AGCO Corp (AGCO) 2006 Q3 法說會逐字稿

Good day, everyone. Welcome to AGCO Corporation's 2006 third quarter earnings release conference call. Today's call is being recorded. At this time, I will turn the call over to Mr. Greg Peterson, Director of IR. Mr. Peterson, please go ahead.

Thank you, Christy. Good morning, and thank you for joining us for AGCO's third quarter 2006 earnings conference call. During this call, we will refer to a slide presentation. The slide presentation, earnings release, and our financial statements are posted on our website at agcocorp.com, under the Investors and Media section. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the appendix to the slides. On the call with me this morning, I have Martin Richenhagen, our Chairman, President and Chief Executive Officer, and Andy Beck, our Senior Vice President and Chief Financial Officer.

Before we get started this morning, let me remind you that during the course of this conference call, we will make forward-looking statements, including some related to future sales, earnings, production levels, and restructurings. 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 time to time with the Securities and Exchange Commission, including the Company's Form 10-K for the year ended December 31st, 2005. These documents discuss important factors that could cause the actual results to differ materially from those contained in our forward-looking statements. A replay of this call will be available on our corporate website for the next 12 months. I will now turn the call over to Martin.

Thank you, Greg. And good morning. Slide 2 summarizes our sales and earnings for the third quarter and first 9 months of 2006. Our third quarter sales were down 4.3% compared to the third quarter of 2005. As we told you a few weeks ago, our third quarter was market -- was marked by softening market conditions in North America. During the quarter, we also continued our focus on reducing dealer and Company inventory levels. In our North American segment, our combined receivables and inventory balances at the end of September were approximately $177 million lower than a year ago. With the softening market conditions, our North American dealers were also more conservative with their inventory stocking levels. While the long-term impact of lowering dealer inventories is positive, these efforts have had a significant impact on our sales and results in 2006. AGCO's consolidated results were also impacted by sales declines in both the South American and Asia-Pacific regions, due to weaker industry demand.

Our Europe, Africa, Middle East segment, EAME, continued to show growth in both sales and operating income. Demand was strong across our European markets, where third quarter sales, excluding the positive impact of translation, grew approximately 7.5%, compared to the third quarter of 2005. Adjusted diluted earnings per share for the third quarter of 2006 was $0.07 per share. And on a year-to-date basis, adjusted diluted earnings per share were $0.70 per share.

Slide 3 shows our production schedules for 2006 and 2005. Weaker markets and our working capital reduction initiatives resulted in lower production in the third quarter. Our total production of tractors and combines for the third quarter was approximately 8% lower than the third quarter of 2005. Nearly all of the reduction occurred in plants that supply our North and South American markets. Production our European facilities was up to support our solid growth in Europe. For the first 9 months of 2006, our production was approximately 16% lower than last year. Our production schedule is more level in 2006 in order to reduce the seasonal increases in inventories and receivables compared to last year. In the fourth quarter, we expect unit production to be approximately 15% higher than the fourth quarter of 2005, which would leave our total production for 2006 down approximately 8% compared to last year.

Slide 4 looks at farm equipment volumes for the first 9 months of 2006. Starting in North America, third quarter industry retail unit tractor sales were approximately 8% below the third quarter of 2005. For the first 9 months, industry tractor volumes were approximately 2% below the prior year. We are seeing the largest declines in the over 100-horsepower category, which for the first 9 months of 2006 are 13% below the prior year. While a good harvest and improved prices will likely drive higher cash receipts in 2006, increased fuel and fertilizer costs and higher interest rates are pressuring farm income. We expect market weakness to continue in the fourth quarter.

