AGCO Corp (AGCO) 2005 Q4 法說會逐字稿

Good day, everyone. Welcome to AGCO Corporation 2005 fourth quarter earnings release conference call. [OPERATOR INSTRUCTIONS] And at this time I would like the turn the conference over to Martin Richenhagen, President and CEO. Please go ahead, sir.

Good morning, everybody and welcome to the AGCO fourth quarter conference call. With me today as always Andy Beck, our Senior Vice President and Chief Financial Officer.

I would like to begin the call with the following statement regarding its contents. During the course of this conference call we will make forward-looking statements including some related to future sales and earnings. We wish to caution you that these statements are predictions and that actual events or results may differ materially. We refer you to the periodic reports that we file from the time with the Securities and Exchange Commission including the Company's Form 10-K for the year ended December 31, 2004.

These documents contain and identify important factors that could cause the actual results to differ materially from those contained in our forward-looking statements. A replay of that call will be available on our Corporate Website for the next twelve months.

I would now like to summarize our financial results for the fourth quarter and full year. For the fourth quarter of 2005, our adjusted diluted earnings per share was $0.30, compared to $0.52 in the prior year period. Full year adjusted earnings per share was $1.46 per share, compared to $1.75 per share in 2004. These amounts, as well as our reported earnings per share, are detailed in our earnings release.

Our fourth quarter results were negatively impacted by market declines in our key markets of South America and Western Europe where industry sales of tractors were 27% lower in South America and 12% lower in Western Europe compared to the prior year. In addition, our results were affected by production cuts in order to reduce inventory levels, as well as negative foreign currency impacts on our costs. Our cash and inventory position improved in the fourth quarter, resulting from our action to reduce production by 30% below the prior year. Compared to the end of the third quarter, inventories decreased by approximately 240 million in the fourth quarter.

Also, we made substantial progress. we believe there is further opportunity to use inventories in 2006. For the full year, our operating income in South America was $89 million lower than the prior year. Income in the region was impacted by the weak market demand and the strong Brazilian currency. We were able to offset about 0.50 of the South American deficit with import results in our European operations. This was achieved through improved margins despite the declining market.

For 2006, we are focusing on margin and working capital improvements to achieve higher earnings. In addition, we expect to have another strong year in retail sales and the development of our brands. Now, I will turn the discussion over to Andy for additional financial information.

Thank you, Martin. During the fourth quarter we recognized a noncash income tax charge of $90.8 million related to increasing the valuation allowance against our United States deferred tax assets. Based on the uncertainty of utilizing the deferred tax assets, an increase to the valuation allowance was determined to be appropriate. In recent years AGCO's U.S. Company has been unprofitable due it part to lower operating income from the impact of the weak dollar on imported products sold.

The U.S. Company also supports a large portion of AGCO's corporate expenses and debt costs. While these tax benefits were reduced for accounting purposes, the tax and cash flow benefits are still available should AGCO generate profitability in the U.S. We will be working on future strategies to improve sales, reduce costs, and improve our capital structure in order to improve profitability in the United States and realize these benefits in future years. In addition, I will comment that there have been -- that there are no debt covenant issues related to this write-off.

Reported sales for the fourth quarter were 9.7% lower than 2004. Unfavorable currency translation of 51.4 million contributed to 3.3% of this decrease. Excluding currency translation sales decreased approximately 97.8 million or 6.4% below the prior year. Reported sales for the full year were 3.3% greater than 2004. Currency translation contributed 94.6 million or 1.8% of the increase. Excluding currency translation, net sales increased approximately 81.8 million or 1.5% over the prior year. The decrease in net sales of 6.4 million in the fourth quarter and the increase in net sales of 1.5% in the full year can be broken down on a regional basis as follows; For the quarter, North America down 0.6%, South America down 36.3%, Western Europe down 5.8%. And the rest of the world markets including Central and Eastern Europe, Asia Pacific, Africa and the Middle East, up 16%.

For the full year, North America up 12.6 . South America down 29.2%, Western Europe down 0.2%, and the rest of the world markets up 29.6%. Part sales for the quarter were 163.7 million, compared to 179.1 million in 2004. Excluding the effect of currency translation, part sales for the quarter were approximately 6% lower than the prior year period. Part sales for the full year were 734.8 million, compared to 699.7 million in 2004. Excluding the effect of currency translation, part sales for the full year were approximately 3% higher than the prior year.

