DEERE & CO - Quarter Report: 2016 April (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2016

Commission file no: 1-4121

DEERE & COMPANY

(Exact name of registrant as specified in its charter)


Delaware (State of incorporation)		36-2382580 (IRS employer identification no.)

One John Deere Place

Moline, Illinois 61265

(Address of principal executive offices)

Telephone Number: (309) 765-8000

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

Yes X No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes X No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	X	Accelerated filer
Non-accelerated filer		Smaller reporting company
(Do not check if a smaller reporting company)

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

Yes No X

At April 30, 2016, 314,258,886 shares of common stock, $1 par value, of the registrant were outstanding.

Index to Exhibits: Page 51

PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS
DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended April 30, 2016 and 2015
(In millions of dollars and shares except per share amounts) Unaudited
	2016		2015
Net Sales and Revenues
Net sales	$	7,106.6	$	7,398.5
Finance and interest income		611.4		576.3
Other income		157.4		195.9
Total		7,875.4		8,170.7

Costs and Expenses
Cost of sales		5,531.0		5,694.2
Research and development expenses		345.0		341.1
Selling, administrative and general expenses		714.8		740.0
Interest expense		191.0		165.5
Other operating expenses		360.3		212.9
Total		7,142.1		7,153.7

Income of Consolidated Group before Income Taxes		733.3		1,017.0
Provision for income taxes		237.8		324.0
Income of Consolidated Group		495.5		693.0
Equity in loss of unconsolidated affiliates		(.8)		(2.2)
Net Income		494.7		690.8
Less: Net income (loss) attributable to noncontrolling interests		(.7)		.3
Net Income Attributable to Deere & Company	$	495.4	$	690.5

Per Share Data
Basic	$	1.57	$	2.05
Diluted	$	1.56	$	2.03

Average Shares Outstanding
Basic		315.1		337.1
Diluted		316.5		339.7

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the Three Months Ended April 30, 2016 and 2015
(In millions of dollars) Unaudited
	2016		2015

Net Income	$	494.7	$	690.8

Other Comprehensive Income (Loss), Net of Income Taxes
Retirement benefits adjustment		19.1		20.9
Cumulative translation adjustment		311.8		(66.6)
Unrealized gain on derivatives		1.0		1.3
Unrealized gain (loss) on investments		9.5		(4.2)
Other Comprehensive Income (Loss), Net of Income Taxes		341.4		(48.6)

Comprehensive Income of Consolidated Group		836.1		642.2
Less: Comprehensive income (loss) attributable to noncontrolling interests		(.6)		.3
Comprehensive Income Attributable to Deere & Company	$	836.7	$	641.9

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Six Months Ended April 30, 2016 and 2015
(In millions of dollars and shares except per share amounts) Unaudited
	2016		2015
Net Sales and Revenues
Net sales	$	11,875.8	$	13,003.6
Finance and interest income		1,210.5		1,169.9
Other income		313.6		380.3
Total		13,399.9		14,553.8

Costs and Expenses
Cost of sales		9,371.1		10,114.8
Research and development expenses		664.3		674.3
Selling, administrative and general expenses		1,307.7		1,398.9
Interest expense		364.3		345.6
Other operating expenses		608.0		435.5
Total		12,315.4		12,969.1

Income of Consolidated Group before Income Taxes		1,084.5		1,584.7
Provision for income taxes		333.3		494.6
Income of Consolidated Group		751.2		1,090.1
Equity in loss of unconsolidated affiliates		(2.7)		(12.4)
Net Income		748.5		1,077.7
Less: Net income (loss) attributable to noncontrolling interests		(1.3)		.5
Net Income Attributable to Deere & Company	$	749.8	$	1,077.2

Per Share Data
Basic	$	2.37	$	3.17
Diluted	$	2.36	$	3.14

Average Shares Outstanding
Basic		315.8		340.2
Diluted		317.1		342.8

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the Six Months Ended April 30, 2016 and 2015
(In millions of dollars) Unaudited
	2016		2015

Net Income	$	748.5	$	1,077.7

Other Comprehensive Income (Loss), Net of Income Taxes
Retirement benefits adjustment		57.2		63.2
Cumulative translation adjustment		153.8		(577.0)
Unrealized gain (loss) on derivatives		1.0		(.2)
Unrealized gain (loss) on investments		(1.3)		3.1
Other Comprehensive Income (Loss), Net of Income Taxes		210.7		(510.9)

Comprehensive Income of Consolidated Group		959.2		566.8
Less: Comprehensive income (loss) attributable to noncontrolling interests		(1.2)		.2
Comprehensive Income Attributable to Deere & Company	$	960.4	$	566.6

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions of dollars) Unaudited
	April 30		October 31		April 30
	2016		2015		2015
Assets
Cash and cash equivalents	$	4,133.2	$	4,162.2	$	4,355.4
Marketable securities		475.5		437.4		392.9
Receivables from unconsolidated affiliates		81.3		33.3		46.4
Trade accounts and notes receivable - net		4,898.9		3,051.1		4,717.1
Financing receivables - net		23,415.3		24,809.0		24,745.8
Financing receivables securitized - net		4,734.7		4,834.6		4,741.1
Other receivables		876.2		991.2		873.4
Equipment on operating leases - net		5,455.5		4,970.4		4,195.2
Inventories		4,061.0		3,817.0		4,624.2
Property and equipment - net		5,079.7		5,181.5		5,245.1
Investments in unconsolidated affiliates		236.7		303.5		299.2
Goodwill		835.0		726.0		737.0
Other intangible assets - net		120.5		63.6		60.4
Retirement benefits		285.4		215.6		313.9
Deferred income taxes		2,681.9		2,767.3		2,659.4
Other assets		1,812.5		1,583.9		1,587.5
Total Assets	$	59,183.3	$	57,947.6	$	59,594.0

Liabilities and Stockholders’ Equity

Liabilities
Short-term borrowings	$	8,576.0	$	8,426.6	$	8,989.0
Short-term securitization borrowings		4,641.8		4,590.0		4,702.7
Payables to unconsolidated affiliates		109.5		80.6		130.1
Accounts payable and accrued expenses		6,980.8		7,311.5		7,260.2
Deferred income taxes		180.3		160.8		149.3
Long-term borrowings		24,648.0		23,832.8		23,622.8
Retirement benefits and other liabilities		6,856.2		6,787.7		6,563.9
Total liabilities		51,992.6		51,190.0		51,418.0

Commitments and contingencies (Note 14)
Redeemable noncontrolling interest (Note 18)		14.0

Stockholders’ Equity
Common stock, $1 par value (issued shares at April 30, 2016 – 536,431,204)		3,862.0		3,825.6		3,745.2
Common stock in treasury		(15,693.6)		(15,497.6)		(13,951.2)
Retained earnings		23,514.7		23,144.8		22,673.4
Accumulated other comprehensive income (loss)		(4,518.8)		(4,729.4)		(4,293.6)
Total Deere & Company stockholders’ equity		7,164.3		6,743.4		8,173.8
Noncontrolling interests		12.4		14.2		2.2
Total stockholders’ equity		7,176.7		6,757.6		8,176.0
Total Liabilities and Stockholders’ Equity	$	59,183.3	$	57,947.6	$	59,594.0

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Six Months Ended April 30, 2016 and 2015
(In millions of dollars) Unaudited
	2016		2015
Cash Flows from Operating Activities
Net income	$	748.5	$	1,077.7
Adjustments to reconcile net income to net cash used for operating activities:
Provision for credit losses		35.1		15.1
Provision for depreciation and amortization		761.8		682.9
Impairment charges		49.7
Share-based compensation expense		32.0		28.7
Undistributed earnings of unconsolidated affiliates		5.3		8.8
Provision for deferred income taxes		93.3		117.8
Changes in assets and liabilities:
Trade, notes and financing receivables related to sales		(1,311.5)		(860.8)
Insurance receivables				333.4
Inventories		(405.8)		(932.9)
Accounts payable and accrued expenses		(367.8)		(698.3)
Accrued income taxes payable/receivable		12.0		(76.3)
Retirement benefits		91.1		186.6
Other		(56.1)		(37.4)
Net cash used for operating activities		(312.4)		(154.7)

Cash Flows from Investing Activities
Collections of receivables (excluding receivables related to sales)		8,120.6		8,332.4
Proceeds from maturities and sales of marketable securities		71.4		791.9
Proceeds from sales of equipment on operating leases		630.1		552.3
Proceeds from sale of business, net of cash sold				148.8
Cost of receivables acquired (excluding receivables related to sales)		(6,872.9)		(7,426.1)
Purchases of marketable securities		(112.2)		(33.9)
Purchases of property and equipment		(232.6)		(324.3)
Cost of equipment on operating leases acquired		(1,204.1)		(830.2)
Acquisitions of businesses, net of cash acquired		(198.9)
Other		8.6		(58.9)
Net cash provided by investing activities		210.0		1,152.0

Cash Flows from Financing Activities
Increase in total short-term borrowings		38.3		1,147.0
Proceeds from long-term borrowings		3,276.6		2,512.2
Payments of long-term borrowings		(2,686.6)		(2,453.3)
Proceeds from issuance of common stock		11.1		86.1
Repurchases of common stock		(205.4)		(1,173.9)
Dividends paid		(383.2)		(415.8)
Excess tax benefits from share-based compensation		2.7		11.7
Other		(32.6)		(39.1)
Net cash provided by (used for) financing activities		20.9		(325.1)

Effect of Exchange Rate Changes on Cash and Cash Equivalents		52.5		(103.8)

Net Increase (Decrease) in Cash and Cash Equivalents		(29.0)		568.4
Cash and Cash Equivalents at Beginning of Period		4,162.2		3,787.0
Cash and Cash Equivalents at End of Period	$	4,133.2	$	4,355.4

See Condensed Notes to Interim Consolidated Financial Statements.


DEERE & COMPANY
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY
For the Six Months Ended April 30, 2015 and 2016
(In millions of dollars) Unaudited
			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 October 31, 2014	$	9,065.5	$	3,675.4	$	(12,834.2)	$	22,004.4	$	(3,783.0)	$	2.9
Net income		1,077.7						1,077.2				.5
Other comprehensive loss		(510.9)								(510.6)		(.3)
Repurchases of common stock		(1,173.9)				(1,173.9)
Treasury shares reissued		56.9				56.9
Dividends declared		(408.9)						(408.0)				(.9)
Stock options and other		69.6		69.8				(.2)
Balance April 30, 2015	$	8,176.0	$	3,745.2	$	(13,951.2)	$	22,673.4	$	(4,293.6)	$	2.2


Balance October 31, 2015	$	6,757.6	$	3,825.6	$	(15,497.6)	$	23,144.8	$	(4,729.4)	$	14.2
Net income (loss)		748.5						749.8				(1.3)
Other comprehensive income		210.7								210.6		.1
Repurchases of common stock		(205.4)				(205.4)
Treasury shares reissued		9.4				9.4
Dividends declared		(380.0)						(379.5)				(.5)
Acquisition (Note 18)													$	14.0
Stock options and other		35.9		36.4				(.4)				(.1)
Balance April 30, 2016	$	7,176.7	$	3,862.0	$	(15,693.6)	$	23,514.7	$	(4,518.8)	$	12.4	$	14.0

See Condensed Notes to Interim Consolidated Financial Statements.

Condensed Notes to Interim Consolidated Financial Statements (Unaudited)

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

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

Financial Services - Includes primarily the Company’s financing operations.

Consolidated - Represents the consolidation of the equipment operations and financial services. References to "Deere & Company" or "the Company" refer to the entire enterprise.

The Company uses a 52/53 week fiscal year with quarters ending on the last Sunday in the reporting period. The second quarter ends for fiscal year 2016 and 2015 were May 1, 2016 and May 3, 2015, respectively. Both periods contained 13 weeks. For ease of presentation, the consolidated financial statements and notes continue to be dated April 30.

(2) The interim consolidated financial statements of Deere & Company have been prepared by the Company, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes that the disclosures are adequate to present fairly the financial position, results of operations and cash flows at the dates and for the periods presented. It is suggested that these interim consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto appearing in the Company’s latest annual report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.

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

Cash Flow Information

All cash flows from the changes in trade accounts and notes receivable are classified as operating activities in the Statement of Consolidated Cash Flows as these receivables arise from sales to the Company’s customers. Cash flows from financing receivables that are related to sales to the Company’s customers are also included in operating activities. The remaining financing receivables are related to the financing of equipment sold by independent dealers and are included in investing activities.

