AGCO Corp (AGCO) 2002 Q1 法說會逐字稿

Please stand by. Good day, everyone. Welcome to today's AGCO Corporation 2002 first quarter earnings announcement. Today's call is being recorded. At this time I will turn the conference over to Mr. Robert Ratliff, chairman of the board, president and chief-- chief executive officer for AGCO Corporation. Mr. Ratliff, please go ahead.

Thank you, . I'm sorry for the delay. There was a malfunction on hooking it into the Website, but I think we're beyond that. Let me welcome you to the AGCO first quarter conference call. I have me with today Don Millard, our senior vice president and chief financial officer; Molly Dye, our vice president of corporate relations; and Andy Beck, our vice president and chief accounting officer.

I'd like to begin the call with the following statement regarding its content. During the course of this conference call we state our beliefs and may make projections and other forward-looking statements regarding future events and the future financial performance of the company. We wish to caution you that these statements are predictions and that actual events or results may differ materially.

We refer you to such periodic reports that are filed from time to time with the Securities and Exchange Commission, including the company's Form 10-K for the year ended December 31st, 2001. These documents contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

With that, now I'd like to get on to summarizing our financial results for the first quarter. Net sales for the first quarter of 2002 were $618.6 million compared to $532.1 million in the prior year. Operating income for the quarter, excluding restricted stock compensation expense and restructuring expense, was $39.2 million compared to $10.7 million in the prior period. Diluted earnings per share before charges for accounting charges, excluding restrict stock compensation expense and restructuring expe nses, was 21 cents for the first quarter, compared to a loss of 7 cents in the prior year period. Free cash flow for the first quarter was a use of cash of $114.1 million, compared to a use of cash of $102.4 million in the year 2001.

Our first quarter results were highlighted by margin improvement and the positive impact of Ag-Chem during its seasonally strongest period. We remain on target to meet our cost-reduction targets in 2002, which will significantly improve our performance over 2001.

Now I would like to discuss the industry and AGCO's condition in each region. First, let's take North America. Total industry retail unit sales of tractors during the first quarter of 2002 increased approximately 2.6 percent, when compared with the 2001. Industry sales were higher in the compact and utility tractor segments, but lower for the row crop tractor segment.

AGCO's retail unit sales of tractors decreased in 2002 when compared with our sales in the prior year. Tractor sales in 2001 were favorably impacted by aggressive reduction of discontinued product lines in the first quarter of 2001.

Industry retail unit sales of combines in the first quarter of 2002 were 15.6 percent lower than 2001. However, AGCO's retail unit sales of combines in 2002 were higher than the prior year due to a more normal combine production schedule this year compared to 2001.

In Western Europe, industry retail unit sales of tractors for the first quarter of 2002 were flat compared to 2001. AGCO's retail unit sales of tractors increased compared to 2001, particularly in Germany and the U.K. Market recovery was evident in markets that were particularly impacted by concern over livestock diseases that we had in 2001.

In South America, industry retail unit sales of tractors increased 14 percent for the first quarter of 2002 compared to 2001. The Brazilian market increased approximately 19 percent, while the Argentine market decreased approximately 81 percent. AGCO's South American retail unit sales also increased in 2002 compared to 2001. Availability of subsidized financing in Brazil continues to support strong demand, while the economic and currency crisis in Argentina has severely impacted that market.

In the rest of the world, AGCO's net sales in dollars for the first quarter of 2002 decreased 18 percent compared to the same period in 2001, with decreases primarily in the Middle Eastern markets.

Don Millard will now cover the financial results.

Thank you, Bob, and good afternoon. Reported sales for the first quarter of 2002 were 16.3 greater than for the same quarter in 2001. Ag-Chem generated net sales of $87.2 million in the first quarter. Excluding the impact of this acquisition, net sales for 2002 were flat compared to the first quarter of 2001.

Currency translation negatively impacted net sales by $18 million in the first quarter, primarily due to the strength of the U.S. dollar relative to the euro. Excluding the effect of the Ag-Chem acquisition and currency translation, net sales compared to the prior year period were 3.3 percent greater for the first quarter.

On a regional basis, excluding the impact of the acquisitions and currency translation, net sales for the first quarter 2002 compared to 2001 were as follows: North America, down 1 percent; South America, up 8 percent; Western Europe, up 9 percent; rest of world markets, including Central and Eastern Europe, Asia-Pacific, Africa and the Middle East, down 16 percent.

