Marie Ziegler – Vice President of Investor Relations Bill Ratzberg – Investor Relations Susan Karlix – Investor Relations Michael Mack – Chief Financial Officer

Mark Douglass – Longbow Research Steven Hoffman – J.P. Morgan Robert McCarthy – Robert W. Baird David Raso – Citigroup Andrew Casey – Wachovia Capital Markets Terry Darling – Goldman Sachs Ann Duignan – Bear Stearns Alex Blanton – Ingalls & Snyder Andrew Obin – Merrill Lynch Mark Koznarek – Cleveland Research Seth Weber – Banc of America Jamie Cook – Credit Suisse Charlie Rentschler – Wall Street Access Robert Wertheimer – Morgan Stanley Joel Tiss – Lehman Brothers

(Operator Instructions) I would now like to turn the call over to Marie Ziegler, Vice President, Investor Relations.

Good morning. Also on today’s call are Michael Mack, our Chief Financial Officer, and Susan Karlix and Bill Ratzberg from our Investor Relations staff. Today we will take a closer look at our first quarter earnings, and then spend a few minutes talking about Deere’s markets and where things are headed next year. After that, we will respond to your questions. Please note that slides are available to complement the call this morning and can be accessed on our website at www.deere.com. First though, some reminders: This call is being broadcast live on the Internet and recorded for future transmission and use by Deere, (Thomson?) and third parties. Participants in the call, including the Q&A session, agree that their likeness and remarks in all media may be stored and used as part of the earnings call. This call includes forward-looking comments concerning the company’s projections, plans and objectives for the future that are subject to important risks and uncertainties. Actual results might differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially is contained in the company’s most recent Form 8-K and periodic reports filed with the SEC. The company, except where required by law, undertakes no obligation to update or revise its forward-looking information. This call also may include financial measures that are not in conformance with GAAP; that would be the accounting principles generally accepted in the United States of America. Additional information concerning these measures, including reconciliations to comparable GAAP measures, is posted on our website at www.deere.com/financialreports. This would be listed as under the first quarter 2008 reports. All participants should consider the other information on risks and uncertainties and non-GAAP measures in addition to the information presented on the call. And now for a closer look at our first quarter, here is Bill.

