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2008 Speeches

Robert W. Lane     Robert W. Lane Building a World Class Global Company:
Deere & Company Shapes its Future

Association of Construction Equipment Managers
Las Vegas, Nevada
Remarks by Robert W. Lane

Chairman & Chief Executive Officer
Deere & Company
March 11, 2008

Thank you Roger. And thank you ACEM for the opportunity to host your conference, so aptly titled, "Shaping the Future."

It's a real pleasure for me to be able to spend some time with you this morning before we all move on to Con-Expo, North America's largest trade show, which is either a remarkable tribute to the construction industry, or a sign of how much people want to visit Las Vegas!

I'm always eager to talk with customers, and potential customers, about John Deere. These days I'm better equipped to talk not so much about Deere's great products, but the business that stands behind those products — a business where we work very hard to understand our customers' unique needs and then provide them with highly valued goods and services that make their jobs more efficient, productive and profitable.

And so I appreciate the opportunity to share with you an overview of our 171-year-old company, as seen through the eyes of our Construction & Forestry Division.

As a publicly-held company, we aspire to deliver solid profits to our shareholders. Those profits are tangible evidence of how we're serving our customers. It's our belief that when we serve each customer in an exemplary manner — what we call the value proposition — through a committed and highly-aligned team of employees, we are well on our way to building a great business. Simply put, the only way John Deere can build a sustainable, great business is by exceeding our customers' expectations.

Our firm commitment to understand and serve our customers is one of the reasons John Deere had a strong year in 2007, and is off to a positive start in 2008. Last year's total revenues increased 9 percent to some $24 billion. For the fourth year in a row, we set record earnings, and are likely to do so again in 2008, based on our forecasts.

There are other reasons as well for our recent successes. First, we are benefiting from significant economic and demographic trends — such as a rising global population that is also growing in affluence, resulting in increased demand for food, biofuels, and infrastructure. But more importantly, John Deere is fundamentally changing the way it does business with a sharp focus on managing costs and controlling assets, as well as an intense concentration on serving customers like you at a high level.

Our plans are to grow a business that is more resilient, more profitable and more rewarding to our investors, our employees and our customers. We are striving to produce solid profits under all conditions, and exceptional profits when markets are strong.

Nowhere was that aspiration more clearly demonstrated than in our Construction & Forestry Division in 2007, which remained profitable in spite of significant sales drops due to a weakening U.S. economy and a slowdown in residential construction.

Our C&F Division was able to move decisively — slowing, and in some cases, halting factory production, while effectively managing costs. C&F's success has extended into the first quarter of 2008, with an operating profit of $117 million, or 23 percent more than the same period a year ago.

Considering today's conditions, this performance by our C&F business is a remarkable achievement, and further evidence of exceptional customer satisfaction.

Through this performance, the Construction & Forestry Division has earned the "right to grow," and cemented its position as a core part of Deere's business portfolio.

But C&F isn't alone in their success. I'm proud to say that for the first time ever, each of our businesses reached their financial targets in 2007, by earning a 20 percent operating return on assets. Indeed, the opportunities are great throughout our enterprise, as we seek to extend our global reach and serve those linked to the land.


From your perspective in the construction industry, you may not all be fully aware of Deere's global presence. We employ more than 50-thousand employees around the world, nearly half of those residing outside the U.S. We have more than 90 global locations, serving sales and marketing, research and development, credit, parts distribution and other key operations. In addition, we have manufacturing operations in 15 countries. As the world's premier farm equipment manufacturer, a majority of those overseas locations are associated with our Ag Division.

While we are a solid number two in the construction market in North America, we're aggressively expanding to become more of a global player in that business. We are growing our construction business in Latin America, Africa and Australia. And just a few weeks ago, we announced a joint venture with XCG Excavator Machinery Company in China — our first entry as a manufacturer into the rapidly growing construction markets in the BRIC countries of Brazil, Russia, India and China. XCG is the third largest excavator producer in China, with a 14-model product line.

When it comes to forestry equipment, we are the global leader, and we're looking to leverage that success in more construction equipment markets.

Extending the John Deere brand to a wider global audience remains a top priority as we seek disciplined, profitable growth. Last year, sales outside the U.S. and Canada surpassed $7 billion for the first time. Our sales in the emerging BRIC markets nearly doubled, as important projects and developments in these countries moved ahead at a rapid pace.

Allow me to briefly share with you our global growth plans, focusing on some recent important investments.