Parts sales in the quarter were $97.4 million, compared to $87.4 million in the first quarter of 2001. Excluding the effect of Ag-Chem and currency translation, part sales in the quarter were 1 percent above the prior year period.

The first-- in the first quarter, our gross profit margins compared to 2001 increased from 15.5 percent of net sales to 18.8 percent. Our gross margin improved over the prior year due to the addition of high-margin Ag-Chem products, cost reduction initiatives, idle production and favorable sales mix.

Production inefficiencies experienced in the first quarter of 2001 in our Hesston plant, totaling $3.7 million, were eliminated and did not appear in the first quarter of 2002.

In the first quarter, Ag-Chem incurred-- excuse me, AGCO incurred $27 million of restricted stock compensation expense related to awards earned under our LTIP program, resulting from increases in AGCO's stock price in the first quarter. Approximately $14.6 million of the expense is non-cash.

The company recorded restructuring and other improvement expenses of $900,000 for the quarter. The expense primarily related to cost-reduction initiatives in Europe to reorganize and consolidate certain engineering and sales, general and administrative functions.

Losses on sales of receivables, primarily under our securitization facilities, which is included in other expense, net, was $3.7 million for the first quarter compared to $5 million for the same period last year. The 2001 amount includes approximately $400,000 of cost associated with the increased funding of securitization facilities. The remaining decrease is due to lower interest rates in 2002 as compared to 2001.

Interest expense, net, was $200,000 lower in the first quarter of 2002 compared to 2001. Interest expense decreased due to higher debt levels in 2002 associated with the Ag-Chem acquisition in April, which was offset by lower interest rates.

Moving on to the balance sheet, accounts receivable and inventory combined were $115.9 million higher than at the end of December 2001. The increase includes $17 million of production inventory purchased from Caterpillar for the new Challenger tractor, a track tractor. The remaining increase in inventory and receivables is due to normal seasonal increases in working capital.

Funding under accounts receivable securitization programs was $386 million at the end of March compared to $402 million at the end of December last year. In North America, our deal inventory months supply at the end of March on a trailing 12 months basis was as follows: approximately seven months for tractors, which is better than the prior year; and nine months for combines, which is higher than the prior year. In addition, our dealer months supply of hay equipment is approximately 10 months, which is lower than last year.

Our debt-to-capital ratio was 47.2 percent at March 31, 2002, compared to 46.5 percent at March 2001, primarily due to $195 million of incremental borrowings related to the Ag-Chem acquisition, which was partially offset by $142 million reduction in debt due to the new receivable securitization facility that increased stockholders' equity associated with common stock issued in connection with the Ag-Chem and Challenger acquisitions.

EBITDA, excluding restructuring expenses, was $39.6 million for the first quarter of 2002, compared to $25.1 million in 2001. Unit volumes for worldwide tractor and combine production during the first quarter were 3 percent higher than 2001 levels, with the increase primarily in combine production due to a more normal production schedule in 2002.

As stated in our earlier press release, our worldwide forecast for industry demand is to remain relatively unchanged for 2002. Despite the flat industry conditions, AGCO expects to continue to generate earnings growth from cost-reduction initiatives and a full-year inclusion of Ag-Chem's results with acquisition synergies.

Net sales are projected to increase approximately 10 percent, primarily due to sales in the new Challenger product line and a full-year impact of Ag-Chem. Net income per share, before restructuring expenses, stock compensation expense and the cumulative effect of the accounting change, is projected to be in the range of 95 cents to $1.05 per share, including the positive benefits of 15 cents per share related to the accounting change, which eliminates goodwill amortization expense.

Restructuring expenses are expected to be in the range of $3 to $5 million and primarily relate to facility and staff rationalization actions, which will result in cost reductions. The impact of the Challenger in 2002 is projected to be slightly negative due to the partial selling year of the track-type tractor and limited availability of complementary Challenger products.

In addition, we have modified our previous target to generate $75 to $100 million of free cash flow in 2002 to reflect the working capital requirements for the Challenger business. Including Challenger, we expect free cash flow to be negative $25 to $50 million in 2002.

Bob?

Thank you, Don. There's one other announcement I would like to make before we turn this over to your questions and that is in today's board of directors meeting, the directors approved the appointment of KPMG as our auditor for the next year, replacing Arthur Andersen. I thought you would like to know that, going forward.