Thank you, Marie. Turning to slide 3, this morning Deere reported first quarter net income of $369 million; first quarter equipment operations net sales of $4.5 billion. Net income increased 54% and diluted earnings per share rose 60%. On slide 4, first quarter total worldwide equipment operations net sales were up 19% compared to the prior year quarter. About 4 points related to positive currency translation. There are about 2 points of price realization and LESCO added about another two points. The remainder is primarily from increased volume. On slide 5, you can see our first quarter production tonnage was up 21%. For the second quarter, world tonnage is expected to increase about 19%. For the full fiscal year 2008 worldwide production tonnage is now forecasted to be up 15% versus our previous forecast of up 7%. Both are driven by a strong, global market. Regarding our company outlook, let’s turn to slide 6. For the second quarter of 2008, we expect company wide equipment operations net sales to be up about 23%, with Ag contributing the bulk of this increase. Currency is expected to account for about 3 points, with sales from LESCO adding about another $200 million. Net income is expected to be about $700 to $725 million in the quarter. For the full-year, we are now forecasting net equipment sales to be up about 17% compared with fiscal year 2007. This includes about 3 points of currency and about 2 points of net price realization. For 2008, net income forecasted increased to approximately $2.2 billion. Let’s turn now to a review of our individual businesses, starting with Agricultural Equipment on slide 7. While the press release describes the major items affecting financial results, let me mention a few others. Of the 33% net sales increase in the first quarter, currency translation accounted for about 6 points and Ningbo Benye, our newest acquisition in China, added about a point. Operating profit increased to $332 million with currency translation contributing about $25 million. Inventories rose as the division ramped up to meet increasing global demand. The resulting additional absorption, contributed about 7 of the 29 points of incremental margin in the quarter. Looking ahead, global Ag fundamentals are very encouraging. Worldwide stocks-to-use ratios remain at very low levels, particularly for corn and wheat. In fact, on slide 8, you’ll note that for wheat, corn and soybeans on a global basis, use is projected to exceed demand in the crop year 2007-2008. Slide 9 highlights the exceptional strength of the futures markets for these important commodities. All of this supports Deere’s meaningful changes in forecasted commodity prices, as seen on slide 10. Turning to slide 11, in December, the United States enacted the Energy Independence and Security Act of 2007, which significantly expanded mandatory levels of renewable fuels, providing support for the continuing investments being made in ethanol and defining target levels and time-frames for more advanced bio-fuels as well. This may support significant and exciting new opportunities for Deere equipment and services related to the planting, cultivating, harvesting and handling of other cellulosic materials. Slide 12 portrays the near-tripling of annual usage of U.S. corn needing for conversion to ethanol mandated by the Energy bill. This all certainly provides strong support for good levels of farm income globally, and as shown in the United States on slide 13, the current estimate for 2007 total cash receipts approaches $300 billion, a more than $40 billion increase over 2006. Just as importantly, total U.S. cash receipts are expected to be above the $300 billion for the subsequent two years. All of this translates into a stronger order book at John Deere, not only for tractors and combines, but also for products like sprayers and seeding equipment. Providing solid support for our outlook for industry sales of agricultural equipment in the United States and Canada, as shown on slide 14, which is now up 15% to 20% from 2007. In addition, our industry outlook for South America is up 15% or more. The increased industry forecast for South America is supported by slide 15, which demonstrates that farm incomes continue to accelerate in Brazil and Argentina; in particular, note the substantial 2008 increase from our previous forecast just 3 months ago. Slide 16 highlights the strength of the European Ag market as well. As shown on slide 17, our 2008 outlook for Western Europe is now for industry sales to be up 3% to 5% for the fiscal year, and strong growth expected to continue in Central Europe and the Commonwealth of Independent States countries, including Russia. So putting this all together, slide 18 depicts a stronger worldwide outlook for the sale of John Deere farm machinery. Net sales are now projected to be up about 28%, with currency accounting for about 4 points of the increase. Just as currency will affect net sales, it will also affect forecasted operating profit, adding about $90 million for the full year. As we discussed last quarter, growth, tier-three product costs and tier-four engineering costs will affect the 2008 incremental margin. We continue to identify opportunities for growth, and we have the financial strength to make the required investments. Consistent with our strategy, just as we tighten our belts, when business conditions get more difficult, we also intend to invest in growth, both when times are good and when exciting opportunities are discovered. Therefore, this year, we have elected to further accelerate new product and geographic development. The Ag division now anticipates spending an additional $50 million in R&D and an additional $120 million in SA&G compared to our previous guidance. About half of the SA&G increase is a result of currency translation. The increase at constant exchange rates is about $60 million. In addition, the forecast calls for a modest increase in inventory x-currency. Although the first quarter benefited from increased overhead absorption due to the inventory build, for the full-year, the forecast has no absorption benefit. Reflecting this increased investment in our future, the forecast anticipates the 2008 incremental margin to be 20% to 25% compared to our previous guidance of about 25%. Let’s move now to our Commercial and Consumer Equipment business, on slide 19, where reported net sales were up 16% in the quarter, with about 14 points of that increase coming from LESCO. Last year’s new product introductions continue to drive excellent customer interest, helping to offset challenging market conditions. Operating profit declined. As expected the consolidation of LESCO accounted for most of the decline as shown on slide 20. The first quarter is a seasonally weak quarter for this business. Not surprisingly, in the United States not much fertilizer is applied in the November to January time period. For the full year, we expect LESCO results to be much closer to breakeven. Turning to the Commercial and Consumer Equipment outlook on slide 21, for fiscal 2008, we now anticipate sales to be up about 8%, about 7 points of which are related to LESCO. Portions of the business continue to be affected by the housing slowdown and general economic conditions. Our forecast reflects slightly lower incremental sales at LESCO from our previous guidance as the rise in fertilizer prices is expected to reduce applications