojected benefit obligations and fair value of plan assets for one percentage point would decrease the obligations bypension plans with projected benefit obligations in excess of $511 million and the cost by $26 million.plan assets were $1,833 million and $1,029 million,

respectively, at October 28, 2018 and $9,059 million and The discount rate assumptions used to determine the pension $7,448 million, respectively, at October 29, 2017. and OPEB obligations for all periods presented were based on

hypothetical AA yield curves represented by a series ofThe amounts in accumulated other comprehensive income that annualized individual discount rates. These discount ratesare expected to be amortized as net expense (income) and represent the rates at which the company’s benefit obligationsreported outside of income from operations during fiscal 2019 could effectively be settled at the October 31 measurementin millions of dollars follow: dates.

Pensions OPEB Fair value measurement levels in the following tables are defined in Note 26.Net actuarial loss .................................... $ 141 $ 20

Prior service cost (credit)........................... 12 (72) The fair values of the pension plan assets at October 28, 2018 Total ..................................................... $ 153 $ (52) follow in millions of dollars:

Total Level 1 Level 2Actuarial gains and losses are recorded in accumulated other comprehensive income (loss). To the extent unamortized gains Cash and short-term investments ........ $ 868 $ 377 $ 491 and losses exceed 10% of the higher of the market-related Equity:

U.S. equity securities ................. 1,495 1,466 29value of assets or the benefit obligation, the excess is International equity securities ...... 1,143 1,136 7amortized as a component of net periodic cost over the

Fixed Income:remaining service period of the active participants. For plans Government and agency securities 764 500 264in which all or almost all of the plan’s participants are Corporate debt securities ............ 1,626 1,626inactive, the amortization period is the remaining life Mortgage-backed securities ......... 53 53

expectancy of the inactive participants. Real estate .................................... 76 72 4 Derivative contracts – assets* ............ 102 3 99The company expects to contribute approximately $70 million Derivative contracts – liabilities** ....... (115) (40) (75)to its pension plans and approximately $140 million to its Receivables, payables, and other ......... (9) (10) 1OPEB plans in 2019, which are primarily direct benefit Securities lending collateral................ 561 561payments. Securities lending liability .................. (561) (561)

The benefits expected to be paid from the benefit plans, Securities sold short ........................ (333) (330) (3) which reflect expected future years of service, are as follows Total of Level 1 and Level 2 assets 5,670 $ 3,174 $ 2,496 in millions of dollars:

Investments at net asset value: Short-term investments ................. 219Pensions OPEB* U.S. equity funds ......................... 1,526

2019 ..................................................... $ 712 $ 320 International equity funds .............. 802 2020 .................................................... 743 334 Corporate debt funds .................... 28 2021 ..................................................... 703 339 Fixed income funds ...................... 1,262 2022 .................................................... 699 345 Real estate ................................. 654 2023 .................................................... 693 345 Hedge funds ............................... 7242024 to 2028 ......................................... 3,465 1,729 Private equity/venture capital.......... 1,680 * Net of prescription drug group benefit subsidy under Medicare Part D. Other investments ........................ 37

Total net assets .............................. $ 12,602The annual rates of increase in the per capita cost of covered health care benefits (the health care cost trend rates) used to * Includes contracts for interest rates of $48 million, foreign currency of determine accumulated postretirement benefit obligations were $47 million, and other of $7 million.

** Includes contracts for interest rates of $49 million, foreign currency ofbased on the trends for medical and prescription drug claims $28 million, equity of $29 million, and other of $9 million.for pre- and post-65 age groups due to the effects of

Medicare. For the 2018 actuarial valuation, the weighted-average composite trend rates for these obligations were assumed to be an 8.9 percent increase from 2018 to

The fair values of the health care assets at October 28, 2018 Total Level 1 Level 2 follow in millions of dollars:

Investments at net asset value: Short-term investments ................ $ 203Total Level 1 Level 2 U.S. equity funds ........................ 1,704

Cash and short-term investments ....... $ 78 $ 73 $ 5 International equity funds ............. 921 Equity: Corporate debt funds ................... 28

U.S. equity securities and funds... 54 54 Fixed income funds ..................... 772 International equity securities ...... 10 10 Real estate ................................ 567

Fixed Income: Hedge funds .............................. 651 Government and agency Private equity/venture capital......... 1,560

securities ............................. 57 53 4 Other investments ....................... 29 Corporate debt securities ........... 29 29

Total net assets ............................. $ 12,093Mortgage-backed securities ........ 11 11 Real estate .................................... 1 1 * Includes contracts for interest rates of $79 million, foreign currency of Foreign currency derivative $49 million, equity of $27 million, and other of $4 million.

contracts – assets ........................ 1 1 ** Includes contracts for interest rates of $48 million, foreign currency of Equity derivative contracts – liabilities (1) (1) $26 million, and other of $2 million. Securities lending collateral ............... 24 24

The fair values of the health care assets at October 29, 2017Securities lending liability.................. (24) (24) Securities sold short ........................ (3) (3) follow in millions of dollars:

Total of Level 1 and Level 2 assets 237 $ 187 $ 50 Total Level 1 Level 2

Investments at net asset value: Cash and short-term investments ........... $ 30 $ 28 $ 2Short-term investments ................. 2 Equity:U.S. equity funds ......................... 220

U.S. equity securities and funds ...... 42 42International equity funds .............. 146 International equity securities ......... 9 9Fixed income funds ...................... 83

Fixed Income:Real estate funds ......................... 7 Government and agency securities 40 37 3Hedge funds ............................... 7 Corporate debt securities ............... 21 21Private equity/venture capital .......... 17 Mortgage-backed securities ............ 10 10

Total net assets .............................. $ 719 Real estate ........................................ 1 1 Interest rate derivative contracts – assets ... 1 1 Securities lending collateral ................... 25 25The fair values of the pension plan assets at October 29, 2017 Securities lending liability...................... (25) (25)follow in millions of dollars: Securities sold short ............................ (2) (2)

Total Level 1 Level 2 Total of Level 1 and Level 2 assets 152 $ 115 $ 37

Cash and short-term investments .......... $ 618 $ 349 $ 269 Investments at net asset value: Equity: Short-term investments ..................... 1

U.S. equity securities ................... 1,871 1,850 21 U.S. equity funds ............................. 164 International equity securities ........ 1,551 1,541 10 International equity funds .................. 117

Fixed Income: Fixed income funds .......................... 87 Government and agency securities 483 241 242 Real estate funds ............................. 4 Corporate debt securities .............. 1,285 1,285 Hedge funds................................... 4 Mortgage-backed securities ........... 42 42 Private equity/venture capital ............. 10

Real estate ....................................... 103 101 2 Total net assets.................................. $ 539

Derivative contracts – assets* .............. 159 28 131 Derivative contracts – liabilities** .......... (76) (2) (74)

Investments at net asset value in the preceding tables areReceivables, payables, and other ........... 1 1 measured at fair value using the net asset value per shareSecurities lending collateral .................. 420 420

Securities lending liability .................... (420) (420) practical expedient, and therefore, are not classified in the fair Securities sold short ........................... (379) (375) (4) value hierarchy.

Total of Level 1 and Level 2 assets $ 5,658 $ 3,734 $ 1,924 Fair values are determined as follows: Cash and Short-Term Investments – Includes accounts that are(continued) valued based on the account value, which approximates fair value, and investment funds that are valued based on a constant fund net asset value (NAV) or on the fund’s NAV based on the fair value of the underlying securities. Also included are securities that are valued using a market approach (matrix pricing model) in which all significant inputs are observable or can be derived from or corroborated by observable market data.

Equity Securities and Funds – The values are determined return on funds invested to provide for benefits included in primarily by closing prices in the active market in which the the projected benefit obligations. A market related value of equity investment trades, or the fund’s NAV, based on the fair plan assets is used to calculate the expected return on assets. value of the underlying securities. The market related value recognizes changes in the fair value

of pension plan assets systematically over a five-year period.Fixed Income Securities and Funds – The securities are valued The market related value of the health care plan assets equalsusing either a market approach (matrix pricing model) in which fair value. The expected return is based on the outlook forall significant inputs are observable or can be derived from or inflation and for returns in multiple asset classes, while alsocorroborated by observable market data such as interest rates, considering historical returns, asset allocation, and investmentyield curves, volatilities, credit risk, and prepayment speeds, or strategy. The company’s approach has emphasized thethey are valued using the closing prices in the active market long-term nature of the return estimate such that the returnin which the fixed income investment trades. Fixed income assumption is not changed significantly unless there arefunds are valued using the fund’s NAV, based on the fair value fundamental changes in capital markets that affect theof the underlying securities. company’s expectations for returns over an extended period of

Real Estate, Venture Capital, Private Equity, Hedge Funds, and time (i.e., 10 to 20 years). The average annual return of the Other – The investments that are structured as limited company’s U.S. pension fund was approximately 9.2 percent partnerships are valued at estimated fair value based on their during the past ten years and approximately 8.2 percent proportionate share of the limited partnership’s fair value that during the past 20 years. Since return premiums over inflation is determined by the respective general partner. These and total returns for major asset classes vary widely even over investments are valued using a combination of NAV, an income ten-year periods, recent history is not necessarily indicative of approach (primarily estimated cash flows discounted over the long-term future expected returns. The company’s systematic expected holding period), or market approach (primarily the methodology for determining the long-term rate of return for valuation of similar securities and properties). Real estate the company’s investment strategies supports its long-term investment trusts are primarily valued at the closing prices in expected return assumptions. the active markets in which the investment trades. Real estate

The company has created certain Voluntary Employees’funds and other investments are primarily valued at NAV, Beneficiary Association trusts (VEBAs) for the funding ofbased on the fair value of the underlying securities. postretirement health care benefits. The future expected asset

Interest Rate, Foreign Currency, and Other Derivative returns for these VEBAs are lower than the expected return Instruments – The derivatives are valued using either an on the other pension and health care plan assets due to income approach (discounted cash flow) using market investment in a higher proportion of liquid securities. These observable inputs, including swap curves and both forward assets are in addition to the other postretirement health care and spot exchange rates, or a market approach (closing prices plan assets that have been funded under Section 401(h) of in the active market in which the derivative instrument the U.S. Internal Revenue Code and maintained in a separate trades). account in the company’s pension plan trust. The primary investment objective for the pension and health The company has defined contribution plans related to care plans assets is to maximize the growth of these assets to employee investment and savings plans primarily in the U.S. support the projected obligations to the beneficiaries over a The company’s contributions and costs under these plans were long period of time, and to do so in a manner that is $206 million in 2018, $188 million in 2017, and $193 million in consistent with the company’s risk tolerance. The asset 2016. The contribution rate varies primarily based on the allocation policy is the most important decision in managing company’s performance in the prior year and employee the assets and it is reviewed regularly. The asset allocation participation in the plans. policy considers the company’s long-term asset class risk/

8. INCOME TAXESreturn expectations since the obligations are long-term in nature. The current target allocations for pension assets are On December 22, 2017, the U.S. government enacted tax approximately 42 percent for equity securities, 34 percent for reform. The primary provisions of tax reform affecting the debt securities, 6 percent for real estate, and 18 percent for company in 2018 were a reduction to the corporate income other investments. The target allocations for health care tax rate from 35 percent to 21 percent and a transition from a assets are approximately 57 percent for equity securities, worldwide corporate tax system to a primarily territorial tax 30 percent for debt securities, 1 percent for real estate, and system. The reduction in the corporate income tax rate 12 percent for other investments. The allocation percentages required the company to remeasure its U.S. net deferred tax above include the effects of combining derivatives with other assets to the new corporate tax rate and the transition to a investments to manage asset allocations and exposures to territorial tax system requires payment of a one-time tax on interest rates and foreign currency exchange. The assets are the deemed repatriation of undistributed and previously well diversified and are managed by professional investment untaxed non-U.S. earnings. Under current tax law, the firms as well as by investment professionals who are company company plans to pay the deemed earnings repatriation tax employees. As a result of the company’s diversified investment (repatriation tax) in 2019 with an expected U.S. income tax policy, there were no significant concentrations of risk. overpayment. The expected long-term rate of return on plan assets reflects management’s expectations of long-term average rates of

The income tax expense (benefit) for the net deferred tax A comparison of the statutory and effective income tax asset remeasurement and the repatriation tax in 2018 in provision and reasons for related differences in millions of millions of dollars follow: dollars follow:

Equipment Financial 2018 2017 2016 Operations Services Total

U.S. federal income tax provision at the Net deferred tax asset remeasurement ... $ 768 $ (354) $ 414 U.S. statutory rate (2018 – 23.3 percent, Deemed earnings repatriation tax .......... 277 13 290 2017 and 2016 – 35 percent) ................ $ 950 $ 1,104 $ 778

Increase (decrease) resulting from:Total discrete tax expense (benefit) ...... $ 1,045 $ (341) $ 704 Net deferred tax asset remeasurement ........ 414 Deemed earnings repatriation tax .............. 290

Included in the Equipment Operations’ repatriation tax amount Other effects of tax reform ...................... 42 is an accrual of approximately $63 million for foreign Differences in taxability of foreign earnings .... (92) (83) (107)

Valuation allowance on deferred taxes ........ 50 89 79withholding taxes on earnings of subsidiaries outside the U.S. Research and business tax credits .............. (43) (63) (57)that were previously expected to be indefinitely reinvested State and local income taxes, net of federaloutside the U.S. The provision for income taxes was also

income tax benefit .............................. 59 37 26affected primarily by the lower corporate income tax rate on Excess tax benefits on equity compensation (49) (30)current year income. Tax rates on foreign earnings .................... 44 (84) (27) Unrecognized tax benefits ........................ 30 9 11The 21 percent corporate income tax rate was effective Nondeductible impairment charges ............. 4January 1, 2018. Based on the company’s October fiscal year Other - net........................................... 32 (8) (7)end, the U.S. statutory income tax rate for fiscal year 2018

was approximately 23.3 percent. Provision for income taxes ...................... $ 1,727 $ 971 $ 700 The 2018 repatriation tax expense is based on interpretations