During the fourth quarter our gross profit margins decreased from 17.3% of net sales to 16.2% in 2005. Gross margins for the full year of 2005 were 17.1%, compared to 18.1% in the prior year. Margins in South America declined significantly in 2005. Resulting from lower production levels, unfavorable sales mix and the impact of continued strengthening of the Brazilian Real. These declines were partially offset by improved margins in Europe as a result of product improvements, new product introduction, improved sales mix, expense control measures and pricing.

Margins in North America were lower than 2004 as a result of the currency impact on imported products and higher warranty costs. Operating margins were also lower for both the quarter and full year of 2005 compared to 2004. This decline was influenced by the lower gross margins, as well as an $18 million increase in full year engineering spending, which was used for new product development.

Losses on sales of receivables, primarily under our securitization facilities, which is included in other expense net, were 5.9 million for the fourth quarter, compared to 4.3 million in the prior year. For the full year of 2005, losses on sales and receivables were 22.4 million, compared to 15.6 million in 2004. The increase in losses are due to higher interest rates in 2005 as compared to 2004.

Interest expense net for the fourth quarter was $15.3 million, compared to 15.2 million in the prior year period. And $80 million for the full year of 2005, compared to 77.0 million in the prior year period. Interest expense for the full year increased over the prior year due to the redemption of our 9.5% senior notes in the second quarter of 2005. The Company's effective income tax rate, excluding the 90.8 million non-cash deferred tax adjustment recorded in the fourth quarter of 2005, was 30.7% for the fourth quarter of 2005, compared to 33.5% in 2004. The effective income tax rate on the same basis was 37.7% for the full year of 2005, compared to 38.4% in 2004.

Moving on to the balance sheet. Accounts receivable and inventory combined were $174.4 million lower at December 2005 than at the end of 2004. Receivables were lower compared to the prior year primarily due to the transfer of interest bearing receivables to our minority owned finance joint venture of approximately $110 million. Funding under accounts receivable securitizations was 462.7 million at the end of December 2005, compared to 458.9 million at the end of December 2004.

In North America, our dealer inventory month supply at the end of December on a trailing 12-month basis was as follows; Approximately 6.5 months for tractors, which is the same as the prior year. Approximately 7 months for combines, which is higher than the prior year. And in addition, our dealer month supply of hay equipment is approximately six months, which is lower than the prior year. Our net debt to capital ratio was 30.7% at December 31, 2005, compared to 37% at December 31, 2004. The decrease in 2005 reflects lower debt levels in 2005 compared to 2004. In June we paid off our $250 million, 9.5% senior notes.

EBITDA, excluding restructuring and other infrequent income of 0.2 million, was 84.6 million for the fourth quarter of 2005. EBITDA, excluding restructuring and other infrequent income of 1 million, was 119.1 million for the fourth quarter of 2004. For the full year of 2005, EBITDA was 376.7 million. For the full year of 2004, EBITDA, excluding restructuring and other infrequent expenses of 0.1 million, was 432.1 million. Unit volumes for worldwide tractor and combine production in the fourth quarter and full year were approximately 29% and 6% lower respectively than 2004 levels.

Turning now to our discussion to the year 2006. We have a target to improve our annual earnings by up to 10% in 2006. Key assumptions for 2006 are as follows; Modestly lower industry demand in all regions. With AGCO's key markets expected to be between 0% and 5% down compared to 2005. AGCO's net sales are expected to be 1% to 2% lower, compared to 2005, due to weaker industry demand, planned dealer inventory reductions and negative currency translation impacts, which will be partially offset by price increases and market share improvements.

Margins are targeted to improve in 2006 due to the achievement of further cost reduction and productivity initiatives. Stock compensation expenses resulting from the adoption of the new accounting rule SFAS 123-R, is expected to be in the range of $6 to $7 million in 2005. The expense is expected to begin in the second quarter, following the approval of new compensation programs primarily focused on the achievement and performance measures.

AGCO is also targeting improvements in working capital utilization in 2006 by lowering seasonal increases in dealer and Company inventories throughout 2006 through the leveling of production and dealer deliveries compared to 2005. This will have the effect of lowering sales and income in the first half of 2006 relative to 2005. With first quarter sales expected to be 8% to 9% below last year.

Production levels for 2006 are expected to be 3% to 4% below 2005 to reflect the decline in industry demand and our inventory reduction goals. First quarter production is expected to be approximately 20% below 2005. This is expected to have a negative impact on margins in the first quarter but also is expected to reduce our seasonal increase in inventories for more efficient working capital management.