demand by consumers. But our forecast also reflects the exciting new product offerings coming to market this year, including the Z-Trak Pro and Estate mowing lines, Select Series homeowner models and Utility vehicles. Let’s focus now on construction and forestry on slide 22, where sales were down 6% for the quarter. Despite very challenging economic conditions in the U.S., production tonnage increased 2% over the first quarter of 2007, and quarterly operating profit was relatively strong at $117 million or over 11% of net sales and up 23% from 2007. The division benefited from producing closer to retail demand, made possible by exceptional inventory management in 2007, and some positive price realization in the quarter. Full-year forecast still has pricing remaining relatively flat with 2007, unchanged from our previous expectation. Turning to slide 23, the net sales outlook for the full-year of 2008 continues to be approximately flat, in spite of challenging conditions in the United States, with construction spending declining by 10%; new housing starts declining further to $1 million for the year, and GDP growth slowing to 1.9%. This flat net sales forecast is due to producing closer to retail demand, reflecting our disciplined inventory management, consistent with our SVA strategy and new products including the h-series skidders, j-series backhoes, and radial arms skid steer loaders. Moving now to our credit operations, as you see on slide 24, credit losses continue to remain low with the provision running well below its ten year average. And as further evidence of John Deere’s superior credit quality, turn to slide 25. We recently received support from rating agencies to increase the company’s leverage from the current 8.5 to 1 to 10 to 1. The actual change, which will occur in the form of a dividend to Deere & Company is expected to happen in the second quarter. While this does result in higher interest expense, expected to be about $10 million after tax, this certainly represents a more efficient use of capital for the enterprise. Very importantly, SVA for both John Deere credit and the enterprise will increase due to the change in leverage, again reflecting the quality of our credit portfolio. Turning to operating results on slide 26, current reported net income in the quarter of about $96 million, up from about $87 million a year ago, among other things, on the strength of a larger credit portfolio and higher crop insurance income. Our forecasted credit net income for fiscal 2008 is now about $365 million versus the previous forecast of $375 million, with the approximate $10 million decrease explained by the change resulting from higher leverage. Moving on to retail sales, let’s look at receivables and inventory. Slide 27 lists by division the change in receivables and inventory at the end of the first quarter of 2008 versus the end of the first quarter of 2007. You’ll note that the reported trade receivables and inventory at January 31 was a little over $800 million higher than a year ago, although on a constant exchange rate basis, they are up only $476 million. The Ag division came in at $891 million higher. Currency translation accounted for about $235 million of the Ag division increase. The majority of the inventory increase however is supporting current business conditions. For C&CE, excluding LESCO, trade receivables and inventory declined over $90 million. As seen on slide 28, our 2008 year-end forecast calls for flat inventories and trade receivables in C&CE and C&F and higher levels for the Ag division again supporting strong global market conditions. Before turning to housekeeping, let us discuss the latest on retail sales. Industry data for January retail sales for the United States and Canada is not yet available, so there is no slide. Our commentary is expected to be released separately this coming Friday on our Investor website at www.deere.com and can also be accessed at that time by dialing 309-765-5149. Deere dealer inventories in the U.S. and Canada remain in very good shape. On slide 29, you see that for row-crop tractors, Deere ended January with inventories at 23% of trailing 12-month sales. Combine inventories were at low levels – 8% of trailing 12-month sales. Turning to slide 30, in Western Europe, sales of John Deere tractors were up double-digits in January and sales of combines were down double-digits. Moving to slide 31, Deere’s retail sales of Commercial and Consumer Equipment in the United States and Canada were up a single digit in January. Construction and Forestry sales in the U.S. and Canada were down double-digits on both a First-in-the-Dirt and Settlement basis. Now let’s touch on a few housekeeping items. Regarding raw material and freight, let’s move to slide 32. In the first quarter, these costs rose approximately $50 million versus last year. For the full-year, we now expect these costs to increase by about $250 million, compared our previous forecast of up $150 to $175 million, driven by increases in items like tires, steel, diesel fuel, resins and currency. Looking at R&D expense on slide 33, spending was up about 16% in the first quarter. For the full-year, R&D expense is now expected to increase about 12% compared to our previous guidance of up 5%, with virtually all of the increase coming in the Ag division as previously discussed. Moving now to slide 34, SA&G expense for the Equipment operations was up 20% in the first quarter with about 14 points of that increase coming from global growth initiatives and currency translation. Our fiscal year 2008 forecast now includes SA&G expense increases of about 11% over 2007, with about 8 points of that increase coming from global growth initiatives and currency translation. As with R&D, the Ag division accounts for all of the increase from previous guidance. Regarding the tax rate on slide 35, during the first quarter, the effective tax rate was about 33% due to discrete items. The fiscal year 2008 forecast full-year tax rate remains at about 35%. Actual shares outstanding at the end of the quarter were about $436 million as shown on slide 36. You can also see the history of share repurchases since 2004. Approximately 29 million shares remain under the current 40 million share repurchase program, approved by the Board of Directors in May of 2007. Slide 37 provides some additional information related to fiscal year 2008. For Equipment operations, capital expenditures are now forecast to be up about $750 million with the change driven primarily by the Ag division. Depreciation and amortization is still expected to be about $450 million and we now anticipate funding of about $425 million in pension and OPEB contributions over the year. For financial services, capital expenditures relating to wind are now expected to total about $450 million in 2008 as they build their portfolio. Looking ahead, 2008 is starting out very strongly. Deere is expecting another year of exceptional financial performance with excellent cash generation. SVA continues to prove to be a powerful force in managing and guiding the company. At the same time, we are well-positioned to continue benefiting from powerful global economic trends involving growing affluence, increasing demand for food, and rising use of biofuels. We continue to drive to build, grow and sustain a great business and we are looking forward to delivering superior results in 2008.