With that, that concludes our comments this morning. Operator, we're ready to open up the conference call for questions. Would you please handle that?

Yes, I will. Thank you. The question-and-answer session will be conducted electronically. If you would like to ask a question, you may signal us by pressing the star key followed by the number one on your telephone. We will proceed in the order that you signal us and take as many questions as time permits. Once again, if you do have a question, please press star one. And we'll pause for a moment.

And our first question will come from with Salomon Smith Barney.

Yes, hi. I just wanted to get some color on the market right now, the mix. You were telling us the first half-- the first quarter of the year the smaller tractors have been weak and the larger tractors-- the smaller tractors have been better than the larger tractors. What are you seeing on mix right now in your order book? Is it the same type of pattern or have you seen any change at all, looking forward?

Our order bank would not reflect the same balance that you see in the first quarter market share results. We see a pretty strong pattern in the order bank in medium and heavy tractors -- and I'm talking on a global basis -- and the market share you're referring to is North America. So we're still seeing a pretty balanced distribution of increased orders over the prior quarter-- or the prior year quarter.

Just let me understand, so the mix is getting better-- the order book mix is better than what we've seen in the industry data so far this year?

That's correct.

Thank you very much.

You're welcome, .

Moving on, we'll take our next question from with CS First Boston.

Good afternoon.

Hi.

You talked about the North American market and it sounds like the market was up, AGCO was down. Can you put a little bit more color on that as to what happened, year-over-year in the tractors?

Yeah. When you say the market was up, that was in the less than 40 horsepower tractors, was the segment of tractors that was really up. Both the medium and the heavy were down, actually, and we were down a proportionate share to the market in the medium and heavies.

On the combine side, of course, we were up considerably over the market and that is because a year ago we were just starting production at our new Hesston operation for combines and, of course, this year we had a full year behind us now. We are producing on a more normal scale. So we were able to ship order requirements and, as such, are seeing some of those deliveries go through that we missed a year ago.

So we're seeing some growth there.

OK. So that 2.6 percent number that I think either you or Don put out, that's impacted by these compacts which you're-- you're not big in, I guess?

Well, that's correct. We're in it, but it's not a big factor in our total results.

OK. And then, given-- I mean, your performance in Europe was better. I would have thought, given the issues the-- that they were facing last year that there would have been some improvement in the market. Can you talk about what you're-- what you're seeing there for the market as a whole?

We see the market as flat right at the moment, but we did see the areas that were negatively affected by the livestock problems of a year ago returning to a more stable level comparable to the prior year of last year, the year 2000 activity level.

So on the long run for the whole year, we still think that the European market is flat to up slightly. That's what we've called it all along and so far it's holding true to form.

And your improvement year-over-year, was that mainly from the line, or where were you seeing your strength?

Mostly from the heavy tractors, the high horsepower tractors, excuse me, and then we're up also in medium. But the high horsepower is the larger growth that we've experienced.

OK and then my last question, for Don, when you-- you threw some numbers out there when you talked about the free cash flow and I think you said negative $25 to $50 for the year because of Challenger, which I didn't think was actually a big use of cash. Can you kind of walk through that again?

That's right, Tom. There are a couple dynamics there. What we face with the business, we actually used stock and while that was about $20 million, but there is a fairly substantial build-up in working capital for that -- raw materials, work in process, inventory and then also their wholesale receivables.

So while we will start in May shipping those products, the tractor, and a complementary tractor there'll be some other AGCO plants and other items that they plants as well. Most of that product, really, gets shipped out in the last four months of the year. So there's a fairly significant cash usage to build up that working capital to produce sales that we're looking for this year and then also we're looking That's in the neighborhood of $150 to $170 million and so tha t's what takes our free cash flow, with the deducting of a positive base without Challenger.

I see. And that $150 to $170 would be what you'd have at year end, so it would be a bigger use during the year, come down somewhat at year end? That's the way it would work?

No. It's really-- it's really going to stay at a fairly constant upward trajectory if you-- there will be some, obviously conversion to retail during this period, but that's kind of the net.

And what kind of sales volumes are you looking for from Challenger?

Well, for the combined business we're looking for, just in this partial year period for around $200 million and I think you're aware that we've stated that on an absolute minimum out to 2004, we're looking for $400 million. That's a pretty-- pretty good ramp.