Beyond 2006, we have established a target to improve annual earnings by 10% to 15% based on the achievement of growth and productivity initiatives; which include new products, improved distribution, common platform designs, factory productivity gains and better asset management. Martin.

Andy, thank you very much. That concludes our comments. Operator, we are ready now to open up the conference call for questions.

Thank you, gentlemen. [OPERATOR INSTRUCTIONS] We'll go first to Ann Duignan with Bear Stearns.

Just a first question is your inventory levels, you ended the year about by our calculation about 83 days down from about 117 at the end of Q3. Deere ended its year with about 53 days of inventory. What's your goal for the end of '06, what level of inventory do you think is appropriate for your industry?

Well, I'm not sure I can comment on what's for our industry. I know what we're going to try to achieve in 2006; is a reduction in accounts receivable and inventory of somewhere between $25 to $50 million. What we expect to see is that inventories will come down most likely in the $50 to $75 million range and that's our target. And that we will see some increase in accounts receivable. Even though we're pulling down dealer inventories particularly in North America, we expect to see some increases in accounts receivable in some of our other markets that aren't tied to dealer inventory specifically that are more on normal sales terms. And as we expect to have higher sales at the end of the year, that's going to pull up accounts receivable at the end of the year.

So I think if I heard you correctly, you're saying that most of the adjustment is in the North American market, is that correct?

On inventories the adjustment will be in North America and Europe. And then in our accounts dealers accounts receivable it will be in North America.

Okay. And just to follow up question. Should we be at all concerned that with about 696 million in goodwill and the markets not looking as stellar as you might have expected, should we get concerned at all about future write-off's of goodwill?

Well we do an assessment of our goodwill in accordance with how you do it accounting rules and our auditors review that. And that assessment was completed this year and we did not have any issues with an impairment of goodwill. Certainly, your operations have to stay at good earning levels and so you have to maintain that. I would say in our earnings declined obviously, you might have some issues. But at this level of earnings, I don't think we have an issue.

And just do you do the assessment in the fourth quarter?

That's correct.

Okay. Thank you. I will get back in line.

Thank you.

Our next question today is from David Bleustein with UBS.

[Inaudible -- no audio] -- 2004 and what the change was in 2005?

David, we didn't get the question.

I am sorry. Can you give us some sense for what fence revenues and operating margins were in '04 and how that changed in 2005?

I am not sure David, I have that level of detail in front of me. I can say generally that fence revenues were up slightly, and their income was up a little more than slightly. But we had -- that earnings improvement that you see in the EMEA region, the Europe, Africa, Middle East region we had improvements in all our businesses, Massey Ferguson and Valtra all contributed to that increase.

Andy, what expense rough revenue run rate?

Top of my head, it's about 750 million, something like that.

And the German market seemed to be a little but stronger than the rest of Europe. What was specific to Germany that helped the market out?

Actually, Germany was flat or down 2003 and 2004. So that was -- I would call it slight recovery, mainly in the combine business but also in tractors. And south of Europe, countries like Spain and south of France, were hit by the drought in 2005. So, that was basically why Germany did do better.

Terrific. And let me close this with one. You put out a goal of 10% earnings growth in 2006. How do your incentive compensation targets relate to or tie into that target?

Well, we have an annual incentive compensation target and we have -- we're putting in place with shareholder approval, hopefully attained in April, some new stock compensation programs that will be tied to performance measurement like return on invested capital and earnings growth. And those targets at least for 2006 will be higher than the target that we provided you. So, we must overachieve to achieve the 100% of those targets.

Okay. Terrific. Thanks for your help.

We'll take our next question today from Mark Koznarek with FTN Midwest Securities.

I have a question on the European performance. It's actually pretty impressive with revenue down the way it was but margin improved. Can you talk a little bit more about that and the plans for further margin improvement in '06 given the similar outlook of revenue declines?

Well, you could think about it by certain main components, main elements that have. One is basically that we worked in most of the factories in order to reduce costs. So, we had a program in place with an external consultant company called [Fenderhead] in Fendt. We work on the further improvement of the factory in France. And the Valtra improvement basically come from synergies as planned. So, this is basically the manufacturing side of the business. And then of course, also we tried to get the price increases agreed on in the market. And then there is a positive trend with regard to the mix. So you remember maybe our vision; high tech solutions for professional farmers feeding the world, which means that farms can get bigger and bigger and farm equipment also does get bigger and bigger. And this is basically the strength of AGCO. So, we have exactly the right product for this growing segment of the European and Eastern European market. And I am very optimistic about the Eastern European and Central European part of it.