The Company had the following non-cash operating and investing activities that were not included in the Statement of Consolidated Cash Flows. The Company transferred inventory to equipment on operating leases of approximately $269 million and $276 million in the first six months of 2016 and 2015, respectively. The Company also had accounts payable related to purchases of property and equipment of approximately $33 million and $39 million at April 30, 2016 and 2015, respectively.

(3) New accounting standard adopted is as follows:

In September 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update, (ASU) No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which amends Accounting Standards Codification (ASC) 805, Business Combinations. This ASU requires that acquiring entities recognize measurement period adjustments in the reporting period the amounts are determined, including earnings adjustments that would have been recorded in previous periods if the adjustments were known at the acquisition date. Acquiring entities are no longer required to retrospectively adjust amounts in comparative periods. The adjustment amounts and reasons are still disclosed. The Company early adopted this ASU in the second quarter of 2016. The adoption did not have a material effect on the Company’s consolidated financial statements.

New accounting standards to be adopted are as follows:

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, Deferral of the Effective Date, which amends ASU No. 2014-09. As a result, the effective date will be the first quarter of fiscal year 2019 with early adoption permitted in the first quarter of fiscal year 2018. In March 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which amends ASU 2014-09. ASU No. 2016-08 provides additional guidance for revenue transactions that involve a third party in providing goods or services to a customer. The reporting entity must determine if the obligation to the customer is to provide the goods or services, i.e., as the principal, or to arrange for a third party to provide the goods or services, i.e., as the agent. In April 2016, the FASB issued ASU No. 2016-10, Identifying Performance Obligations and Licensing, which amends ASU 2014-09. ASU No. 2016-10 clarifies that goods or services that are immaterial in the context of the contract are not required to be identified as separate performance obligations. In addition, the ASU provides an accounting policy election to treat shipping and handling activities as a fulfillment cost and not part of the revenue transaction. The ASU also provides guidance regarding licensing arrangements to determine whether the license grants the right to use functional or symbolic intellectual property. Revenue for licenses of functional intellectual property, such as software, is generally recognized at a point in time, while revenue for licenses of symbolic intellectual property, such as tradenames, is generally recognized over time. In May 2016, the FASB issued ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients, which amends ASU 2014-09. This ASU clarifies the requirement to assess collectability of contract consideration, clarifies the treatment of noncash consideration and provides a policy election to exclude from revenue amounts collected from customers for sales and similar taxes. The adoption will use one of two retrospective application methods. The Company is evaluating the potential effects on the consolidated financial statements.

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

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which amends ASC 835-30, Interest - Imputation of Interest. This ASU requires that debt issuance costs related to borrowings be presented in the balance sheet as a direct deduction from the carrying amount of the borrowing. This treatment is consistent with debt discounts. The ASU does not affect the amount or timing of expenses for debt issuance costs. The effective date will be the first quarter of fiscal year 2017 and will be applied retrospectively. The adoption will not have a material effect on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which amends ASC 350-40, Intangibles-Goodwill and Other-Internal-Use Software. This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If an arrangement includes a software license, the accounting for the license will be consistent with licenses of other intangible assets. If the arrangement does not include a license, the arrangement will be accounted for as a service contract. The effective date will be the first quarter of fiscal year 2017 and will be adopted prospectively. The adoption will not have a material effect on the Company’s consolidated financial statements.

In May 2015, the FASB issued ASU No. 2015-09, Disclosures about Short-Duration Contracts, which amends ASC 944, Financial Services - Insurance. This ASU requires disclosure of additional information

about unpaid claims and claims adjustment expenses, including a rollforward of the liability of the claims adjustment liability. The effective date will be the fourth quarter of fiscal year 2017. The adoption will not have a material effect on the Company’s consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which amends ASC 330, Inventory. This ASU simplifies the subsequent measurement of inventory by using only the lower of cost or net realizable value. The ASU does not apply to inventory measured using last-in, first-out method. The effective date will be the first quarter of fiscal year 2018 with early adoption permitted. The adoption will not have a material effect on the Company’s consolidated financial statements.

In August 2015, the FASB issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which amends ASC 835-30, Interest - Imputation of Interest. This ASU clarifies the presentation and subsequent measurement of debt issuance costs associated with lines of credit. These costs may be presented as an asset and amortized ratably over the term of the line of credit arrangement, regardless of whether there are outstanding borrowings on the arrangement. The effective date will be the first quarter of fiscal year 2017 and will be applied retrospectively. The adoption will not have a material effect on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends ASC 825-10, Financial Instruments - Overall. This ASU changes the treatment for available for sale equity investments by recognizing unrealized fair value changes directly in net income, and no longer in other comprehensive income. In addition, the impairment assessment of equity securities without readily determinable fair values is simplified by allowing a qualitative assessment. The ASU eliminates the disclosure requirement of methods and assumptions used to estimate fair value for financial instruments measured at amortized cost on the balance sheet. Additional disclosure of financial assets and financial liabilities by measurement category and form is also required. The effective date will be the first quarter of fiscal year 2019. Early adoption of the provisions affecting the Company is not permitted. The amendment will be adopted with a cumulative-effect adjustment to the balance sheet in the year of adoption. The Company is evaluating the potential effects on the consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases. The ASU does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. The ASU’s primary change is the requirement for lessee entities to recognize a lease liability for payments and a right of use asset representing the right to use the leased asset during the term on operating lease arrangements. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting under the ASC is largely unchanged from the previous accounting standard. In addition, the ASU expands the disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach. The effective date will be the first quarter of fiscal year 2020 with early adoption permitted. The Company is evaluating the potential effects on the consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, which amends ASC 323 Investments - Equity Method and Joint Ventures. This ASU eliminates the requirement to retroactively restate the investment, results of operations and retained earnings on a step by step basis when an investment qualifies for use of the equity method as a result of an increase in ownership or degree of influence. The ASU requires that the equity method investor add the cost of acquiring the additional ownership interest to the current basis of the entity’s previously held interest and adopt the equity method of accounting as of that date. The effective date will be the first quarter of fiscal year 2018, with early adoption permitted, and will be adopted prospectively. The adoption will not have a material effect on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC 718, Compensation - Stock Compensation. This ASU simplifies the treatment of share based payment transactions by recognizing the impact of excess tax benefits or deficiencies related to exercised or vested awards in income tax expense in the period of exercise or vesting. The ASU also modifies the diluted earnings per share calculation using the treasury stock method by eliminating the excess tax benefits or deficiencies from the calculation. These changes will be recognized prospectively. The presentation of excess tax benefits in the statement of consolidated cash flows is also modified to be included with other income tax cash flows as an operating activity. The change can be adopted using a prospective or retrospective transition method. The ASU also provides an accounting policy

election to account for award forfeitures in compensation cost when the forfeitures occur. The requirement for an award to qualify for equity classification was also modified by the ASU to permit withholding up to maximum statutory tax rates in the applicable jurisdictions. The modification regarding award forfeitures and withholding rates are adopted by a cumulative effect adjustment to equity at the beginning of the period adopted. The ASU clarifies that cash paid by an employer when directly withholding shares for tax withholding purposes should be presented as a financing activity in the statement of consolidated cash flows and should be applied retrospectively. The effective date will be the first quarter of fiscal year 2018, with early adoption permitted. The Company is evaluating the potential effects on the consolidated financial statements.

(4) The after-tax changes in accumulated other comprehensive income (loss) in millions of dollars follow:


									Total
					Unrealized		Unrealized		Accumulated
	Retirement		Cumulative		Gain (Loss)		Gain (Loss)		Other
	Benefits		Translation		on		on		Comprehensive
	Adjustment		Adjustment		Derivatives		Investments		Income (Loss)
Balance October 31, 2014	$	(3,493)	$	(303)			$	13	$	(3,783)
Other comprehensive income (loss) items before reclassification		(20)		(577)	$	(2)		5		(594)
Amounts reclassified from accumulated other comprehensive income		83				2		(2)		83
Net current period other comprehensive income (loss)		63		(577)				3		(511)
Balance April 30, 2015	$	(3,430)	$	(880)			$	16	$	(4,294)

Balance October 31, 2015	$	(3,501)	$	(1,238)	$	(2)	$	12	$	(4,729)
Other comprehensive income (loss) items before reclassification		(18)		154		(1)		(1)		134
Amounts reclassified from accumulated other comprehensive income		75				2		(1)		76
Net current period other comprehensive income (loss)		57		154		1		(2)		210
Balance April 30, 2016	$	(3,444)	$	(1,084)	$	(1)	$	10	$	(4,519)

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


	Before		Tax		After
	Tax		(Expense)		Tax
Three Months Ended April 30, 2016	Amount		Credit		Amount
Cumulative translation adjustment	$	312			$	312
Unrealized gain (loss) on derivatives:
Unrealized hedging gain (loss)		(1)	$	1
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense		2		(1)		1
Foreign exchange contracts – Other operating expense		1		(1)
Net unrealized gain (loss) on derivatives		2		(1)		1
Unrealized gain (loss) on investments:
Unrealized holding gain (loss)		9				9
Reclassification of realized (gain) loss – Other income		(1)		1
Net unrealized gain (loss) on investments		8		1		9
Retirement benefits adjustment:
Pensions
Net actuarial gain (loss)		(14)		5		(9)
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income: *
Actuarial (gain) loss		52		(19)		33
Prior service (credit) cost		4		(1)		3
Settlements/curtailments		2		(1)		1
Health care and life insurance
Net actuarial gain (loss)		(11)		4		(7)
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income: *
Actuarial (gain) loss		18		(7)		11
Prior service (credit) cost		(20)		7		(13)
Net unrealized gain (loss) on retirement benefits adjustments		31		(12)		19
Total other comprehensive income (loss)	$	353	$	(12)	$	341

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


	Before		Tax		After
	Tax		(Expense)		Tax
Six Months Ended April 30, 2016	Amount		Credit		Amount
Cumulative translation adjustment	$	154			$	154
Unrealized gain (loss) on derivatives:
Unrealized hedging gain (loss)		(2)	$	1		(1)
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense		5		(2)		3
Foreign exchange contracts – Other operating expense		(1)				(1)
Net unrealized gain (loss) on derivatives		2		(1)		1
Unrealized gain (loss) on investments:
Unrealized holding gain (loss)		(1)				(1)
Reclassification of realized (gain) loss – Other income		(2)		1		(1)
Net unrealized gain (loss) on investments		(3)		1		(2)
Retirement benefits adjustment:
Pensions
Net actuarial gain (loss)		(17)		6		(11)
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income: *
Actuarial (gain) loss		104		(38)		66
Prior service (credit) cost		8		(3)		5
Settlements/curtailments		9		(3)		6
Health care and life insurance
Net actuarial gain (loss)		(11)		4		(7)
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income: *
Actuarial (gain) loss		37		(14)		23
Prior service (credit) cost		(39)		14		(25)
Net unrealized gain (loss) on retirement benefits adjustments		91		(34)		57
Total other comprehensive income (loss)	$	244	$	(34)	$	210

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


	Before		Tax		After
	Tax		(Expense)		Tax
Three Months Ended April 30, 2015	Amount		Credit		Amount
Cumulative translation adjustment	$	(67)			$	(67)
Unrealized gain (loss) on derivatives:
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense		3	$	(2)		1
Foreign exchange contracts – Other operating expense		(1)		1
Net unrealized gain (loss) on derivatives		2		(1)		1
Unrealized gain (loss) on investments:
Unrealized holding gain (loss)		(5)		2		(3)
Reclassification of realized (gain) loss – Other income		(2)		1		(1)
Net unrealized gain (loss) on investments		(7)		3		(4)
Retirement benefits adjustment:
Pensions
Net actuarial gain (loss)		(17)		6		(11)
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income: *
Actuarial (gain) loss		55		(20)		35
Prior service (credit) cost		6		(3)		3
Health care and life insurance
Net actuarial gain (loss)		(12)		3		(9)
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income: *
Actuarial (gain) loss		23		(8)		15
Prior service (credit) cost		(19)		7		(12)
Net unrealized gain (loss) on retirement benefits adjustments		36		(15)		21
Total other comprehensive income (loss)	$	(36)	$	(13)	$	(49)

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

In the second quarter of 2016 and 2015, the noncontrolling interests’ comprehensive income (loss) was $(.6) million and $.3 million, respectively, which consisted of net income (loss) of $(.7) million and $.3 million and cumulative translation adjustments of $.1 million and none, respectively.