Thank you, Bill. We are now ready to begin with our Q&A. The operator will instruct us on procedures. But as a reminder, in consideration of others, please limit yourselves to one question with one follow-up. If you have additional questions, we ask that you rejoin the queue.

(Operator Instructions) Our first question comes from Andrew Casey – Wachovia Capital Markets. Andrew Casey – Wachovia Capital Markets: On Construction and Forestry performance, can you talk more about what drove the year-to-year improvement despite the revenue decline? Was that primarily the improved pricing that you talked about or was there something in the 2% tonnage increase as in less production shut-down days or mix shift or something else that drove the improvement?

That would be the most significant item and it accounts for in round numbers $15 to $20 million of the improvement in the quarter. And again it has to do – and you are absolutely correct – with just more efficient factory operations and for those of who may not recall, during the first quarter of 2007 we stepped on brakes pretty hard for that division and ended the full-year taking receivables down about $250 million. No question, pricing was positive and also some expense control, but the majority of the benefit is really from producing closer to retail. Andrew Casey – Wachovia Capital Markets: On Ag Equipment, can you talk about what if any drag the ramp up of the new tractor production facility in Brazil had on the quarter?

It wouldn’t have had a material, meaningful impact. They are in production now and by the end of the second quarter we would expect they will be clicking along very well. All the production was transferred out of Horozontina in the first quarter.

I would just say, compared to a year-ago it would be a positive because you are starting to get some factory absorption, not as much as you are going to get in subsequent quarters, but compared to a year-ago, I think it would be a positive.

Our next question comes from David Raso – Citigroup. David Raso – Citigroup: Question on the Ag incremental margins: it looks like if you backed out the incremental costs that you are accelerating on R&D, and the SG&A part – even just the SG&A part that is not currency – it looks like you actually raised your core incremental margin for Ag about 3 to 4 basis points. Keeping the raw material common. Can you help us understand the incremental margin improvement for the year, is that something still to come? Maybe it’s the Brazil comment you just made, or overall, why are we seeing that incremental margin outlook improve?

I am not sure, David, our incremental margin improvement, the calculation of the guidance from last time was about 25% incremental margins and now it’s… David Raso – Citigroup: And it’s 25% again.

It’s 20% to 25%. We have taken it down just a little bit and that little bit really reflects the acceleration that Bill talked about of our R&D and then some SA&G and a little bit of material. David Raso – Citigroup: The core is still being held steady?

Yes. David Raso – Citigroup: Given the higher CapEx, accelerated R&D, can you flesh out a little bit more for us where these growth opportunities are? If I’m taking more R&D and CapEx on this year and so forth, trying to think through 2009 incrementals and so forth, can you help us flesh out where these opportunities are? Will these things be concluded in 2008?

No, in a word. In terms of the incremental change in our Cap expenditure guidance − and just for those who may not recall, our previous guidance was $600 to $700 million and now we are looking at about $750 million – that change really is all driven by the Ag division. It really would reflect several geographies we are contemplating, candidly, some additional capacity, and no final decisions have been made on that and then, as we are ramping up some of our R&D, there is tooling and things that go along with that. And then some of the increase is candidly due to currency too, just because the dollar continues to devalue a bit. David Raso – Citigroup: Just to be clear, though, these activities, the idea of 2008 into 2009, I am just trying to think through, again maybe if you can flesh out a little bit more the capacity additions, the growth opportunities. Just how should I think through the incremental in 2008; is it something that then is a benefit on a year-over-year comp situation in 2009, or have you now laid out growth opportunities for us to think of this as 24-month activities on a higher R&D and CapEx?

We are really not prepared to comment on 2009 at this time. As we have talked about, we have product opportunities throughout the world, including in the U.S. but certainly market expansion in Brazil, Russia, India, China, even Western Europe. We are really looking at product line development that will benefit us in all areas. If business continues to stay very good, if we continue to find additional opportunities to further step up our investment in our business, David, I can’t say that the spending might not continue at an even increased level in 2009, but we are just not prepared to address that yet.

Our next question comes from Robert McCarthy – Robert W. Baird. Robert McCarthy – Robert W. Baird: Two questions related to the Ag segment outlook. One, to what extent is the improvement in your industry outlook accounted for by better-than-expected first quarter conditions and how much of it is then dependent on an improved outlook for the balance of the year?

I don’t think I can differentiate between what changed in the first quarter versus the rest of the year. I can say that obviously our outlook for cash receipts improved not only for this year, but for 2007, and 2007 cash receipts clearly have an impact on 2008. Then our order book has continued to develop very nicely, and so that adds good support, and that is true not only in the U.S. but candidly and really throughout the globe. When we look at those market outlooks that we have, they are really supported by retail activity. Robert McCarthy – Robert W. Baird: If those are the drivers of the revised outlook, shouldn’t I infer from that that that’s more forward-looking?

In what way? Robert McCarthy – Robert W. Baird: The improved outlook for industry activity is more a function of a better outlook for the remainder of the year.

I think it is growth. I think retail activities were better-than-expected in the first quarter, and the order book, which relates to the rest of the year also looks quite good and then finally, the fundemantals, that’s reflected in the commodity prices are improving as we go on into the year as well. Robert McCarthy – Robert W. Baird: My related question is, within that improved forecast, my sense is that your outlook improved particularly at the high-end of the product range. Is that the case, and wouldn’t that be a positive indicator for profitability?

We certainly have seen strength at the larger end of the horsepower range, there is no question big combines and big tractors are doing well in a lot of geographies. So that would be true, and again, that improvement though Rob is reflected in our margin guidance, which does by the way, for 2008 imply an improved operating margin out of our Ag division.

Our next question comes from Steven Hoffman – J.P. Morgan. Steven Hoffman – J.P. Morgan: Taking a step back, I am amazed at the Construction Equipment margin and I think it is interesting that there is basically less than a point difference between Construction and Ag given what is going on in the end-markets; that is surprising to me. I wonder if there are things that you are doing in Construction that can be migrated into the Ag over time that can potentially widen that out, or whether you think there is something specific to those businesses which are just fundamentally different.