At October 28, 2018, accumulated earnings in certainof existing laws, regulations, and certain assumptions. Further subsidiaries outside the U.S. totaled $2,559 million, whichregulatory guidance is expected, which could affect the were subject to the repatriation tax. No provision for foreignrecorded expense. The company continues to analyze the withholding taxes has been made because it is expected thatrepatriation tax provisions, and monitor legislative and these earnings will remain indefinitely reinvested outside theregulatory developments. U.S. Determination of the amount of a foreign withholding taxThe provision for income taxes by taxing jurisdiction and by liability on these unremitted earnings is not practicable.significant component consisted of the following in millions of An additional $4,270 million of earnings in subsidiaries outsidedollars: the U.S., which were previously expected to be reinvested

2018 2017 2016 outside the U.S., were also subject to the repatriation tax. In the fourth quarter of 2018, the company reviewed its globalCurrent: funding requirements and determined those earnings wouldU.S.: no longer be indefinitely reinvested. Although the earnings willFederal .................................... $ (268) $ 360 $ 51 not be subject to U.S. income tax when repatriated to theState ....................................... 123 48 26

Foreign ....................................... 392 463 340 U.S., in the fourth quarter of 2018 an accrual of $63 million was recorded for foreign withholding taxes.Total current .......................... 247 871 417 Deferred income taxes arise because there are certain itemsDeferred:

U.S.: that are treated differently for financial accounting than for Federal .................................... 1,233 59 297 income tax reporting purposes. An analysis of the deferred State ....................................... (40) 7 11

Foreign ....................................... 287 34 (25) Total deferred ........................ 1,480 100 283

Provision for income taxes................. $ 1,727 $ 971 $ 700

Based upon the location of the company’s operations, the consolidated income before income taxes in the U.S. in 2018, 2017, and 2016 was $2,275 million, $1,607 million, and $967 million, respectively, and in foreign countries was $1,796 million, $1,547 million, and $1,257 million, respectively. Certain foreign operations are branches or partnerships of Deere & Company and are subject to U.S. as well as foreign income tax regulations. The pretax income by location and the preceding analysis of the income tax provision by taxing jurisdiction are not directly related.

income tax assets and liabilities at October 28, 2018 and The amount of unrecognized tax benefits at October 28, 2018 October 29, 2017 in millions of dollars follows: and October 29, 2017 that would affect the effective tax rate

if the tax benefits were recognized was $128 million and 2018 2017 $86 million, respectively. The remaining liability was related to

tax positions for which there are offsetting tax receivables, orDeferred Deferred Deferred Deferred Tax Tax Tax Tax the uncertainty was only related to timing. The company

Assets Liabilities Assets Liabilities expects that any reasonably possible change in the amounts of unrecognized tax benefits in the next twelve months wouldOPEB liabilities.................... $ 984 $ 2,011 not be significant.Lease transactions ............... $ 850 $ 933

Tax loss and tax credit The company files its tax returns according to the tax laws of carryforwards .................. 713 677 the jurisdictions in which it operates, which includes the U.S.

Accrual for sales allowances 464 680 federal jurisdiction and various state and foreign jurisdictions.Tax over book depreciation .... 357 569 The U.S. Internal Revenue Service (IRS) has completed theGoodwill and other examination of the company’s federal income tax returns forintangible assets .............. 458 130 periods prior to 2015. The years 2008 through 2014 returnsPension liability – net ........... 45 420

Allowance for credit losses .... 115 107 are subject to final approval on limited issues, of which the Accrual for employee benefits 72 141 tax effects are recorded. The years 2015, 2016, and 2017 Share-based compensation .... 58 116 federal income tax return are currently under examination. Deferred compensation ......... 35 59 Various state and foreign income tax returns, including major Undistributed foreign tax jurisdictions in Argentina, Australia, Brazil, Canada, China,

earnings ......................... 6 21 Finland, France, Germany, India, Mexico, Russia, Singapore,Foreign unrealized losses ....... 10 7 and Spain also remain subject to examination by taxingOther items........................ 346 261 432 172 authorities.Less valuation allowances ...... (658) (620) The company’s policy is to recognize interest related to incomeDeferred income tax assets

and liabilities .................. $ 2,184 $ 1,932 $ 4,030 $ 1,825 taxes in interest expense and interest income and recognize penalties in selling, administrative and general expenses. During 2018, 2017, and 2016, the total amount of expenseDeere & Company files a consolidated federal income tax from interest and penalties was $23 million, $6 million, andreturn in the U.S., which includes the wholly-owned financial none and the interest income was $12 million, $6 million, andservices subsidiaries. These subsidiaries account for income none, respectively. At October 28, 2018 and October 29, 2017,taxes generally as if they filed separate income tax returns, the liability for accrued interest and penalties totaledwith a modification for realizability of certain tax benefits. $90 million and $66 million, respectively, and there was no

At October 28, 2018, tax loss and tax credit carryforwards of receivable for interest at either year-end. $713 million were available with $289 million expiring from

The company will be subject to additional requirements of tax2019 through 2038 and $424 million with an indefinite reform beginning in 2019. Those provisions include a tax oncarryforward period. global intangible low-taxed income (GILTI), a tax determined

A reconciliation of the total amounts of unrecognized tax by base erosion and anti-abuse tax benefits (BEAT) from benefits at October 28, 2018, October 29, 2017, and certain payments between a U.S. corporation and foreign October 30, 2016 in millions of dollars follows: subsidiaries, a limitation of certain executive compensation, a

deduction for foreign derived intangible income (FDII), and 2018 2017 2016

interest expense limitations. Through the preliminary review of Beginning of year balance............ $ 221 $ 198 $ 229 these provisions, the company does not expect the net effect Increases to tax positions taken to be significant for the 2019 provision for income taxes.

during the current year ............. 36 35 14 Increases to tax positions taken

during prior years .................... 62 13 11 Decreases to tax positions taken

during prior years .................... (39) (17) (36) Decreases due to lapse of statute

of limitations .......................... (15) (11) (7) Acquisitions* ............................. 31 Settlements ............................... (5) (1) (5) Foreign exchange ....................... (12) 4 (8) End of year balance .................... $ 279 $ 221 $ 198

* See Note 4.

9. OTHER INCOME AND OTHER OPERATING EXPENSES Consolidated retained earnings at October 28, 2018 include undistributed earnings of the unconsolidated affiliates of

The major components of other income and other operating $152 million. Dividends from unconsolidated affiliates were expenses consisted of the following in millions of dollars: $12 million in 2018, $4 million in 2017, and $64 million in

2016 (see Note 5). 2018 2017 2016

In the ordinary course of business, the company purchases Other income and sells components and finished goods to the Revenues from services ........................ $ 347 $ 288 $ 270 unconsolidated affiliated companies. Transactions withInsurance premiums and fees earned** .... 217 211 195

unconsolidated affiliated companies reported in the statementSiteOne investment gains* .................... 375 75 of consolidated income in millions of dollars follow:Investment income .............................. 14 17 16

Other ............................................... 322 230 190 2018 2017 2016

Total ............................................. $ 900 $ 1,121 $ 746 Net sales ............................... $ 161 $ 84 $ 45

Other operating expenses Purchases .............................. 1,682 1,331 1,016 Depreciation of equipment on

operating leases .............................. $ 928 $ 853 $ 742 11. MARKETABLE SECURITIES Insurance claims and expenses** ............ 175 187 188 Cost of services.................................. 211 168 162 All marketable securities are classified as available-for-sale, Other ............................................... 85 140 183 with unrealized gains and losses shown as a component of

stockholders’ equity. Realized gains or losses from the sales ofTotal ............................................. $ 1,399 $ 1,348 $ 1,275 marketable securities are based on the specific identification* See Note 5. method.** Primarily related to extended warranties (see Note 22). The amortized cost and fair value of marketable securities at

10. UNCONSOLIDATED AFFILIATED COMPANIES October 28, 2018 and October 29, 2017 in millions of dollars follow:Unconsolidated affiliated companies are companies in which

Deere & Company generally owns 20 percent to 50 percent of Gross Grossthe outstanding voting shares. Deere & Company does not Amortized Unrealized Unrealized Fair

control these companies and accounts for its investments in Cost Gains Losses Value them on the equity basis. The investments in these companies

2018primarily consist of Bell Equipment Limited (31 percent Equity fund .......................... $ 36 $ 10 $ 46ownership), Deere-Hitachi Construction Machinery Corporation U.S. government debt(50 percent ownership), and Deere-Hitachi Maquinas de securities.......................... 113 1 $ 3 111

Construcao do Brasil S.A. (50 percent ownership). In 2017, the Municipal debt securities......... 49 3 46 company sold its interest in SiteOne (see Note 5). The Corporate debt securities ........ 143 1 4 140 unconsolidated affiliated companies primarily manufacture or International debt securities ..... 11 1 10 market equipment. Deere & Company’s share of the income or Mortgage-backed securities* .... 144 7 137 loss of these companies is reported in the consolidated Marketable securities ............ $ 496 $ 12 $ 18 $ 490 income statement under ‘‘Equity in income (loss) of

2017unconsolidated affiliates.’’ The investment in these companies Equity fund .......................... $ 37 $ 11 $ 48is reported in the consolidated balance sheet under Fixed income fund ................. 15 15‘‘Investments in unconsolidated affiliates.’’ U.S. government debt

Combined financial information of the unconsolidated affiliated securities.......................... 76 1 77 Municipal debt securities......... 39 1 $ 1 39companies in millions of dollars follows: Corporate debt securities ........ 133 3 1 135 International debt securities ..... 22 2 20Operations 2018 2017 2016 Mortgage-backed securities* .... 119 1 2 118

Sales ........................................ $ 2,313 $ 2,638 $ 3,206 Marketable securities ............ $ 441 $ 17 $ 6 $ 452Net income................................ 91 7 30

Deere & Company’s equity in * Primarily issued by U.S. government sponsored enterprises. net income (loss) ..................... 27 (24) (2)

Financial Position 2018 2017

Total assets .............................................. $ 1,648 $ 1,488 Total external borrowings ............................ 453 451 Total net assets ......................................... 620 542 Deere & Company’s share of the net assets ..... 207 182

The contractual maturities of debt securities at October 28, respectively. The net write-offs were $16 million, $3 million, 2018 in millions of dollars follow: and $7 million in fiscal years 2018, 2017, and 2016,

respectively. Currency translation impacted the allowance for Amortized Fair credit losses by $7 million, $2 million, and $(5) million in fiscal

Cost Value years 2018, 2017, and 2016, respectively. Due in one year or less ............................ $ 24 $ 23 The equipment operations sell a significant portion of their Due after one through five years ............... 117 115 trade receivables to financial services and provide Due after five through 10 years ................. 99 96 compensation to these operations at approximate market rates Due after 10 years .................................. 76 73

of interest.Mortgage-backed securities....................... 144 137 Trade accounts and notes receivable primarily arise from salesDebt securities ...................................... $ 460 $ 444 of goods to independent dealers. Under the terms of the sales to dealers, interest is primarily charged to dealers on

Actual maturities may differ from contractual maturities outstanding balances, from the earlier of the date when goods because some securities may be called or prepaid. Because of are sold to retail customers by the dealer or the expiration of the potential for prepayment on mortgage-backed securities, certain interest-free periods granted at the time of the sale to they are not categorized by contractual maturity. Proceeds the dealer, until payment is received by the company. Dealers from the sales of available-for-sale securities were $40 million cannot cancel purchases after the equipment is shipped and in 2018, $403 million in 2017, and $62 million in 2016. are responsible for payment even if the equipment is not sold Realized gains were not significant in 2018 and 2016 and were to retail customers. The interest-free periods are determined $275 million in 2017 (see Note 5). Realized losses, the increase based on the type of equipment sold and the time of year of (decrease) in net unrealized gains or losses, and unrealized the sale. These periods range from one to twelve months for losses that have been continuous for over twelve months were most equipment. Interest-free periods may not be extended. not significant in 2018, 2017, and 2016. Unrealized losses at Interest charged may not be forgiven and the past due October 28, 2018 and October 29, 2017 were primarily the interest rates exceed market rates. The company evaluates and result of an increase in interest rates and were not recognized assesses dealers on an ongoing basis as to their in income due to the ability and intent to hold to maturity. creditworthiness and generally retains a security interest in the There were no significant impairment write-downs in the goods associated with the trade receivables. In certain periods reported. jurisdictions, the company is obligated to repurchase goods 12. RECEIVABLES sold to a dealer upon cancellation or termination of the

dealer’s contract for such causes as change in ownership and Trade Accounts and Notes Receivable closeout of the business.Trade accounts and notes receivable at October 28, 2018 and

Trade accounts and notes receivable include receivables fromOctober 29, 2017 in millions of dollars follows: sales to certain retail customers with payment terms less than

2018 2017 twelve months. The customer cannot cancel purchases or return the equipment after delivery. The company evaluatesTrade accounts and notes: and assesses retail customers at the time of purchase as toAgriculture and turf ............................... $ 3,210 $ 2,991 their creditworthiness and generally retains a security interestConstruction and forestry ........................ 1,794 934 in the goods associated with the receivables.