	Before		Tax		After
	Tax		(Expense)		Tax
Six Months Ended April 30, 2015	Amount		Credit		Amount
Cumulative translation adjustment	$	(575)	$	(2)	$	(577)
Unrealized gain (loss) on derivatives:
Unrealized hedging (loss)		(4)		2		(2)
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense		6		(2)		4
Foreign exchange contracts – Other operating expense		(2)				(2)
Net unrealized gain (loss) on derivatives
Unrealized gain (loss) on investments:
Unrealized holding gain (loss)		8		(3)		5
Reclassification of realized (gain) loss – Other income		(4)		2		(2)
Net unrealized gain (loss) on investments		4		(1)		3
Retirement benefits adjustment:
Pensions
Net actuarial gain (loss)		(17)		6		(11)
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income: *
Actuarial (gain) loss		110		(40)		70
Prior service (credit) cost		12		(5)		7
Settlements/curtailments		1				1
Health care and life insurance
Net actuarial gain (loss)		(12)		3		(9)
Reclassification through amortization of actuarial (gain) loss and prior service (credit) cost to net income: *
Actuarial (gain) loss		46		(17)		29
Prior service (credit) cost		(38)		14		(24)
Net unrealized gain (loss) on retirement benefits adjustments		102		(39)		63
Total other comprehensive income (loss)	$	(469)	$	(42)	$	(511)

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

In the first six months of 2016 and 2015, the noncontrolling interests’ comprehensive income (loss) was $(1.2) million and $.2 million, respectively, which consisted of net income (loss) of $(1.3) million and $.5 million and cumulative translation adjustments of $.1 million and $(.3) million, respectively.

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


	Three Months Ended				Six Months Ended
	April 30				April 30
	2016		2015		2016		2015
Dividends declared	$	.60	$	.60	$	1.20	$	1.20
Dividends paid	$	.60	$	.60	$	1.20	$	1.20

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


	Three Months Ended				Six Months Ended
	April 30				April 30
	2016		2015		2016		2015
Net income attributable to Deere & Company	$	495.4	$	690.5	$	749.8	$	1,077.2
Less income allocable to participating securities		.2		.3		.3		.4
Income allocable to common stock	$	495.2	$	690.2	$	749.5	$	1,076.8
Average shares outstanding		315.1		337.1		315.8		340.2
Basic per share	$	1.57	$	2.05	$	2.37	$	3.17

Average shares outstanding		315.1		337.1		315.8		340.2
Effect of dilutive share-based compensation		1.4		2.6		1.3		2.6
Total potential shares outstanding		316.5		339.7		317.1		342.8
Diluted per share	$	1.56	$	2.03	$	2.36	$	3.14

During the second quarter and first six months of 2016 and 2015, 11.9 million shares and 3.0 million shares, respectively, in both periods were excluded from the computation because the incremental shares under the treasury stock method would have been antidilutive.

(7) The Company has several defined benefit pension plans and defined postretirement health care and life insurance plans covering its U.S. employees and employees in certain foreign countries.

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


	Three Months Ended				Six Months Ended
	April 30				April 30
	2016		2015		2016		2015
Service cost	$	62	$	69	$	126	$	142
Interest cost		97		119		195		238
Expected return on plan assets		(194)		(192)		(387)		(385)
Amortization of actuarial loss		52		55		104		110
Amortization of prior service cost		4		6		8		12
Settlements/curtailments		2				9		1
Net cost	$	23	$	57	$	55	$	118

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


	Three Months Ended				Six Months Ended
	April 30				April 30
	2016		2015		2016		2015
Service cost	$	10	$	12	$	19	$	23
Interest cost		51		64		102		129
Expected return on plan assets		(9)		(14)		(18)		(28)
Amortization of actuarial loss		18		23		37		46
Amortization of prior service credit		(20)		(19)		(39)		(38)
Net cost	$	50	$	66	$	101	$	132

During the first six months of 2016, the Company contributed approximately $48 million to its pension plans and $23 million to its other postretirement benefit plans. The Company presently anticipates contributing an additional $31 million to its pension plans and $3 million to its other postretirement benefit plans during the remainder of fiscal year 2016. These contributions include payments from Company funds to either increase plan assets or make direct payments to plan participants.

Beginning in 2016, the Company changed the method used to estimate the service and interest cost components of the net periodic pension and other postretirement benefit costs. The new method uses the spot yield curve approach to estimate the service and interest costs by applying the specific spot rates along the yield curve used to determine the benefit obligations to relevant projected cash outflows. Previously, those costs were determined using a single weighted-average discount rate. The change does not affect the measurement of the total benefit obligations as the change in service and interest costs offsets in the actuarial gains and losses recorded in other comprehensive income. The new method provides a more precise measure of interest and service costs by improving the correlation between the projected benefit cash flows and the discrete spot yield curve rates. The Company accounted for this change as a change in estimate prospectively beginning in the first quarter of 2016. The discount rates used to measure the 2016 service costs are 4.3 percent and 5.0 percent for pension and OPEB, respectively. The discount rates used to measure the 2016 interest costs are 3.4 percent and 3.5 percent for pension and OPEB, respectively. The previous method would have used a discount rate for both service and interest costs of 4.1 percent for pension and 4.3 percent for OPEB. The decrease in the fiscal year 2016 service and interest costs is approximately $175 million compared to the previous method.

(8) The Company’s unrecognized tax benefits at April 30, 2016 were $211 million, compared to $229 million at October 31, 2015. The liability at April 30, 2016 consisted of approximately $75 million, which would affect the effective tax rate if it was recognized. The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was only related to timing. The changes in the unrecognized tax benefits for the first six months of 2016 were not significant. The Company expects that any reasonably possible change in the amounts of unrecognized tax benefits in the next 12 months would not be significant.

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


	Three Months Ended April 30					Six Months Ended April 30
					%					%
	2016		2015		Change	2016		2015		Change
Net sales and revenues:
Agriculture and turf	$	5,742	$	5,766		$	9,341	$	9,847	-5
Construction and forestry		1,365		1,633	-16		2,535		3,157	-20
Total net sales		7,107		7,399	-4		11,876		13,004	-9
Financial services		651		653			1,287		1,301	-1
Other revenues		117		119	-2		237		249	-5
Total net sales and revenues	$	7,875	$	8,171	-4	$	13,400	$	14,554	-8
Operating profit: *
Agriculture and turf	$	614	$	639	-4	$	759	$	907	-16
Construction and forestry		74		189	-61		143		335	-57
Financial services		160		265	-40		354		498	-29
Total operating profit		848		1,093	-22		1,256		1,740	-28
Reconciling items **		(115)		(79)	+46		(173)		(168)	+3
Income taxes		(238)		(324)	-27		(333)		(495)	-33
Net income attributable to Deere & Company	$	495	$	690	-28	$	750	$	1,077	-30

Intersegment sales and revenues:
Agriculture and turf net sales	$	9	$	12	-25	$	16	$	25	-36
Construction and forestry net sales
Financial services		80		56	+43		127		106	+20

Equipment operations outside the U.S. and Canada:
Net sales	$	2,598	$	2,628	-1	$	4,306	$	4,502	-4
Operating profit		231		231			252		308	-18


	April 30		October 31
	2016		2015
Identifiable assets:
Agriculture and turf	$	8,937	$	8,332	+7
Construction and forestry		3,185		3,295	-3
Financial services		42,103		40,909	+3
Corporate		4,958		5,412	-8
Total assets	$	59,183	$	57,948	+2

* Operating profit is income from continuing operations before corporate expenses, certain external interest expense, certain foreign exchange gains and losses and income taxes. Operating profit of the financial services segment includes the effect of interest expense and foreign exchange gains and losses.

** Reconciling items are primarily corporate expenses, certain external interest expense, certain foreign exchange gains and losses and net income attributable to noncontrolling interests.

(10) 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, if any, has been written off to the allowance for credit losses. Finance income for non-performing receivables is recognized on a cash basis. Accrual of finance income is generally resumed when the receivable becomes contractually current and collections are reasonably assured.

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


	April 30, 2016
					90 Days
	30-59 Days		60-89 Days		or Greater		Total
	Past Due		Past Due		Past Due		Past Due
Retail Notes:
Agriculture and turf	$	137	$	70	$	71	$	278
Construction and forestry		79		29		28		136
Other:
Agriculture and turf		28		12		33		73
Construction and forestry		10		6		2		18
Total	$	254	$	117	$	134	$	505

							Total
	Total		Total				Financing
	Past Due		Non-Performing		Current		Receivables
Retail Notes:
Agriculture and turf	$	278	$	129	$	17,436	$	17,843
Construction and forestry		136		32		2,556		2,724
Other:
Agriculture and turf		73		12		6,671		6,756
Construction and forestry		18		23		951		992
Total	$	505	$	196	$	27,614		28,315
Less allowance for credit losses								165
Total financing receivables - net							$	28,150


	October 31, 2015
					90 Days
	30-59 Days		60-89 Days		or Greater		Total
	Past Due		Past Due		Past Due		Past Due
Retail Notes:
Agriculture and turf	$	112	$	54	$	47	$	213
Construction and forestry		64		29		12		105
Other:
Agriculture and turf		26		12		4		42
Construction and forestry		13		5		3		21
Total	$	215	$	100	$	66	$	381

							Total
	Total		Total				Financing
	Past Due		Non-Performing		Current		Receivables
Retail Notes:
Agriculture and turf	$	213	$	98	$	18,574	$	18,885
Construction and forestry		105		21		2,556		2,682
Other:
Agriculture and turf		42		13		7,175		7,230
Construction and forestry		21		10		973		1,004
Total	$	381	$	142	$	29,278		29,801
Less allowance for credit losses								157
Total financing receivables - net							$	29,644


	April 30, 2015
					90 Days
	30-59 Days		60-89 Days		or Greater		Total
	Past Due		Past Due		Past Due		Past Due
Retail Notes:
Agriculture and turf	$	108	$	55	$	49	$	212
Construction and forestry		57		24		12		93
Other:
Agriculture and turf		32		13		20		65
Construction and forestry		14		6		2		22
Total	$	211	$	98	$	83	$	392

							Total
	Total		Total				Financing
	Past Due		Non-Performing		Current		Receivables
Retail Notes:
Agriculture and turf	$	212	$	96	$	18,543	$	18,851
Construction and forestry		93		18		2,511		2,622
Other:
Agriculture and turf		65		16		7,051		7,132
Construction and forestry		22		7		1,016		1,045
Total	$	392	$	137	$	29,121		29,650
Less allowance for credit losses								163
Total financing receivables - net							$	29,487

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


	Three Months Ended April 30, 2016
			Revolving
	Retail		Charge
	Notes		Accounts		Other		Total
Allowance:
Beginning of period balance	$	93	$	40	$	22	$	155
Provision		12		11		1		24
Write-offs		(12)		(15)		(1)		(28)
Recoveries		3		4				7
Translation adjustments		6				1		7
End of period balance *	$	102	$	40	$	23	$	165

	Six Months Ended April 30, 2016
Allowance:
Beginning of period balance	$	95	$	40	$	22	$	157
Provision		17		13		2		32
Write-offs		(19)		(22)		(1)		(42)
Recoveries		5		9				14
Translation adjustments		4						4
End of period balance *	$	102	$	40	$	23	$	165
Financing receivables:
End of period balance	$	20,567	$	2,636	$	5,112	$	28,315
Balance individually evaluated **	$	73	$	2	$	26	$	101


	Three Months Ended April 30, 2015
			Revolving
	Retail		Charge
	Notes		Accounts		Other		Total
Allowance:
Beginning of period balance	$	104	$	41	$	23	$	168
Provision		5		8		1		14
Write-offs		(6)		(11)		(2)		(19)
Recoveries		2		3		1		6
Translation adjustments		(6)						(6)
End of period balance *	$	99	$	41	$	23	$	163

	Six Months Ended April 30, 2015
Allowance:
Beginning of period balance	$	109	$	41	$	25	$	175
Provision		5		8		2		15
Write-offs		(9)		(15)		(2)		(26)
Recoveries		4		7				11
Translation adjustments		(10)				(2)		(12)
End of period balance *	$	99	$	41	$	23	$	163
Financing receivables:
End of period balance	$	21,473	$	2,345	$	5,832	$	29,650
Balance individually evaluated **	$	19					$	19

* Individual allowances were not significant.

** Remainder is collectively evaluated.

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

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


			Unpaid				Average
	Recorded		Principal		Specific		Recorded
	Investment		Balance		Allowance		Investment
April 30, 2016*
Receivables with specific allowance **	$	27	$	26	$	5	$	23
Receivables without a specific allowance ***		36		35				31
Total	$	63	$	61	$	5	$	54
Agriculture and turf	$	32	$	31	$	5	$	28
Construction and forestry	$	31	$	30			$	26

October 31, 2015*
Receivables with specific allowance **	$	14	$	13	$	2	$	13
Receivables without a specific allowance ***		14		14				20
Total	$	28	$	27	$	2	$	33
Agriculture and turf	$	19	$	18	$	2	$	20
Construction and forestry	$	9	$	9			$	13

April 30, 2015*
Receivables with specific allowance **	$	3	$	3	$	2	$	6
Receivables without a specific allowance **		12		11				12
Total	$	15	$	14	$	2	$	18
Agriculture and turf	$	9	$	8	$	2	$	12
Construction and forestry	$	6	$	6			$	6

* Finance income recognized was not material.

