Good morning. My name is Jacob, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the AGCO Corp. 2008 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions]. As a reminder ladies and gentlemen, this conference is being recorded today, Tuesday, July 29, 2008. Thank you and I would now like to turn the call over to Mr. Greg Peterson. Mr. Peterson, you may begin your conference.

Thank you, Jacob, and good morning. We appreciate all of you joining us for ACGO's second quarter 2008 earnings conference call. On the call this morning, we will refer to a slide presentation. The slide presentation, earnings press release and our financial statements are posted on our website at www.agcocorp.com. 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 are Martin Richenhagen, our Chairman, President and Chief Executive Officer, and Andy Beck, our Senior Vice President and Chief Financial Officer. During the course of this conference call, we will make forward-looking statements, including some related to future sales, earnings, production levels, supplier and production constraints, inflation, foreign income, working capital improvement, cash flow, margins, effective tax rate, capital expenditures and strategic initiatives. 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 31, 2007, and Form 10-Q for the quarter ended March 31, 2008. 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. I will now turn the call over to Martin.

Thank you, Greg and good morning everybody. Please turn your attention to slide three, where I'll begin my remarks. You can see from the slide that we have continued our momentum through the second quarter of 2008, which resulted in record quarterly sales, earnings and cash flow. Our sales increased approximately 40% compared to the second quarter of 2007 and our drafted earnings per share were up 100%, compared to the second quarter of last year. We saw exceptionally healthy market conditions during the first half of the year, and our customers continued to respond favorable to our full line of technology based products and our strong dealer networks. Our Europe, Africa, Middle East segment reported impressive sales growth and margin expansion during the second quarter. Expectations of good harvest and elevated grain prices kept demand robust across Europe in the first six months of 2008. Expanded acreage and better farm economics in Brazil have generated market demand for tractors ahead of the prior peak levels. Improved operating results in our North American segment contributed nearly $0.15 to our second quarter earnings per share growth. Healthy markets and ongoing enhancements to our distribution channel are driving higher volumes at our North American plants at more operating leverage which is offsetting currency headwinds. In our East Asia Pacific segment, improved wheat crops in Australia and New Zealand resulted in sales growth of approximately 51% on a constant currency basis in the second quarter of 2008 compared to the same period in 2007. Strong demand for our high horsepower tractor and combines helped our sales mix and growth consolidated operating margins 140 basis points higher in the second quarter of 2008, compared to the same period last year. I was also pleased with our cash flow production in the second quarter despite…

Thank you, Martin and good morning. Slide six details AGCO's regional net sales for the second quarter and first six months of 2008. The bar graph shows our regional sales performance excluding the impact of currency translation. For the second quarter and first six months of 2008 translation had a positive impact of approximately 13%. During the second quarter the Europe, Africa and the Middle East segment had sales growth of approximately 23%, excluding the impact of currency translation compared to the second quarter 2007. The growth in our Europe, Africa, Middle East segment in the second quarter was led by Germany, France, the United Kingdom, Scandinavia and Central and Eastern Europe. North America sales increased approximately 34%, compared to the second quarter of 2007, excluding currency translation impacts, strong sales results in tractors, hay tools, sprayers implement and parts contributed to the improvement. First half 2008 sales in North America increased approximately 22%, excluding the impact of currency translation. Second quarter sales in South America improved approximately 27%, from last year excluding currency translation impacts, higher commodity prices are driving double-digit sales growth across nearly all the markets in South America, even after excluding currency translation. Sales in our Asia Pacific segment increased to approximately 51% in the second quarter, compared to 2007, excluding the impact of currency. Improved harvest in Australia and New Zealand, have sales well ahead of drought impacted 2007 levels. Year-to-date, sales were up 40% compared to 2007 excluding currency. Part sales for the second quarter of 2008 were $303.9 million up 15% compared to the same period in 2007, after removing the impact of currency. Growth were strong in all four of our reporting segments; for the first half of 2008, part sales were $529 million compared to $418 million in 2007. Slide seven,…

[Operator Instructions]. Our first question comes from Ann Duignan of JPMorgan.

Hi, good morning guys. Can you hear me okay?

Good morning, Ann. Yes, we can.

Hi, good to be here. Anyway, can we talk a little bit more about pricing in the back half and going forward? Can you give us a little bit more specifics in terms of how much you're increasing pricing on average, and then could you talk a little bit about what you might do on your early order programs this year? Are you going to include something like an inflation clause, or how you're going to protect those prices going into next year?

