The sales were down 20% for the quarter, with weakness in the US and Canada being offset somewhat by strengthened sales outside the region. Despite 14% lower production volumes, quarterly operating profit was relatively strong, at $150 million, with some positive price realization, more than offset by raw material increases of approximately $45 million.

The net sales of Construction and Forestry equipment are now forecast to be down about 12% for the year, versus the previous outlook of down about 11%. Both Construction and Forestry equipment sales in the US and Canada are projected lower, and more than offsets strengths in markets in the rest of the world.

This is a challenging environment with US housing surge falling to $1.4 million from $2.1 million, less than two years ago. Despite this, Construction and Forestry earned operating margins of approximately 12% in the third quarter. With decremental margins for the full year likely to be in the range of 35% to 40%, an improvement from the previously expected approximate 45%. The sales guidance suggests sales of around $5 billion this fiscal year. This is excellent operating performance, and it reflects successful broadening of Construction and Forestry’s product offerings, it’s diversification of end markets and the power of Deere’s overall SVA efforts.

Credit Operations

The credit reported net income for the quarter of approximately $91 million, up from approximately $89 million a year ago. The forecasted credit net income for the full year remains at about $355 million. John Deere credits provisions for losses remains at very low rates.

Outlook

For the fourth quarter of 2007, the firm expects company-wide equipment operations net sales to be up about 16%, with sales from LESCO and positive currency translation accounting for about half of that increase. For the full year, we are now forecasting net equipment sales to be up about 7% compared with fiscal year 2006, one percentage point higher than the previous guidance. This includes about two points of net price realization and about two points of positive currency translation.

The estimated net income is about $1.70 billion for the year, compared to previous guidance of around $1.55 billion.

- For equipment operations, capital expenditures are currently forecast to be about $600 million.
- Depreciation and amortization is expected to range from $400 million to $450 million, and the firm does not anticipate about $525 million in pension and OPEB contributions for the year. For financial services, capital expenditures for wind investments are expected to total about $500 million in 2007.

Key questions and answers from the third quarter fiscal 2007 earnings call conducted by Deere & Company on August 15, 2007.

Steven (J P Morgan): On agricultural margins, in the last quarter call, you were giving us a few things that we ought to be congnizant of in terms of some headway in the margins in the quarter, and margins came out in ag much better than expected. Can you comment on that?

Marie Zeigler: It’s true that our financial performance is better than what we had anticipated and all of our equipment operations, but the headwinds due continue in SA&G and R&D. This is true in all of our businesses, but particularly in ag, as we are investing to grow our businesses in places like Brazil, and Russia and China, we are encountering higher SA&G and some higher R&D as we continue to develop products for those markets as well as our existing major markets. We think we have some real opportunities in the years ahead. Hence we do expect to continue to see some headwind. That said, ag clearly performed very well in the quarter.

Andy Casey (Wachovia Capital Markets): On the agricultural equipment market, your two comments – the expected 63% Q4 US and Canada tonnage increase, and the decision to prebuild components indicate high expectations for future demand and likely you already stepped up production in August. What, if any, supply chain constraints have you encountered or are you concerned about?

Marie Zeigler: It’s true that we are working with our supply chain and with planning you can do a number of things; at this point we don’t have anything to discuss in terms of supply chain constraints. We’ve added a little bit of capital, we’ve talked about this Waterloo, that’ll come online, machine tooling, we also added some machine tooling down in Brazil to help accommodate that market. We’re not at this point aware of anything that we would need to discuss, but certainly a lot of work to make sure that we can meet customer demand.

Andy Casey: You’re modestly reversing the multi-year inventory reduction in North American ag equipment. Does that mean this level of field inventory is the bottom as a percentage of trailing sales?

Marie Zeigler: Over time, we will continue to strive to lower that ratio as a percent of sales, but everything that we know that we can do we are doing. We’ve talked in the past that there may be things with logistics, there may be things in terms of some of the processes in the way we run our operations, we’ve got flexible work force ranges, or even more that can be done there. We are looking at other things that will permit us in the longer term potentially to run with lower levels, but at this point, this is about where we think we can support our customer demand.

Anne Duignon (Bear Stearns): Could you comment on your investments in Brazil and also an update on your supposed acquisition in China at Ningbo? Comment on how the ramp up is expected to take place in Brazil in particular and whether you’re comfortable with your distribution there? In China, if and when that deal does close, will either of these or both of these be decremental to margins?

Marie Zeigler: China we’re waiting still for Government approvals on that; we have said that we expect that acquisition to create positive income in its second full year of ownership and that between now and the time we get there, it would be slightly negative, in terms of its income, but very immaterial. Looking on to Brazil, there we are in a limited build mode in the new factory. The first two lines that go into production will be products that have not been produced in the first two models that went into production will not be products that have been produced in Horizontina, so we are going to ramp up that first and then we will transition production from the existing factory in Horizontina into Montenegro. All things are on track, we expect to start ramping up regular production over the course of the fall,and into the winter. As it gets up and gets going, we would anticipate it will start to reverse what has been a bit of a margin drag right now, because you’ve got a lot of people in the factory with no production to speak of; you’ve got people being trained, establishing supply relationships etcetera etcetera. As we move through 2008, we would expect that will become less of a drag as we move through the year.

David Raso (Citigroup): On construction, the further reduction in receivables and inventory at the end of the year now forecast, how much of that have you already done in the third quarter?

Marie Zeigler: It’s really done and if you look at where we are with our year-over-year, we’re basically there.

Andrew Obin (Merrill Lynch): In the financials, are you expecting any impact on performance going into 2008 due to widening spreads?