In Europe, industry tractor volumes are up slightly versus last year, where strong market conditions in Germany, the UK, Scandinavia, and central and Eastern Europe are offsetting weaker markets in France, Italy, and Finland. The strong market conditions in many of the major markets, combined with AGCO's improving product line and sound distribution network across Europe, has driven AGCO's volumes higher in 2006. Our order book in Europe continues to be solid, and we are expecting tractor volumes in the fourth quarter to be stronger than the fourth quarter of 2005. In South America, we saw improvement in Brazil's industry tractor volumes during the third quarter. But continued weakness in markets outside of Brazil, led to a slight decline in total South American tractor demand. Demand continues to be weak for soyabeans and other grain farmers who have been impacted by last year's drought, the strong Real, and high debt levels. The current demand has stabilized due to solid demand in the cotton, orange, coffee, and sugar cane sector. We expect tractor volumes in Brazil to be slightly higher in the fourth quarter, and expect weaker demand in the markets outside of Brazil. With that, I will turn the call over to Andy, who will give you some more specifics on our financial results.

Thank you, Martin. Slide 5 provides information on our net sales by region. The charts on the right show our regional sales performance, excluding the impact of translation. For the third quarter of 2006, currency translation had a positive impact of approximately 3.4%. On a year-to-date basis, currency translation for 2006 had a positive impact of approximately 0.5%. During the third quarter of 2006, our Europe, Africa, Middle East segment had sales growth of approximately 3%, compared to the comparable prior year period. Our European operations continue to show growth, with the strongest third quarter increases in Eastern Europe, the UK, Finland and France. In North America, third quarter sales decreased to approximately 27%, compared to the third quarter of 2005. Our retail sales have been negatively impacted by weaker market conditions, particularly in large row crop tractors, combines and sprayers. The decline in retail sales however, represents only about one-third of the decline of our wholesale sales. This difference between our retail and wholesale sales is a result of our initiative to reduce seasonal dealer inventory requirements. At the end of the third quarter, dealer inventories in North America were approximately 18% lower than the same point last year. In South America, third quarter sales declined approximately 4% from the last year, excluding currency impacts. We have begun to see some improvement in Brazil. But the declines in the rest of the South America market offset the improvement in Brazil. Our third quarter sales in Asia-Pacific segment declined approximately 25% from 2005, due to weaker market conditions in Australia, New Zealand, and Japan.

Slide 6 looks at our sales and margin performance. Despite lower production and currency pressures, gross margin for the first 9 months of 2006 were only slightly below the prior year. The impact of lower production has been offset by improvements in productivity and a change in both geographic and product mix. Parts sales for the third quarter of 2006 were $198.5 million, compared to $204.3 million in 2005. Softer market conditions and slower dealer restocking in North America accounted for nearly all of the third quarter decline. The drop in high margin parts sales also contributed to the pressure on gross margins in the third quarter. Parts sales for the first 9 months of 2006 were $572.5 million compared to $570.8 million in 2005.

Slide 7 illustrates the success we've had on our working capital reduction initiative. As of the end of September, 2006, accounts receivable and inventories combined were approximately $251 million lower than at the end of September, 2005. Most of the improvement was in our North American segment, where third quarter 2006 accounts receivable and inventory balances declined approximately $177 million from the third quarter of 2005. Funding of our -- under our accounts receivable securitization programs was $387.3 million, at the end of September, 2006, compared to $462.7 million at the end of December, 2005, and $444.5 million at the end of September, 2005. Wholesale interest bearing receivables transferred to AGCO Finance, our retail finance joint venture in North America, as of September 30th, 2006, were approximately $130.6 million.

Losses on sales of receivables, primarily under our securitization facilities, which is included in other expense net, were $6.5 million for the third quarter of 2006, and $20.3 million for the first 9 months of 2006. These amounts compare to $5.9 million for the third quarter of 2005, and $16.5 million for the first 9 months of 2005. The increase in expense is due to higher interest rates in 2006, as compared to 2005. In North America, our dealer inventory month supply at the end of September, 2006, on a trailing 12-months basis, was lower than at September, 2005. The dealer month supply was lower for tractors, combines, and hay equipment. The month supply for September, 2006 was as follows: Approximately 5.5 months for tractors, and approximately 7 months for combines, and 5 months for hay equipment.

Moving to slide 8, free cash flow for the first 9 months of 2006 improved by approximately $204 million compared to 2005. In the second quarter of 2005, we initiated the policy of selling our wholesale interest-bearing receivables to our finance joint venture in North America. Excluding the impact of the sale of interest-bearing receivables, free cash flow has improved by $289 million, so far this year. We will continue to manage our inventories and receivables very closely for the remainder of the year, and our free cash flow target is approximately $120 million for 2006.