Right. OK. OK. Thank you.

Our next question will UBS Warburg.

Yeah, good afternoon.

Yeah.

Can you give us some sense for your level of success with Cat dealers so far? Basically, what have orders been to date for traditional AG-- AGCO products from Caterpillar dealers?

Well, we're going through a series of processes here. First of all, the initial process is signing the Cat dealers to a Challenger brand contract. And, as you recall, under the Caterpillar program, there were 28 Caterpillar dealers signed in North America. We've invited 64 dealers to look at our new offering and at the moment, we estimate we will get between 50 and 55 dealers signed up in North America. They're not all signed up as of-- as we speak, but we have confirmation of high interest l evels or they have signed a contract in a level of between 50 and 55.

As to the orders that we've been receiving, they're in a variety of situations and not all of the dealers that I just referred to have even submitted their initial orders yet, particularly for the incremental business or the traditional AGCO-type product. Many of them already had, of the 28 of course, already had orders in the factory for the new track tractor, but the additional new dealers now we're generating those orders as we speak.

I can give you one example, . That's the only one I really have. One of our new distributors up in the Northeast, a Cat distributor, has placed an order for 59 compact tractors for the State of Vermont. To my knowledge, we've never sold anything in Vermont. So that'll give you just a tip-of-the-iceberg look at what we anticipate will happen as this thing begins to roll out over the second half of the year.

All righty. Congratulations on that one. And two, it looks like some life got breathed into the farm bill yesterday. I know it's hard to predict or forecast, but what do you expect we're going to see over the next couple of weeks?

Well, , I think you know, I've been pretty bullish on that farm bill and I hope I don't owe you a dinner, too, but I've said all along we'll get it and it'll be signed and right now our-- our estimates are there's a lot of posturing going on in Washington between the different representatives of various commodities and regions of the United States, but we still are pretty bullish on the fact that we anticipate a bill by next week and that it will be signed by the president very quickly. unid: All right. Terrific. Thank you.

You're welcome.

Our next question will come from with J.P. Morgan.

Hello?

Hi.

Hey, how are you?

Good.

A couple of quick-- a lot of my questions have been answered. In terms of the 10 percent sales increase that you mentioned in the press release, is that a second half thing associated with the Challenger program?

No. The 10 percent, I believe was referencing to the first-- on a full-year basis.

On a full-year basis.

Yeah, excuse me, on a full-year basis and it would include the Challenger business that we do generate in the second half.

As well as the Ag-Chem sales for the first quarter.

OK. And then just secondly, on the cash restructuring charges, I mean, what is the number for this year?

Three to five million for restructuring programs.

Thank you, sir.

You're welcome.

Our next question Salomon Smith Barney.

Yes, on the Challenger program, can you talk about the margins you expect on that business? Is it similar to your overall margins?

You're-- I think you're referring to the incremental products.

Right.

Or at least I'm going to respond to you that way. It would be like our combines and rubber-tire tractors and hay tools. Since this is incremental business, we're anticipating that gross margins would be slightly higher than what we normally experience and the range of that varies by product, of course, but we're saying a 1 or 2 percent improvement over our normal trend.

And I just wanted to tie down a couple more free cash flow numbers. You talked about the working capital used for Challenger. What about in the core business? Do you expect working capital to be a source or use?

We expected that to be a source and that's what we had provided guidance on in the $75 to $100 million positive cash flow.

And cap ex for the year?

Cap ex is in the-- in the $45 to $55 million.

OK, great. Thank you.

Before we take our next question, I would like to remind the audience if you do have a question register by pressing the star key followed the number one. has been answered by pressing the pound sign. Our next question will

Hi. Good afternoon. What-- what did Ag-Chem add in the quarter? I mean, obviously it added $87.2 million and it was a piece of the incremental-- the gross margin, but what was the earnings per share contribution of Ag-Chem in the quarter?

, earnings per share for Ag-Chem was about 11 cents this first quarter.

Eleven cents this quarter. How much of the gross margin of the-- of the 200-- you know, of the 330 basis point increase, is it sort of cost reduction, increased production mix and Ag-Chem, going from 15.5 to 18.8. How much of that was Ag-Chem?

About one point.

One full point of that?

Yeah.

OK. Then you said sales were up 10 percent, which would be about $255 million, Ag-Chem adds $87, that's about $167, so you're just being like a little conservative or are you adding a little bit more? Is the $200 million from the Challenger this year number?