** Primarily retail notes.

*** Primarily retail notes and wholesale receivables.

A troubled debt restructuring is generally the modification of debt in which a creditor grants a concession it would not otherwise consider to a debtor that is experiencing financial difficulties. These modifications may include a reduction of the stated interest rate, an extension of the maturity dates, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. During the first six months of 2016, the Company identified 46 financing receivable contracts, primarily wholesale receivables, as troubled debt restructurings with aggregate balances of $17.6 million pre-modification and $17.1 million post-modification. During the first six months of 2015, there were 50 financing receivable contracts, primarily retail notes, identified as troubled debt restructurings with aggregate balances of $1.5 million pre-modification and $1.1 million post-modification. During these same periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At April 30, 2016, the Company had no significant commitments to lend additional funds to borrowers whose accounts were modified in troubled debt restructurings.

(11) Securitization of financing receivables:

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

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

In certain securitizations, the Company consolidates the SPEs since it has both the power to direct the activities that most significantly impact the SPEs’ economic performance through its role as servicer of all the receivables held by the SPEs, and the obligation through variable interests in the SPEs to absorb losses or receive benefits that could potentially be significant to the SPEs. The restricted assets (retail notes securitized, allowance for credit losses and other assets) of the consolidated SPEs totaled $2,782 million, $3,006 million and $3,083 million at April 30, 2016, October 31, 2015 and April 30, 2015, respectively. The liabilities (short-term securitization borrowings and accrued interest) of these SPEs totaled $2,712 million, $2,743 million and $3,007 million at April 30, 2016, October 31, 2015 and April 30, 2015, respectively. In the fourth quarter of 2015, as part of a receivable transfer, the company retained $228 million of securitization borrowings, with a balance of $22 million and $189 million at April 30, 2016 and October 31, 2015, respectively. This amount is not shown as a liability above as the borrowing is not outstanding to a third party. The credit holders of these SPEs do not have legal recourse to the Company’s general credit.

In certain securitizations, the Company transfers retail notes to a non-VIE banking operation, which is not consolidated since the Company does not have a controlling interest in the entity. The Company’s carrying values and interests related to the securitizations with the unconsolidated non-VIE were restricted assets (retail notes securitized, allowance for credit losses and other assets) of $271 million, $249 million and $228 million at April 30, 2016, October 31, 2015 and April 30, 2015, respectively. The liabilities (short-term securitization borrowings and accrued interest) were $254 million, $238 million and $218 million at April 30, 2016, October 31, 2015 and April 30, 2015, respectively.

In certain securitizations, the Company transfers retail notes into bank-sponsored, multi-seller, commercial paper conduits, which are SPEs that are not consolidated. The Company does not service a significant portion of the conduits’ receivables, and, therefore, does not have the power to direct the activities that most significantly impact the conduits’ economic performance. These conduits provide a funding source to the Company (as well as other transferors into the conduit) as they fund the retail notes through the issuance of commercial paper. The Company’s carrying values and variable interests related to these conduits were restricted assets (retail notes securitized, allowance for credit losses and other assets) of $1,787 million, $1,689 million and $1,545 million at April 30, 2016, October 31, 2015 and April 30, 2015, respectively. The liabilities (short-term securitization borrowings and accrued interest) related to these conduits were $1,678 million, $1,611 million and $1,480 million at April 30, 2016, October 31, 2015 and April 30, 2015, respectively.

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


	April 30, 2016
Carrying value of liabilities	$	1,678
Maximum exposure to loss		1,787

The total assets of unconsolidated VIEs related to securitizations were approximately $59 billion at April 30, 2016.

The components of consolidated restricted assets related to secured borrowings in securitization transactions follow in millions of dollars:


	April 30		October 31		April 30
	2016		2015		2015
Financing receivables securitized (retail notes)	$	4,749	$	4,848	$	4,755
Allowance for credit losses		(14)		(13)		(14)
Other assets		105		109		115
Total restricted securitized assets	$	4,840	$	4,944	$	4,856

The components of consolidated secured borrowings and other liabilities related to securitizations follow in millions of dollars:


	April 30		October 31		April 30
	2016		2015		2015
Short-term securitization borrowings	$	4,642	$	4,590	$	4,703
Accrued interest on borrowings		2		2		2
Total liabilities related to restricted securitized assets	$	4,644	$	4,592	$	4,705

The secured borrowings related to these restricted securitized retail notes are obligations that are payable as the retail notes are liquidated. Repayment of the secured borrowings depends primarily on cash flows generated by the restricted assets. Due to the Company’s short-term credit rating, cash collections from these restricted assets are not required to be placed into a restricted collection account until immediately prior to the time payment is required to the secured creditors. At April 30, 2016, the maximum remaining term of all restricted securitized retail notes was approximately seven years.

(12) Most inventories owned by Deere & Company and its U.S. equipment subsidiaries and certain foreign equipment subsidiaries are valued at cost on the “last-in, first-out” (LIFO) method. If all of the Company’s inventories had been valued on a “first-in, first-out” (FIFO) method, estimated inventories by major classification in millions of dollars would have been as follows:


	April 30		October 31		April 30
	2016		2015		2015
Raw materials and supplies	$	1,485	$	1,559	$	1,675
Work-in-process		507		450		630
Finished goods and parts		3,473		3,234		3,831
Total FIFO value		5,465		5,243		6,136
Less adjustment to LIFO value		1,404		1,426		1,512
Inventories	$	4,061	$	3,817	$	4,624

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


	Agriculture		Construction
	and Turf		and Forestry		Total
Goodwill at October 31, 2014	$	235	$	556	$	791
Translation adjustments		(13)		(41)		(54)
Goodwill at April 30, 2015	$	222	$	515	$	737

Goodwill at October 31, 2015	$	227	$	499	$	726
Acquisitions*		92				92
Translation adjustments		3		14		17
Goodwill at April 30, 2016	$	322	$	513	$	835

* See Note 18.

There were no accumulated impairment losses in the reported periods.

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


	Useful Lives *	April 30		October 31		April 30
	(Years)	2016		2015		2015
Amortized intangible assets:
Customer lists and relationships	11	$	42	$	23	$	19
Technology, patents, trademarks and other	14		140		96		90
Total at cost			182		119		109
Less accumulated amortization **			61		55		49
Other intangible assets-net		$	121	$	64	$	60

* Weighted-averages

** Accumulated amortization at April 30, 2016, October 31, 2015 and April 30, 2015 for customer lists and relationships totaled $10 million for each period and technology, patents, trademarks and other totaled $51 million, $45 million and $39 million, respectively.

The amortization of other intangible assets in the second quarter and the first six months of 2016 was $3 million and $6 million and for 2015 was $2 million and $5 million, respectively. The estimated amortization expense for the next five years is as follows in millions of dollars: remainder of 2016 - $10, 2017 - $21, 2018 - $21, 2019 - $17 and 2020 - $13.

(14) Commitments and contingencies:

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

The premiums for extended warranties are primarily recognized in income in proportion to the costs expected to be incurred over the contract period. These unamortized extended warranty premiums (deferred revenue) included in the following table totaled $467 million and $428 million at April 30, 2016 and 2015, respectively.

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


	Three Months Ended				Six Months Ended
	April 30				April 30
	2016		2015		2016		2015
Beginning of period balance	$	1,239	$	1,217	$	1,261	$	1,234
Payments		(199)		(165)		(395)		(343)
Amortization of premiums received		(57)		(41)		(104)		(82)
Accruals for warranties		192		189		374		370
Premiums received		45		47		89		92
Foreign exchange		15		(5)		10		(29)
End of period balance	$	1,235	$	1,242	$	1,235	$	1,242

At April 30, 2016, the Company had approximately $172 million of guarantees issued primarily to banks outside the U.S. and Canada related to third-party receivables for the retail financing of John Deere equipment. The Company may recover a portion of any required payments incurred under these agreements from repossession of the equipment collateralizing the receivables. At April 30, 2016, the Company had accrued losses of approximately $4 million under these agreements. The maximum remaining term of the receivables guaranteed at April 30, 2016 was approximately five years.

At April 30, 2016, the Company had commitments of approximately $218 million for the construction and acquisition of property and equipment. Also, at April 30, 2016, the Company had restricted assets of $113 million, primarily as collateral for borrowings and restricted other assets. See Note 11 for additional restricted assets associated with borrowings related to securitizations.

The Company also had other miscellaneous contingent liabilities totaling approximately $30 million at April 30, 2016, for which it believes the probability for payment is substantially remote. The accrued liability for these contingencies was not material at April 30, 2016.

The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos related liability), retail credit, software licensing, patent, trademark and environmental matters. The Company believes the reasonably possible range of losses for these unresolved legal actions in addition to the amounts accrued would not have a material effect on its consolidated financial statements.

(15) The fair values of financial instruments that do not approximate the carrying values in millions of dollars follow:


	April 30, 2016				October 31, 2015				April 30, 2015
	Carrying Value		Fair Value *		Carrying Value		Fair Value *		Carrying Value		Fair Value *
Financing receivables - net	$	23,415	$	23,300	$	24,809	$	24,719	$	24,746	$	24,632
Financing receivables securitized - net		4,735		4,723		4,835		4,820		4,741		4,716
Short-term securitization borrowings		4,642		4,642		4,590		4,590		4,703		4,707

Long-term borrowings due within one year:
Equipment operations	$	41	$	38	$	86	$	78	$	280	$	264
Financial services		5,309		5,321		5,167		5,167		4,884		4,871
Total	$	5,350	$	5,359	$	5,253	$	5,245	$	5,164	$	5,135

Long-term borrowings:
Equipment operations	$	4,584	$	5,148	$	4,461	$	4,835	$	4,489	$	4,994
Financial services		20,064		20,182		19,372		19,348		19,134		19,265
Total	$	24,648	$	25,330	$	23,833	$	24,183	$	23,623	$	24,259

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

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

Fair values of long-term borrowings and short-term securitization borrowings were based on current market quotes for identical or similar borrowings and credit risk, or on the discounted values of their related cash flows at current market interest rates. Certain long-term borrowings have been swapped to current variable interest rates. The carrying values of these long-term borrowings included adjustments related to fair value hedges.

Assets and liabilities measured at fair value on a recurring basis in millions of dollars follow:


	April 30		October 31		April 30
	2016*		2015*		2015*
Marketable securities
Equity fund	$	44	$	43	$	47
Fixed income fund		3
U.S. government debt securities		79		82		75
Municipal debt securities		41		31		28
Corporate debt securities		113		124		128
International debt securities		71		47
Mortgage-backed securities **		124		110		115
Total marketable securities		475		437		393
Other assets
Derivatives:
Interest rate contracts		419		353		340
Foreign exchange contracts		38		50		38
Cross-currency interest rate contracts		22		25		26
Total assets ***	$	954	$	865	$	797
Accounts payable and accrued expenses
Derivatives:
Interest rate contracts	$	48	$	60	$	72
Foreign exchange contracts		96		18		81
Cross-currency interest rate contracts		1
Total liabilities	$	145	$	78	$	153

* Measurements above were Level 2 measurements except for Level 1 measurements of the equity fund of $44 million, $43 million and $47 million at April 30, 2016, October 31, 2015 and April 30, 2015, respectively; the fixed income fund of $3 million at April 30, 2016; and the U.S. government debt securities of $38 million, $37 million and $28 million at April 30, 2016, October 31, 2015 and April 30, 2015, respectively. In addition, $40 million and $29 million of the international debt securities were Level 3 measurements at April 30, 2016 and October 31, 2015. There were no transfers between Level 1 and Level 2 during the first six months of 2016 or 2015.

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

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

The contractual maturities of debt securities at April 30, 2016 in millions of dollars are shown below. Actual maturities may differ from those scheduled as a result of prepayments by the issuers. Because of the potential for prepayment on mortgage-backed securities, they are not categorized by contractual maturity.