We are very gratified that you observed the good performance in our Construction and Forestry division and this really relates to the fundamental changes in the way we are managing our businesses. When times are good, we have much higher targets and when times are difficult, we step on the gas; I talked about some expense control in some of our spending programs, for example. No question that you are seeing the benefits of keeping those inventories in close alignment as close as possible with retail. And most definitely, that would most positively affect our Ag division as we move forward. Ag, right now, is being somewhat penalized, if you will, by future investments for growth. We have been candid in the last conference call and in this conference call, talking about some additional investments that we are making as we see opportunities globally.

You may recall our presentation from Waterloo back in September of 2006; we talked about trough management and back at that time, Construction and Forestry was working on this, they really put in place very detailed plans what they would do if they had down environments in terms of the external demand and the levers they would pull, so they could reduce their variable costs as quickly as they could to respond to the environment. We actually do have studies across all of our businesses on this particular topic and the whole idea is to be able to have reduced volatility in our earnings through the cycle, which we believe will ultimately result in multiple expansion for our company. Steven Hoffman – J.P. Morgan: Just to tie that up, at some point in the Ag cycle we should expect margins to be higher than they were historically?

We would be on track to be delivering on that this year with that improved incremental margin that we are talking about. If you’ll recall our previous peak margin in Ag was about 14%, but that was when the receivables were actually held in the parent company operations and interest expense was below the line. Now, as I think you are all aware, the bulk of the receivables are held by the credit company − they are the inner-company charge – and we show it on our financial statements; that reimburses the credit companies for that carrying cost and the margin, and that actually impacted our Ag equipment margins on average by about 2 points. Of course, last year the Ag division had in round numbers a 12% margin, so we actually duplicated that peak margin and so this year we would be on track to improve that; at least that is what’s implied in our financial forecast. Steven Hoffman – J.P. Morgan: How big is the dividend that is going to come out as a result of the higher leverage?

We anticipated about $320 million.

Our next question comes from Eli Lustgarten – Longbow Research. Mark Douglass – Longbow Research: This is Mark Douglass for Eli. A question about your outlook in the second half of ’08. With net sales anticipated for full year at 17% and net sales being so strong this quarter and your 23% next quarter help me view the back half of ‘08 because it looks like it would be pretty weak. Am I missing something? The comp on Q3?

Well, there is no question that as we move through the year, our comps get more difficult because of course we were ramping up business pretty significantly throughout 2007. So your observation would be correct that the year-over-year change does narrow but it’s not because the business is declining, but rather because you are coming up against a much more difficult– I shouldn’t say difficult, but a time when businesses was improving pretty significantly. Mark Douglass – Longbow Research: Right, right, certainly in the fourth quarter. On the tax rate can you talk a little bit more about the impacts to the 33% and why you might expect 35% for the rest of the year?

It’s really discrete items which is a whole host of items and our statutory guidance would be 35% and right now based on what we know any other items that are coming there is not enough of an offset in subsequent quarters to keep that rate below 35%. That is what it weights out to. There is just a host of things on the equipment operations.

Your next question comes from Terry Darling – Goldman Sachs. Terry Darling – Goldman Sachs: A question on the Brazilian ag outlook, I am struck by the magnitude of the increase in the farmer income projections relative to a more modest increase in your outlook for sales there. Could you update us on where you see the credit situation there? It’s a nice increase, but it’s a relatively muted increase in your outlook for South America ag retail sales relative to a very strong uptick in your forecast for farmer income.

That’s an astute observation in terms of Brazil. We continue to be cautious because of the status of tsunami. The situation has changed several times, as you know, over the course of the year. For those who may not recall, there has been a deferral of payments that were due in May of 2007. Now, 70% of the payments that Deere was due have been made on that. So we still have about 30% of our customers who have not paid. At this time, we actually expect that those 2007 payments are due on the 15th of February, which would be in two days. The government has indicated there would no further extensions and that January, February and March 2008 payments will be due the 31st of March and then there will be no more extensions on the remainder of 2008 payments. But we just remain cautious because the situation has been changing on an ongoing basis and that caution is reflected in that guidance for the year. Terry Darling – Goldman Sachs: That 30% is still outstanding as of today, essentially?

It would as of the end of January. Terry Darling – Goldman Sachs: The related or follow up question is, I’m wondering if you can differentiate for us on your forecast for construction and forestry sales to be flat, if you can provide some color differentiating the construction piece versus the forestry piece?

Actually, for the full year we expect that our forestry sales will be up slightly, that the strength in overseas markets will offset weakness that we are seeing in the United States and Canada. That would imply then that if you are up very slightly in forestry, and forestry is 20% to 25% of the business, you are down just a little bit on the construction side.