That's this year--

So you're actually looking for a little bit more than 10 percent?

And also, we're bringing working capital down in some of the other parts of the business. So our wholesale should be lower than our retail.

OK. That was actually my next question. Where are we producing relative to-- Forget-- forget Ag-Chem. I mean, let's just talk about the core business. Forget the Challenger. You know, core AGCO, ex those two pieces, where is production relative to sales in '02?

It's going to be slightly lower. So in comparison to retail, I'd say 1 or 2 percent below.

OK. And what is the goal at-- at December 31st for tractors and combines versus the 7 and 9 that we are at the end of-- at the end of March?

The goal would be about 5, 5 to 6 for tractors, 4 to 5 for combines?

You ever had them that low?

Yes, we have.

OK. And then-- and then, with regard to the-- to the LTIP, why is the portion-- This is a dumb question. Why is part of that $27 million cash and part of it non-cash?

Well, what you have--

Why isn't it all-- why isn't it all stock?

Well, because we have a program that pays a 40 percent cash bonus of the market value of the stock at the time that it's earned. That is to provide some cash to the executive to pay the tax, because it's a currently taxable ordinary income situation and-- and the whole-- part of this program, of course, is restricted stock and it's meant to get the executive in a situation of being a shareholder and having a stake in the business and so if he had to liquidate part of it or just turn it back to t he company, it would-- that's why there's cash in it.

In the old days, , we stumbled across the fact that if you really were going to-- like in stock options, give the executive a total number of shares and then he had to pay the tax out of that, he had to liquidate so many of those shares to pay the tax, then you couldn't restrict those and, in effect, you're really increasing dilution by doing that. So we eliminated, shall we say, grossing up the share numbers to pay the tax and we pay it as a cash basis.

And what's the-- I mean, the way you're treating this, for example, the guidance is 95 cents to $1.05, if I'm remembering what Don said, was that excluding the LTIP, but, you know, we've had the LTIP of one form or another in the last four or five years. Even last year had, I think, 7 or 8 cents in it. So why is it a non-recurring charge now?

Well, , in the past, when we had that, we had the scenario where the expense was spread over, let's say, a five-year period because then LTIP-1 and LTIP-2. Those shares were earned over that period of time and so that's why you had a nominal amount of money in each period.

It wasn't that nominal in some of those quarters. Pretty damned un-nominal, if you ask me.

All right, well, it's-- in terms of, now, the full impact as opposed to, let's say, probably chose a bad word. But now we have the-- that created a situation where people said, you know, look, you know, this thing was really figured at some point in the past when the share price went up and now you're sensing that over a period of time. I'm a shareholder later in the period and it doesn't make any sense for So we actually changed the program such that the restricted sha res were earned at the time of the trigger and so that's what changed the method of accounting to require that it be 100 percent at the time that the share price rises and the shares are earned.

What was the target price that it hit-- it had to hit and hold for 21 days, right?

It was really three different traunches of LTIP-3 during the period and, I believe, Andy, those prices moved from about $14-$15 and change up to around $22 and change.

Well, OK, but-- This is what I'm getting. Isn't that-- and maybe I'm wrong, I guess that's why I'm asking the question. Are there not further triggers or are we done?

We have one more traunch of LTIP-3 left to go.

At what price?

And that price would be at $23.75.

And will it be how much money?

And it would be $13.3 million.

Thirteen point three million pretax dollars?

That's correct.

And your normal tax rate on that?

Thirty-six percent.

OK. And you're not-- you're assuming that if that comes into play that 11-12 cents that it is treated again as a non-recurring item?

Well, the situation is that we can't-- we can't forecast--

No, but in other words, your guidance-- you're assuming if you hit it or not hit it, that's not in there at all.

That's right.

That's right. OK. Thank you.

Our next question will

Hi. Can you guys talk a little bit about what production looks like by quarter? Because with Challenger coming on line, it looks like your normal seasonality might not be as pronounced with the second half ramp-up attributing to Cat. Is that true?

, it's true to some extent. We were up 3 percent this quarter. Next quarter it's going to be higher, probably, up to 10 percent higher. And then it's flat in the third quarter and then it's still slightly down in the fourth quarter, probably 5 percent or so, even with the Challenger.

OK. On Challenger, have you decided yet who's actually going to get the financing for anything that Cat sells?