Trade accounts and notes receivable – net .... $ 5,004 $ 3,925 Trade accounts and notes receivable have significant concentrations of credit risk in the agriculture and turf sectorThe allowance for credit losses on trade accounts and notes and construction and forestry sector as shown in the previousreceivable was $70 million, $56 million, and $50 million, table. On a geographic basis, there is not a disproportionaterespectively, with a provision for credit loss of $37 million, concentration of credit risk in any area.$11 million, and $11 million in fiscal years 2018, 2017, and 2016,

Financing Receivables included in the table above consisted of the following in millions of dollars:Financing receivables at October 28, 2018 and October 29,

2017 in millions of dollars follow: 2018 2017

Unrestricted/Securitized Unrestricted2018 2017

Unrestricted/Securitized Unrestricted/Securitized Retail notes*: Agriculture and turf ........... $ 2,312 $ 2,099Retail notes: Construction and forestry .... 441 $ 77 368Agriculture and turf ............. $ 15,885 $ 3,441 $15,200 $ 3,651

Construction and forestry ...... 2,776 675 2,297 599 Total ........................... 2,753 77 2,467 Wholesale notes ................... 4,009 3,665Total .............................. 18,661 4,116 17,497 4,250 Sales-type leases .................. 878 763Wholesale notes ..................... 4,009 3,665

Total ........................... 7,640 77 6,895Revolving charge accounts ........ 3,907 3,676 Financing leases (direct and Less:

sales-type) ......................... 1,948 1,613 Unearned finance income: Retail notes .................. 261 1 231Total financing receivables ..... 28,525 4,116 26,451 4,250 Wholesale notes ............ 10 12Less: Sales-type leases............ 68 53Unearned finance income:

Total ........................ 339 1 296Retail notes..................... 1,069 84 972 78 Wholesale notes............... 10 12 Financing receivables related Revolving charge accounts.. 45 47 to the company’s sales of Financing leases ............... 179 142 equipment ....................... $ 7,301 $ 76 $ 6,599

Total .......................... 1,303 84 1,173 78 * These retail notes generally arise from sales of equipment by company- owned dealers or through direct sales.Allowance for credit losses..... 168 10 174 13

Financing receivables – net ........ $27,054 $ 4,022 $25,104 $ 4,159 Financing receivable installments, including unearned finance income, at October 28, 2018 and October 29, 2017 are scheduled as follows in millions of dollars:The 2017 amounts in the table above for wholesale notes and

revolving charge accounts were adjusted to be comparable 2018 2017with 2018 by separately presenting the unearned finance

Unrestricted/Securitized Unrestricted/Securitizedincome. In the prior year, these balances were shown net of unearned finance income. The total financing receivables – net Due in months:

0 – 12 ..................... $ 14,658 $ 1,922 $ 13,293 $ 2,027balance did not change. The residual values for investments in 13 – 24 ................... 5,355 1,160 5,059 1,256financing leases at October 28, 2018 and October 29, 2017 25 – 36 ................... 3,911 652 3,708 672totaled $294 million and $244 million, respectively. 37 – 48 ................... 2,663 315 2,518 243

Financing receivables have significant concentrations of credit 49 – 60 .................. 1,480 65 1,398 50 risk in the agriculture and turf sector and construction and Thereafter ................ 458 2 475 2 forestry sector as shown in the previous table. On a

Total .......................... $28,525 $ 4,116 $26,451 $ 4,250 geographic basis, there is not a disproportionate concentration of credit risk in any area. The company generally retains as

The maximum terms for retail notes are generally seven yearscollateral a security interest in the equipment associated with for agriculture and turf equipment and five years forretail notes, wholesale notes, and financing leases. construction and forestry equipment. The maximum term for Financing receivables at October 28, 2018 and October 29, financing leases is generally six years, while the average term 2017 related to the company’s sales of equipment that were for wholesale notes is less than twelve months.

At October 28, 2018 and October 29, 2017, worldwide financing receivables administered, which include financing receivables administered but not owned, totaled $31,082 million and $29,273 million, respectively. Past due balances of financing receivables still accruing finance income represent the total balance held (principal plus accrued interest) with any payment amounts 30 days or more past the contractual payment due date. Non-performing financing receivables represent loans for which the company has ceased accruing finance income. These receivables are generally 120 days delinquent and the estimated uncollectible amount, after charging the dealer’s withholding account, has been written off to the allowance for credit losses. Finance income for non-performing receivables is recognized on a cash basis. Accrual of finance income is generally resumed when the receivable becomes contractually current and collections are reasonably assured.

An age analysis of past due financing receivables that are still Total Total accruing interest and non-performing financing receivables at Total Non- Financing October 28, 2018 and October 29, 2017 follows in millions of Past Due Performing Current Receivables dollars:

Retail Notes: Agriculture and turf ..... $ 221 $ 173 $ 17,508 $ 17,90230-59 60-89 90 Days Construction and forestry 147 30 2,618 2,795Days Days or Greater Total

Other:Past Due Past Due Past Due Past Due Agriculture and turf ..... 48 12 7,610 7,670

2018 Construction and forestry 19 5 1,059 1,083 Retail Notes:

Total ...................... $ 435 $ 220 $ 28,795 29,450Agriculture and turf ........ $ 133 $ 74 $ 63 $ 270 Construction and forestry 79 45 52 176 Less allowance for credit losses................................... 187

Other: Total financing receivables – net .................................. $ 29,263Agriculture and turf ........ 36 16 8 60

Construction and forestry 18 5 3 26 An analysis of the allowance for credit losses and investment

Total ............................... $ 266 $ 140 $ 126 $ 532 in financing receivables follows in millions of dollars:

Total Total RevolvingTotal Non- Financing

Retail ChargePast Due Performing Current Receivables Notes Accounts Other Total

Retail Notes: 2018Agriculture and turf ........ $ 270 $ 201 $ 17,836 $18,307 Allowance:Construction and forestry 176 40 3,101 3,317 Beginning of year balance ...... $ 121 $ 40 $ 26 $ 187Other:

Provision ......................... 14 38 2 54Agriculture and turf ........ 60 15 8,274 8,349 Write-offs ........................ (33) (55) (6) (94)Construction and forestry 26 3 1,252 1,281 Recoveries ....................... 17 20 1 38

Total ......................... $ 532 $ 259 $30,463 31,254 Translation adjustments ...... (6) (1) (7) End of year balance* ............. $ 113 $ 43 $ 22 $ 178Less allowance for credit losses ................................... 178

Total financing receivables – net .................................. $31,076 Financing receivables: End of year balance .............. $ 21,624 $ 3,862 $ 5,768 $ 31,254

30-59 60-89 90 Days Balance individually evaluated $ 122 $ 2 $ 12 $ 136 Days Days or Greater Total

2017Past Due Past Due Past Due Past Due Allowance:

2017 Beginning of year balance ...... $ 113 $ 40 $ 23 $ 176 Retail Notes: Provision ......................... 46 33 9 88

Agriculture and turf ........ $ 118 $ 54 $ 49 $ 221 Write-offs ........................ (56) (53) (7) (116) Construction and forestry 75 33 39 147 Recoveries ....................... 20 20 1 41

Translation adjustments ...... (2) (2)Other: Agriculture and turf ........ 27 14 7 48 End of year balance* ............. $ 121 $ 40 $ 26 $ 187 Construction and forestry 11 6 2 19

Financing receivables: Total .............................. $ 231 $ 107 $ 97 $ 435 End of year balance .............. $20,697 $ 3,629 $ 5,124 $29,450

Balance individually evaluated $ 86 $ 3 $ 20 $ 109(continued) 2016 Allowance: Beginning of year balance ...... $ 95 $ 40 $ 22 $ 157

Provision ......................... 43 36 5 84 Write-offs ........................ (43) (55) (5) (103) Recoveries ....................... 11 19 1 31 Translation adjustments ...... 7 7

End of year balance* ............. $ 113 $ 40 $ 23 $ 176

Financing receivables: End of year balance .............. $20,682 $ 3,135 $ 5,188 $29,005

Balance individually evaluated $ 108 $ 8 $ 20 $ 136

* Individual allowances were not significant.

Past-due amounts over 30 days represented 1.70 percent and 1.48 percent of the receivables financed at October 28, 2018

and October 29, 2017, respectively. The allowance for credit that subsequently defaulted and were written off. At losses represented .57 percent and .64 percent of financing October 28, 2018, the company had commitments to lend receivables outstanding at October 28, 2018 and October 29, approximately $10 million to borrowers whose accounts were 2017, respectively. In addition, at October 28, 2018 and modified in troubled debt restructurings. October 29, 2017, the company’s financial services operations Other Receivables had $156 million and $155 million, respectively, of deposits Other receivables at October 28, 2018 and October 29, 2017 primarily withheld from dealers and merchants available for consisted of the following in millions of dollars: potential credit losses.

2018 2017Financing receivables are considered impaired when it is probable the company will be unable to collect all amounts Taxes receivable ............................................. $1,370 $ 876 due according to the contractual terms. Receivables reviewed Other .......................................................... 366 324 for impairment generally include those that are past due, have

Other receivables........................................... $1,736 $1,200 provided bankruptcy notification, or require significant collection efforts. Receivables that are impaired are generally

13. SECURITIZATION OF FINANCING RECEIVABLESclassified as non-performing. An analysis of the impaired financing receivables at The company, as a part of its overall funding strategy, October 28, 2018 and October 29, 2017 follows in millions of periodically transfers certain financing receivables (retail notes) dollars: into VIEs that are SPEs, or non-VIE banking operations, as

part of its asset-backed securities programs (securitizations). Unpaid Average The structure of these transactions is such that the transfer

Recorded Principal Specific Recorded of the retail notes did not meet the accounting criteria for Investment Balance Allowance Investment sales of receivables, and is, therefore, accounted for as a

2018* secured borrowing. SPEs utilized in securitizations of retail Receivables with specific notes differ from other entities included in the company’s

allowance** ................ $ 28 $ 27 $ 10 $ 30 consolidated statements because the assets they hold are Receivables without a legally isolated. Use of the assets held by the SPEs or the

specific allowance** ..... 37 35 41 non-VIEs is restricted by terms of the documents governing Total ............................ $ 65 $ 62 $ 10 $ 71 the securitization transactions.

Agriculture and turf ..... $ 50 $ 48 $ 9 $ 54 In these securitizations, the retail notes are transferred to certain SPEs or to non-VIE banking operations, which in turnConstruction and forestry $ 15 $ 14 $ 1 $ 17 issue debt to investors. The debt securities issued to the third

2017* party investors result in secured borrowings, which are Receivables with specific recorded as ‘‘Short-term securitization borrowings’’ on the

allowance** ................ $ 36 $ 33 $ 10 $ 30 consolidated balance sheet. The securitized retail notes are Receivables without a recorded as ‘‘Financing receivables securitized – net’’ on thespecific allowance*** .... 28 27 24

balance sheet. The total restricted assets on the balance sheet Total ............................ $ 64 $ 60 $ 10 $ 54 related to these securitizations include the financing

receivables securitized less an allowance for credit losses, andAgriculture and turf ..... $ 49 $ 46 $ 10 $ 38 other assets primarily representing restricted cash. For those

Construction and forestry $ 15 $ 14 $ 16 securitizations in which retail notes are transferred into SPEs, * Finance income recognized was not material. the SPEs supporting the secured borrowings are consolidated ** Primarily retail notes. unless the company does not have both the power to direct *** Primarily retail notes and wholesale receivables.

the activities that most significantly impact the SPEs’ economic performance and the obligation to absorb losses orA troubled debt restructuring is generally the modification of the right to receive benefits that could potentially bedebt in which a creditor grants a concession it would not significant to the SPEs. No additional support to these SPEsotherwise consider to a debtor that is experiencing financial beyond what was previously contractually required has beendifficulties. These modifications may include a reduction of provided during the reporting periods.the stated interest rate, an extension of the maturity dates, a

reduction of the face amount or maturity amount of the debt, In certain securitizations, the company consolidates the SPEs or a reduction of accrued interest. During 2018, 2017, and since it has both the power to direct the activities that most 2016, the company identified 587, 474, and 167 financing significantly impact the SPEs’ economic performance through receivable contracts, primarily retail notes, as troubled debt its role as servicer of all the receivables held by the SPEs, and restructurings with aggregate balances of $34 million, the obligation through variable interests in the SPEs to absorb $16 million, and $19 million pre-modification and $34 million, losses or receive benefits that could potentially be significant $15 million, and $18 million post-modification, respectively. In to the SPEs. The restricted assets (retail notes securitized, 2017, there were $3 million of troubled debt restructurings allowance for credit losses, and other assets) of the that subsequently defaulted and were written off. In 2018 and consolidated SPEs totaled $2,593 million and $2,631 million at 2016, there were no significant troubled debt restructurings October 28, 2018 and October 29, 2017, respectively. The

liabilities (short-term securitization borrowings and accrued

interest) of these SPEs totaled $2,520 million and The components of consolidated secured borrowings and $2,571 million at October 28, 2018 and October 29, 2017, other liabilities related to securitizations at October 28, 2018 respectively. The credit holders of these SPEs do not have and October 29, 2017 were as follows in millions of dollars: legal recourse to the company’s general credit.

2018 2017 In certain securitizations, the company transfers retail notes to

Short-term securitization borrowings .................... $ 3,957 $4,119non-VIE banking operations, which are not consolidated since Accrued interest on borrowings ........................... 3 2the company does not have a controlling interest in the

entities. The company’s carrying values and interests related to Total liabilities related to restricted securitized assets ........................... $3,960 $4,121the securitizations with the unconsolidated non-VIEs were

restricted assets (retail notes securitized, allowance for credit losses and other assets) of $504 million and $478 million at The secured borrowings related to these restricted securitized October 28, 2018 and October 29, 2017, respectively. The retail notes are obligations that are payable as the retail notes liabilities (short-term securitization borrowings and accrued are liquidated. Repayment of the secured borrowings depends interest) were $475 million and $454 million at October 28, primarily on cash flows generated by the restricted assets. 2018 and October 29, 2017, respectively. Due to the company’s short-term credit rating, cash

collections from these restricted assets are not required to beIn certain securitizations, the company transfers retail notes placed into a segregated collection account until immediatelyinto bank-sponsored, multi-seller, commercial paper conduits, prior to the time payment is required to the secured creditors.which are SPEs that are not consolidated. The company does At October 28, 2018, the maximum remaining term of allnot service a significant portion of the conduits’ receivables, securitized retail notes was approximately six years.and therefore, does not have the power to direct the

activities that most significantly impact the conduits’ 14. EQUIPMENT ON OPERATING LEASES economic performance. These conduits provide a funding

Operating leases arise primarily from the leasing of John Deeresource to the company (as well as other transferors into the equipment to retail customers. Initial lease terms generallyconduit) as they fund the retail notes through the issuance of range from 12 to 60 months. Net equipment on operatingcommercial paper. The company’s carrying values and variable leases at October 28, 2018 and October 29, 2017 consisted ofinterest related to these conduits were restricted assets (retail the following in millions of dollars:notes securitized, allowance for credit losses, and other assets)

of $1,033 million and $1,155 million at October 28, 2018 and 2018 2017October 29, 2017, respectively. The liabilities (short-term

securitization borrowings and accrued interest) related to Equipment on operating leases: these conduits were $965 million and $1,096 million at Agriculture and turf ................................... $5,682 $ 5,385

Construction and forestry ........................... 1,483 1,209October 28, 2018 and October 29, 2017, respectively. Equipment on operating leases – net ............... $ 7,165 $6,594The company’s carrying amount of the liabilities to the

unconsolidated conduits, compared to the maximum exposure to loss related to these conduits, which would only be The equipment is depreciated on a straight-line basis over the incurred in the event of a complete loss on the restricted term of the lease. The accumulated depreciation on this assets, was as follows at October 28 in millions of dollars: equipment was $1,515 million and $1,315 million at October 28,