Okay. When we then look at Brazil, it seems like there is an opportunity for factory productivity improvement between the Valtra assets and the legacy AGCO assets. I am surprised that you're not pointing to that as an area of improvement in '06. What would be the offset there?

Well actually, we just kicked off a project. We're a little late because as you remember it took some time to get the [correct ID's] so the antitrust approval in Brazil and before that we couldn't work on this project. Now, we try to put that overhead functions together and we will have I think a very good program in place soon.

But not soon enough to help '06?

Well, in '06 Mark, we certainly expect the margins in South America to have some recovery. So we expect to do better and show you some improved results in South America despite the fact that we don't see much recovery in the market.

Okay. So the heavy lifting is going to be Europe margin improvement but you expect some out of Brazil as well.

Also, we expect the start up a little better in 2006 because we reduced headcount indirectly by about 1,100 people first quarter 2005. And now we start on that low level this year with a similar market.

Okay. Thanks very much.

You're welcome.

We'll take our next question today from Charlie Rentschler with Foresight Research.

Good morning. Can you talk a few moments about Brazil? Give us your thoughts about where we are? Is '06, do you think, going to be improved over '05 in terms of currency and commodity prices? And I know you can't predict the weather but can you give us your thought on what's going to happen there?

Well, actually the weather right now was okay. So, let's say I don't think that we do get a major hit on this. The currency, that's maybe -- you are much better on that than we are. So, actually I don't know exactly what will happen there. With regard to the commodity prices, I think they're stable to almost up slightly. So, when you look at the average commodity prices to be flat year-over-year at $3.34. Corn is slightly down from 2.06. And soybean is also a little down. So therefore, I think from this part of the business it's rather stable.

Charlie, the one thing that we see in South America and you have to keep in mind is that; they're carrying some higher debt levels right now, the farmers are. Particularly the ones that lost their crop last year or the ones that were expanding into the new frontiers of the central part of Brazil. And because their income levels are down, as a result of that strong currency, even though we expect to see a better harvest this year, we think they're not going to be in a position to really expand their investments this year. So hopefully, this will be a year of a little recovery for the farmer and then maybe provide a little impetus for improved demand in the future year.

And as a follow up, what can you say -- what's your predictions about your share of the South American combine and tractor businesses?

I think it will be pretty stable.

Okay.

On a high level.

We are introducing a new combine for the Valtra brand starting in the very end of the year. And so, that will enable the Valtra dealers and distribution network to have more of a complete line. And hopefully maybe not in '06 but as we get into future periods, that will help our combine business in South America.

[OPERATOR INSTRUCTIONS] We'll go next to John Mcginty with Credit Suisse.

Good morning, gentlemen. Just a couple of -- lots of little nits if you will. Andy, what was the currency penalty on a per share basis in the fourth quarter and for the full year? Maybe you gave that, I just didn't get it if you did.

Well, currency if you net the impact of the cost hits that we're getting, particularly in North America, with the higher sales value that you're getting from the stronger Euro and the stronger Real; on their earnings we net out at a little under $18 million of operating income impact. And in 2005 for the full year, for the quarter, it was about 6 to 8 million.

And that's $18 million penalty?

Penalty, yes.

And would we tax effect that at 37% or so rate that you were --?

Yes, I think that's fair.

Second question, could you talk to -- I am surprised no one asked -- Challenger, what the full sales for the full year and whether or not you achieved the break even that you were going through?

Well, we started 2006 with about $200 million in net sales. We went up in '04 to 260. And now in 2005 we ended up with 320 million, which is an increase over '04 of 23%.

And the profitability or thereabouts?

I'll ask Andy to talk about that.

The profitability was pretty flat between the two years and so it remained a loss of about $3 to $4 million. We did expect to -- or hope to get to more of a break even level. But we were hit with a little higher warranty costs and the currency impact hurt the earnings relative to the sales increase that we achieved. When we look into next year in 2006, with the Euro weaker against the dollar and the fact that the Challenger business is taking product from Europe on the lower horsepower wheel tractors and the higher horsepower wheel tractors; we expect to see some recovery there in the margins. And so, we're expecting to see the income be above break even in 2006.

What about the sales?

Sales, we're anticipating that on the sales side our retail sales will do very well. We were up about 25% in retail sales in 2005. And we think we'll be up again in 2006 even though we have the expecting these declining market. From a gross sales standpoint, I think that we're looking at somewhere in the 10% to 15% range.