Slide 9 shows our net debt to total capital ratios have improved over last year. Our net debt to capital ratio was 31% at the end of September 30, 2006, compared to 39.4% at September 30, 2005. EBITDA, excluding restructuring and other infrequent items, was $65.3 million for the third quarter of 2006. EBITDA excluding restructuring and other infrequent items was $84.5 million for the third quarter of 2005. On a year-to-date basis for 2006, EBITDA was $254 million compared to EBITDA of $292 million in 2005. Interest expense net for the third quarter was $13.3 million, and $41.2 million for the first 9 months of 2006, compared to $15.8 million in the third quarter of 2005, and $64.7 million for the first 9 months of 2005. Recall that in the second quarter of 2005, we redeemed $250 million of senior notes, and that our second quarter 2005 interest expense included approximately $14 million in premium costs associated with that redemption. On a year-to-date basis, the Company's effective tax rate was 52.2% for 2006, versus 39.4% for 2005. The Company's effective tax rate was impacted by our accounting practice, not recording a benefit for losses incurred in the United States.

Slide 11 summarizes our outlook for 2006. Net sales for the full year of 2006 are expected to be down 2% to 3% from 2005 levels, based on lower industry demand and planned dealer inventory reduction. Gross margins are expected to be flat, despite lower production in 2006 compared to 2005. We are targeting full-year earnings per share of approximately $1.00. In addition, improved working capital utilization in 2006 is expected to result in strong free cash flow in 2006. We expect fourth quarter sales to be up approximately 10% compared to the fourth quarter of 2005, and operating margins to be slightly higher than those of fourth quarter 2005. Martin?

That concludes our comments. Operator, we are ready to open up the conference call now for questions.

[OPERATOR INSTRUCTIONS] Ann Duignan, Bear, Stearns.

The first question, just on inventories. You seem to have made significant progress on your receivables side, but your days inventory is about flat with last year, or slightly up. Martin, how much of this can you actually fix, versus how much of your higher inventory levels is just structural because of your manufacturing strategies? And how are you thinking about that, both in the short term and the long term?

Well, I will start by telling you, Ann, that in the fourth quarter, I think you will see that the inventories do come down, relative to last year. And we expect to see inventories with an improvement versus where we ended up last year. I will refer to Martin in terms of what we can do going forward on inventories.

When you think about what is caused by the factual differences between us and our competitors, I think the only reason why our inventories might be higher here in North America, is that we ship some product over from Europe. But we are working on a build to order project. And also I think we start to train our dealers to have less inventories on their -- in the dealerships, and this is pretty much also in line with what the industry is doing. I'm pretty optimistic that we will be step by step on industry average levels.

Do you expect that by the time you start into 2007, that you will be producing to retail sales? Or do you think you're still going to be under-producing going into next year?

Well, we are still working on our plans for next year. So I don't think we can give you any specific guidance there. As Martin said, I think when we end the year, we will still -- we will be improved on our dealer inventory month supply, particularly in North America, but still really above where the industry is. And so our goal is to get closer and closer to that industry average. Specifics on timing and how we do that, we don't have that available at this point in time.

But I think, if I'm reading into what you're saying, the probability is that you may be under-producing retail going into next year?

Well, I think certainly our goal going forward is to continue to make progress on dealer inventories. [inaudible]

Okay. A quick follow-up on Challenger. You could give us an update on what is going on there? How the product rollout is going? And then, what might that -- what might Challenger do to revenues next year? Will we see you out-produce retail because you will be delivering new products to the Caterpillar dealers? And also, what will the impact be on SG&A and operating profit as you go into next year, and roll out all of those new Challenger products?

The new product they get are totally new, so they don't substitute other products, or it is not a new face-lift or something. So the four-wheel drive articulated product they did not have so far, so that will not cause problems with out-phasing of a product, and the same is true for the big class A combines. So -- and everything is pretty much in plan. And then we also work on -- let's see, they also get some small competitive compact tractors. But those are also more or less new products we are talking about.