2018 and October 29, 2017, respectively. The corresponding 2018 depreciation expense was $928 million in 2018, $853 million

in 2017, and $742 million in 2016.Carrying value of liabilities ............................................ $ 965 Maximum exposure to loss ............................................ 1,033 Future payments to be received on operating leases totaled

$2,309 million at October 28, 2018 and are scheduled inThe total assets of unconsolidated VIEs related to millions of dollars as follows: 2019 – $980, 2020 – $688,securitizations were approximately $35 billion at October 28, 2021 – $400, 2022 – $198, and 2023 – $43. At October 28,2018. 2018 and October 29, 2017, the company’s financial services

The components of consolidated restricted assets related to operations had $34 million and $52 million, respectively, of secured borrowings in securitization transactions at deposits withheld from dealers available for potential losses on October 28, 2018 and October 29, 2017 were as follows in residual values. millions of dollars:

2018 2017

Financing receivables securitized (retail notes) ......... $4,032 $ 4,172 Allowance for credit losses .................................. (10) (13) Other assets .................................................... 108 105 Total restricted securitized assets ........................ $ 4,130 $4,264

15. INVENTORIES including purchased and internally developed software, classified as ‘‘Other Assets’’ at October 28, 2018 and

A majority of inventory owned by Deere & Company and its October 29, 2017 were $1,207 million and $1,078 million, less U.S. equipment subsidiaries are valued at cost, on the ‘‘last-in, accumulated amortization of $910 million and $826 million, first-out’’ (LIFO) basis. Remaining inventories are generally respectively. Capitalized interest on software was $3 million valued at the lower of cost, on the ‘‘first-in, first-out’’ (FIFO) and $1 million at October 28, 2018 and October 29, 2017, basis, or net realizable value. The value of gross inventories on respectively. Amortization of these software costs in 2018, the LIFO basis at October 28, 2018 and October 29, 2017 2017, and 2016 was $145 million, $118 million, and represented 54 percent and 61 percent, respectively, of $102 million, respectively. worldwide gross inventories at FIFO value. If all inventories

The cost of compliance with foreseeable environmentalhad been valued on a FIFO basis, estimated inventories by requirements has been accrued and did not have a materialmajor classification at October 28, 2018 and October 29, 2017 effect on the company’s consolidated financial statements.in millions of dollars would have been as follows: 17. GOODWILL AND OTHER INTANGIBLE ASSETS – NET

2018 2017 The changes in amounts of goodwill by operating segments

Raw materials and supplies ................................. $2,233 $ 1,688 were as follows in millions of dollars:Work-in-process ............................................... 776 495

Finished goods and parts ................................... 4,777 3,182 Construction Agriculture andTotal FIFO value............................................ 7,786 5,365

and Turf Forestry TotalLess adjustment to LIFO value ............................ 1,637 1,461 Inventories ..................................................... $6,149 $3,904 Goodwill at October 30, 2016 .......... $ 323 $ 493 $ 816

Acquisitions* ................................ 193 193 Translation adjustments and other .... 5 19 2416. PROPERTY AND DEPRECIATION Goodwill at October 29, 2017 .......... 521 512 1,033

A summary of property and equipment at October 28, 2018 Acquisitions* ................................ 71 2,068 2,139 and October 29, 2017 in millions of dollars follows: Divestitures* ................................ (18) (18)

Translation adjustments .................. (9) (44) (53) Useful Lives*

Goodwill at October 28, 2018 ......... $ 583 $ 2,518 $ 3,101(Years) 2018 2017 * See Note 4.

Equipment Operations Land ............................................. $ 283 $ 122 There were no accumulated impairment losses in the reportedBuildings and building equipment ........ 23 3,848 3,396

periods.Machinery and equipment .................. 11 5,570 5,378 Dies, patterns, tools, etc. .................. 8 1,564 1,647 The components of other intangible assets are as follows in All other ........................................ 5 1,032 942 millions of dollars: Construction in progress .................... 619 358

Useful Lives*Total at cost ................................ 12,916 11,843 (Years) 2018 2017Less accumulated depreciation ............ 7,095 6,826

Amortized intangible assets:Total .......................................... 5,821 5,017 Customer lists and relationships ............ 16 $ 542 $ 42

Financial Services Technology, patents, trademarks, and other 18 1,080 139 Land ............................................. 4 4

Total at cost .................................. 1,622 181Buildings and building equipment ........ 26 74 74 Less accumulated amortization** ........... 183 86All other ........................................ 6 34 38

Total............................................ 1,439 95Total at cost ................................ 112 116 Unamortized intangible assets:Less accumulated depreciation ............ 65 65

In-process research and development*** 123 123 Total .......................................... 47 51

Other intangible assets - net .................. $1,562 $218 Property and equipment - net ............ $5,868 $5,068

* Weighted-averages * Weighted-averages ** Accumulated amortization at 2018 and 2017 for customer lists and

relationships was $46 million and $17 million and technology, patents, Total property and equipment additions in 2018, 2017, and trademarks, and other was $137 million and $69 million, respectively. 2016 were $985 million, $602 million, and $674 million and ***See Note 4. depreciation was $754 million, $726 million, and $701 million,

Other intangible assets are stated at cost less accumulatedrespectively. Capitalized interest was $4 million, $3 million, and amortization. The amortization of other intangible assets in$3 million in the same periods, respectively. The cost of leased 2018, 2017, and 2016 was $100 million, $18 million, andproperty and equipment under capital leases of $52 million $15 million, respectively.and $40 million and accumulated depreciation of $22 million

and $15 million at October 28, 2018 and October 29, 2017, The estimated amortization expense for the next five years is respectively, is included in property and equipment. as follows in millions of dollars: 2019 – $117, 2020 – $105,

2021 – $101, 2022 – $100, and 2023 – $98.Capitalized software has an estimated useful life of three years. The amounts of total capitalized software costs,

18. TOTAL SHORT-TERM BORROWINGS in April 2019, and $750 million, expiring in October 2019. In addition, total credit lines included long-term credit facility

Total short-term borrowings at October 28, 2018 and agreements of $2,500 million, expiring in April 2021, and October 29, 2017 consisted of the following in millions of $2,500 million, expiring in April 2022. The agreements are dollars: mutually extendable and the annual facility fees are not

significant. These credit agreements require Capital 2018 2017

Corporation to maintain its consolidated ratio of earnings to Equipment Operations fixed charges at not less than 1.05 to 1 for each fiscal quarter Notes payable to banks ....................................... $ 464 $ 221 and the ratio of senior debt, excluding securitization Long-term borrowings due within one year .............. 970 154 indebtedness, to capital base (total subordinated debt and

Total ............................................................ 1,434 375 stockholder’s equity excluding accumulated other comprehensive income (loss)) at not more than 11 to 1 at theFinancial Services end of any fiscal quarter. The credit agreements also requireCommercial paper ............................................... 3,857 3,439

Notes payable to banks ....................................... 344 157 the equipment operations to maintain a ratio of total debt to Long-term borrowings due within one year* ............ 5,427 6,064 total capital (total debt and stockholders’ equity excluding

accumulated other comprehensive income (loss)) of 65 percentTotal ............................................................ 9,628 9,660 or less at the end of each fiscal quarter. Under this provision,

Short-term borrowings ....................................... 11,062 10,035 the company’s excess equity capacity and retained earnings

Short-term securitization borrowings balance free of restriction at October 28, 2018 was Equipment Operations ......................................... 75 $12,368 million. Alternatively under this provision, the Financial Services ............................................... 3,882 4,119 equipment operations had the capacity to incur additional

Total ............................................................ 3,957 4,119 debt of $22,969 million at October 28, 2018. All of these requirements of the credit agreements have been met duringTotal short-term borrowings ................................ $15,019 $14,154 the periods included in the consolidated financial statements.* Includes unamortized fair value adjustments related to interest rate swaps. Deere & Company has an agreement with Capital Corporation

The short-term securitization borrowings are secured by pursuant to which it has agreed to continue to own, directly financing receivables (retail notes) on the balance sheet (see or through one or more wholly-owned subsidiaries, at least Note 13). Although these securitization borrowings are 51 percent of the voting shares of capital stock of Capital classified as short-term since payment is required if the retail Corporation and to maintain Capital Corporation’s consolidated notes are liquidated early, the payment schedule for these tangible net worth at not less than $50 million. This borrowings, which are net of debt acquisition costs, at agreement also obligates Deere & Company to make payments October 28, 2018 based on the expected liquidation of the to Capital Corporation such that its consolidated ratio of retail notes in millions of dollars is as follows: 2019 – $2,161, earnings to fixed charges is not less than 1.05 to 1 for each 2020 – $1,076, 2021 – $546, 2022 – $168, 2023 – $11, and fiscal quarter. Deere & Company’s obligations to make 2024 – $1. payments to Capital Corporation under the agreement are

independent of whether Capital Corporation is in default onThe weighted-average interest rates on total short-term its indebtedness, obligations or other liabilities. Further,borrowings, excluding current maturities of long-term Deere & Company’s obligations under the agreement are notborrowings, at October 28, 2018 and October 29, 2017 were measured by the amount of Capital Corporation’s3.0 percent and 1.8 percent, respectively. indebtedness, obligations or other liabilities. Deere &Lines of credit available from U.S. and foreign banks were Company’s obligations to make payments under this$8,389 million at October 28, 2018. At October 28, 2018, agreement are expressly stated not to be a guaranty of any$3,724 million of these worldwide lines of credit were unused. specific indebtedness, obligation or liability of CapitalFor the purpose of computing the unused credit lines, Corporation and are enforceable only by or in the name ofcommercial paper, and short-term bank borrowings, excluding Capital Corporation. No payments were required under thissecured borrowings and the current portion of long-term agreement during the periods included in the consolidatedborrowings, were primarily considered to constitute utilization. financial statements.Included in the total credit lines at October 28, 2018 were

364-day credit facility agreements of $1,750 million, expiring

19. ACCOUNTS PAYABLE AND ACCRUED EXPENSES 20. LONG-TERM BORROWINGS

Accounts payable and accrued expenses at October 28, 2018 Long-term borrowings at October 28, 2018 and October 29, and October 29, 2017 consisted of the following in millions of 2017 consisted of the following in millions of dollars: dollars:

2018 2017 2018 2017

Equipment Operations Equipment Operations U.S. dollar notes and debentures:Accounts payable: 4.375% notes due 2019 ................................ $ 750Trade payables ............................................... $ 2,465 $ 2,069 8-1/2% debentures due 2022 ......................... $ 105 105Dividends payable ........................................... 223 194 2.60% notes due 2022 ................................ 1,000 1,000Other .......................................................... 243 164 6.55% debentures due 2028 ......................... 200 200Accrued expenses: 5.375% notes due 2029 ............................... 500 500Dealer sales discounts ..................................... 1,801 1,559 8.10% debentures due 2030 .......................... 250 250Product warranties.......................................... 1,146 1,007 7.125% notes due 2031 ................................. 300 300Employee benefits .......................................... 1,038 861 3.90% notes due 2042 ................................ 1,250 1,250Accrued taxes ................................................ 836 503 Euro notes:Unearned revenue .......................................... 665 520 Medium-term notes due 2020 – 2023:Other .......................................................... 965 841 (e850 principal) Average interest rates of

Total ........................................................ 9,382 7,718 .4% - 2018, .3% - 2017 .............................. 967 990 Other notes.................................................. 159 166Financial Services Less debt issuance costs ................................. 17 20Accounts payable:

Deposits withheld from dealers and merchants ..... 190 207 Total .................................................... 4,714 5,491 Other .......................................................... 239 275

Financial ServicesAccrued expenses: Notes and debentures:Unearned revenue .......................................... 885 797 Medium-term notes due 2019 – 2028:Accrued interest ............................................. 163 148 (principal $21,221 - 2018, $18,678 - 2017)Employee benefits .......................................... 63 55 Average interest rates of 2.8% - 2018,Other .......................................................... 516 345 2.0% - 2017 ........................................... 20,865* 18,601* Total ........................................................ 2,056 1,827 2.75% senior note due 2022: ($500 principal)

Swapped $500 to variable interest rate ofEliminations* .................................................... 1,327 1,128 3.5% – 2018, 2.0% – 2017 ......................... 489* 502*

Accounts payable and accrued expenses................. $ 10,111 $ 8,417 Other notes.................................................. 1,215 1,339 Less debt issuance costs ................................. 46 42* Primarily trade receivable valuation accounts which are reclassified as

accrued expenses by the equipment operations as a result of their trade Total .................................................... 22,523 20,400 receivables being sold to financial services.

Long-term borrowings** ................................ $ 27,237 $ 25,891

* Includes unamortized fair value adjustments related to interest rate swaps. ** All interest rates are as of year end.

The approximate principal amounts of the equipment operations’ long-term borrowings maturing in each of the next five years in millions of dollars are as follows: 2019 – $970, 2020 – $536, 2021 – $25, 2022 – $1,108, and 2023 – $571. The approximate principal amounts of the financial services’ long-term borrowings maturing in each of the next five years in millions of dollars are as follows: 2019 – $5,430, 2020 – $6,185, 2021 – $5,699, 2022 – $3,567, and 2023 – $3,654. 21. LEASES

At October 28, 2018, future minimum lease payments under capital leases amounted to $30 million as follows: 2019 – $11, 2020 – $9, 2021 – $6, 2022 – $2, 2023 – $1, and later years $1. Total rental expense for operating leases was $167 million in 2018, $167 million in 2017, and $185 million in 2016. At October 28, 2018, future minimum lease payments under operating leases amounted to $383 million as follows: 2019 – $110, 2020 – $83, 2021 – $60, 2022 – $50, 2023 – $34, and later years $46.

22. COMMITMENTS AND CONTINGENCIES possible range of losses for these unresolved legal actions would not have a material effect on its financial statements.

The company generally determines its total warranty liability 23. CAPITAL STOCKby applying historical claims rate experience to the estimated

amount of equipment that has been sold and is still under Changes in the common stock account in millions were as warranty based on dealer inventories and retail sales. The follows: historical claims rate is primarily determined by a review of five-year claims costs and current quality developments. Number of

Shares Issued AmountThe premiums for extended warranties are primarily recognized Balance at November 1, 2015 ................ 536.4 $ 3,826in income in proportion to the costs expected to be incurred Stock options and other ...................... 86over the contract period. The unamortized extended warranty

premiums (deferred revenue) included in the following table Balance at October 30, 2016................. 536.4 3,912 totaled $506 million and $461 million at October 28, 2018 and Stock options and other ...................... 369 October 29, 2017, respectively. Balance at October 29, 2017 ................. 536.4 4,281

Stock options and other ...................... 193A reconciliation of the changes in the warranty liability and unearned premiums in millions of dollars follows: Balance at October 28, 2018 ................ 536.4 $ 4,474

Warranty Liability/ The number of common shares the company is authorized toUnearned Premiums issue is 1,200 million. The number of authorized preferred

2018 2017 shares, none of which has been issued, is nine million.