Let's start with Russia, the world's largest country, with 133 million hectares of arable land. Russia and the other countries of the Commonwealth of Independent States are dynamic, fast-growing markets, thanks to their fertile soil, abundant water and sheer size.

Russia has a vast forested area, of which only a small fraction of its timber is being harvested. An increased demand for mechanized and environmentally-responsible approaches to realizing the potential of this land creates great growth opportunity for our forestry operation. Our construction business, too, stands to benefit from Russia's improving economic development and need for infrastructure.

Throughout Russia, our presence is growing. In the past five years we have gone from only three dealers to 13. We established a manufacturing presence in 2005 with the opening of a factory in Orenburg, which assembles seeding equipment to serve Russia and other eastern European markets.

We are excited with the prospect of continued market growth in Russia for ag equipment, as well as construction and forestry equipment, as the need for highly-productive products and services increases.


Now let's move halfway around the globe. Despite recent economic instability in Brazil, we still regard this South American country as a top growth prospect for our Ag and Construction & Forestry Divisions. Brazil is experiencing higher commodity prices, better credit terms, expanded corn and sugar cane production and increased demand for feedstocks for biofuels.

John Deere is a leader in combine harvesters there, but still has room to grow in the tractor market. So to enhance our position in Brazil's growing farm sector, we opened a 60,000 square meter state-of-the-art tractor factory in Montenegro last year. The facility produces up to 200 horsepower tractors, primarily for the South American market.

The C&F division marked a milestone in Brazil last year when it delivered its largest single order for forestry equipment to harvest eucalyptus, which grows to maturity in just seven years in that country.


Moving on now, to the developing country of India — the second fastest growing economy in the world, and the world's largest tractor market. In the village of Sanaswadi in western India, we run a high-tech manufacturing facility that builds small horsepower tractors, in addition to engines and transmissions. When the factory opened in 2000, it produced 30-thousand units a year. Today, closer to 45-thousand units a year roll off the assembly line there.

The need for mechanization in India is still modest, yet the country's growing population will require as much as an additional 50 million metric tons of food production by the year 2020. John Deere stands ready to provide Indian farmers a more complete line of equipment, implements and attachments to help them achieve those higher yields.

Equally critical to our success in this country is the John Deere Technology Center-India. In its first three years of operation, the Technology Center in India has grown from 35 to 900 employees and supports our entire company through such areas as information services, supply management and engineering support.

India's educated labor force allows the Technology Center to take advantage of a surplus of experienced engineers and analysts. Because of its time zone, the Technology Center in India often can complete a project overnight for a John Deere unit, say in the central U.S., thus creating time and cost savings.


China is yet another excellent example of a developing country that plays a significant role in John Deere's future. China's growing population and improved economic health are creating wonderful growth opportunities for the company.

As I mentioned a minute ago, the C&F division is entering the world's largest and fastest growing market for construction equipment through its new joint venture with excavator manufacturer XCG.

We've recently expanded our ag equipment operations in China as well. In 2006, Deere opened a drivetrain facility to complement our established tractor and combine factories there. And last year, we acquired the largest tractor manufacturer in southern China, expanding our product line for farmers in that country. Currently in China, we build tractors in the 60 to 120 horsepower range at a joint venture tractor factory in the city of Tianjin. Our new acquisition, Ningbo Benye, primarily builds tractors in the 20 to 50 horsepower range. We expect to sell their products beyond China into other Asian, African, and Commonwealth of Independent States markets.


In addition to expanding geographically, John Deere is targeting growth in four exciting new areas that complement our core businesses: intelligent mobile equipment solutions, landscapes, water technologies and wind energy.


  • Our John Deere Intelligent Mobile Equipment Technologies are focused on leveraging the value of automated guidance systems and other advanced GPS-based offerings. Customers are increasingly seeing how these systems save them time and money. For example, telematics technology makes it possible to retrieve key equipment data such as oil pressure, engine temperature or a fuel alert, then send it wirelessly to a web location where it can be accessed on a desktop. A construction customer, therefore, who may have thousands of pieces of equipment spread across the country, always knows where each machine is, its current hours, and any preventive maintenance that's coming due.
  • John Deere Landscapes serves the important customer group of professional landscape contractors. Our acquisition last year of LESCO, a leading supplier of consumable lawn care, landscape and golf course products, has more than doubled the number of John Deere Landscapes locations.
  • John Deere Water Technologies offers high-performance precision irrigation products that allow growers to control the amount of water given to their plants, based on the type of plant and the soil it's grown in. This contributes to higher yields and helps make growing operations more efficient.
  • Finally, John Deere Renewables is focused on investing in and providing value-added services to wind projects, including project management, debt and equity financing, and turbine procurement. We believe that investing in wind energy benefits the rural economies where our customers typically live while providing an environmentally friendly source of renewable energy. Currently, John Deere Renewables has projects either in operation, planning or construction phases in Idaho, Illinois, Michigan, Minnesota, Missouri, Oregon, and Texas.