	Amortized		Fair
	Cost		Value
Due in one year or less	$	61	$	61
Due after one through five years		107		103
Due after five through 10 years		90		94
Due after 10 years		43		46
Mortgage-backed securities		120		124
Debt securities	$	421	$	428

Fair value, recurring, Level 3 measurements from available for sale marketable securities in millions of dollars follow:


	Three Months Ended		Six Months Ended
	April 30		April 30
	2016		2016
Beginning of period balance	$	44	$	29
Purchases				25
Principal payments		(6)		(8)
Change in unrealized gain (loss)		2		(6)
End of period balance	$	40	$	40

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


	Fair Value *					Losses
						Three Months Ended			Six Months Ended
	April 30		October 31		April 30	April 30			April 30
	2016		2015		2015	2016		2015	2016		2015
Equipment on operating leases – net	$	725	$	479		$	26		$	30
Property and equipment – net			$	33
Other assets	$	166	$	112		$	11		$	20

* See financing receivables with specific allowances in Note 10. Losses were not significant.

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

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

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

Marketable Securities – The portfolio of investments, except for the Level 3 measurement international debt securities, is primarily valued on a market approach (matrix pricing model) in which all significant inputs are observable or can be derived from or corroborated by observable market data such as interest rates, yield curves, volatilities, credit risk and prepayment speeds. Funds are primarily valued using the fund’s net asset value, based on the fair value of the underlying securities. The Level 3 measurement international debt securities are primarily valued using an income approach based on discounted cash flows using yield curves derived from limited, observable market data.

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

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

Equipment on Operating Leases-Net – The impairments are based on an income approach (discounted cash flow), using the contractual payments, plus an estimate of equipment sale price at lease maturity. Inputs include realized sales values.

Property and Equipment-Net – The impairments were measured at the lower of the carrying amount, or fair value. The valuations were based on an income approach using probability weighted cash flows of potential outcomes of the ongoing strategic option review. The inputs included estimates of the cash flow related to each of the alternatives being considered and management’s estimate of the likelihood of each alternative.

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

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

All derivatives are recorded at fair value on the balance sheet. Cash collateral received or paid is not offset against the derivative fair values on the balance sheet. Each derivative is designated as a cash flow hedge, a fair value hedge, or remains undesignated. All designated hedges are formally documented as to the relationship with the hedged item as well as the risk-management strategy. Both at inception and on an ongoing basis the hedging instrument is assessed as to its effectiveness. If and when a derivative is determined not to be highly effective as a hedge, or the underlying hedged transaction is no longer likely to occur, or the hedge designation is removed, or the derivative is terminated, hedge accounting is discontinued. Any past or future changes in the derivative’s fair value, which will not be effective as an offset to the income effects of the item being hedged, are recognized currently in the income statement.

Cash flow hedges

Certain interest rate and cross-currency interest rate contracts (swaps) were designated as hedges of future cash flows from borrowings. The total notional amounts of the receive-variable/pay-fixed interest rate contracts at April 30, 2016, October 31, 2015 and April 30, 2015 were $1,600 million, $2,800 million and $2,550 million, respectively. The notional amounts of cross-currency interest rate contracts at April 30, 2016, October 31, 2015 and April 30, 2015 were $51 million, $60 million and $65 million, respectively. The effective portions of the fair value gains or losses on these cash flow hedges were recorded in other comprehensive income (OCI) and subsequently reclassified into interest expense or other operating expenses (foreign exchange) in the same periods during which the hedged transactions affected earnings. These amounts offset the effects of interest rate or foreign currency changes on the related borrowings. Any ineffective portions of the gains or losses on all cash flow interest rate contracts designated as hedges were recognized currently in interest expense or other operating expenses (foreign exchange) and were not material during any periods presented. The cash flows from these contracts were recorded in operating activities in the statement of consolidated cash flows.

The amount of loss recorded in OCI at April 30, 2016 that is expected to be reclassified to interest expense or other operating expenses in the next twelve months if interest rates or exchange rates remain unchanged is approximately $2 million after-tax. These contracts mature in up to 29 months. There were no gains or losses reclassified from OCI to earnings based on the probability that the original forecasted transaction would not occur.

Fair value hedges

Certain interest rate contracts (swaps) were designated as fair value hedges of borrowings. The total notional amounts of these receive-fixed/pay-variable interest rate contracts at April 30, 2016, October 31, 2015 and April 30, 2015 were $9,923 million, $8,618 million and $8,507 million, respectively. The effective portions of the fair value gains or losses on these contracts were offset by fair value gains or losses on the hedged items (fixed-rate borrowings). Any ineffective portions of the gains or losses were recognized currently in interest expense. The ineffective portions were losses of $1 million and $2 million during the second quarter of 2016 and 2015, respectively, and were a loss of $1 million and a gain of $1 million during the first six

months of 2016 and 2015, respectively. The cash flows from these contracts were recorded in operating activities in the statement of consolidated cash flows.

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


	Three Months Ended				Six Months Ended
	April 30				April 30
	2016		2015		2016		2015
Interest rate contracts *	$	(9)	$	(121)	$	66	$	55
Borrowings **		8		119		(67)		(54)

* Includes changes in fair values of interest rate contracts excluding net accrued interest income of $39 million and $44 million during the second quarter of 2016 and 2015, respectively, and $78 million and $89 million during the first six months of 2016 and 2015, respectively.

** Includes adjustments for fair values of hedged borrowings excluding accrued interest expense of $75 million and $69 million during the second quarter of 2016 and 2015, respectively, and $142 million and $139 million during the first six months of 2016 and 2015, respectively.

Derivatives not designated as hedging instruments

The Company has certain interest rate contracts (swaps and caps), foreign exchange contracts (futures, forwards and swaps) and cross-currency interest rate contracts (swaps), which were not formally designated as hedges. These derivatives were held as economic hedges for underlying interest rate or foreign currency exposures primarily for certain borrowings and purchases or sales of inventory. The total notional amounts of these interest rate swaps at April 30, 2016, October 31, 2015 and April 30, 2015 were $6,524 million, $6,333 million and $6,342 million, the foreign exchange contracts were $3,894 million, $3,160 million and $3,750 million and the cross-currency interest rate contracts were $74 million, $76 million and $94 million, respectively. At April 30, 2016, October 31, 2015 and April 30, 2015, there were also $762 million, $1,069 million and $1,320 million, respectively, of interest rate caps purchased and the same amounts sold at the same capped interest rate to facilitate borrowings through securitization of retail notes. The fair value gains or losses from the interest rate contracts were recognized currently in interest expense and the gains or losses from foreign exchange contracts in cost of sales or other operating expenses, generally offsetting over time the expenses on the exposures being hedged. The cash flows from these non-designated contracts were recorded in operating activities in the statement of consolidated cash flows.

Fair values of derivative instruments in the condensed consolidated balance sheet in millions of dollars follow:


	April 30		October 31		April 30
Other Assets	2016		2015		2015
Designated as hedging instruments:
Interest rate contracts	$	368	$	299	$	282
Cross-currency interest rate contracts		13		14		14
Total designated		381		313		296

Not designated as hedging instruments:
Interest rate contracts		51		54		58
Foreign exchange contracts		38		50		38
Cross-currency interest rate contracts		9		11		12
Total not designated		98		115		108

Total derivatives	$	479	$	428	$	404

Accounts Payable and Accrued Expenses
Designated as hedging instruments:
Interest rate contracts	$	8	$	8	$	14
Total designated		8		8		14

Not designated as hedging instruments:
Interest rate contracts		40		52		58
Foreign exchange contracts		96		18		81
Cross-currency interest rate contracts		1
Total not designated		137		70		139

Total derivatives	$	145	$	78	$	153

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


	Expense or	Three Months Ended				Six Months Ended
	OCI	April 30				April 30
	Classification	2016		2015		2016		2015
Fair Value Hedges:
Interest rate contracts	Interest	$	30	$	(77)	$	144	$	144

Cash Flow Hedges:
Recognized in OCI
(Effective Portion):
Interest rate contracts	OCI (pretax) *				(1)		(3)		(6)
Foreign exchange contracts	OCI (pretax) *		(1)		1		1		2

Reclassified from OCI
(Effective Portion):
Interest rate contracts	Interest *		(2)		(3)		(5)		(6)
Foreign exchange contracts	Other operating *		(1)		1		1		2

Recognized Directly in Income
(Ineffective Portion)			**		**		**		**

Not Designated as Hedges:
Interest rate contracts	Interest *	$	5	$	1	$	3	$	(12)
Foreign exchange contracts	Cost of sales		(62)		(19)		(29)		26
Foreign exchange contracts	Other operating *		(186)		(34)		(61)		200
Total not designated		$	(243)	$	(52)	$	(87)	$	214

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

** The amount is not significant.

Counterparty Risk and Collateral

Certain of the Company’s derivative agreements contain credit support provisions that may require the Company to post collateral based on the size of the net liability positions and credit ratings. The aggregate fair value of all derivatives with credit-risk-related contingent features that were in a net liability position at April 30, 2016, October 31, 2015 and April 30, 2015, was $32 million, $41 million and $51 million, respectively. The Company, due to its credit rating and amounts of net liability position, has not posted any collateral. If the credit-risk-related contingent features were triggered, the Company would be required to post collateral up to an amount equal to this liability position, prior to considering applicable netting provisions.

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

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


	Gross Amounts		Netting		Collateral
April 30, 2016	Recognized		Arrangements		Received		Net Amount
Assets	$	479	$	(53)	$	(20)	$	406
Liabilities		145		(53)				92


	Gross Amounts		Netting		Collateral
October 31, 2015	Recognized		Arrangements		Received	Net Amount
Assets	$	428	$	(62)		$	366
Liabilities		78		(62)			16


	Gross Amounts		Netting		Collateral
April 30, 2015	Recognized		Arrangements		Received		Net Amount
Assets	$	404	$	(76)	$	(1)	$	327
Liabilities		153		(76)				77

(17) In December 2015, the Company granted stock options to employees for the purchase of 3.5 million shares of common stock at an exercise price of $79.24 per share and a binomial lattice model fair value of $16.88 per share at the grant date. At April 30, 2016, options for 18.0 million shares were outstanding with a weighted-average exercise price of $78.11 per share. The Company also granted 248 thousand restricted stock units to employees and non-employee directors in the first six months of 2016, of which 106 thousand are subject to service based only conditions, 71 thousand are subject to performance/service based conditions and 71 thousand are subject to market/service based conditions. The fair value of the service based only units at the grant date was $79.50 per unit based on the market price of a share of underlying common stock. The fair value of the performance/service based units at the grant date was $72.93 per unit based on the market price of a share of underlying common stock excluding dividends. The fair value of the market/service based units at the grant date was $103.66 per unit based on a lattice valuation model excluding dividends. At April 30, 2016, the Company was authorized to grant an additional 13.1 million shares related to stock option and restricted stock awards.

(18) In February 2016, the Company acquired Monosem for a cost of approximately $146 million, net of cash acquired of $20 million. Monosem, with four facilities in France and two in the U.S., is the European market leader in precision planters. The preliminary fair values assigned to the assets and liabilities related to the acquired entity in millions of dollars follow:


Trade accounts and notes receivable – net	$	5
Other receivables		2
Inventories		29
Property and equipment – net		24
Goodwill		61
Other intangible assets – net		42
Other assets		23
Total assets	$	186

Accounts payable and accrued expenses	$	21
Deferred tax liabilities		19
Total liabilities	$	40

The identifiable intangibles were primarily related to trade name, customer relationships and technology, which have a weighted average amortization period of 9 years. The goodwill is not expected to be deducted for tax purposes.

In March 2016, the Company acquired an 80 percent interest in Hagie Manufacturing Company, LLC, the U.S. market leader in high-clearance sprayers located in Clarion, Iowa, for a cost of approximately $53 million, net of cash acquired of $3 million. The preliminary fair values assigned to the assets and liabilities related to the acquired entity in millions of dollars follow:


Trade accounts and notes receivable – net	$	2
Inventories		33
Property and equipment – net		18
Goodwill		31
Other intangible assets – net		22
Other assets		3
Total assets	$	109

Accounts payable and accrued expenses, and Total liabilities	$	42

Redeemable noncontrolling interest	$	14

The identifiable intangibles were primarily related to technology, trade name and customer relationships, which have a weighted average amortization period of 8 years. The goodwill is expected to be deducted for tax purposes. If certain events occur, the minority interest holder has the right to exercise a put option that would require the Company to purchase the holder’s membership interest. The Company also has a call option exercisable after a certain period of time. The put and call options cannot be separated from the noncontrolling interest. Due to the redemption features, the minority interest holder’s value is classified as a redeemable noncontrolling interest in the Company’s consolidated balance sheet.

The goodwill in both transactions was the result of future cash flows and related fair values of the entities exceeding the fair value of the identified assets and liabilities. The results of both entities were included in the Company’s consolidated financial statements in the agriculture and turf segment since the dates of acquisition. The pro forma results of operations as if the acquisitions had occurred at the beginning of the current fiscal year would not differ significantly from the reported results.