Beginning of year balance.......................... $ 1,468 $ 1,226 The Board of Directors at its meeting in December 2013Payments ................................................ (907) (743) authorized the repurchase of up to $8,000 million of commonAmortization of premiums received ............... (217) (207) stock (60.2 million shares based on the fiscal year end closingAccruals for warranties ............................... 978 959 common stock price of $133.00 per share). At the end of thePremiums received .................................... 270 224 fiscal year, this repurchase program had $2,312 millionAcquisition* ............................................. 80

Foreign exchange ..................................... (20) 9 (17.4 million shares at the same price) remaining to be repurchased. Repurchases of the company’s common stockEnd of year balance .................................. $ 1,652 $ 1,468 under this plan will be made from time to time, at the

* See Note 4. company’s discretion, in the open market. At October 28, 2018, the company had approximately A reconciliation of basic and diluted net income per share $357 million of guarantees issued primarily to banks outside attributable to Deere & Company follows in millions, except the U.S. and Canada related to third-party receivables for the per share amounts: retail financing of John Deere and Wirtgen equipment. The

2018 2017 2016increase from October 29, 2017 primarily relates to the Wirtgen acquisition. The company may recover a portion of Net income attributable to any required payments incurred under these agreements from Deere & Company ....................... $ 2,368.4 $ 2,159.1 $ 1,523.9 repossession of the equipment collateralizing the receivables. Less income allocable to participating At October 28, 2018, the company recorded a liability of securities ................................... .4 .6 .7 approximately $14 million under these agreements. The Income allocable to common stock ..... $ 2,368.0 $ 2,158.5 $ 1,523.2 maximum remaining term of the receivables guaranteed at

Average shares outstanding .............. 322.6 319.5 315.2October 28, 2018 was approximately seven years. Basic per share .............................. $ 7.34 $ 6.76 $ 4.83At October 28, 2018, the company had commitments of

approximately $289 million for the construction and Average shares outstanding .............. 322.6 319.5 315.2 acquisition of property and equipment. Also at October 28, Effect of dilutive stock options .......... 4.7 3.8 1.4 2018, the company had restricted assets of $111 million, Total potential shares outstanding ... 327.3 323.3 316.6 classified as ‘‘Other Assets’’. See Note 13 for additional

Diluted per share ........................... $ 7.24 $ 6.68 $ 4.81restricted assets associated with borrowings related to securitizations.

All stock options outstanding were included in theThe company also had other miscellaneous contingent computation during 2018, 2017, and 2016, except .4 million inliabilities totaling approximately $155 million at October 28, 2018, .2 million in 2017, and 9.9 million in 2016 that had an2018. The accrued liability for these contingencies was antidilutive effect under the treasury stock method.approximately $20 million at October 28, 2018. 24. STOCK OPTION AND RESTRICTED STOCK AWARDSThe company is subject to various unresolved legal actions

which arise in the normal course of its business, the most The company issues stock options and restricted stock awards prevalent of which relate to product liability (including to key employees under plans approved by stockholders. asbestos related liability), retail credit, employment, patent, Restricted stock is also issued to nonemployee directors for and trademark matters. The company believes the reasonably their services as directors under a plan approved by

stockholders. Options are awarded with the exercise price

equal to the market price and become exercisable in one to The weighted-average grant-date fair values of options three years after grant. Options expire ten years after the granted during 2018, 2017, and 2016 were $39.11, $24.46, and date of grant. Restricted stock awards generally vest after $16.88, respectively. The total intrinsic values of options three years. The compensation cost for stock options, service exercised during 2018, 2017, and 2016 were $229 million, based restricted stock units, and market/service based $225 million, and $23 million, respectively. During 2018, 2017, restricted stock units, which is based on the fair value at the and 2016, cash received from stock option exercises was grant date, is recognized on a straight-line basis over the $217 million, $529 million, and $36 million with tax benefits of requisite period the employee is required to render service. $54 million, $83 million, and $8 million, respectively. The compensation cost for performance/service based units, The company granted 415 thousand, 579 thousand, and which is based on the fair value at the grant date, is 255 thousand restricted stock units to employees and recognized over the employees’ requisite service period and nonemployee directors in 2018, 2017, and 2016, of which periodically adjusted for the probable number of shares to be 330 thousand, 465 thousand, and 113 thousand are subject to awarded. According to these plans at October 28, 2018, the service based only conditions, 85 thousand, 57 thousand, and company is authorized to grant an additional 10.0 million 71 thousand are subject to performance/service based shares related to stock options or restricted stock. conditions, and none, 57 thousand, and 71 thousand are The fair value of each option award was estimated on the subject to market/service based conditions, respectively. The date of grant using a binomial lattice option valuation model. service based only units award one share of common stock for Expected volatilities are based on implied volatilities from each unit at the end of the vesting period and include traded call options on the company’s stock. The expected dividend equivalent payments. volatilities are constructed from the following three The performance/service based units are subject to a components: the starting implied volatility of short-term call performance metric based on the company’s compound annual options traded within a few days of the valuation date; the revenue growth rate, compared to a benchmark group of predicted implied volatility of long-term call options; and the companies over the vesting period. The market/service based trend in implied volatilities over the span of the call options’ units are subject to a market related metric based on total time to maturity. The company uses historical data to estimate shareholder return, compared to the same benchmark group option exercise behavior and employee termination within the of companies over the vesting period. The performance/service valuation model. The expected term of options granted is based units and the market/service based units both award derived from the output of the option valuation model and common stock in a range of zero to 200 percent for each unit represents the period of time that options granted are granted based on the level of the metric achieved and do not expected to be outstanding. The risk-free rates utilized for include dividend equivalent payments over the vesting period. periods throughout the contractual life of the options are The weighted-average fair values of the service based only based on U.S. Treasury security yields at the time of grant. units at the grant dates during 2018, 2017, and 2016 were The assumptions used for the binomial lattice model to $151.67, $101.03, and $79.84 per unit, respectively, based on determine the fair value of options follow: the market price of a share of underlying common stock. The

fair value of the performance/service based units at the grant 2018 2017 2016 date during 2018, 2017, and 2016 were $145.33, $93.86, and

$72.93 per unit, respectively, based on the market price of aRisk-free interest rate ... 1.69% – 2.7% .88% – 2.5% .23% – 2.3% share of underlying common stock excluding dividends. TheExpected dividends ...... 1.6% 2.4% 2.8% fair value of the market/service based units at the grant dateExpected volatility ........ 22.3% – 23.0% 24.0% – 24.8% 25.2% – 29.0% during 2017 and 2016 were $129.70 and $103.66 per unit,Weighted-average respectively, based on a lattice valuation model excludingvolatility ................. 22.8% 24.5% 26.5% dividends.Expected term (in years) 7.9 – 8.6 7.8 – 8.6 7.0 – 8.6 The company’s restricted shares at October 28, 2018 and

Stock option activity at October 28, 2018 and changes during changes during 2018 in millions of shares follow: 2018 in millions of dollars and shares follow:

Grant-Date Remaining Shares Fair Value*

Contractual Aggregate Service based onlyExercise Term Intrinsic Nonvested at beginning of year ...................... .7 $ 95.90Shares Price* (Years) Value Granted..................................................... .3 151.67

Outstanding at beginning of Vested ...................................................... (.1) 91.92 year ............................... 11.2 $ 81.39

Nonvested at end of year .............................. .9 117.47Granted .............................. .5 151.95 Exercised ............................ (2.9) 75.62 Performance/service and market/service based

Nonvested at beginning of year ...................... .4 $ 98.46Outstanding at end of year .... 8.8 87.08 5.80 $ 413.6 Granted..................................................... .1 145.33

Exercisable at end of year ..... 7.0 82.92 5.26 349.4 Vested ...................................................... (.2) 113.97 * Weighted-averages

Nonvested at end of year .............................. .3 110.56

* Weighted-averages

During 2018, 2017, and 2016, the total share-based Following are amounts recorded in and reclassifications out of compensation expense was $84 million, $68 million, and other comprehensive income (loss), and the income tax $71 million, respectively, with recognized income tax benefits effects, in millions of dollars: of $20 million, $25 million, and $26 million, respectively. At

Before Tax AfterOctober 28, 2018, there was $47 million of total unrecognized Tax (Expense) Taxcompensation cost from share-based compensation Amount Credit Amount

arrangements granted under the plans, which is related to 2018restricted shares and options. This compensation is expected Cumulative translation adjustment . . . . . . . . . . . . . . . $ (188) $ (7) $ (195)to be recognized over a weighted-average period of Unrealized gain (loss) on derivatives:approximately two years. The total grant-date fair values of

Unrealized hedging gain (loss) . . . . . . . . . . . . . . . . . 18 (4) 14stock options and restricted shares vested during 2018, 2017, Reclassification of realized (gain) loss to:and 2016 were $63 million, $72 million, and $69 million,

Interest rate contracts – Interest expense (5) 1 (4)respectively. Foreign exchange contracts – Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . (1) (1)The company currently uses shares that have been

repurchased through its stock repurchase programs to satisfy Net unrealized gain (loss) on derivatives . . . . . . 12 (3) 9 share option exercises. At fiscal year end, the company had Unrealized gain (loss) on investments: 218 million shares in treasury stock and 17 million shares Unrealized holding gain (loss) . . . . . . . . . . . . . . . . . (17) 5 (12) remaining to be repurchased under its current publicly Reclassification of realized (gain) loss – announced repurchase program (see Note 23). Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (1)

Net unrealized gain (loss) on investments . . . . . (18) 5 (13)25. OTHER COMPREHENSIVE INCOME ITEMS Retirement benefits adjustment:

The after-tax changes in accumulated other comprehensive Pensions income at November 1, 2015, October 30, 2016, October 29, Net actuarial gain (loss) . . . . . . . . . . . . . . . . . . . . . 553 (128) 425 2017, and October 28, 2018 in millions of dollars follow: Reclassification through amortization of

actuarial (gain) loss and prior service Total (credit) cost to other operating

Accumulated expenses:* Unrealized Unrealized Other Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . 226 (63) 163

Retirement Cumulative Gain (Loss) Gain (Loss) Comprehensive Prior service (credit) cost . . . . . . . . . . . . . . . 12 (4) 8 Benefits Translation on on Income Settlements/curtailments . . . . . . . . . . . . . . 8 (2) 6

Adjustment Adjustment Derivatives Investments (Loss) OPEB Net actuarial gain (loss) and prior2015 ...... $ (3,501) $ (1,238) $ (2) $ 12 $ (4,729)

service credit (cost). . . . . . . . . . . . . . . . . . . . . . . . 603 (142) 461Period Change ... (908) 9 3 (1) (897) Reclassification through amortization of

actuarial (gain) loss and prior service2016 ...... (4,409) (1,229) 1 11 (5,626) (credit) cost to other operatingPeriod expenses:*Change ... 829 230 4 (1) 1,062

Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . 62 (17) 45 2017 ...... (3,580) (999) 5 10 (4,564) Prior service (credit) cost . . . . . . . . . . . . . . . (77) 21 (56) Period

Net unrealized gain (loss) on retirementChange ... 1,052 (195) 9 (13) 853 benefits adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . 1,387 (335) 1,052ASU No.

2018-02* (709) (10) 1 1 (717) Total other comprehensive income (loss) . . . . . . . . . $ 1,193 $ (340) $ 853 2018 ...... $ (3,237) $ (1,204) $ 15 $ (2) $ (4,428)

* These accumulated other comprehensive income amounts are included in net periodic pension and OPEB costs. See Note 7 for additional detail.* See Note 3.

Before Tax AfterBefore Tax After Tax (Expense) TaxTax (Expense) Tax

Amount Credit AmountAmount Credit Amount

20162017 Cumulative translation adjustment . . . . . . . . . . . . . . . . $ 8 $ 1 $ 9Cumulative translation adjustment . . . . . . . . . . . . . . . $ 232 $ (2) $ 230 Unrealized gain (loss) on derivatives:Unrealized gain (loss) on derivatives:

Unrealized hedging gain (loss) . . . . . . . . . . . . . . . . . . (2) 1 (1)Unrealized hedging gain (loss) . . . . . . . . . . . . . . . . . 3 (1) 2 Reclassification of realized (gain) loss to:Reclassification of realized (gain) loss to:

Interest rate contracts – Interest expense . . . 7 (2) 5Interest rate contracts – Interest expense 2 (1) 1 Foreign exchange contracts – OtherForeign exchange contracts – Other

operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . (1) (1)operating expenses . . . . . . . . . . . . . . . . . . . . . . . . 1 1 Net unrealized gain (loss) on derivatives 4 (1) 3Net unrealized gain (loss) on derivatives . . . . . . 6 (2) 4

Unrealized gain (loss) on investments:Unrealized gain (loss) on investments: Unrealized holding gain (loss) . . . . . . . . . . . . . . . . . . . 2 2Unrealized holding gain (loss) . . . . . . . . . . . . . . . . . 274 (101) 173 Reclassification of realized (gain) loss –Reclassification of realized (gain) loss –

Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) 1 (3)Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (275) 101 (174) Net unrealized gain (loss) on investments . . . . . . (2) 1 (1)Net unrealized gain (loss) on investments . . . . . (1) (1)

Retirement benefits adjustment:Retirement benefits adjustment: PensionsPensions

Net actuarial gain (loss) and prior serviceNet actuarial gain (loss) . . . . . . . . . . . . . . . . . . . . . 702 (248) 454 credit (cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,141) 397 (744)Reclassification through amortization of

Reclassification through amortization ofactuarial (gain) loss and prior service actuarial (gain) loss and prior service(credit) cost to other operating (credit) cost to other operatingexpenses:* expenses:*Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . 247 (89) 158

Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . 211 (77) 134Prior service (credit) cost . . . . . . . . . . . . . . . 12 (4) 8 Prior service (credit) cost . . . . . . . . . . . . . . . . 16 (6) 10Settlements/curtailments . . . . . . . . . . . . . . 2 (1) 1 Settlements/curtailments . . . . . . . . . . . . . . . 14 (4) 10OPEB

OPEBNet actuarial gain (loss) . . . . . . . . . . . . . . . . . . . . . 309 (115) 194 Net actuarial gain (loss) and prior serviceReclassification through amortization of

credit (cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (493) 178 (315)actuarial (gain) loss and prior service Reclassification through amortization of(credit) cost to other operating

actuarial (gain) loss and prior serviceexpenses:* (credit) cost to other operatingActuarial (gain) loss . . . . . . . . . . . . . . . . . . . . 99 (36) 63 expenses:*Prior service (credit) cost . . . . . . . . . . . . . . . (77) 28 (49)

Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . 73 (27) 46 Net unrealized gain (loss) on retirement Prior service (credit) cost . . . . . . . . . . . . . . . . (78) 29 (49)

benefits adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . 1,294 (465) 829 Net unrealized gain (loss) on retirement

Total other comprehensive income (loss) . . . . . . . . . $ 1,531 $ (469) $ 1,062 benefits adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,398) 490 (908) * These accumulated other comprehensive income amounts are included in Total other comprehensive income (loss) . . . . . . . . $ (1,388) $ 491 $ (897)

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

net periodic pension and OPEB costs. See Note 7 for additional detail.