So, Martin, so we would expect to you perhaps outperform retail sales next year, because of the launch of those products? Is that the right way to think about it? Because they are incrementally new products?

I think so, yes.

And do you expect to make money in that product line next year?

We are always expecting to make money. Yes, we are.

Did you make money this year, I guess?

Our forecast for Challenger this year, in terms of total income, is still a little below break-even. So we would again, when we look at next year, we will be targeting to improve off of that and make money next year.

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

David Bleustein, UBS.

Andy, at the very end of your closing comments, you said Q4 revenues up what?

About 10%.

10%. And margins up slightly?

Margins should be up slightly, yes.

And Q4 tax rate?

Q4 tax rate is going to be higher than what we had last year, when you exclude the write-offs that we had. So I would suggest that we will be in the low 40% on Q4 tax rate.

Okay. And then here is the question. Obviously, you've got markets moving up and moving down, but can you give us sort of summary thoughts by region on what your order board looks like into early 2007? Especially in Latin America, where maybe you have more visibility?

Well, order board-wise, our order boards are -- I don't have it split between what is for the fourth quarter and what is for next year. So I'm sorry about that. But order boards right now, for North America are weaker, in line with what industry expectation is. And Europe, our order board is solid, and better. And in our Asia region, it is lower. And in South America right now, it is higher. I think a lot of that is for fourth quarter deliveries. Visibility into next year, I'm not sure we have that much yet.

Okay. Following-up on Ann's question, I think we've got a sense of where your inventories are in the states, relative to the industry. Where are your inventories in Germany relative to the industry?

I don't think we have that type of information. But we sell through large cooperatives, that I think are professionally managed. And I don't think that we're out of line with how industry -- how the industry is at this point in time.

I think we are pretty much what the industry is, but also the difference between the U.S. and Europe is they don't publish numbers there. So we actually just have to estimate.

So in '07, whereas you might underproduce in North America, you might not make that same comment relative to your European served markets?

Well, yes, but of course, we bring some product over from Europe to North America, so that means North American sales have an impact on our factories in France, mainly.

Terrific. Thanks a bunch.

Andrew Casey, Wachovia Capital.

In addition to David Bleustein's question on the order board, Martin, as you travel around, what are you hearing about kind of initial outlooks for '07? And if you said it at the beginning of the call, I apologize. I got on late.

Well, actually, I didn't travel so much during the last couple of days, or weeks. Well, what we hear is pretty much what any of us are saying. We are working on our plan for 2007. I think it would be too early to give you an outlook, but we are rather positive about Europe. We are, let's say, on the same level of information as our competitors with regard to North and South America.

Thank you.

Barry Bannister, Stifel Nicolaus.

If you do $0.30 in Q4 to hit a roughly $1.00 a year, that's versus $0.30 a year ago. But I believe you said your production would be up 15%. Presumably you would ship what you produce. If sales were up in line with that, why would there be no incremental margin at all in the fourth quarter?

I think we did say that the margins would be a little higher, but we're also challenged a little by some product mix, and anticipating fairly aggressive competition in the fourth quarter in terms of pricing.

And the tax rate, too, as I recall, sure.

Yes.

Is there any Brazil credit issues that we need to be aware of? Perhaps a JV down in Brazil that may be in some difficulty, or just at the very end of the down cycle cumulatively recognizing some credit problems?

Well, in the second quarter, we recognized a higher reserve for uncollectibles in our JV in Brazil. That amount was -- impacted us by a couple million dollars, I believe, in the second quarter. So we have done our review, and feel comfortable at least at this point, with the reserves that we have in our JV in Brazil. The issue in Brazil is that the farmers have been given now 2 years of payment holiday on their retail notes. And so we don't have any history right now of seeing what farmers have the ability to pay, and what farmers don't. So as we get into next year, assuming that the farmers have to start making their payments again, we will have better visibility of our -- any additional issues. But right now, we're comfortable with our reserve levels.