In other words, some of the retail sales you'll work off of the inventories.

We're trying to get their -- work off some of their inventories as well.

And elements for the growth in '06 is actually new product. So, we will launch next week the -- according to our strategy and as a result of the increased spending in engineering, the big Class 8 combine and the big four-wheel drive articulated tractor for the Challenger brand exclusively, which will have about 550-horsepower. So, that will be the biggest wheel tractor in the world.

Where did that come from, was that that brand that you had up in Canada or is this just a de novo?

No, that brand new product and the developed by AGCO. And you will be impressed. I can promise.

I am. Just real some quick ones. For '06 Andy, what should we use for tax rate, the in the rest expense and share count? I got just confused with the repatriation and so on.

I understand. The tax rate for '06 should be somewhere between 37.5 to 38. That's what we're using in our planning right now. On interest and other if you want to add all of that together --

The thing that was 15 million in the fourth quarter, right?

15 million.

It was just the interest. You want to take interest and other together?

I will just take it together. That should be about a $5 million improvement. The actual interest piece should be improved better. But we're offsetting by higher securitization costs because of the higher interest rates that we're seeing right now.

Okay. And the share count, I am sorry?

Share count should be about 91 million shares.

Okay. And then finally, just again technicality, FAS-123, you said 6 to 7 million, but that's in your guidance.

That's in the guidance.

And you said it starts in the second quarter. Do you get that full 6, 7 million in the year or do you only get like three quarters of it and another 1.5 million next year?

We would get that in the full year.

In the full year. Okay. And then the final question, the first quarter where you're taking your sales down 8 to 9 and I think your production was down 20 or something like that; do we break even -- can you give us -- I think you would be better off or it would help us a lot if you would give us -- are we talking about $0.10, are you talking about break even, are you talking about a loss in the first quarter?

We don't talk about a loss. Also, we don't want to give guidance.

Well but you can't -- believe me, you're better off trying to give us at least some flavor of guidance than have people come out and let's say you think you're going to earn X and people assume that it is going to be more than that. And there is a disappointment where there is none if you see what I mean? When you're as specific as to cuts and the productions and first quarter, it is very difficult to make earnings estimates.

Well we understand that. We're trying to focus our attention on full year.

I understand that. But unfortunately, you report the first quarter before you report the full year.

I understand that, John. And what we've said and I think hopefully we can give you enough information with the sales decline and the production decline, we don't anticipate a loss but the earnings should be down pretty significantly from the first quarter last year.

That's fair enough. Thank you very much. I will get back in queue.

And we'll move next to Barry Bannister with Stifel Nicolaus.

We'll see how this does after the last comment. Could you give us color on Brazil vis-a-vis Argentina?

Sure. In terms of outlook for this year?

No. In terms of how you did in the quarter and what you see from the dealers' feedback going into the new quarter?

Okay. Well, in Argentina, the fourth quarter, combines -- the tractor market was up and combines were up as well. In Brazil, still very significant declines in tractors and combines. The Argentina market was a little better in the fourth quarter. What we're seeing, however, is that the combine market is starting to drop a little in Argentina because there is some weather issues in Argentina right now. We're seeing some drought, which we think will affect that combine business. But on the tractor side, should be -- we still believe it will be down in '06 but not to the extent on the combine business.

When I look at the volume of production of AGCO Massey brands versus Valtra brands in the last four years in Brazil; obviously in tractors for example, the first six months of the season are pretty strong but the ramp has been getting progressively lower. And it implies that you're reducing your dealer inventory down there. Can you give us some feel of now versus last year and then versus several years ago, what your months of supply are in -- or days of supply are in Brazil for tractors?

Barry, I don't have that information. It is not something that I track specifically, as I do here in North America. But I do know from discussions with them that our dealer inventories are down significantly from where they were at the end of last year. And we worked those down. I think the other thing, if you're looking at production, you have to keep in mind that the production is also for our other markets of the world in the Canoas Massey Ferguson plant. And so that production is dependant on what we're doing in North America, Europe and in our Asian and Middle East markets as well.

The [Infavia] reported numbers for the last month or two increased significantly, in particular combines, on a year on year basis. And I was wondering if you've begun to see any strength at the end of the quarter in your production schedules in Brazil beyond just your export destinations from Canoas and Rio Grande Rio Grande do Sul?

We did not see it yet.

[OPERATOR INSTRUCTIONS] We'll go to Andrew Casey with Prudential Equity Group.