Your next question comes from Ann Duignan – Bear Stearns. Ann Duignan – Bear Stearns: I am just laughing here because it’s probably the first time I have ever heard Deere say on a conference call that their outlook was very encouraging, it’s like farmers telling me that they are cautiously optimistic so things must be pretty good. My question is around the 2008 Economic Stimulus Bill which we expect President Bush to sign today. Obviously when signed that would allow for accelerated depreciation and Section 179 expensing, which back in 2004 we saw a significant pick up in demand as farmers took advantage of that.

It wouldn’t only be farmers, it would potentially benefit contractors, our commercial landscapers et cetera. Ann Duignan – Bear Stearns: No, I agree. I guess on the agricultural side, I think you are saying that you would expect that it will be stimulative. My real question is if demand did pick up for tax spending, particularly in agriculture, would you be able to meet greater demand?

Do we have additional capacity through the end of the calendar year? Yes, we do. Ann Duignan – Bear Stearns: My second question is around the increase in raw material and freight costs. Can you explain, I am struggling a little bit to understand why freight costs will be going up?

It’s diesel fuel. The fuel prices are higher than what we had in our base assumptions. That has driven higher inbound freight. It’s one of five factors. I mean, it’s a little bit collectively from all those five factors. A small percentage increase in freight, a little higher steel costs, a little higher tire, a little higher resins that’s affecting, even landscapes, cost of their pipes that they put in; it’s just a host of things. Ann Duignan – Bear Stearns: Are there any supply constraints on your horizons that you are trying to work through or bottleneck in the supply chain that have accelerated?

Accelerated? No. On any given day, there are always issues somewhere but we actually went out and just check with our supply management and our factory production folks and based on what we know of our current material availability, we will meet our production forecasts.

Your next question comes from Alex Blanton – Ingalls & Snyder. Alex Blanton – Ingalls & Snyder: Marie, going back again to worldwide construction and forestry and the operating profit increase, you said producing closer retail demand was the main factor. What exactly did you mean? Do you mean that last year you reduced inventories so this year you might have actually increased production in that division, even though sales were down? Is that right?

We had a little bit of higher tonnage, but we also were able to operate a little more efficiently in terms our factories and the change last year that it cost us in terms of incremental margin around $20 million and this year it has turned around that it is more of a benefit, and we talked earlier of $15 million to $20 million. Alex Blanton – Ingalls & Snyder: Yes, but what was that exactly, the $15 million to $20 million?

That is the benefit of not having to be reducing your inventories. I am not sure. Last year we were under-producing in retail so under-absorption. Alex Blanton – Ingalls & Snyder: Under-absorption of inventory, so this year you didn’t have that so that added $15 million to $20 million to the profit.

In the quarter. Alex Blanton – Ingalls & Snyder: In the quarter, right.

The first quarter was most significantly impacted last year. So I do want to make that clear that this is the quarter that will have the biggest benefit. Alex Blanton – Ingalls & Snyder: The inventory increase quarter-over-quarter was $950 million or so?

Are you looking year over year? Alex Blanton – Ingalls & Snyder: I am looking quarter over quarter, $952 million up from October 31. Last year it was only $527 million during the quarter that it increased. So, you have basically a lot bigger absorption benefit this year than last year. But you still had even if you adjust for that, you had very good incremental margins of around 27%, even after adjusting for the difference in absorption year over year. But you are going to have to reduce that inventory some time in the year. So there is going to be a quarter when your margins are going to be hurt by that; which quarter would that be, the fourth quarter?

Well as we know, our guidance for the full year is that receivables and inventories are flat. Alex Blanton – Ingalls & Snyder: Right.

So the construction and equipment division for the full year will have about, let’s say in round numbers about a $15 million benefit, again from just being able to produce at retail. Alex Blanton – Ingalls & Snyder: Right.

As you move out later in the year, because we stepped on the gas very hard in the first quarter and there was some impact in the second quarter, a little less as you moved through the year. You would expect that benefit will diminish as you get into the third and fourth quarters. Alex Blanton – Ingalls & Snyder: Right, you are going to have to take $800 million out of inventory to get back to where it was.

Of that amount, $339 million is foreign exchange.

No, he is looking strictly at construction. Alex Blanton – Ingalls & Snyder: No, I am actually looking at total inventory, what I have been talking about.

I am sorry. I thought you were talking about construction. Alex Blanton – Ingalls & Snyder: I first started talking about construction and then I shifted over to total. You’ve got 3288 minus 2337, so you are up $950 million. You’ve got to take that out to get it flat for the year, that’s what I am saying. So some quarters are going to be hurt by under-absorption in order to get that inventory back down again. That’s usually the fourth quarter, is that what you anticipate?

Incrementally this year -- I am sorry, I didn’t realize you switched away from construction. Incrementally for the overall company, again, the third and the fourth quarters would not have the same degree of incremental benefit because last year we were ramping up so significantly in the ag division. Alex Blanton – Ingalls & Snyder: Actually, you will be reducing inventory so it will be a detriment, won’t it? Going back down?

Incrementally you do not get the same benefit, that is correct, in the third and fourth quarters.