Okay. And then Europe, particularly Germany, was stronger than expected. A lot of people just say that was pre-buying on the VAT. But German economic data supports a better economic outlook for that area. Would you characterize if it was new products, pre-buying for the VAT, general or economic conditions, higher grain prices, what were the sources of that strength in Germany?

It is a combination. So one is that, of course, we launched 21 new products of [inaudible] tractors in Germany, so we had a major market introduction there. Then second, VAT might have a little influence also on -- more on the smaller farmers than on the big professional farmers. And I'm in general, a little bit more optimistic about Europe because the theoretical downturn or slight downturn in Germany certainly will be compensated by growth coming from Eastern Europe. But as I said, we are working on our plan, and those numbers are not in yet.

Okay. I will get back in line. Thanks.

[OPERATOR INSTRUCTIONS] Joel Tiss, Lehman Brothers.

I'm wondering just directionally, can you talk about pricing that you guys might think about for 2007? Or if there is an opportunity to get any pricing, and what you're seeing on the cost front?

Well, I think we need to do something on prices, and everybody in the industry does, because everybody has to compensate for all the investments in the new engines and things like that. And Andy, what do we have, let's see what -- ?

Pricing this year is about 2%. And so I would again, don't have any specifics for next year. But do anticipate getting at least at this point, normal pricing.

Okay. And you can also talk a little bit about some of the cost pressures in addition to higher tractor prices that the farmers might be looking at over the next couple of quarters, as well?

Actually, there was some pressure from all related products, but those guys of course, have now problems to argue major price increases. And steel, some aren't recovered. So there are some -- a couple of related products like cooler system, and things like that, that might have a little higher price in 2007. But I don't -- I don't see major changes.

Okay. Thank you.

John McGinty, Credit Suisse.

John, you changed your name.

What can I say? To protect the something or other. Anyway, the first question I have is getting back to the comment that you made, the same one you made when you pre-announced. I think Andy, you said that a third of the decline in sales related to retail, the rest -- retail sales being weaker, the rest was wholesale inventories being down. If we look across the -- I assume, A, that that was primarily in North America, rather than the rest of the world?

That's correct.

And if we look across the spectrum of the AGCO dealers, the AGCO dealers, the Massey dealers, the Challenger dealers, is there any differentiation? Was there -- to the extent you can look at it, was it equal? Was it any one group of those that was de-inventorying more than others?

I don't have all of that specifically in front of me. But I would say generally it was across the board.

And to what extent was it your choice versus theirs? That's, I guess, what wasn't really clear to me.

It was pretty much our choice, because we work on getting our dealers into a more solid profitability, and therefore, we actually were initiating that.

So then in essence, even though you pre-announced, this was not a surprise? I mean in essence, if in fact it was -- you were the ones that initiated it. Did they just go more than you expected it to? Or how did it end up being a surprise relative to your expectations when you gave the guidance a quarter ago?

Actually, I think it is both. Some did more than we had expected. And then on the other hand, the market wasn't developing as we thought. So we were more positive about the market expectations.

Okay.

And I still am a little surprised. When you look at you, you know that much better than I do, but when you look at the wheat prices, everything is up, even beef prices are up. So therefore, normally you would think that farmers would think about investments more than they did.

Historically, I have often found that what happens is that you finally give up. You say that it has got to be up, it has got to be up. And then right at the time you give up, that's when it turns up. But Andy, you made a comment in answer to somebody's questions, I think it was Barry's question, about the fourth quarter incremental margins, you had a comment about pricing. And you said -- and I think you said, your words were pricing that you anticipate seeing getting tougher. Does that imply that pricing has not yet getting tougher, and you're just being cautious? Or are you beginning to see some discounting? You mentioned that we've got 2% price built into your expectations. But what is actually going on in the field right now?

I think it is a continuation of what we saw this last quarter. So, again we're always looking relative to the prior year. And so we're just being conservative and looking at the current trends and expecting those to continue.

But not to get worse?

No.