Yes. Anything that Cat sells?

Yeah, in terms of-- you know, your incremental products, whether it be Challenger or something AGCO?

Well, AGCO Finance is going to handle all the retail financing for any agricultural product.

OK. And, Bob, can you just update us on what the data points are going to be here on going over the summer because doesn't it come up for renewal in June and what should we be looking for?

We reviewed this morning. Our representative on the board from Brazil, who is reasonably well informed, has given us his personal assurance that he's visited with the upper ministry and the president of Brazil and that program will stay intact for another year.

OK. That is

That's correct.

OK. I guess that's it. Thanks very much.

It's been answered. Thank you.

?

Good afternoon, everyone.

Hi.

Just a question about the Cat dealerships. I was wondering if you could give me an idea of how much progress you've made in signing up dealers and remind me again of what the target is and perhaps where you think you'll end the year?

Well, we have said in the past we targeted about 100 dealers. Last year we had signed about 50 and so far this year I think we've signed two, maybe four. We're in that small number, but the main issue here was, of course, the initial interest by some 25 to 30 Caterpillar dealers to handle the Fendt products and we've kind of continued that now that we've got the green light on being able to sign Cat dealers to the Fendt contract and you've got to remember now the Fendt's separate from the Chall enger. There's two different contracts.

And so our people are pursuing the Caterpillar dealers to handle Fendt products, particularly in those markets where we don't have current distribution. And, as a result, we would expect to go on towards reaching that goal of 100, perhaps get it to 75 this year, the balance next year. It's a very selective process.

OK. That's what I needed. Thanks.

Most of mine have been in. Coming back to this cash flow issue with Challenger, what does that look like it's about or

... numbers that we would have in the second half, mainly as far as the Caterpillar dealer/distributor organization fairly rapidly as we're just product to them.

I think you also have to recognize that we've got to fill the pipeline. You got to get it out there to get it started. We would look for sales to go up in 2003 at a better turn rate.

OK, great. Also, there was some discussion about whether there might restructuring actions. If I recall correctly

There are no actions at this moment that have been approved for further restructuring. We're still studying the opportunities that are around the world.

Has there been any change in

None whatsoever.

Thank you.

Yes. On the revolver, can you just give us the availability on that, as of March?

Three hundred and fifty million dollar revolver, $120 million drawn on that.

One twenty undrawn?

No, drawn on that. In other words, availability $250.

Two-thirty?

Two-thirty, excuse me. Got fancy in my arithmetic.

And on the-- Again, not to beat on Challenger too much for the questions, but I had thought you were looking for $400 million of revenues run rate sort of in the '04 time frame and it sounds like you said that may be the run rate in '03. Did I understand that right?

I don't know if anybody here said it. They shouldn't have, but as far as making that comment, but since you ask, I think it's reasonable to say that the $400 million revenue run rate of 2004 was built off of a pro forma of only 30 dealers here in North America. If our trend holds as it is and we sign 50 or 55 dealers, plus we now have direct access to the European market with the dissolution of the Cat joint venture in Europe, so, in effect, we really have worldwide hope of distributing this pr oduct, then the $400 million might be achieved in 2003. But we haven't nailed that down yet.

OK.

Four hundred million.

Right. Right. Thanks a lot.

Yeah, just a couple of odds and ends. When you-- again, when we're looking at your guidance of 95 cents to a $1.05, what level of synergies are you-- you know, part of Ag-Chem's contribution was getting the first quarter instead of, you know, not having the first quarter as unfortunately we could see last year. But then there were also a bunch of synergies that you were going after and I'm just wondering what level of synergies are you assuming that you achieve are going to try to make against what, you know, what the optimal is, i.e., stuff that you might have strayed over into '04 and so on?

That's-- you're talking about Ag-Chem?

Yeah, exactly. Just specifically in Ag-Chem.

Our target all along has been $30 million.

Right.

What we will get in '02, by the end of the year, is going to be about $25 million, so--

After having gotten $5 or is that another $5 left?

We have another $5 left. On a run rate, we think we'll exit '02 at $30. So there'd be a $5 million dollar carryover.

Got it. And in terms of the-- of the securitization, which is at-- I'm running through my notes, where was that at the end of-- end of the quarter?

About $386.

Right, $386, right. Where do you see that at the end of the year?

Probably back at the $400 million level.

OK. That would be kind of an ongoing, normalized rate?