All four of these new businesses saw significant growth last year and show major potential for becoming profitable additions to the company.


When we talk about executing and sustaining this ambitious growth plan by attracting new global customers through new and expanded businesses, it's important to recognize the need for a heightened emphasis on customer-oriented technology and innovation. We operate in a world today that demands differentiation and there's little question that innovation is a critical driver in a competitive global marketplace. Thus, we see our investment of more than $2 million a day in research and development as an essential means to achieve and sustain strong economic performance, while making our customers more productive than ever.

Nowhere is that dual commitment to innovation and our customer more apparent than in Deere's many new and updated construction products.

One particular example is the 764 High Speed Dozer, an all new machine offering customers the speed of a grader and the flotation of a crawler. Our exclusive "NeverGrease" pin joints mean less maintenance for owners of certain four wheel drive loaders. And updates to our award-winning line of motor graders were all made with the customer in mind.


Much of our investment these days is supporting an initiative of keen interest to all of you — and that is Interim Tier 4/Stage III B and Final Tier 4/Stage IV solutions.

There's no question that meeting the U.S. EPA Tier 4 engine emissions requirements is a huge challenge for us, and you! Many of you have experience already with on-highway Tier 4 regulations and understand the implications of not meeting emission standards.

We not only have a responsibility to reach lower emissions levels, but we also owe it to you, our customers, to provide you with improved engine performance and fuel efficiency. Our record since 1996, when we first launched our PowerTech engines to meet Tier 1/Stage I emissions regulations, shows we've been able to achieve both.

John Deere Power Systems is one of the few businesses that manufacture engines exclusively for off-highway applications. This specialization has given JDPS unparalleled experience in developing, packaging and mounting engines and engine controls rugged enough for demanding off-highway conditions.

The benefit of having our own engine company is that we're able to integrate engines into vehicles better and faster than others. We are the second largest manufacturer of off-highway engines in the 40 to 600 hp size range, and as a result, can more cost effectively develop total power packages for off-highway machines, adding value to the customer.

In a news release being issued today, John Deere Power Systems is announcing its Tier 4/Stage III B technology solution for engines rated 174 hp and above. While I'll leave the details to the experts to explain, you can be assured we'll continue to deliver the fuel economy, power density and exceptional performance to which you've become accustomed with John Deere products.

We plan to introduce Tier 4 on schedule in order to support construction equipment contractors in non-attainment areas, while helping them remain competitive. We're also working closely with many customers to help them better understand the changing regulatory requirements and the resulting impact on their business.

I've shared with you this morning some of the tangible results of John Deere's efforts to build a great business. Our goal is to deliver, what we call, performance that endures through exceptional operating performance, disciplined, profitable growth, and aligned, high performance teamwork.

While we still have much work to do, I'd like to close with a little story I think is emblematic of why we're on track to create that distinctive John Deere Experience and deliver performance that endures.

This story actually began here in Las Vegas late on a Friday afternoon a few months ago. A gear failed deep inside the axle of a customer's 824J Loader. The Las Vegas dealership could find no available gears, so they called our Technical Assistance Center in Dubuque, Iowa, just up the Mississippi river from Deere headquarters. Adding to the evolving drama was the fact that a powerful winter storm was bearing down on Iowa.

Our Technical Assistance Center crew found a production axle containing the right gear, but it was too late in the day for the local dealer to open the axle and remove the gear in time to load it onto the next available delivery truck. The only way to get the gear to the Las Vegas dealership by Monday morning was to send the entire axle — a little unusual, but do-able, after some hastily-made phone calls, except that the approaching storm was now directly threatening Interstate 80. Time was definitely running out.

The Deere crew went to work arranging for an urgent pick-up with a carrier, and worked together over the phone to prepare shipping and authorization documents. Within three hours of the initial distress call, the truck was loaded and heading west on I-80, in front of the storm. And on Monday morning, we were able to confirm that what happened in Vegas, was solved 1400 miles away in Dubuque, Iowa.

Thank you for your business and for your assistance in helping us "Shape the Future."