Your next question comes from Andrew Obin – Merrill Lynch. Andrew Obin – Merrill Lynch: A question on pricing by region in ag; what can you tell us about relative ranking of regions in terms of how good the pricing is?

Actually I am not going to be able to comment on that. Our practice is to comment strictly on price realization for the overall company, which was 2 points in the quarter and I really don’t have too much more to add to that. Andrew Obin – Merrill Lynch: You are talking about declining farm cash receipts in the U.S. in ’09, granted off a very, very high base.

And it’s a very small change and it’s really like $3 billion or $4 billion and almost $3 billion of it is explained by the absence of a disaster payment running through government payments being made this year. It was about $3 billion government disaster payment voted on last year, about $500 million we think was paid in ‘07 and the remainder is being paid this year. So that’s a really a primary explanation for that change. Andrew Obin – Merrill Lynch: Historically there has been a relationship directionally between the direction of farm cash receipts and direction of unit sales in the U.S. Do you expect just taking a 30,000 foot view that retail sales can continue to grow in the U.S. in ‘09 off ‘08 levels?

Well, do recall that equipment sales are affected by cash receipts from the previous year as well as the current year. You have had a very significant increase in cash receipts really for 2007. You’ve got another step up in 2008 and cash receipts from crops, I would point out, will increase in our forecast anyway in 2009. So we will stay tuned; we are going to certainly stop short of speculating on 2009 equipment demand. We won’t be talking about that until November. Andrew Obin – Merrill Lynch: It doesn’t sound like you are thinking it’s going down or staying flat, right? I that a fair statement?

I am going to have to stop short of providing 2009 guidance.

Your next question comes from Mark Koznarek – Cleveland Research. Mark Koznarek – Cleveland Research: I have a question on construction and forestry; given that you have lowered housing starts outlook and a slight tick off of GDP forecast. What would your industry retail sales outlook be now relative to what it was before?

It would be down a bit in terms of the U.S. and Canada. Actually what is helping Deere & Company specifically is we are seeing better sales growth outside the U.S. and Canada and you understand that’s off a relatively low base. We are seeing some good levels of activity there. Currency has a little bit of benefit in terms of that sales guidance as well. Mark Koznarek – Cleveland Research: So, the retail sales?

In the U.S. and Canada would be down from our previous guidance, that would be true. Mark Koznarek – Cleveland Research: I am just wondering, can you give me an idea of what it was and what it is now? Was it down like 10 and it went down 5, something like that?

I don’t have the Deere retail; I’ll tell you that industry we probably would have been down in the 6 to 8 range in the U.S. and Canada and we are probably now in the 14 or 15 range in our sizes et cetera. Mark Koznarek – Cleveland Research: So therefore if you are keeping your revenue expectations flat, you are expecting to outperform pretty considerably and just a little piece of that is that international forestry, so what’s going on domestically?

There is also construction equipment sales that are occurring outside U.S. and Canada as well. Again, I just would cite there is some currency benefit. Mark Koznarek – Cleveland Research: So just a little here and there. Okay, then just a couple little detail things. The overall revenue outlook went from 12% to 17% and you called out the currency impact in the 17% that you are looking for now. What was the currency embedded in the original 12% outlook?

It would have been the full company less than a point. Mark Koznarek – Cleveland Research: 1% and then finally the operating income impact from foreign currency you commented earlier would be roughly $90 million for the year. Would there be an offset to that somewhere below the line or could I take that $90 million just tax affected and that’s your earnings impact?

Basically, yes. Mark Koznarek – Cleveland Research: So there is no offset?

There might be a little below the line, but not very much.

Your next question comes from Seth Weber – Banc of America. Seth Weber – Banc of America: Relative to the first quarter’s sales guidance you gave last quarter, you were looking for up I think 25% for the first quarter and it came I think up 19%. Is that just a timing issue or can you give us any color of where things were perhaps a little bit slower than you thought?

It’s really more of a timing issue than anything. All three equipment divisions would have been off just a little bit from what their original sales guidance was. But it’s more timing. You can see that again by our sales guidance. Seth Weber – Banc of America: Last quarter you were kind enough to give us tractor availability for the 9000s and the 8000s out where you saw them out through the calendar year. Can you give us an update on that data?

Certainly, for the fiscal year. For small frame that would be like mid-July; the larger frames would be the higher horsepowers and that would be early August; 8000s mid-September; 9000s there is no factory availability really through the end of the fiscal year, which for us would be 31 October but we certainly have dealer inventory available and we are certainly doing everything we can to meet customer demand. For combine, we would find ourselves in a similar position in terms of the 2008 harvest which would basically be about the first of September. There is definitely availability after the first of September on combines as well.

Your next question comes from Jamie Cook – Credit Suisse. Jamie Cook – Credit Suisse: I think you said in one of the responses that you could be potentially adding capacity. Without getting into too much color, when would you make a decision on that. When you are thinking about adding capacity would that be in markets you are already in heavily whether it be the U.S. or South America or would we be looking at other markets, Asia Pacific or Eastern Europe.