Ann, in terms of the second half of this year, when we started the year, we were looking at pricing somewhere between right around 1.5% up to 2%, and now our full year pricing, we're expecting to be over 3%, between 3% to 3.5%, and the second half of the year, pricing to be around 4%, and that pricing does escalate as you go throughout the second half of the year. We still are in a situation with our strong order bank that we can't put the pricing in, as quickly as perhaps we'd like, but as we get throughout by the end of the year, we've had a substantial increase in pricing from where we were at the beginning of the year. In terms of covering our cost, we think that overall our cost inflation that we're fighting against in terms of increased steel cost, and other factors will be covered overall by the end of the year, but as we discussed in our comments, we'll have a impact here in the third quarter because of some of the price protection we have on existing orders. In terms of what we're going to do on our pre-sale programs and orders for next year, we're certainly increasing our list prices. At this time, I think in most cases we are not putting surcharge or something like that on there, were going ahead and putting it into the base price of the unit. We continue to monitor what's going on with cost and to make sure that we think this will be adequate. In some cases, we are slowing down the order intake that we're experiencing in order to make sure that we don't cause ourselves problems as we go into 2009.

So just to summarize, by the end of the year, going into '09 how much will your pricing be up do you think?

Well in our fourth quarter, our pricing is up about over 4%. So between 4% and 4.5%.

Okay. So that's what we should assume for '09?

Well, I think you'll have a certain amount of carry over and then there will be additional pricing in '09 as well. Again I don't have an '09 forecast what pricing will be but suffice to say that we think we are in pretty good shape going into '09.

Okay. And then just on a follow-up, you almost broke even in North America; Martin how should we think about the profitability of North America going forward? Is volume a wonderful thing and you'll be able to sustain the kind of performance you delivered this quarter, how should we think about that both for the back half and going into '09?

If you were to exclude exchange rate you could certainly and you did that, you can see that Bob Crain did a brilliant job in order to get the... come closer to a turnaround in North America. What we actually... what is helpful is that we started to export more products to Europe, countries from our American factories that will certainly help also next year and we actually could have done more if we would have had the right capacities and also the supply base wasn't actually helping us all the time. And in addition to that we now start the second phase of our North American project by getting in several light assembly operations, in total we will end up to have three or four assembly operations and maybe this puts us in the position to one day also think about a tractor factory for higher horsepower tractors in North America. So that's all a question of capacity... of break even point we know exactly where the break even point is and the closer we come with our sales volumes into that direction we're certainly looking into this. I think our overall... the new management team does a great job and I think we will be much more comfortable in North America in the future.

Okay, I'll get back in line; thank you.

Our next question comes from the line of Terry Darling from Goldman Sachs.

Thanks Andy, question on the free cash flow guidance, I think if you take the delta between your new and old high end of the EPS range your net income has gone up by about $55 million, CapEx up by 30, where's the differential gone to keep the free cash flow kind of flattish; is that working capital, is that getting steel in place for 2009 or where is that going?

It's mainly in working capital, we'll have to use a little more working capital than we expected because of the increase in our sales guidance that we're giving. So it's just primarily just keeping an up, its going to impact receivables to an extent because of the higher sales volume.

In the higher cap [ph] tab they are a little reserved here.

Okay. And then Andy, you've mentioned 50 to 100 basis point impact on year-over-year margins from the raw material pressures in the third quarter, very clear on that can you tell us what the assumption is for the fourth quarter assumed in the guidance please?

In terms of material cost impact we would actually be over a north of where we need to be. So, we will get some benefit in the fourth quarter if we achieve the pricing that we have in our forecast.

The net positives--

Yes.

Okay and then lastly the foreign currency impact on South America margins in the second quarter, can you tell us what that number was? Maybe what was in the first quarter, maybe what you are assuming for the second half?

Yes, the South America impact in the second quarter was about $4 million or $5 million and I think that would be pretty similar to the first quarter and then that should probably extend on till where we'll probably have a $15 million to $20 million impact for the full year in South America.

Thanks very much.

Our next question comes from the line of Jamie Cook from Credit Suisse.

Hi, good morning and congratulations. I guess my first question I am just trying to, when I look at your implied sales forecast for the back half of the year relative to what we saw in the first half, it's quiet... it's lower than I guess I would have expected. Can you just help me think through how much of that is sort of supplier constraints or your internal capacity constraints and sort of at each of the major plants how many shifts you are operating at and what we can ramp up to?

Well actually we do not have real capacity restrictions right now we produce more or less what we sell. This includes also the supply base, we have certain problems here and there as you can imagine but I think overall we believe that we do better than some of our competitors. So we started to work on the supply situation already early enough and so we see improvement and then of course we do get hit backs here and there. Sometimes we do get a little quality problems, problem what... let's say that hits you more than it would be in a slower market. But overall we have the capacities we need.

Okay. And then just my follow-up question, just to follow-up again on the pricing front; I'm just trying to get a feel for your pricing approach by region, you talked about the South American margins were down and you sort of talked about the FX issue but we also have some of your competitors who are trying to enter into that market I'm wondering if you're seeing any more competitive actions from the other players in South America, and then just your approach to pricing. In the U.S., generally, you're at a disadvantage, but we did see some good improvement in the second quarter?