(19) In March 2015, the Company closed the sale of all of the stock of its wholly-owned subsidiaries, John Deere Insurance Company and John Deere Risk Protection, Inc. (collectively the Crop Insurance operations) to Farmers Mutual Hail Insurance Company of Iowa. These operations were included in the Company’s financial services operating segment. The total amount of proceeds from the sale was approximately $154 million, including $5 million of cash and cash equivalents sold, with a gain recorded in other income of $41 million pretax and $38 million after-tax. The tax expense was partially offset by a change in a valuation allowance on a capital loss carryforward. The Company provided certain business services for a fee during a transition period.


(20) SUPPLEMENTAL CONSOLIDATING DATA
STATEMENT OF INCOME
For the Three Months Ended April 30, 2016 and 2015
(In millions of dollars) Unaudited	EQUIPMENT OPERATIONS*				FINANCIAL SERVICES
	2016		2015		2016		2015
Net Sales and Revenues
Net sales	$	7,106.6	$	7,398.5
Finance and interest income		12.9		17.5	$	662.9	$	623.6
Other income		139.9		150.3		68.2		85.3
Total		7,259.4		7,566.3		731.1		708.9

Costs and Expenses
Cost of sales		5,531.5		5,694.7
Research and development expenses		345.0		341.1
Selling, administrative and general expenses		588.5		620.4		128.0		121.8
Interest expense		67.7		67.3		125.9		109.5
Interest compensation to Financial Services		61.8		53.4
Other operating expenses		91.4		37.2		317.4		212.8
Total		6,685.9		6,814.1		571.3		444.1

Income of Consolidated Group before Income Taxes		573.5		752.2		159.8		264.8
Provision for income taxes		180.4		228.6		57.4		95.4
Income of Consolidated Group		393.1		523.6		102.4		169.4

Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates
Financial Services		102.6		169.8		.2		.4
Other		(1.0)		(2.6)
Total		101.6		167.2		.2		.4
Net Income		494.7		690.8		102.6		169.8
Less: Net income (loss) attributable to noncontrolling interests		(.7)		.3
Net Income Attributable to Deere & Company	$	495.4	$	690.5	$	102.6	$	169.8

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

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


SUPPLEMENTAL CONSOLIDATING DATA (Continued)
STATEMENT OF INCOME
For the Six Months Ended April 30, 2016 and 2015
(In millions of dollars) Unaudited	EQUIPMENT OPERATIONS*				FINANCIAL SERVICES
	2016		2015		2016		2015
Net Sales and Revenues
Net sales	$	11,875.8	$	13,003.6
Finance and interest income		30.8		38.0	$	1,297.9	$	1,256.6
Other income		280.0		310.4		116.3		150.2
Total		12,186.6		13,352.0		1,414.2		1,406.8

Costs and Expenses
Cost of sales		9,372.1		10,115.8
Research and development expenses		664.3		674.3
Selling, administrative and general expenses		1,069.6		1,160.6		242.0		243.0
Interest expense		129.8		138.4		245.9		232.4
Interest compensation to Financial Services		106.6		99.4
Other operating expenses		112.5		76.2		573.5		434.0
Total		11,454.9		12,264.7		1,061.4		909.4

Income of Consolidated Group before Income Taxes		731.7		1,087.3		352.8		497.4
Provision for income taxes		211.5		323.0		121.8		171.6
Income of Consolidated Group		520.2		764.3		231.0		325.8

Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates
Financial Services		232.0		326.6		1.0		.8
Other		(3.7)		(13.2)
Total		228.3		313.4		1.0		.8
Net Income		748.5		1,077.7		232.0		326.6
Less: Net income (loss) attributable to noncontrolling interests		(1.3)		.5
Net Income Attributable to Deere & Company	$	749.8	$	1,077.2	$	232.0	$	326.6

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


SUPPLEMENTAL CONSOLIDATING DATA (Continued)
CONDENSED BALANCE SHEET
(In millions of dollars) Unaudited	EQUIPMENT OPERATIONS*						FINANCIAL SERVICES
	April 30		October 31		April 30		April 30		October 31		April 30
	2016		2015		2015		2016		2015		2015
Assets
Cash and cash equivalents	$	2,790.8	$	2,900.0	$	3,162.9	$	1,342.4	$	1,262.2	$	1,192.5
Marketable securities		71.2		47.7				404.3		389.7		392.9
Receivables from unconsolidated subsidiaries and affiliates		2,226.2		2,428.7		2,558.0
Trade accounts and notes receivable - net		631.2		485.2		681.3		5,529.4		3,553.1		5,160.8
Financing receivables - net		.7		.9		8.7		23,414.6		24,808.1		24,737.1
Financing receivables securitized - net								4,734.7		4,834.6		4,741.1
Other receivables		778.2		849.5		780.7		130.8		152.9		122.5
Equipment on operating leases - net								5,455.5		4,970.4		4,195.2
Inventories		4,061.0		3,817.0		4,624.2
Property and equipment - net		5,026.2		5,126.2		5,191.7		53.5		55.3		53.4
Investments in unconsolidated subsidiaries and affiliates		4,774.7		4,817.6		4,895.5		11.9		10.5		10.5
Goodwill		835.0		726.0		737.0
Other intangible assets - net		120.5		63.6		60.4
Retirement benefits		280.9		211.9		314.3		23.2		25.0		29.0
Deferred income taxes		3,185.7		3,092.0		2,991.2		70.4		67.9		62.9
Other assets		883.0		807.3		889.9		932.3		779.1		700.2
Total Assets	$	25,665.3	$	25,373.6	$	26,895.8	$	42,103.0	$	40,908.8	$	41,398.1

Liabilities and Stockholders’ Equity

Liabilities
Short-term borrowings	$	218.7	$	464.3	$	549.6	$	8,357.3	$	7,962.3	$	8,439.4
Short-term securitization borrowings								4,641.8		4,590.0		4,702.7
Payables to unconsolidated subsidiaries and affiliates		109.5		80.6		130.1		2,144.9		2,395.4		2,511.6
Accounts payable and accrued expenses		6,674.5		6,801.2		6,964.0		1,603.7		1,511.2		1,453.5
Deferred income taxes		102.7		86.8		79.3		651.8		466.6		464.8
Long-term borrowings		4,584.0		4,460.6		4,488.9		20,064.0		19,372.2		19,133.9
Retirement benefits and other liabilities		6,785.2		6,722.5		6,507.9		89.6		86.4		85.5
Total liabilities		18,474.6		18,616.0		18,719.8		37,553.1		36,384.1		36,791.4

Commitments and contingencies (Note 14)
Redeemable noncontrolling interest (Note 18)		14.0

Stockholders’ Equity
Common stock, $1 par value (issued shares at April 30, 2016 – 536,431,204)		3,862.0		3,825.6		3,745.2		2,071.9		2,050.8		2,051.3
Common stock in treasury		(15,693.6)		(15,497.6)		(13,951.2)
Retained earnings		23,514.7		23,144.8		22,673.4		2,719.7		2,764.8		2,718.8
Accumulated other comprehensive income (loss)		(4,518.8)		(4,729.4)		(4,293.6)		(241.7)		(290.9)		(163.4)
Total Deere & Company stockholders' equity		7,164.3		6,743.4		8,173.8		4,549.9		4,524.7		4,606.7
Noncontrolling interests		12.4		14.2		2.2
Total stockholders’ equity		7,176.7		6,757.6		8,176.0		4,549.9		4,524.7		4,606.7
Total Liabilities and Stockholders’ Equity	$	25,665.3	$	25,373.6	$	26,895.8	$	42,103.0	$	40,908.8	$	41,398.1

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

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


SUPPLEMENTAL CONSOLIDATING DATA (Continued)
STATEMENT OF CASH FLOWS
For the Six Months Ended April 30, 2016 and 2015
(In millions of dollars) Unaudited	EQUIPMENT OPERATIONS*				FINANCIAL SERVICES
	2016		2015		2016		2015
Cash Flows from Operating Activities
Net income	$	748.5	$	1,077.7	$	232.0	$	326.6
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		4.0		.3		31.1		14.8
Provision for depreciation and amortization		410.2		409.8		399.4		328.4
Impairment charges						49.7
Undistributed earnings of unconsolidated subsidiaries and affiliates		51.5		102.6		(1.0)		(.8)
Provision (credit) for deferred income taxes		(87.3)		(3.0)		180.6		120.8
Changes in assets and liabilities:
Trade receivables		(142.2)		(33.2)
Insurance receivables								333.4
Inventories		(136.7)		(656.8)
Accounts payable and accrued expenses		(107.9)		(219.2)		14.7		(336.8)
Accrued income taxes payable/receivable		.2		(82.1)		11.8		5.8
Retirement benefits		86.8		179.3		4.3		7.3
Other		(18.2)		75.8		40.7		(42.7)
Net cash provided by operating activities		808.9		851.2		963.3		756.8

Cash Flows from Investing Activities
Collections of receivables (excluding trade and wholesale)						8,699.2		8,998.2
Proceeds from maturities and sales of marketable securities		31.3		700.0		40.1		91.9
Proceeds from sales of equipment on operating leases						630.1		552.3
Proceeds from sale of business, net of cash sold								148.8
Cost of receivables acquired (excluding trade and wholesale)						(7,343.6)		(7,977.1)
Purchases of marketable securities		(63.1)				(49.1)		(33.9)
Purchases of property and equipment		(231.7)		(323.2)		(.9)		(1.1)
Cost of equipment on operating leases acquired						(1,567.7)		(1,203.4)
Increase in trade and wholesale receivables						(1,547.0)		(1,084.7)
Acquisitions of businesses, net of cash acquired		(198.9)
Other		(70.9)		(51.1)		53.6		(36.0)
Net cash provided by (used for) investing activities		(533.3)		325.7		(1,085.3)		(545.0)

Cash Flows from Financing Activities
Increase (decrease) in total short-term borrowings		(193.4)		84.6		231.7		1,062.4
Change in intercompany receivables/payables		290.8		960.7		(290.8)		(960.7)
Proceeds from long-term borrowings		133.5		7.0		3,143.1		2,505.2
Payments of long-term borrowings		(67.7)		(39.8)		(2,618.9)		(2,413.5)
Proceeds from issuance of common stock		11.1		86.1
Repurchases of common stock		(205.4)		(1,173.9)
Dividends paid		(383.2)		(415.8)		(277.1)		(419.6)
Excess tax benefits from share-based compensation		2.7		11.7
Other		(14.4)		(24.1)		2.9		13.2
Net cash provided by (used for) financing activities		(426.0)		(503.5)		190.9		(213.0)

Effect of Exchange Rate Changes on Cash and Cash Equivalents		41.2		(79.7)		11.3		(24.1)

Net Increase (Decrease) in Cash and Cash Equivalents		(109.2)		593.7		80.2		(25.3)
Cash and Cash Equivalents at Beginning of Period		2,900.0		2,569.2		1,262.2		1,217.8
Cash and Cash Equivalents at End of Period	$	2,790.8	$	3,162.9	$	1,342.4	$	1,192.5

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

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

RESULTS OF OPERATIONS

Overview

Organization

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

Trends and Economic Conditions

Industry sales of agricultural machinery in the U.S. and Canada are forecast to decrease 15 to 20 percent for 2016. Industry sales in the European Union (EU)28 nations are forecast to be about the same to 5 percent lower. In South America, industry sales of tractors and combines are projected to decrease 15 to 20 percent. Asian sales are projected to be about the same to slightly lower. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be about the same to up 5 percent in 2016. The Company’s agriculture and turf segment sales were approximately the same in the second quarter and decreased 5 percent for the first six months and are forecast to decrease by about 8 percent for fiscal year 2016. Construction equipment markets reflect the impact of weak conditions in North America. In forestry, global industry sales are expected to be down 5 to 10 percent from last year’s strong levels. The Company’s construction and forestry segment sales decreased 16 percent in the second quarter and 20 percent for the first six months, and are forecast to be down about 13 percent for fiscal year 2016. Net income attributable to Deere & Company for the Company’s financial services operations is forecast to be approximately $480 million in 2016.

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

The Company’s second quarter results reflected the continuing impact of the downturn in the global farm economy and further weakness in the construction equipment sector. Although the full year forecast calls for lower results, the Company continues to perform at a much higher level than in previous downturns. The Company’s financial position remains strong and management believes the Company is well positioned to capitalize on growth opportunities that will deliver value to customers and investors in the future, while continuing to focus on streamlining operations to be more efficient and profitable.