The noncontrolling interests’ comprehensive income (loss) was $2.1 million in 2018, $.3 million in 2017, and $(2.4) million in 2016, which consisted of net income (loss) of $2.2 million in 2018, $.1 million in 2017, and $(2.4) million in 2016 and cumulative translation adjustments of $(.1) million in 2018, $.2 million in 2017, and none in 2016. 26. FAIR VALUE MEASUREMENTS

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

economic measures. These valuation techniques are discounted values of their related cash flows at current market consistently applied. interest rates. Certain long-term borrowings have been

swapped to current variable interest rates. The carrying valuesLevel 1 measurements consist of quoted prices in active of these long-term borrowings included adjustments related tomarkets for identical assets or liabilities. Level 2 measurements fair value hedges.include significant other observable inputs such as quoted

prices for similar assets or liabilities in active markets; identical Assets and liabilities measured at October 28, 2018 and assets or liabilities in inactive markets; observable inputs such October 29, 2017 at fair value on a recurring basis in millions as interest rates and yield curves; and other market- of dollars follow: corroborated inputs. Level 3 measurements include significant

2018* 2017*unobservable inputs. Marketable securitiesThe fair values of financial instruments that do not

Equity fund.............................................. $ 46 $ 48approximate the carrying values at October 28, 2018 and Fixed income fund ..................................... 15 October 29, 2017 in millions of dollars follow: U.S. government debt securities ................... 111 77

Municipal debt securities ............................ 46 39 2018 2017 Corporate debt securities ............................ 140 135

Carrying Fair Carrying Fair International debt securities......................... 10 20 Value Value* Value Value* Mortgage-backed securities** ...................... 137 118

Total marketable securities .............................. 490 452Financing receivables – net: Other assetsEquipment operations** ......... $ 93 $ 91

Derivatives:Financial services ................. 26,961 26,722 $ 25,104 $24,946 Interest rate contracts ................................ 80 116Total .............................. $ 27,054 $ 26,813 $ 25,104 $24,946 Foreign exchange contracts ......................... 83 108 Cross-currency interest rate contracts ............ 5 11Financing receivables

securitized – net: Total assets*** ................................................ $ 658 $ 687 Equipment operations** ......... $ 76 $ 73 Financial services ................. 3,946 3,895 $ 4,159 $ 4,130 Accounts payable and accrued expenses

Derivatives:Total .............................. $ 4,022 $ 3,968 $ 4,159 $ 4,130 Interest rate contracts ................................ $ 350 $ 131

Short-term securitization Foreign exchange contracts ......................... 49 26 borrowings: Cross-currency interest rate contracts ............ 1 Equipment operations** ......... $ 75 $ 75 Total liabilities ................................................. $ 399 $ 158Financial services ................. 3,882 3,870 $ 4,119 $ 4,118

* All measurements above were Level 2 measurements except for Level 1Total .............................. $ 3,957 $ 3,945 $ 4,119 $ 4,118 measurements of the equity fund of $46 million and $48 million at October 28, 2018 and October 29, 2017, respectively, the fixed income fundLong-term borrowings due of $15 million at October 29, 2017, and U.S. government debt securities ofwithin one year: $44 million and $44 million at October 28, 2018 and October 29, 2017,Equipment operations** ......... $ 970 $ 979 $ 154 $ 154 respectively. In addition, $8 million and $17 million of the international debtFinancial services ................. 5,427 5,411 6,064 6,079 securities were Level 3 measurements at October 28, 2018 and October 29,

Total .............................. $ 6,397 $ 6,390 $ 6,218 $ 6,233 2017, respectively. There were no transfers between Level 1 and Level 2 during 2018 and 2017.Long-term borrowings: ** Primarily issued by U.S. government sponsored enterprises.

Equipment operations** ......... $ 4,714 $ 4,948 $ 5,491 $ 6,026 *** Excluded from this table were cash equivalents, which were carried at cost Financial services ................. 22,523 22,590 20,400 20,606 that approximates fair value. The cash equivalents consist primarily of money

market funds and time deposits.Total .............................. $ 27,237 $ 27,538 $ 25,891 $26,632

* Fair value measurements above were Level 3 for all financing receivables, Fair value, recurring Level 3 measurements from available-for-sale Level 3 for equipment operations short-term securitization borrowings, and marketable securities at October 28, 2018, October 29, 2017, andLevel 2 for all other borrowings.

October 30, 2016 in millions of dollars follow:** See Note 4. 2018 2017 2016Fair values of the financing receivables that were issued

long-term were based on the discounted values of their Beginning of year balance ........................ $ 17 $ 28 $ 29 Purchases ............................................ 25related cash flows at interest rates currently being offered by Principal payments ................................. (9) (13) (22)the company for similar financing receivables. The fair values Change in unrealized gain (loss) ................. 1 2 (4)of the remaining financing receivables approximated the Other ................................................. (1)carrying amounts. End of year balance ............................... $ 8 $ 17 $ 28

Fair values of long-term borrowings and short-term securitization borrowings were based on current market quotes for identical or similar borrowings and credit risk, or on the

Fair value, nonrecurring measurements from impairments at between the implied fair value and the carrying value of the October 28, 2018 and October 29, 2017 in millions of dollars investments. The fair value for publicly traded entities is the follow: share price multiplied by the shares owned (see Note 5).

Other Assets – The impairments are measured at the fair valueFair Value* Losses* of the matured operating lease inventory. The valuations were

2018 2017 2018 2017 2016 based on a market approach. The inputs include sales of Equipment on operating leases – net ... $ 31 comparable assets (see Note 5). Property and equipment – net ........ $ 13 27. DERIVATIVE INSTRUMENTS Investments in Cash Flow Hedges

unconsolidated affiliates .............. $ 28 $ 40 $ 12 Certain interest rate and cross-currency interest rate contracts Other assets ................................ $ 29 (swaps) were designated as hedges of future cash flows from

borrowings. The total notional amounts of the receive-* Fair value at October 29, 2017 was a Level 1 measurement. See financing variable/pay-fixed interest rate contracts at October 28, 2018receivables with specific allowances in Note 12 that were not significant.

See Note 5 for impairments. and October 29, 2017 were $3,050 million and $1,700 million, respectively. The total notional amounts of the cross-currency

The following is a description of the valuation methodologies interest rate contracts were none and $22 million at the company uses to measure certain financial instruments on October 28, 2018 and October 29, 2017, respectively. The the balance sheet at fair value: effective portions of the fair value gains or losses on these Marketable Securities – The portfolio of investments, except cash flow hedges were recorded in OCI and subsequently for the Level 3 measurement international debt securities, is reclassified into interest expense or other operating expenses primarily valued on a market approach (matrix pricing model) (foreign exchange) in the same periods during which the in which all significant inputs are observable or can be derived hedged transactions affected earnings. These amounts offset from or corroborated by observable market data such as the effects of interest rate or foreign currency exchange rate interest rates, yield curves, volatilities, credit risk, and changes on the related borrowings. Any ineffective portions of prepayment speeds. Funds are primarily valued using the the gains or losses on all cash flow interest rate contracts fund’s net asset value, based on the fair value of the designated as cash flow hedges were recognized currently in underlying securities. The Level 3 measurement international interest expense or other operating expenses (foreign debt securities are primarily valued using an income approach exchange) and were not material during any years presented. based on discounted cash flows using yield curves derived The cash flows from these contracts were recorded in from limited, observable market data. operating activities in the statement of consolidated cash

flows.Derivatives – The company’s derivative financial instruments consist of interest rate swaps and caps, foreign currency The amount of gain recorded in OCI at October 28, 2018 that futures, forwards and swaps, and cross-currency interest rate is expected to be reclassified to interest expense or other swaps. The portfolio is valued based on an income approach operating expenses in the next twelve months if interest rates (discounted cash flow) using market observable inputs, or exchange rates remain unchanged is approximately including swap curves and both forward and spot exchange $10 million after-tax. These contracts mature in up to rates for currencies. 26 months. There were no gains or losses reclassified from

OCI to earnings based on the probability that the originalFinancing Receivables – Specific reserve impairments are based forecasted transaction would not occur.on the fair value of the collateral, which is measured using a

market approach (appraisal values or realizable values). Inputs Fair Value Hedges include a selection of realizable values (see Note 12). Certain interest rate contracts (swaps) were designated as fair

value hedges of borrowings. The total notional amounts ofEquipment on Operating Leases - Net – The impairments are the receive-fixed/pay-variable interest rate contracts atbased on an income approach (discounted cash flow), using October 28, 2018 and October 29, 2017 were $8,479 millionthe contractual payments, plus an estimate of equipment sale and $8,661 million, respectively. The effective portions of theprice at lease maturity. Inputs include realized sales values (see fair value gains or losses on these contracts were offset byNote 5). fair value gains or losses on the hedged items (fixed-rate

Property and Equipment - Net – The impairments are borrowings). Any ineffective portions of the gains or losses measured at the lower of the carrying amount, or fair value. were recognized currently in interest expense. The ineffective The valuations were based on a cost approach. The inputs portions were losses of $2 million in both 2018 and 2016, and include replacement cost estimates adjusted for physical a gain of $3 million in 2017. The cash flows from these deterioration and economic obsolescence (see Note 5). contracts were recorded in operating activities in the

statement of consolidated cash flows.Investment in Unconsolidated Affiliates – Other than temporary impairments for investments are measured as the difference

The gains (losses) on these contracts and the underlying Fair values of derivative instruments in the consolidated borrowings recorded in interest expense follow in millions of balance sheet at October 28, 2018 and October 29, 2017 in dollars: millions of dollars follow:

2018 2017 2016 2018 2017

Interest rate contracts* ....................... $ (294) $ (284) $ 7 Other Assets Borrowings** ................................... 292 287 (9) Designated as hedging instruments: * Includes changes in fair values of interest rate contracts excluding net Interest rate contracts ...................................... $ 29 $ 74

accrued interest income of $11 million, $79 million, and $146 million during Cross-currency interest rate contracts ................... 5 2018, 2017, and 2016, respectively.

Total designated ........................................... 29 79** Includes adjustments for fair values of hedged borrowings excluding accrued interest expense of $246 million, $243 million, and $290 million Not designated as hedging instruments: during 2018, 2017, and 2016, respectively. Interest rate contracts ...................................... 51 42

Foreign exchange contracts................................ 83 108 Derivatives Not Designated as Hedging Instruments Cross-currency interest rate contracts ................... 5 6 The company has certain interest rate contracts (swaps and

Total not designated ..................................... 139 156caps), foreign exchange contracts (futures, forwards and Total derivative assets ....................................... $ 168 $ 235swaps), and cross-currency interest rate contracts (swaps),

which were not formally designated as hedges. These Accounts Payable and Accrued Expenses derivatives were held as economic hedges for underlying Designated as hedging instruments:

Interest rate contracts ...................................... $ 321 $ 112interest rate or foreign currency exposures primarily for certain borrowings, purchases or sales of inventory, and below market Total designated ........................................... 321 112 retail financing programs. The total notional amounts of the Not designated as hedging instruments: interest rate swaps at October 28, 2018 and October 29, 2017 Interest rate contracts ...................................... 29 19 were $8,075 million and $6,757 million, the foreign exchange Foreign exchange contracts................................ 49 26 contracts were $6,842 million and $8,499 million, and the Cross-currency interest rate contracts ................... 1 cross-currency interest rate contracts were $81 million and Total not designated ..................................... 78 46 $66 million, respectively. The increase in the total notional

Total derivative liabilities ................................... $ 399 $ 158amount of interest rate swaps primarily relates to the equipment operation’s economic hedge of announced retail

The classification and gains (losses) including accrued interestfinancing programs. The decrease in the total notional expense related to derivative instruments on the statement ofamounts of foreign exchange contracts primarily relates to the consolidated income consisted of the following in millions ofWirtgen acquisition, which closed in December 2017 (see dollars:Note 4). At October 28, 2018 and October 29, 2017, there

were also $66 million and $253 million, respectively, of 2018 2017 2016

interest rate caps purchased and the same amounts sold at Fair Value Hedgesthe same capped interest rate to facilitate borrowings through Interest rate contracts – Interest expense ....... $ (283) $ (205) $ 153securitization of retail notes. The fair value gains or losses

from the interest rate contracts were recognized currently in Cash Flow Hedges Recognized in OCIinterest expense and the gains or losses from foreign (Effective Portion):exchange contracts in cost of sales or other operating Interest rate contracts – OCI (pretax)* ........... 17 4 (3)expenses, generally offsetting over time the expenses on the Foreign exchange contracts – OCI (pretax)* .... 2 (1) 1exposures being hedged. The cash flows from these

non-designated contracts were recorded in operating activities Reclassified from OCI (Effective Portion):in the statement of consolidated cash flows. Interest rate contracts – Interest expense* ..... 5 (2) (7) Foreign exchange contracts – Other expense* ... 1 (1) 1 Recognized Directly in Income (Ineffective Portion) .................................. ** ** ** Not Designated as Hedges Interest rate contracts – Net sales ............... $ 3 Interest rate contracts – Interest expense* ..... (4) $ 11 $ (1) Foreign exchange contracts – Cost of sales .... (24) (12) (15) Foreign exchange contracts – Other expense* 195 (106) 74