I am not going to be able to give you any more definitive guidance. We are just not prepared to make any comment. Jamie Cook – Credit Suisse: Can you comment on pricing? You said 2% overall, would it be fair to assume that farm was much stronger than that? I am impressed you are still getting pricing in construction and forestry.

We are still getting price utilization in construction and forestry. I would say that in the quarter you couldn’t infer that ag was significantly stronger. I would say overall for the full year as you think about our guidance in construction in view of the difficult market we are still looking for basically a neutral year on pricing; that probably implies a little more in ag. Jamie Cook – Credit Suisse: A follow-up to pricing, as I think about pricing longer term and the fact that you are investing so much in the ag division whether it’s R&D or growth in new product et cetera theoretically given all this investment that you are doing we should get it back and we should see pricing rising over time, especially when you are in one of the strongest farm markets we’ve ever seen?

I think that will clearly be our objective. I can’t put that into a forecast, but that would certainly be the intent.

Your next question comes from Charlie Rentschler – Wall Street Access. Charlie Rentschler – Wall Street Access: I am glad to see you are finally jacking up the CapEx in the ag like I told you to a year-and-a-half ago. My question is CapEx with wind, you are making a big bet on wind. Tell me first, where is Uncle Sam with the tax credit and how is that affecting you? Can you give us a little bit of understanding of wind? Is this all domestic, your investment? That’s $400 million. That’s over half of your regular CapEx investment. Can you tell us, is this going to be ongoing at this level beyond this year, please?

First of all, the tax credits expire at the end of this year. They are widely anticipated that they will be renewed or effected after the 31st of December of this year but we don’t know that at this time. Charlie Rentschler – Wall Street Access: That’s why you are going “giddy up” here?

Well no, I can’t really say that’s we are going “giddy up”, but certainly we would expect those tax credits will be renewed. We are in the process of looking at turbine orders for 2009 and to the extent that there would be a delay in the legislation there are other markets that can take those turbines. Right now, our business is all based in the U.S. When you look at the capital expenditures however, Charlie, that 450 is separate and apart from the guidance in the equipment operations of 750.

Your next question comes from Robert Wertheimer – Morgan Stanley. Robert Wertheimer – Morgan Stanley: I wanted to ask also about pricing. Specifically, can you talk about the materials cost, can you characterize in dollars the percentage change terms from last year?

Percentage of raw material costs, I don’t have the percentages, but raw material costs for the full company were up $183 million. So this year we are looking at $250 million. Robert Wertheimer – Morgan Stanley: The real question is pricing. Is pricing going to be higher than raw material or lower?

Absolutely. Robert Wertheimer – Morgan Stanley: What is the constraint?

For the full company, our pricing will be better than our costs. As you think again about the guidance for the full year, again we talked about the fact that we are looking for flattish pricing in construction and that certainly implies that ag will be something north of 2. I really can’t comment any further on that. Does that help? Robert Wertheimer – Morgan Stanley: It does help a little. As you have seen materials costs come up recently, do you see the pricing environment in the market firming up along with that? In other words are competitors taking pricing up or discounting less?

I am not going to be able to comment about our competitors pricing actions. But Rob, I do want to make one other point clear when we talk about pricing, do bear in mind that any kind of future improvement, we do not consider that to be pricing. We actually strip that out and call that volume. So, our actual price increases are higher than this 2 points that we are talking about. But that’s because we are talking about horsepower increases or a different kind of transmission option, and we would call that volume.

Your final question comes from Joel Tiss – Lehman Brothers. Joel Tiss – Lehman Brothers: I wonder if you can just talk a little bit about the underlying end market in construction equipment. You have done a great job of talking about how your business is performing and it’s really doing great. Can you just talk a little more about what’s happening in the end market and some of the anecdotes you are getting from your dealers.

We continue to see activity on the non-residential side. There is a lot of activity still. People are concerned certainly about what will happen going forward, but a fair amount of activity there. Some activity on the housing oriented but obviously that depends on where you are in the market. On the dealer side, we are probably most gratified by the fact hat we see our dealers continuing to replenish their inventories at about the level as they sell a machine they are replacing on average. So that tells us that their inventories are in pretty good shape and that they are comfortable with their position. Inventories; if you look at our inventories in terms of days of sales and look at them this year versus last year, they are down. That’s also another positive sign in terms of what is happening in the market. Does that address your question? Joel Tiss – Lehman Brothers: It helps a little bit. Can you update us also on what’s going on in India? Are you pretty much done with your factory or where are we with that?

In India, we did talk about some expansion and that expansion capacity is in place in India. We are continuing to benefit from the export opportunities of that product as well as the continued development of our business in India.

Additionally, we have an IT center and engineering analysis in India as well which has grown and exceeded our expectations and it’s providing analysis really across the globe for our operations and we are quite pleased with how it’s working out.

Thank you all for participating in today’s call. Susan, Bill and I will be available all day to return any subsequent calls you may have. Thank you.