Yes.

And that is retail or wholesale?

That's wholesale.

That's wholesale, OK. In terms of Fendt, the Cat dealers that you're trying to sign up, you have signed 25 to 30 of them to new contracts?

No, we have not, . That's what was the initial interest of the Cat dealers almost a year ago. But at that time, Caterpillar prohibited them from signing with us.

Right. But now we're-- now they are permitted or--

Yes. They are permitted now and we're out trying to wrap up those dealers.

But that is not-- that's a totally separate contract from the Challenger contract?

That's correct and we have not estimated anything from those sales in our projections.

Are you willing to give those guys an area of responsibility rather than-- as you are going to in the Challenger, but as is not normally the case in the farm equipment industry?

Yes, we are.

You are willing to do that? OK. And then the working capital, just the fact-- the issue, Don, you were talking about what the buildup in working capital would be as you're getting this Cat thing up and running and so on, maybe the best way to ask the question is, as you look at '03, as you're just conceptually looking at '03 from the cash flow, is-- are you going to be able to take some money out of working capital in '03 or would it be about a push or what would your thought process be, looking a t your optimal working capital in '03?

In '03

OK, depending, obviously, upon sales growth and so on, but it would be a source of funds.

That's correct and profitability

And then final question, with regard to Cat's large overseas restructuring plant-type things and so on, when-- come quasi-public with that in terms of, you know, notifying works councils and, you know, whatever else is involved, depending upon which countries you might be talking to over there?

, we've been studying this for some time as to what is the appropriate potentiality of some kind of restructuring and, as such, as soon as we have concluded our studies, we'll go through the necessary notification process of employees, unions, governments--

But not until you're done with the study?

That's right. And I have to be very open with you right here. I mean, we have employees all over the world that are also listening in to this conference call via other means and they're sitting there wondering if their fate is in and I don't want to mislead and have people that are not going to be affected. And so until we complete that study, we don't want to make it--

Fair enough. Thank you very much.

I just wanted to go through the pluses and minuses walking from the 43 cents up to the 90 cents, that 95 cents that you've got in the low end of the guidance. Ag-Chem this year versus last year will add about 25 cents, right?

Right.

Construction benefits, 22?

Right.

And Hesston just having the distortions from all the-- from all the consolidation last year is about a dime?

A little less than that.

OK and then share dilution is a couple pennies?

It's a little more than that, probably about 5 cents.

OK and what are we assuming on Cat here, that it's 5 cents dilutive or what does ``slightly'' mean, like a nickel or is it less than that?

About a nickel's right.

And is there any foreign exchange?

Exchange our assumption right now is going to be slightly negative.

OK. Like, just looking at that cost reduction and the restructuring benefits it's running at a $22 million-- I'm sorry, a 22 cent run rate this year. What does that look like next year? You know, if we don't get any-- farmers don't come out, buying kind of stays flat until 2003, what can that cost reduction number look like in 2003?

I didn't hear you.

Sorry, . At a minimum, you know, we stated that market

OK, great. Thank you very much.

Two quick ones. How many executives are there in the LTIP?

Twenty.

Twenty. And second question, on cash flow, did Caterpillar retain ownership of all the receivables when they sold the business or did they transfer-- were those sold to you?

No, we bought the business, we did not buy the prior sales activity of the old model Cat tractor. So we bought the new technology right from the engineering development stage so there are no receivables to purchase Receivables will begin next week as we begin shipment of these products and they're totally on our books. So they didn't-- whatever receivables they had were for old inventory and we didn't assume any of that obligation or any of the liability associated with those prior sales.

OK. So that explains the receivables component, for sure, of the working capital use. What is-- what is the rest of it? Is it initial inventory build?

Well--

Kind of a safety stock?

You're going to-- you're just thinking track tractors at first. That's one segment. You almost can double that for the incremental business, that is, all of the other products that we're adding to the Challenger line and that in itself represents $70 million or so working capital requirement. That may be all the way from work in process to finished goods to receivables.

OK. That makes sense. Thank you so much.

You're welcome.

Thank you very much, , and thank all of you for your participation in our conference call and your attention to our company. We appreciate your continued interest and if you have any questions, please don't hesitate to call any of us at any time to clarify your questions. Thank you. We'll be talking to you at the end of next quarter. Goodbye.

That concludes today's conference. Thank you for your participation.