Total not designated .............................. $ 170 $ (107) $ 58

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

** The amounts are not significant.

Counterparty Risk and Collateral Derivative instruments are subject to significant concentrations of credit risk to the banking sector. The company manages individual counterparty exposure by setting limits that consider

the credit rating of the counterparty, the credit default swap The construction and forestry segment primarily manufactures spread of the counterparty, and other financial commitments and distributes a broad range of machines and service parts and exposures between the company and the counterparty used in construction, earthmoving, road building, material banks. All interest rate derivatives are transacted under handling, and timber harvesting, including backhoe loaders; International Swaps and Derivatives Association (ISDA) crawler dozers and loaders; four-wheel-drive loaders; documentation. Some of these agreements include credit excavators; motor graders; articulated dump trucks; landscape support provisions. Each master agreement permits the net loaders; skid-steer loaders; milling machines; recyclers; slipform settlement of amounts owed in the event of default or pavers; surface miners; asphalt pavers; compactors; tandem termination. and static rollers; mobile crushers and screens; mobile and

stationary asphalt plants; log skidders; feller bunchers; logCertain of the company’s derivative agreements contain credit loaders; log forwarders; log harvesters; and related loggingsupport provisions that may require the company to post attachments.collateral based on the size of the net liability positions and

credit ratings. The aggregate fair value of all derivatives with The products and services produced by the segments above credit-risk-related contingent features that were in a net are marketed primarily through independent retail dealer liability position at October 28, 2018 and October 29, 2017, networks and major retail outlets. was $350 million and $132 million, respectively. In accordance The financial services segment primarily finances sales and with the limits established in these agreements, the company leases by John Deere dealers of new and used agriculture and posted $59 million in cash collateral at October 28, 2018. No turf equipment and construction and forestry equipment. In cash collateral was posted at October 29, 2017. addition, the financial services segment provides wholesale Derivatives are recorded without offsetting for netting financing to dealers of the foregoing equipment, finances arrangements or collateral. The impact on the derivative assets retail revolving charge accounts, and offers extended and liabilities related to netting arrangements and any equipment warranties. collateral paid at October 28, 2018 and October 29, 2017 in Because of integrated manufacturing operations and common millions of dollars follows: administrative and marketing support, a substantial number of

allocations must be made to determine operating segment andGross Amounts Netting Collateral Net geographic area data. Intersegment sales and revenuesRecognized Arrangements Paid Amount represent sales of components and finance charges, which are

2018 generally based on market prices.Assets ........... $ 168 $ (65) $ 103 Liabilities ....... 399 (65) $ (59) 275 Information relating to operations by operating segment in 2017 millions of dollars follows for the years ended October 28, Assets ........... $ 235 $ (65) $ 170 2018, October 29, 2017, and October 30, 2016. In addition to Liabilities ....... 158 (65) 93 the following unaffiliated sales and revenues by segment,

intersegment sales and revenues in 2018, 2017, and 2016 were28. SEGMENT AND GEOGRAPHIC AREA DATA as follows: agriculture and turf net sales of $47 million, $39 million, and $31 million, construction and forestry netThe company’s operations are presently organized and sales of none, $1 million, and $1 million, and financial servicesreported in three major business segments described as revenues of $308 million, $244 million, and $225 million,follows: respectively.The agriculture and turf segment primarily manufactures and

distributes a full line of agriculture and turf equipment and OPERATING SEGMENTS 2018 2017 2016 related service parts, including large, medium and utility

Net sales and revenuestractors; tractor loaders; combines, cotton pickers, cotton Unaffiliated customers: strippers, and sugarcane harvesters; harvesting front-end Agriculture and turf net sales ........... $ 23,191 $ 20,167 $ 18,487 equipment; sugarcane loaders and pull-behind scrapers; tillage, Construction and forestry net sales .... 10,160 5,718 4,900 seeding and application equipment, including sprayers, nutrient Total net sales ............................ 33,351 25,885 23,387 management and soil preparation machinery; hay and forage Financial services revenues .................. 3,252 2,935 2,694 equipment, including self-propelled forage harvesters and Other revenues* ................................ 755 918 563 attachments, balers and mowers; turf and utility equipment,

Total ............................................... $ 37,358 $ 29,738 $26,644 including riding lawn equipment and walk-behind mowers, golf

* Other revenues are primarily the equipment operations’ revenues forcourse equipment, utility vehicles, and commercial mowing finance and interest income, and other income as disclosed in Note 31, netequipment, along with a broad line of associated implements; of certain intercompany eliminations.

integrated agricultural management systems technology and (continued)solutions; and other outdoor power products.

OPERATING SEGMENTS 2018 2017 2016 OPERATING SEGMENTS 2018 2017 2016

Operating profit Identifiable operating assets Agriculture and turf .......................... $ 2,816 $ 2,513 $ 1,719 Agriculture and turf .......................... $ 10,161 $ 9,359 $ 8,405 Construction and forestry .................. 868 346 189 Construction and forestry .................. 9,855 3,212 3,017 Financial services* ............................ 792 715 701 Financial services ............................. 45,720 42,596 40,837

Corporate* ..................................... 4,372 10,619 5,659Total operating profit** .................. 4,476 3,574 2,609 Total .......................................... $ 70,108 $65,786 $ 57,918Interest income................................ 80 55 48

Interest expense .............................. (298) (264) (251) * Corporate assets are primarily the equipment operations’ retirement Foreign exchange gains (losses) from benefits, deferred income tax assets, marketable securities, and cash and

cash equivalents as disclosed in Note 31, net of certain intercompanyequipment operations’ financing eliminations.activities ..................................... 36 (12) (12)

Pension and OPEB costs, excluding Capital additionsservice cost component .................. (15) (31) (20) Agriculture and turf .......................... $ 675 $ 485 $ 556Corporate expenses – net .................. (182) (192) (153) Construction and forestry .................. 308 114 115Income taxes................................... (1,727) (971) (700) Financial services ............................. 2 3 3

Total .......................................... (2,106) (1,415) (1,088) Total .......................................... $ 985 $ 602 $ 674

Net income..................................... 2,370 2,159 1,521 Less: Net income (loss) attributable to

Investments in unconsolidatednoncontrolling interests .................. 2 (3) affiliates

Net income attributable to Agriculture and turf .......................... $ 26 $ 25 $ 56 Deere & Company ......................... $ 2,368 $ 2,159 $ 1,524 Construction and forestry .................. 166 143 165

Financial services ............................. 15 14 12* Operating profit of the financial services business segment includes the effect of its interest expense and foreign exchange gains or losses. Total .......................................... $ 207 $ 182 $ 233

** Fiscal year 2017 and 2016 amounts were restated for the adoption of ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 3. The company views and has historically disclosed its

operations as consisting of two geographic areas, the U.S. and Interest income* Canada, and outside the U.S. and Canada, shown below in Agriculture and turf .......................... $ 14 $ 16 $ 12

millions of dollars. No individual foreign country’s net salesConstruction and forestry .................. 33 1 1 and revenues were material for disclosure purposes.Financial services ............................. 1,998 1,771 1,650

Corporate ....................................... 80 55 48 GEOGRAPHIC AREAS 2018 2017 2016Intercompany .................................. (331) (268) (240) Net sales and revenuesTotal .......................................... $ 1,794 $ 1,575 $ 1,471 Unaffiliated customers:

* Does not include finance rental income for equipment on operating leases. U.S. and Canada: Equipment operations net sales (88%)* $ 18,847 $ 15,031 $ 14,376

Interest expense Financial services revenues (79%)* 2,785 2,526 2,366 Agriculture and turf .......................... $ 229 $ 182 $ 173

Total .................................... 21,632 17,557 16,742Construction and forestry .................. 71 53 44 Financial services ............................. 937 669 536 Outside U.S. and Canada: Corporate ....................................... 298 264 251 Equipment operations net sales ..... 14,504 10,854 9,011 Intercompany .................................. (331) (268) (240) Financial services revenues ........... 467 409 328

Total .......................................... $ 1,204 $ 900 $ 764 Total .................................... 14,971 11,263 9,339 Other revenues ................................ 755 918 563

Depreciation* and amortization Total.............................................. $ 37,358 $ 29,738 $ 26,644expense

Agriculture and turf .......................... $ 723 $ 695 $ 667 * The percentages indicate the approximate proportion of each amount that Construction and forestry .................. 251 145 136 relates to the U.S. only and are based upon a three-year average for 2018,

2017, and 2016.Financial services ............................. 953 876 757 Total .......................................... $ 1,927 $ 1,716 $ 1,560 (continued)

* Includes depreciation for equipment on operating leases.

Equity in income (loss) of unconsolidated affiliates

Agriculture and turf .......................... $ 6 $ 2 $ 9 Construction and forestry .................. 19 (27) (13) Financial services ............................. 2 1 2

Total .......................................... $ 27 $ (24) $ (2)

(continued)

Quarterly information with respect to net sales and revenuesGEOGRAPHIC AREAS 2018 2017 2016 and earnings is shown in the following schedule. The

Operating profit* company’s fiscal year ends in October and its interim periods U.S. and Canada: (quarters) end in January, April, and July. Such information is

Equipment operations .................. $ 2,356 $ 1,754 $ 1,328 shown in millions of dollars except for per share amounts.Financial services ........................ 604 515 543

Total ..................................... 2,960 2,269 1,871 First Second Third Fourth Quarter Quarter Quarter QuarterOutside U.S. and Canada:

Equipment operations .................. 1,328 1,105 580 2018 Financial services ........................ 188 200 158 Net sales and revenues ............... $ 6,913 $10,720 $10,309 $ 9,416

Net sales ................................. 5,974 9,747 9,287 8,343Total ..................................... 1,516 1,305 738 Gross profit.............................. 1,269 2,414 2,134 1,962

Total .............................................. $ 4,476 $ 3,574 $ 2,609 Income before income taxes ........ 518 1,384 1,190 979 Net income (loss) attributable to* Fiscal year 2017 and 2016 amounts were restated for the adoption of FASB

Deere & Company .................. (535) 1,208 910 785ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost Per share data:and Net Periodic Postretirement Benefit Cost. See Note 3.

Basic ................................... (1.66) 3.73 2.81 2.45 Property and equipment Diluted ................................ (1.66) 3.67 2.78 2.42 U.S. .............................................. $ 3,031 $ 2,976 $ 3,077 Dividends declared ................. .60 .60 .69 .69 Germany ......................................... 1,164 598 569 Dividends paid ....................... .60 .60 .60 .69 Other countries ................................ 1,673 1,494 1,525 2017*

Net sales and revenues ............... $ 5,625 $ 8,287 $ 7,808 $ 8,018Total ........................................... $ 5,868 $ 5,068 $ 5,171 Net sales ................................. 4,698 7,260 6,833 7,094 Gross profit** ........................... 916 1,832 1,585 1,686

29. SUPPLEMENTAL INFORMATION (UNAUDITED) Income before income taxes ........ 328 1,169 890 767 Net income attributable to

The $1 par value common stock of Deere & Company is listed Deere & Company .................. 199 808 642 510 on the New York Stock Exchange under the symbol ‘‘DE’’. At Per share data:

Basic ................................... .63 2.53 2.00 1.59October 28, 2018, there were 20,559 holders of record of the Diluted ................................ .62 2.50 1.97 1.57company’s $1 par value common stock. Dividends declared ................. .60 .60 .60 .60 Dividends paid ....................... .60 .60 .60 .60

Net income per share for each quarter must be computed independently. As a result, their sum may not equal the total net income per share for the year. * See Note 5 for ‘‘Special Items.’’ ** Amounts restated for the adoption of ASU No. 2017-07, Improving the

Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 3.

30. SUBSEQUENT EVENTS

A quarterly dividend of $.76 per share was declared at the Board of Directors meeting on December 5, 2018, payable on February 1, 2019 to stockholders of record on December 31, 2018. The new quarterly rate represents an increase of 7 cents per share over the previous level, or approximately 10 percent. In November 2018, the company’s financial services operations entered into a retail note securitization using its bank conduit facility that resulted in securitization borrowings of approximately $1,245 million.

31. SUPPLEMENTAL CONSOLIDATING DATA

INCOME STATEMENT For the Years Ended October 28, 2018, October 29, 2017, and October 30, 2016 (In millions of dollars)

EQUIPMENT OPERATIONS* FINANCIAL SERVICES 2018 2017 2016 2018 2017 2016

Net Sales and Revenues Net sales ......................................................................... $ 33,350.7 $ 25,885.1 $ 23,387.3 Finance and interest income ................................................. 126.3 71.7 61.1 $ 3,311.4 $ 2,928.2 $ 2,690.1 Other income .................................................................... 874.5 1,065.0 653.7 248.6 250.9 229.0

Total ............................................................................ 34,351.5 27,021.8 24,102.1 3,560.0 3,179.1 2,919.1

Costs and Expenses Cost of sales .................................................................... 25,573.0 19,867.9 18,198.0 Research and development expenses ...................................... 1,657.6 1,372.5 1,393.7 Selling, administrative and general expenses ............................ 2,934.9 2,555.0 2,282.6 527.9 549.2 515.9 Interest expense ................................................................ 297.8 263.7 250.5 936.6 669.2 536.5 Interest compensation to Financial Services ............................. 299.8 234.5 216.6 Other operating expenses .................................................... 315.4 295.2 243.8 1,297.8 1,239.9 1,159.6

Total ............................................................................ 31,078.5 24,588.8 22,585.2 2,762.3 2,458.3 2,212.0

Income of Consolidated Group before Income Taxes ................. 3,273.0 2,433.0 1,516.9 797.7 720.8 707.1 Provision (credit) for income taxes ......................................... 1,869.2 726.0 459.0 (142.3) 245.1 241.1 Income of Consolidated Group ............................................. 1,403.8 1,707.0 1,057.9 940.0 475.7 466.0

Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates Financial Services ........................................................... 942.0 476.9 467.6 2.0 1.2 1.6 Other........................................................................... 24.8 (24.7) (4.0)

Total......................................................................... 966.8 452.2 463.6 2.0 1.2 1.6 Net Income ...................................................................... 2,370.6 2,159.2 1,521.5 942.0 476.9 467.6

Less: Net income (loss) attributable to noncontrolling interests .... 2.2 .1 (2.4) Net Income Attributable to Deere & Company ........................ $ 2,368.4 $ 2,159.1 $ 1,523.9 $ 942.0 $ 476.9 $ 467.6