2016 Compared with 2015

Net income attributable to Deere & Company was $495.4 million, or $1.56 per share, for the second quarter of 2016, compared with $690.5 million, or $2.03 per share, for the same period last year. For the first six months of 2016, net income attributable to Deere & Company was $749.8 million, or $2.36 per share, compared with $1,077 million, or $3.14 per share, last year. Worldwide net sales and revenues decreased 4 percent to $7,875 million for the second quarter this year, compared with $8,171 million a year ago, and decreased 8 percent to $13,400 million for the first six months, compared with $14,554 million last year. Net sales of the worldwide equipment operations declined 4 percent to $7,107 million for the second quarter and 9 percent to $11,876 million for the first six months, compared with $7,399 million and $13,004 million for the corresponding periods last year. Sales included price realization of 1

percent for both periods and an unfavorable currency translation effect of 2 percent for the quarter and 3 percent for the first six months. Equipment net sales in the U.S. and Canada decreased 6 percent for the second quarter and 11 percent for the first six months. Outside the U.S. and Canada, net sales decreased 1 percent for the second quarter and 4 percent for the first six months, with unfavorable currency translation effects of 4 percent and 7 percent for the respective periods.

The Company’s equipment operations reported operating profit of $688 million for the second quarter of 2016 and $902 million for the first six months, compared with $828 million and $1,242 million for the same periods last year. The declines for both periods were primarily due to lower shipment volumes, the unfavorable effects of foreign currency exchange and the impact of a less favorable product mix. These factors were partially offset by price realization, lower production costs, and lower selling and administrative and general expenses. Net income of the Company’s equipment operations was $393 million for the second quarter and $520 million for the first six months, compared with $524 million and $764 million for the corresponding periods of 2015.

The Company’s financial services operations reported net income attributable to Deere & Company of $102.6 million for the second quarter and $232.0 million for the first six months, compared with $169.8 million and $326.6 million for the same periods last year. Lower results for both periods were primarily due to higher losses on lease residual values, less favorable financing spreads and a higher provision for credit losses. Results for the first six months were also affected by the unfavorable effects of foreign currency exchange translation. Prior year results benefited from a gain on the sale of the crop insurance business.

Business Segment Results

Agriculture and Turf. Segment sales were approximately the same for the quarter and down 5 percent for six months. The decline year to date was due largely to lower shipment volumes. Results for both periods were impacted by the unfavorable effects of foreign currency translation, partially offset by price realization. Operating profit was $614 million for the quarter and $759 million year to date, compared with $639 million and $907 million, respectively, last year. Lower results for both periods were driven primarily by the unfavorable effects of foreign currency exchange, lower shipment volumes and a less favorable product mix, partially offset by price realization, lower production costs and lower selling, administrative and general expenses.

Construction and Forestry. Segment sales decreased 16 percent for the quarter and 20 percent for six months mainly as a result of lower shipment volumes and higher sales incentive costs. Operating profit was $74 million for the quarter and $143 million for six months, compared with $189 million and $335 million for the periods last year. Operating profit decreased for the quarter mainly due to lower shipment volumes, higher sales incentive costs and a less favorable product mix, partially offset by lower production costs and lower selling, administrative and general expenses. Six-month results decreased primarily due to lower shipment volumes and higher sales incentive costs, partially offset by lower selling, administrative and general expenses and lower production costs.

Financial Services. The operating profit of the financial services segment was $160 million for the second quarter and $354 million for the first six months of 2016, compared with $265 million and $498 million in the same periods last year. Lower results for both periods were primarily due to higher losses on lease residual values, less favorable financing spreads and a higher provision for credit losses. Results for the first six months were also affected by the unfavorable effects of foreign currency exchange translation. Prior year results benefited from a gain on the sale of the crop insurance business (see Note 19). Total financial services revenues, including intercompany revenues, increased 3 percent to $731 million in the current quarter from $709 million in the second quarter of 2015 and increased 1 percent to $1,414 million in the first six months this year compared to $1,407 million last year. The average balance of receivables and leases financed was approximately the same in the second quarter and 1 percent lower in the first six months of 2016, compared with the same periods last year. Interest expense increased 15 percent in the current quarter and 6 percent in the first six months of 2016, primarily as a result of higher average interest rates. The increase in the first six months was partially offset by lower average borrowings compared to last year. The financial services’ consolidated ratio of earnings to fixed charges was 2.27 to 1 for the second quarter this year, compared with 3.62 to 1 in the same period last year. The ratio was 2.47 to 1 for the first six months this year, compared to 3.33 to 1 for the same period last year.

The cost of sales to net sales ratios for the second quarter and first six months of 2016 were 77.8 percent and 78.9 percent, respectively, compared to 77.0 percent and 77.8 percent in the same periods last year. The increase for both periods was primarily due to the unfavorable effects of foreign currency exchange and a less favorable product mix, partially offset by price realization and lower production costs.

Other income decreased in the second quarter and first six months of 2016 primarily due to the gain on the sale of the Crop Insurance operations in the second quarter of 2015 (see Note 19). Selling, administrative and general expenses decreased in the second quarter and first six months primarily due to the effect of currency translation, lower incentive compensation expenses and lower pension and postretirement benefit expenses. Other operating expenses increased primarily due to higher depreciation on operating leases and higher losses on lease residual values.

Market Conditions and Outlook

Company equipment sales are projected to decrease about 9 percent for fiscal year 2016 and to be about 12 percent lower in the third quarter compared with year-ago periods. For fiscal 2016, net income attributable to Deere & Company is anticipated to be approximately $1,200 million. In May 2016, the Company sold a portion of its interest in SiteOne Landscapes, LLC and terminated a service agreement resulting in a total gain of approximately $76 million pretax or $48 million after-tax. This gain was considered in the fiscal year 2016 net income forecast.

Agriculture and Turf. The Company’s worldwide sales of agriculture and turf equipment are forecast to decrease by about 8 percent for fiscal year 2016, including a negative currency translation effect of about 2 percent. Industry sales for agricultural equipment in the U.S. and Canada are forecast to be down 15 to 20 percent for fiscal year 2016. The decline, reflecting the impact of low commodity prices and stagnant farm incomes, is expected to be most pronounced in the sale of higher-horsepower models. Full year 2016 industry sales in the EU28 are forecast to be approximately the same to 5 percent lower, with the decline attributable to low commodity prices and farm incomes, including continued pressure on the dairy sector. In South America, industry sales of tractors and combines are projected to decrease 15 to 20 percent mainly as a result of economic and political concerns in Brazil. Asian sales are projected to be about the same to down slightly, due in part to weakness in China. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be approximately the same to up 5 percent for 2016. The Company’s sales are expected to benefit from new products and general economic growth.

Construction and Forestry. The Company’s worldwide sales of construction and forestry equipment are forecast to decrease about 13 percent for 2016, including a negative currency translation effect of about 1 percent. The forecast decline in sales largely reflects the impact of weak conditions in North America. In forestry, global industry sales are expected to decrease 5 to 10 percent from last year’s strong levels.

Financial Services. Fiscal year 2016 net income attributable to Deere & Company for the financial services segment is expected to be approximately $480 million. The outlook reflects less favorable financing spreads, higher losses on lease residual values and an increased provision for credit losses. Additionally, 2015 results benefited from a gain on the sale of the crop insurance business (see Note 19).

Safe Harbor Statement

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

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

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

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

All of the Company’s businesses and its reported results are affected by general economic conditions in the global markets and industries in which the Company operates, especially material changes in economic activity in these markets and industries; customer confidence in general economic conditions; foreign currency exchange rates and their volatility, especially fluctuations in the value of the U.S. dollar; interest rates; and inflation and deflation rates. Government spending and taxing could adversely affect the economy, employment, consumer and corporate spending, and Company results.

Customer and Company operations and results could be affected by changes in weather patterns; the political and social stability of the global markets in which the Company operates; the effects of, or response to, terrorism and security threats; wars and other conflicts and the threat thereof and the response thereto; natural disasters; and the spread of major epidemics.

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

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

Other factors that could materially affect results include production, design and technological innovations and difficulties, including capacity and supply constraints and prices; the availability and prices of strategically sourced materials, components and whole goods; delays or disruptions in the Company’s supply chain or the loss of liquidity by suppliers; disruptions of infrastructures that support communications, operations or distribution; the failure of suppliers to comply with laws, regulations and Company policy pertaining to employment, human rights, health, safety, the environment and other ethical business practices; events that damage the Company’s reputation or brand; significant investigations, claims, lawsuits or other legal proceedings; start-up of new plants and new products; the success of new product initiatives and customer acceptance of new products; changes in customer product preferences and sales mix whether as a result of changes in equipment design to meet government regulations or for other reasons; gaps or limitations in rural broadband coverage, capacity and speed needed to support technology solutions; oil and energy prices, supplies and volatility; the availability and cost of freight; actions of competitors in the various industries in which the Company competes, particularly price discounting; dealer practices especially as

to levels of new and used field inventories; changes in demand and pricing for used equipment; labor relations and contracts; acquisitions and divestitures of businesses; the integration of new businesses; the implementation of organizational changes; difficulties related to the conversion and implementation of enterprise resource planning systems that disrupt business, negatively impact supply or distribution relationships or create higher than expected costs; security breaches and other disruptions to the Company’s and suppliers’ information technology infrastructure; and changes in Company declared dividends and common stock issuances and repurchases.

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

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

The Company’s outlook is based upon assumptions relating to the factors described above, which are sometimes based upon estimates and data prepared by government agencies. Such estimates and data are often revised. The Company, except as required by law, undertakes no obligation to update or revise its outlook, whether as a result of new developments or otherwise. Further information concerning the Company and its businesses, including factors that potentially could materially affect the Company’s financial results, is included in the Company’s other filings with the SEC (including, but not limited to, the factors discussed in Item 1A. Risk Factors of the Company’s most recent annual report on Form 10-K and quarterly reports on Form 10-Q).

Critical Accounting Policies

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

CAPITAL RESOURCES AND LIQUIDITY

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

Consolidated

Negative cash flows from consolidated operating activities in the first six months of 2016 were $312 million. This resulted primarily from a seasonal increase in receivables related to sales and inventories and a decrease in accounts payable and accrued expenses, which were partially offset by net income adjusted for non-cash provisions and a change in net retirement benefits. Cash inflows from investing activities were $210 million in the first six months of this year, primarily due to collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases exceeding the cost of receivables and equipment on operating leases acquired by $674 million, partially offset by purchases of property and equipment of $233 million, acquisitions of businesses, net of cash acquired, of $199 million and purchases of marketable securities exceeding sales of marketable securities by $41 million. Positive cash flows from financing activities were $21 million in the first six months of 2016 primarily due to an increase in borrowings of $628 million, partially offset by dividends paid of $383 million and repurchases of common stock of $205 million. Cash and cash equivalents decreased $29 million during the first six months this year.

Negative cash flows from consolidated operating activities in the first six months of 2015 were $155 million. This resulted primarily from a seasonal increase in inventories, an increase in receivables related to sales, a decrease in accounts payable and accrued expenses and a change in accrued income taxes payable/receivable, which were partially offset by net income adjusted for non-cash provisions, a decrease in insurance receivables prior to the Crop Insurance operations sale and a change in net retirement benefits. Cash inflows from investing activities were $1,152 million in the first six months of last year, primarily due to proceeds from maturities and sales exceeding purchases of marketable securities by $758 million, collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases exceeding the cost of receivables and equipment on operating

leases acquired by $628 million, proceeds from sales of businesses, net of cash sold, of $149 million, partially offset by purchases of property and equipment of $324 million. Negative cash flows from financing activities were $325 million in the first six months of 2015, primarily due to repurchases of common stock of $1,174 million, dividends paid of $416 million, partially offset by an increase in borrowings of $1,206 million and proceeds from issuance of common stock of $86 million (resulting from the exercise of stock options). Cash and cash equivalents increased $568 million during the first six months last year.

The Company has access to most global markets at a reasonable cost and expects to have sufficient sources of global funding and liquidity to meet its funding needs. Sources of liquidity for the Company include cash and cash equivalents, marketable securities, funds from operations, the issuance of commercial paper and term debt, the securitization of retail notes (both public and private markets) and committed and uncommitted bank lines of credit. The Company’s commercial paper outstanding at April 30, 2016, October 31, 2015 and April 30, 2015 was $3,006 million, $2,968 million and $3,570 million, respectively, while the total cash and cash equivalents and marketable securities position was $4,609 million, $4,600 million and $4,748 million, respectively. The total cash and cash equivalents and marketable securities held by foreign subsidiaries, in which earnings are considered indefinitely reinvested, was $2,148 million, $1,588 million and $824 million at April 30, 2016, October 31, 2015 and April 30, 2015, respectively.