Good morning. I've got a question on the 2006 guidance for the 10% earnings growth. First, that's off of the '05 $1.46, that's correct, right?

Yes.

So, with the 6% decline in '05 unit volumes, the earnings went down 17%. If I look at '06, I am just trying to understand it, the guidance for unit volume is down around 3% to 4%, earnings up 10, you're offsetting options essentially with better interest and other. Can you be a little more clear on first, where you expect the market share improvements to come from? And then second, what confident -- what do you already have booked that gives you the expected margin improvement offset the unit decline? Thank you.

I think, Andy, the issue on the -- what we're seeing is that the margin improvement is really all of the world. The market share improvement we'll see. Hopefully in Europe, particularly in North America, that we're expecting to offset some of the decline on the margin side. Again, I have already said that I think we can improve our margins in South America as we kind of react and have the -- our cost structure and pricing levels back to offsetting some of the currency issues and the lower market size. In North America, we're anticipating to get some margin improvement to offset some of the production declines by focusing our attention on productivity in the plant and reducing some of the higher warranty costs that we had this year.

In Europe, we're continuing to hope to see improvement in our productivity on new products and productivity in the plant as Martin talked about. It is improvements in a lot of areas. For instance, we'll start to see some improvement in our engine costs. As we expand the engine facility in Finland, we will have a pretty good increase in engine production there this year and that generates savings for us. There is different projects and initiatives we think that will come through that should help our margins.

When you look at '06 versus '05, the first half sounds like it is a little bit of focus on cash flow with the earnings catch up in the second half. Is that a fair characterization?

That's correct, yes.

Okay. Thank you very much.

And we'll take a follow-up from Mark Koznarek.

Thank you. I am wondering specifically, if you can talk about your SG&A outlook? You mentioned a sizable staff reduction in South America in the beginning of this past year. Are there any further anticipated employment reductions? Where do you expect employment to stand year end '06 versus the end of this past year?

Mark, the staff reductions we're talking about were in the plant, direct labor. So, that shows up in cost to sales rather than SG&A. And so from an SG&A standpoint, we did make -- we also made cuts there and we made some cuts throughout the year in Finland or our Valtra business the result of synergy initiatives that we had. But I think for '06 the outlook is that the SG&A will go up in relation to inflationary increases and be pretty stable from a headcount standpoint.

Okay. So, if that's going up but your overall margin is expected to go up, your gross margin by difference obviously, goes down, to offset that -- I am sorry, your cost of goods goes down, gross margin goes up. Of that, Andy, how much do you expect price realization to be in terms of the impact on margin improvement in '06?

We're expecting pricing to be about 2.5% on an overall basis over 2005. I would say at a minimum, 1% of that, something like that in some of the marks will flow through particularly in South America. But they'll have a specific number for you on what -- how much of that flows to the bottom line. But the 2.5% will aid us in getting those margins where we targeted.

Okay. That would compare to what kind of average price increase for '05?

'05 the price increase is about 3.5%. Now, recall in '05 we were still working on offsetting the increased steel costs.

Okay. And then finally, the 2.5 expected for '06, are all of those price increase announcements in place already or are some pending?

They happened throughout the year. So, they're not committed but that's what we have in our plan.

Okay. Thanks very much.

And we'll take a follow-up from Andrew Casey.

Thanks a lot. Martin, could you give us a little color on what you're seeing in North America right now? There is a lot of speculation about headwinds the farmers are seeing and expected downturns. I am just wondering what you're seeing through January and first part of February?

Well actually, North America we more or less see flat to like maybe 5% down industry. And we don't have let's say major concerns in general yet. Generally was okay. So, order book is okay. Higher input costs and lower subsidies might have caused impact from income and slowed down demand slightly but we don't see is changing dramatically.

Okay. Thanks. Thanks on that. And then implicit in Andy's comments, believe that it like steel costs and your input costs have kind of plateaued. Is that a correct assumption?

Yes, it is.

Thank you.

You're welcome.

Gentlemen, there are no further questions at this time. Mr. Richenhagen I will turn things back over to you for any additional or concluding remarks.

Thank you very much. I think as a final remark, one could say if you would add back the losses on let's say the operating income we lost in South America 2005; it would have been a very good year. So that shows a little bit the potential of the Company and we are working hard to let's say show substantial growth in earnings per share in 2006. Have a nice day. Bye.

That does conclude today's conference. I would like to thank everyone for joining us. Have a good day.