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

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

31. SUPPLEMENTAL CONSOLIDATING DATA (continued)

BALANCE SHEET As of October 28, 2018 and October 29, 2017 (In millions of dollars except per share amounts)

EQUIPMENT OPERATIONS* FINANCIAL SERVICES 2018 2017 2018 2017

ASSETS Cash and cash equivalents .................................................................. $ 3,194.8 $ 8,168.4 $ 709.2 $ 1,166.5 Marketable securities ......................................................................... 8.2 20.2 481.9 431.4 Receivables from unconsolidated subsidiaries and affiliates ........................ 1,700.4 1,032.1 Trade accounts and notes receivable – net ............................................. 1,373.7 876.3 4,906.4 4,134.1 Financing receivables – net ................................................................. 93.1 26,961.0 25,104.1 Financing receivables securitized – net................................................... 76.1 3,945.3 4,158.8 Other receivables .............................................................................. 1,009.7 1,045.6 775.7 195.5 Equipment on operating leases – net .................................................... 7,165.4 6,593.7 Inventories ...................................................................................... 6,148.9 3,904.1 Property and equipment – net ............................................................. 5,820.6 5,017.3 46.9 50.4 Investments in unconsolidated subsidiaries and affiliates ........................... 5,231.2 4,812.3 15.2 13.8 Goodwill ......................................................................................... 3,100.7 1,033.3 Other intangible assets – net ............................................................... 1,562.4 218.0 Retirement benefits ........................................................................... 1,241.5 538.1 56.8 16.9 Deferred income taxes ....................................................................... 1,502.6 3,098.8 69.4 79.8 Other assets .................................................................................... 1,132.8 973.9 587.1 651.4 Total Assets .................................................................................... $ 33,196.7 $ 30,738.4 $ 45,720.3 $ 42,596.4

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES Short-term borrowings....................................................................... $ 1,434.0 $ 375.5 $ 9,627.4 $ 9,659.8 Short-term securitization borrowings .................................................... 75.6 3,881.7 4,118.7 Payables to unconsolidated subsidiaries and affiliates ............................... 128.9 121.9 1,678.7 996.2 Accounts payable and accrued expenses ................................................ 9,382.5 7,718.1 2,055.7 1,827.1 Deferred income taxes ....................................................................... 496.8 115.6 823.0 857.7 Long-term borrowings ....................................................................... 4,713.9 5,490.9 22,523.5 20,400.4 Retirement benefits and other liabilities................................................. 5,659.8 7,341.9 91.2 92.9

Total liabilities ..................................................................... 21,891.5 21,163.9 40,681.2 37,952.8 Commitments and contingencies (Note 22) Redeemable noncontrolling interest (Note 4)........................................... 14.0 14.0

STOCKHOLDERS’ EQUITY Common stock, $1 par value (authorized – 1,200,000,000 shares;

issued – 536,431,204 shares in 2018 and 2017), at paid-in amount ........... 4,474.2 4,280.5 2,099.5 2,099.1 Common stock in treasury, 217,975,806 shares in 2018

and 214,589,902 shares in 2017, at cost ............................................. (16,311.8) (15,460.8) Retained earnings ............................................................................. 27,553.0 25,301.3 3,257.2 2,782.0 Accumulated other comprehensive income (loss) ...................................... (4,427.6) (4,563.7) (317.6) (237.5) Total Deere & Company stockholders’ equity........................................... 11,287.8 9,557.3 5,039.1 4,643.6 Noncontrolling interests ..................................................................... 3.4 3.2

Total stockholders’ equity ............................................................. 11,291.2 9,560.5 5,039.1 4,643.6 Total Liabilities and Stockholders’ Equity .............................................. $ 33,196.7 $ 30,738.4 $ 45,720.3 $ 42,596.4

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

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

31. SUPPLEMENTAL CONSOLIDATING DATA (continued)

STATEMENT OF CASH FLOWS For the Years Ended October 28, 2018, October 29, 2017, and October 30, 2016 (In millions of dollars)

EQUIPMENT OPERATIONS* FINANCIAL SERVICES 2018 2017 2016 2018 2017 2016

Cash Flows from Operating Activities Net income .............................................................................. $ 2,370.6 $ 2,159.2 $ 1,521.5 $ 942.0 $ 476.9 $ 467.6 Adjustments to reconcile net income to net cash provided by

operating activities: Provision for credit losses ........................................................ 39.4 9.9 8.2 51.4 88.4 86.1 Provision for depreciation and amortization .................................. 974.4 839.3 803.4 1,077.3 984.3 846.7 Impairment charges ................................................................ 39.8 25.4 59.7 Gain on sale of affiliates and investments .................................... (25.1) (375.1) (74.5) Undistributed earnings of unconsolidated subsidiaries and affiliates ... (502.8) (125.0) 94.0 (1.8) (1.1) (1.5) Provision (credit) for deferred income taxes .................................. 1,503.7 (6.7) 13.2 (23.8) 106.8 269.5 Changes in assets and liabilities:

Trade receivables and Equipment Operations’ financing receivables . (239.1) (243.9) (175.3) Inventories......................................................................... (917.2) (504.3) 578.4 Accounts payable and accrued expenses ................................... 792.6 946.2 (169.6) 120.0 93.9 40.6 Accrued income taxes payable/receivable .................................. 102.8 (122.7) 18.2 (569.0) 38.5 (11.2) Retirement benefits ............................................................. (984.8) (39.2) 232.4 (41.3) 7.3 6.2

Other .................................................................................. 164.4 (139.5) 36.5 88.0 81.5 97.1 Net cash provided by operating activities .............................. 3,278.9 2,438.0 2,911.8 1,642.8 1,876.5 1,860.8

Cash Flows from Investing Activities Collections of receivables (excluding trade and wholesale) ................... 17,032.3 15,963.2 15,831.4 Proceeds from maturities and sales of marketable securities ................ 11.4 297.9 81.9 65.2 106.3 87.5 Proceeds from sales of equipment on operating leases ...................... 1,482.7 1,440.8 1,256.2 Proceeds from sales of businesses and unconsolidated affiliates, net of

cash sold .............................................................................. 155.6 113.9 81.1 Cost of receivables acquired (excluding trade and wholesale) ............... (18,777.6) (16,799.9) (15,168.2) Acquisitions of businesses, net of cash acquired ............................... (5,245.0) (284.2) (198.5) Purchases of marketable securities ................................................ (59.4) (132.8) (118.0) (111.8) Purchases of property and equipment ............................................ (893.0) (591.4) (641.8) (3.4) (3.5) (2.6) Cost of equipment on operating leases acquired ............................... (3,209.3) (3,079.8) (3,235.7) Increase in investment in Financial Services ..................................... (.4) (20.0) (28.2) Decrease (increase) in trade and wholesale receivables ....................... (1,222.4) (379.9) 492.5 Other ...................................................................................... 17.7 (32.7) (55.2) (73.5) (26.5) 24.6

Net cash used for investing activities ................................... (5,953.7) (516.5) (820.1) (4,838.8) (2,897.3) (826.1) Cash Flows from Financing Activities Increase (decrease) in total short-term borrowings ............................ 16.1 64.5 (207.2) 457.1 1,246.1 (1,006.4) Change in intercompany receivables/payables ................................... (748.0) 2,142.0 (756.0) 748.0 (2,142.0) 756.0 Proceeds from long-term borrowings ............................................. 148.5 1,107.0 173.4 8,139.3 7,595.2 4,897.3 Payments of long-term borrowings ................................................ (163.4) (66.3) (72.8) (6,081.9) (5,330.7) (5,194.8) Proceeds from issuance of common stock ....................................... 216.9 528.7 36.0 Repurchases of common stock...................................................... (957.9) (6.2) (205.4) Capital investment from Equipment Operations ................................. .4 20.0 28.2 Dividends paid .......................................................................... (805.8) (764.0) (761.3) (463.7) (365.2) (562.1) Other ...................................................................................... (60.0) (54.4) (36.7) (32.5) (33.4) (28.0)

Net cash provided by (used for) financing activities ................. (2,353.6) 2,951.3 (1,830.0) 2,766.7 990.0 (1,109.8) Effect of Exchange Rate Changes on Cash and Cash Equivalents ........ 54.8 155.1 (21.2) (28.0) 2.0 8.2 Net Increase (Decrease) in Cash and Cash Equivalents ...................... (4,973.6) 5,027.9 240.5 (457.3) (28.8) (66.9) Cash and Cash Equivalents at Beginning of Year ............................. 8,168.4 3,140.5 2,900.0 1,166.5 1,195.3 1,262.2 Cash and Cash Equivalents at End of Year ..................................... $ 3,194.8 $ 8,168.4 $ 3,140.5 $ 709.2 $ 1,166.5 $ 1,195.3

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

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

DEERE & COMPANY SELECTED FINANCIAL DATA (Dollars in millions except per share amounts)

2018 2017 2016 2015 2014 2013 2012 2011 2010 2009

Net sales and revenues ................................ $37,358 $ 29,738 $ 26,644 $28,863 $36,067 $ 37,795 $ 36,157 $ 32,013 $26,005 $ 23,112 Net sales .................................................. 33,351 25,885 23,387 25,775 32,961 34,998 33,501 29,466 23,573 20,756 Finance and interest income .......................... 3,107 2,732 2,511 2,381 2,282 2,115 1,981 1,923 1,825 1,842 Research and development expenses** ............ 1,658 1,373 1,394 1,410 1,437 1,445 1,409 1,192 1,005 965 Selling, administrative and general expenses**... 3,456 3,098 2,791 2,868 3,266 3,558 3,369 3,143 2,926 2,753 Interest expense ......................................... 1,204 900 764 680 664 741 783 759 811 1,042 Net income* .............................................. 2,368 2,159 1,524 1,940 3,162 3,537 3,065 2,800 1,865 873 Return on net sales..................................... 7.1% 8.3% 6.5% 7.5% 9.6% 10.1% 9.1% 9.5% 7.9% 4.2% Return on beginning Deere & Company

stockholders’ equity ................................. 24.8% 33.1% 22.6% 21.4% 30.8% 51.7% 45.1% 44.5% 38.7% 13.4% Comprehensive income (loss)* ........................ 3,221 3,221 627 994 2,072 5,416 2,171 2,502 2,079 (1,333)

Net income per share – basic* ...................... $ 7.34 $ 6.76 $ 4.83 $ 5.81 $ 8.71 $ 9.18 $ 7.72 $ 6.71 $ 4.40 $ 2.07 – diluted* .................... 7.24 6.68 4.81 5.77 8.63 9.09 7.63 6.63 4.35 2.06

Dividends declared per share ......................... 2.58 2.40 2.40 2.40 2.22 1.99 1.79 1.52 1.16 1.12 Dividends paid per share .............................. 2.49 2.40 2.40 2.40 2.13 1.94 1.74 1.41 1.14 1.12 Average number of common

shares outstanding (in millions) – basic ........ 322.6 319.5 315.2 333.6 363.0 385.3 397.1 417.4 424.0 422.8 – diluted ...... 327.3 323.3 316.6 336.0 366.1 389.2 401.5 422.4 428.6 424.4

Total assets ............................................... $70,108 $65,786 $ 57,918 $ 57,883 $ 61,267 $59,454 $ 56,193 $48,146 $ 43,186 $41,023 Trade accounts and notes receivable – net ....... 5,004 3,925 3,011 3,051 3,278 3,758 3,799 3,295 3,464 2,617 Financing receivables – net ........................... 27,054 25,104 23,702 24,809 27,422 25,633 22,159 19,924 17,682 15,255 Financing receivables securitized – net ............ 4,022 4,159 5,127 4,835 4,602 4,153 3,618 2,905 2,238 3,108 Equipment on operating leases – net .............. 7,165 6,594 5,902 4,970 4,016 3,152 2,528 2,150 1,936 1,733 Inventories ................................................ 6,149 3,904 3,341 3,817 4,210 4,935 5,170 4,371 3,063 2,397 Property and equipment – net ...................... 5,868 5,068 5,171 5,181 5,578 5,467 5,012 4,352 3,791 4,532 Short-term borrowings:

Equipment operations ............................... 1,434 375 249 464 434 1,080 425 529 85 490 Financial services ..................................... 9,628 9,660 6,662 7,961 7,584 7,707 5,966 6,307 5,239 3,535

Total.................................................. 11,062 10,035 6,911 8,425 8,018 8,787 6,391 6,836 5,324 4,025 Short-term securitization borrowings:

Equipment operations ............................... 75 Financial services ..................................... 3,882 4,119 4,998 4,585 4,553 4,103 3,569 2,773 2,204 3,126

Total.................................................. 3,957 4,119 4,998 4,585 4,553 4,103 3,569 2,773 2,204 3,126 Long-term borrowings:

Equipment operations ............................... 4,714 5,491 4,565 4,439 4,619 4,845 5,418 3,155 3,316 3,058 Financial services ..................................... 22,523 20,400 19,138 19,336 19,699 16,673 16,970 13,764 13,424 14,232

Total.................................................. 27,237 25,891 23,703 23,775 24,318 21,518 22,388 16,919 16,740 17,290 Total Deere & Company stockholders’ equity ..... 11,288 9,557 6,520 6,743 9,063 10,266 6,842 6,800 6,290 4,819

Book value per share* ................................. $ 35.45 $ 29.70 $ 20.71 $ 21.29 $ 26.23 $ 27.46 $ 17.64 $ 16.75 $ 14.90 $ 11.39 Capital expenditures .................................... $ 969 $ 586 $ 668 $ 655 $ 1,004 $ 1,132 $ 1,360 $ 1,050 $ 795 $ 767 Number of employees (at year end) ................ 74,413 60,476 56,767 57,180 59,623 67,044 66,859 61,278 55,650 51,262

* Attributable to Deere & Company. ** Restated balances for adoption of ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.

See Note 3.

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

NOTHING RUNS LIKE A DEERE™

On the cover: The new 60-ft. 1895 no-till air seeder enables growers to plant more acres with greater speed and precision. It is nearly 40 percent wider than previous models and incorporates new technologies designed to improve seed and fertilizer placement.

Cover
Chairman's Message
2018 Highlights
Leadership Team
Annual Meeting and Other Stockholder Information
Management's Discussion and Analysis
Reports of Management and Independent Registered Public Accounting Firm
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Selected Financial Data