Lines of Credit. The Company also has access to bank lines of credit with various banks throughout the world. Worldwide lines of credit totaled $7,220 million at April 30, 2016, $3,994 million of which were unused. For the purpose of computing unused credit lines, commercial paper and short-term bank borrowings, excluding secured borrowings and the current portion of long-term borrowings, were primarily considered to constitute utilization. Included in the total credit lines at April 30, 2016 were long-term credit facility agreements of $2,900 million expiring in April 2020, and $2,900 million expiring in April 2021. These credit agreements require John Deere Capital Corporation (Capital Corporation) to maintain its consolidated ratio of earnings to fixed charges at not less than 1.05 to 1 for each fiscal quarter and the ratio of senior debt, excluding securitization indebtedness, to capital base (total subordinated debt and stockholder’s equity excluding accumulated other comprehensive income (loss)) at not more than 11 to 1 at the end of any fiscal quarter. The credit agreements also require the equipment operations to maintain a ratio of total debt to total capital (total debt and stockholders’ equity excluding accumulated other comprehensive income (loss)) of 65 percent or less at the end of each fiscal quarter. Under this provision, the Company’s excess equity capacity and retained earnings balance free of restriction at April 30, 2016 was $9,110 million. Alternatively under this provision, the equipment operations had the capacity to incur additional debt of $16,918 million at April 30, 2016. All of these requirements of the credit agreement have been met during the periods included in the financial statements.

Debt Ratings. To access public debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings to the Company’s securities as an indicator of credit quality for fixed income investors. A security rating is not a recommendation by the rating agency to buy, sell or hold Company securities. A credit rating agency may change or withdraw Company ratings based on its assessment of the Company’s current and future ability to meet interest and principal repayment obligations. Each agency’s rating should be evaluated independently of any other rating. Lower credit ratings generally result in higher borrowing costs, including costs of derivative transactions, and reduced access to debt capital markets. The senior long-term and short-term debt ratings and outlook currently assigned to unsecured Company debt securities by the rating agencies engaged by the Company are as follows:


	Senior
	Long-Term	Short-Term	Outlook
Moody’s Investors Service, Inc.	A2	Prime-1	Stable
Standard & Poor’s	A	A-1	Stable

Trade accounts and notes receivable primarily arise from sales of goods to independent dealers. Trade receivables increased $1,848 million during the first six months of 2016, primarily due to a seasonal increase. These receivables increased $182 million, compared to a year ago. The ratios of worldwide trade accounts and notes receivable to the last 12 months’ net sales were 20 percent at April 30, 2016, compared to 12 percent at October 31, 2015 and 16 percent at April 30, 2015. Agriculture and turf trade receivables increased $388 million and construction and forestry trade receivables decreased $206 million, compared to a year ago. The percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 1 percent at April 30, 2016, October 31, 2015 and April 30, 2015.

Deere & Company stockholders’ equity was $7,164 million at April 30, 2016, compared with $6,743 million at October 31, 2015 and $8,174 million at April 30, 2015. The increase of $421 million during the first six months of 2016 resulted primarily from net income attributable to Deere & Company of $750 million, a change in cumulative translation adjustment of $154 million, a change in the retirement benefits adjustment of $57 million and an increase in common stock of $36 million, which were partially offset by dividends declared of $380 million and an increase in treasury stock of $196 million.

Equipment Operations

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

Cash provided by operating activities of the equipment operations, including intercompany cash flows, in the first six months of 2016 was $809 million. This resulted primarily from cash inflows from net income adjusted for non-cash provisions and a change in net retirement benefits. Partially offsetting these operating cash inflows were cash outflows from a seasonal increase in trade receivables and inventories, and a decrease in accounts payable and accrued expenses. Cash and cash equivalents decreased $109 million in the first six months of 2016.

Cash provided by operating activities of the equipment operations, including intercompany cash flows, in the first six months of 2015 was $851 million. This resulted primarily from net income adjusted for non-cash provisions and a change in net retirement benefits. Partially offsetting these operating cash inflows were negative cash outflows from a seasonal increase in inventories, a decrease in accounts payable and accrued expenses and a change in accrued income taxes payable/receivable. Cash and cash equivalents increased $594 million in the first six months of 2015.

Trade receivables held by the equipment operations increased $146 million during the first six months and decreased $50 million from a year ago. The equipment operations sell a significant portion of their trade receivables to financial services. See the previous consolidated discussion of trade receivables.

Inventories increased by $244 million during the first six months, primarily due to a seasonal increase and acquisitions (see Note 18). Inventories decreased $563 million, compared to a year ago, primarily due to lower production volumes, partially offset by acquisitions. Most of these inventories are valued on the last-in, first-out (LIFO) method. The ratios of inventories on a first-in, first-out (FIFO) basis (see Note 12), which approximates current cost, to the last 12 months’ cost of sales were 28 percent at April 30, 2016, compared to 26 percent at October 31, 2015 and 27 percent at April 30, 2015.

Total interest-bearing debt of the equipment operations was $4,803 million at April 30, 2016, compared with $4,925 million at the end of fiscal year 2015 and $5,039 million at April 30, 2015. The ratios of debt to total capital (total interest-bearing debt and stockholders’ equity) were 40 percent, 42 percent and 38 percent at April 30, 2016, October 31, 2015 and April 30, 2015, respectively.

Property and equipment cash expenditures for the equipment operations in the first six months of 2016 were $232 million, compared with $323 million in the same period last year. Capital expenditures for the equipment operations in 2016 are estimated to be approximately $725 million.

In November 2015, the Company announced the signing of a definitive purchase agreement to acquire Precision Planting LLC., a developer and distributor of retrofit components for precision agriculture applications. The estimated purchase price, net of cash acquired, is $190 million. The acquisition is subject to customary closing conditions, including regulatory approvals, and is expected to close in 2016.

Financial Services

The financial services operations rely on their ability to raise substantial amounts of funds to finance their receivable and lease portfolios. Their primary sources of funds for this purpose are a combination of commercial paper, term debt, securitization of retail notes, equity capital and borrowings from Deere & Company.

During the first six months of 2016, the cash provided by operating activities was used primarily to increase trade and wholesale receivables. Cash flows provided by operating activities, including intercompany cash flows, were $963 million in the first six months. Cash used for investing activities totaled $1,085 million in the first six months

of 2016 primarily due to an increase in trade and wholesale receivables of $1,547 million, partially offset by the collection of receivables (excluding trade and wholesale) and proceeds from sales of equipment on operating leases exceeding the cost of receivables and equipment on operating leases acquired by $418 million. Cash provided by financing activities totaled $191 million, resulting primarily from an increase in external borrowings of $756 million, partially offset by a decrease in borrowings from Deere & Company of $291 million and dividends paid to Deere & Company of $277 million. Cash and cash equivalents increased $80 million in the first six months of 2016.

During the first six months of 2015, the cash provided by operating activities was used primarily to increase trade and wholesale receivables. Cash flows provided by operating activities, including intercompany cash flows, were $757 million in the first six months of 2015. Cash used for investing activities totaled $545 million in the first six months of 2015 primarily due to an increase in trade and wholesale receivables of $1,085 million, partially offset by the collection of receivables (excluding trade and wholesale) and proceeds from sales of equipment on operating leases exceeding the cost of these receivables and cost of equipment on operating leases acquired by $370 million, proceeds from sale of business, net of cash sold, of $149 million and proceeds from maturities and sales exceeding purchases of marketable securities by $58 million. Cash used for financing activities totaled $213 million, resulting primarily from a decrease in borrowings from Deere & Company of $961 million and dividends paid to Deere & Company of $420 million, partially offset by an increase in external borrowings of $1,154 million. Cash and cash equivalents decreased $25 million in the first six months of 2015.

Receivables and leases held by the financial services operations consist of retail notes originated in connection with retail sales of new and used equipment by dealers of John Deere products, retail notes from non-Deere equipment customers, trade receivables, wholesale notes, revolving charge accounts, credit enhanced international export financing generally involving John Deere products, and financing and operating leases. Total receivables and leases increased $968 million during the first six months of 2016 and $300 million in the past 12 months. Acquisition volumes of receivables (excluding trade and wholesale) and leases were 3 percent lower in the first six months of 2016, compared with the same period last year, as volumes of financing leases and retail notes were lower, while volumes of operating leases and revolving charge accounts were higher. The amount of total trade receivables and wholesale notes increased compared to October 31, 2015 and decreased compared to April 30, 2015. Total receivables and leases administered by the financial services operations, which include receivables administered but not owned, amounted to $39,157 million at April 30, 2016, compared with $38,188 million at October 31, 2015 and $38,876 million at April 30, 2015. At April 30, 2016, the unpaid balance of all receivables administered, but not owned, was $23 million, compared with $22 million at October 31, 2015 and $42 million at April 30, 2015.

Total external interest-bearing debt of the financial services operations was $33,063 million at April 30, 2016, compared with $31,925 million at the end of fiscal year 2015 and $32,276 million at April 30, 2015. Total external borrowings have changed generally corresponding with the level of receivable and lease portfolio, the level of cash and cash equivalents, the change in payables owed to Deere & Company and the change in investment from Deere & Company. The financial services operations’ ratio of interest-bearing debt to stockholder’s equity was 7.7 to 1 at April 30, 2016, compared with 7.6 to 1 at October 31, 2015 and 7.6 to 1 at April 30, 2015.

The Capital Corporation has a revolving credit agreement to utilize bank conduit facilities to securitize retail notes (see Note 11). At April 30, 2016, this facility had a total capacity, or “financing limit,” of $3,880 million of secured financings at any time. After a three-year revolving period, unless the banks and Capital Corporation agree to renew, Capital Corporation would liquidate the secured borrowings over time as payments on the retail notes are collected. At April 30, 2016, $1,931 million of secured short-term borrowings was outstanding under the agreement.

In the first six months of 2016, the financial services operations issued $1,451 million and retired $1,399 million of retail note securitization borrowings. In addition, during the first six months of 2016, the financial services operations issued $3,143 million and retired $2,619 million of long-term borrowings, which were primarily medium-term notes.

Dividends and Other Events

The Company’s Board of Directors at its meeting on May 25, 2016 declared a quarterly dividend of $.60 per share payable August 1, 2016, to stockholders of record on June 30, 2016.

In May 2016, the Company’s financial services operations entered into a retail note securitization using its bank conduit facility that resulted in securitization borrowings of approximately $980 million.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Item 4. CONTROLS AND PROCEDURES

The Company’s principal executive officer and its principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) were effective as of April 30, 2016, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Exchange Act. During the second quarter, there were no changes that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Note 14 to the Interim Financial Statements.

Item 1A. Risk Factors

See the Company’s most recent annual report filed on Form 10-K (Part I, Item 1A). There has been no material change in this information. The risks described in the annual report on Form 10-K, and the “Safe Harbor Statement” in this report, are not the only risks faced by the Company. Additional risks and uncertainties may also materially affect the Company’s business, financial condition or operating results. One should not consider the risk factors to be a complete discussion of risks, uncertainties and assumptions.

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

The Company’s purchases of its common stock during the second quarter of 2016 were as follows:


				Total Number of
				Shares Purchased as	Maximum Number of
	Total Number of			Part of Publicly	Shares that May Yet Be
	Shares			Announced Plans or	Purchased under the
	Purchased	Average Price		Programs (1)	Plans or Programs (1)
Period	(thousands)	Paid Per Share		(thousands)	(millions)
Feb 1 to Feb 29					39.9

Mar 1 to Mar 31					39.9

Apr 1 to Apr 30	1,242	$	78.19	1,242	38.8

Total	1,242			1,242

(1)

During the second quarter of 2016, the Company had a share repurchase plan that was announced in December 2013 to purchase up to $8,000 million of shares of the Company’s common stock. The maximum number of shares that may yet be purchased under these plans was based on the end of the second quarter closing share price of $84.11 per share. At the end of the second quarter of 2016, $3,260 million of common stock remained to be purchased under the plans.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

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

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

SIGNATURES

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


		DEERE & COMPANY


Date:	May 26, 2016	By:	/s/ R. Kalathur
			R. Kalathur Senior Vice President and Chief Financial Officer

INDEX TO EXHIBITS


Number

3.1	Certificate of Incorporation, as amended (Exhibit 3.1 to Form 8-K of registrant dated February 26, 2010*)

3.2	Bylaws as amended (Exhibit 3.2 to Form 10-Q of registrant for the quarterly period ended January 31, 2015*)

12	Computation of ratio of earnings to fixed charges

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

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

32	Section 1350 Certifications

101	Interactive Data File

* Incorporated by reference. Copies of these exhibits are available from the Company upon request.