Okay. And then the final question, if we assume -- now you're make no forecast on '07. So let me just make this assumption that retail sales in '07 are up, but you decide to continue to reduce inventories. So your production is essentially flat, your sales are flat in '07. What factors should we look at in '06 that would be absent? In other words, given flat production in '07 versus where you were, but having it be steady, not having to make any adjustments, what factors, if any, impacted '06 that would be absent in '07, under that kind of a scenario?

Well, again, John, we haven't -- I haven't gotten through, thought about all of that yet as we go through our budget. But we have a lot of new products coming in next year, we're looking for additional productivity improvements from some of the projects that we've initiated in the last couple of years. So those are the kinds of things that I think would benefit us going forward.

We will be in New York middle of December, and then we might be in a position to talk a little bit more about the 2007 and also about our strategic initiatives.

Great. Thank you.

Andrew Obin, Merrill Lynch.

More of a longer term question. Do you expect any shift in soybean productions -- soybean production away from North America to South America?

I don't -- well, this is of course a very good question. And it is difficult to answer. But what we see in South America is that more farmers, due to the problems they face with exchange rate, and also with the commodity prices as such, move from soyabeans into sugar cane. So therefore, I personally do not believe that American farmers will have a problem. And then of course, I think everybody is aware on the calculations they did what the, let's say, growing fuel demand would create. So therefore, I'm rather optimistic that the American farmers will not have a problem with soyabeans.

So you don't expect a soybean acreage increase next year in South America? Unless -- .

No, no no. Just the opposite.

Okay. Okay. Thank you very much.

And we have now a little bit better access to this country, because we took a new director on our Board, who is a well-respected guy in Brazil, and also a former New York-based Morgan Stanley guy. So he knows both worlds, he knows America and he knows Brazil. He was the former head of the -- what was the name of the bank?

Development Bank.

Development Bank of Brazil. And he is now also in the fertilizer business, so that means we do get pretty good information in the meantime on Brazil.

And the second question. As Deere is putting its factory in Brazil, I understand they have delayed the construction.

Who?

John Deere. Yes, that other company. And the question I have, have you had more time to think what impact John Deere will have on your distribution in Brazil?

Well, you know that distribution in Brazil is exclusive by law. So that means our dealers would have to choose between us or Deere. And we have a very, very solid and strong distribution network, and they are, let's say, enjoying the pretty good and solid population in the market. So I don't see a danger that Deere is in a position to take over those guys from us.

Have you gotten more comfortable with it during the downturn? With this idea that you will be able to maintain your dealers?

We are pretty sure that we are able to maintain them.

Thank you very much.

Barry Bannister, Stifel Nicolaus.

Yes, Andy, just a cleanup question, and then a couple of questions after that. You mentioned the tax rate in Q4 and back half. But next year, would there be any reason why the Company couldn't revert back to a more normal 37, 38 rate? Or is the rate permanently changed by the tax reserves?

Well, it will all be dependent on the performance and the income levels in the United States. So in our North American segment. And as that performance would improve, our tax rate will go down accordingly. So no, it will depend on our outlook for North America next year.

Okay. And then on the subject of sprayers, you mentioned some difficulties there. Seasonally, it is a more important product in the first 5 months of the year, but we're almost there. Have you noticed a change in the sprayer market in favor of perhaps GPS driving sprayers down to the farm level, which is more what Deere is pursuing, rather than your historical strength, like with Ag Chem on the Journeyman sprayer on the larger units?

Well, I think there is that trend that's occurring in the marketplace, that because of Asian -- concern about Asian rust, and things like that, we are seeing more farmers want to own their own sprayer, rather than using third party contractors to custom apply chemicals to their farm. So there has been a somewhat of a shift. But still, that market, as you pointed out, we're very strong on the contractor side, and we're looking at ways to, with changing a little of our distribution techniques in sprayers, to attack that farmer side a little better.

Okay. Because that's about a $300 million business, and we kind of count on it to generate about $30 million in profit. And you're optimistic you can retain your market position?

Well, I think this year, we have retained our market position. For sure, it is getting more competitive, though.

And then lastly, what is AGCO's path to tier 4? Is this who is going to make the investments? Are you going to leave it to Perkins? How are you going to pursue this?

Well, first of all, our engine suppliers, which are mainly Perkins and Caterpillar, so Caterpillar, Perkins will do that, of course. But we will do the same also for the -- or have to do the same for the [Caesar] engine. The difference between us and other players in the industry is that we are only in the off-highway engine business. And therefore we have a certain time lag between on-highway and off-highway, and what we saw so far is that there are pretty good industry solutions available when you come 2 years or 3 years later than the big guys. So, but we have to do that, yes.

Any idea of the dollars you might have to spend at Sisu? Would it be lumped in with your capacity expansion there?

No, Barry, that would be separate investment. I think as we look forward, we don't see any significant changes in the level in investments we're having to make on an annual basis to get there, because of the points that Martin made.

Okay. Thanks, guys.

Mark Koznarek, Cleveland Research.

This is [Joe Kelbello] in for Mark. Just a couple of quick questions. First of all, the tax rate for 2007, what should we use there?

2007? Again, we haven't finished our plan, so we don't have any guidance on that at this point.

Okay. Well, and here is another one on '07, if you can. Kind of directionally, on given the current interest rate environment, what do you expect kind of directionally, pension expense to do next year?

Again, you've got to re-establish your discount rates at the end of the year, so we wouldn't be able to give you any guidance on that yet, either.

Okay. All right. And how about this one, just a date on -- for the New York City meeting?

The 12th and 13rd of December. The 12th.

We're looking for a day on the 12th.

Okay. Thank you very much.

Maybe we didn't want it do it on the 13th.

[OPERATOR INSTRUCTIONS] Ann Duignan, Bear Stearns.

Just a couple of follow-ups. 1, are you expecting any restructuring charges in Q4 or 2007?

We don't expect any meaningful restructuring charges in Q4. As we go into 2007, and 8, if you recall, we talked about some restructurings that we were doing in our Fendt plant and our Heston plant related to productivity improvements there. And I believe that we talked about $5 million over the next 2 years associated with those restructurings. And so I don't have any specific timing on those, but we will see some of that in '07.

And we did some important things without any noise, so we reduced head count by more than 70 people, mainly in indirect labor in North America, and by about 50-plus in Europe.

Okay. So the 5 million over the next 2 years will be starting in '07?

Yes.

It is not part of what you did this past quarter?

No, it is not.

Okay. And then 1 final follow-up. What do you expect your sales volume for Challenger to be this year? And I know you're not -- you haven't got your plans formalized for next year, but how much could the new product introductions add to revenues next year in your mind?

Nice try.

Ann, this year -- in the last year the sales for Challenger were about $320 million. We're, I would say, looking at flat to slightly up, maybe up about 5% there, as an improvement, somewhere between 0 and 5 this year.

Okay.

And next year, Ann, we don't have the numbers. So it doesn't make sense to talk about that yet. But we will give you some information in December.

Okay. Because, the Challenger, the volume of new product introductions is going to be quite significant in that product line.

Yes, but it is actually somewhat spread during the year, so we have to look at it and average it for the 12 months.

Okay. Thank you. I will wait for December.

Andrew Casey, Wachovia Capital.

Andy, per your comment about 2% pricing, I believe for the year, can you give us a year-to-date for the first 9 months?

Sure. Year-to-date pricing is around 2%, as well.

Okay. Now, if I look at the quarter specifically in North America, can you kind of help us in terms of the EBIT margin degradation? Obviously, you under-produced demand to get the inventories down. But, was there any mix shift that contributed to the change?

I think your main issues with the earnings, or change in earnings in North America, were, certainly the most important are that the sales volume, we did have some currency impact, probably a couple million dollars of currency impact on the margins. And then we did have some mix impact as well, that would make the difference.

Okay. But the sales volume should be by far the largest?

That's correct, yes.

Okay. Thank you.

At this time, we have no further questions. I would like to turn the call back over to Mr. Richenhagen for closing remarks.

Thank you very much. In closing, we appreciate your time, and your interest in AGCO. Should you have further questions, I encourage you to contact Greg Peterson. And thank you for joining us this morning. Have a nice day. Bye.

And that concludes today's conference. Thank you for your participation, and have a wonderful day.