South America as you can imagine, the price pressure from competition is maybe a little bit higher than in other markets. I do not think that this works long term, because in South America, you face the same supply or material price increases than in other markets. So I don't think that the idea to buy market share is excellent. We want to keep our position in South America, and I think when you look at our situation, the numbers reported are wholesale numbers. Retail looks a little bit better. We had some little capacity issues, we are reducing inventories here and there. Overall, our strategy is to keep our market position and also work or let's say try to get the margins in as scheduled, in order to do so, you have to look into your processes, and you have to look into your cost situation, and we have several projects going in that direction. We also see some very successful situations, you'll remember or you might remember that we bought that plant of business will [ph] last year, and when you see what... how this developed, more or less, we sold about twice the volume than before the acquisition. So that means our dealer network is very strong, and with some new products, we are launching and I think that I call hold them... I am very optimistic that we can defend our position.

All right thanks, I'll get back in queue.

So, I answered Ann's question already. Up front so to say.

Our next question comes from the line of Andrew Casey from Wachovia Securities.

Thanks. Good morning everybody.

Morning.

Question I guess back on a comment you made a little bit earlier about slowing down your order intake to kind of preserve price net of cost and all that. Are you looking at an earlier incremental price announcement than you typically would do going into '09?

Well, we are very careful in booking orders already now, without knowing exactly where our cost base will be 2009. So therefore, we have a very close loop between purchasing and sales and I can tell we didn't slowdown order intake and do not intent to do that. So we just want to make sure that we have the right pricing in place and I think this... we work on that; we can't tell you exactly yet how the sales prices for 2009 will look like but we are very careful in confirming orders too early.

Okay. And then a follow-up on that if I may Martin the input cost inflation that your talking about have you seen any sort of platuing at all or is it just continuing to kind of go up linearly?

That depends on the product, so that you could say everything which is steel and oil related didn't plateau yet, maybe oil is closer to that situation. I also would believe that the slowdown in the car business, in the automotive sector finally will have an impact on steel prices but we don't see that yet.

Okay, thank you very much.

Our next question comes from the line of Andrew Obin from Merrill Lynch.

Yes, sir good morning just... can you hear me?

Yes we can.

Great. Just a question on EMEA margin, you noticed that in the third quarter of last year you benefited from I guess better from sales but shouldn't you be benefiting in the second half of the year from growing Eastern European sales which I understand are sort of higher horsepower, higher margin equipment versus last year. And then shouldn't the mix in EMEA be improving towards larger equipment?

I think there is the... certainly a general trend that we are seeing and if you look at some our margin improvements over really the '07 and '08 period overall I think that is one of the factors that's driving our margin improvement as the mix is improving, we are seeing more sales growth in that sector that you mentioned and growth in the higher horsepower sector. So I think that's certainly a factor but as we get into the third quarter that is being offset dramatically by this change in mix of the tractor [ph] volume we were very heavily weighted in the third quarter of last year, big 900 series high horsepower tractors which carry some of our strongest margins. And so that again is more normal spread of sales in 2008 and we are going to see the impact as we look at our margins in the third quarter.

And am I correct in I mean you are on FIFO right?

Yes we are.

So, anyway to quantify what the incremental cost for raw materials would have been in second quarter if were actually using LIFO?

No Andrew, I'm sorry I am not in that... any calculations like that.

Okay, thank you very much.

Our next question comes from Mark Koznarek of Cleveland Research Company.

Hi, good morning.

Good Morning.

Good morning, Mark.

Andy, I was wandering if you could review the second half revenue expectations again, just wondering if I... if those numbers, the ones that you articulated a little bit earlier, they just don't seem to add up because with the revenue growth you talked about for the second half and the first half were up 37%, comes out to more than your full year guidance.

Okay. But what we're seeing in this... in the third quarter is 27... 28% growth, and then it does come down in the third quarter... fourth quarter, maybe I misread the number that we had, and so in the fourth quarter, we're looking at growth between 15% and 20%. So overall, when we get to the end of the year, it's about 26% to 28%.

Which is excellent.

Yes, it certainly is. Okay, it sounds... seems like those numbers still come up to something higher than 26% to 28%, but we can pursue that a little further offline. The improvement in North America, profitability is really striking I thought, and you mentioned there's exports that have helped, and I'm wondering if you could help us understand what production volume was like relative to your actual reported retail sales, and whether that export is likely to continue in the second half?

Production, as we said overall, was up, and I believe 19% in the second quarter. It was up over 20% in the first quarter. When you look at those North American factories... those were up even more than the average. So, we are seeing some very significant production growth in those factories, and as Martin mentioned, a lot of that is the result of more exports, for particularly our Eastern European markets. So we're selling a number of combines, selling implements into those markets, and that is helping our cost structure in our U.S. factories.

So is that a seasonal thing or will that continue in the second half?

I believe that will continue.

This is a strategy, so that is something we started to work on already two years ago, and before you actually are in a position to sell, you need to demonstrate the new products, you need to actually look at the local amalgamation [ph], you need to get your dealers behind you, and I think we will grow that business in the future.

Okay. And then the assembly that you talked about for North America, is that happening this year?

Yes. We opened the first assembly factory in Baltimore I think two weeks ago or something like that. A week ago.

Okay, what product is that for?

Mainly for smaller tractors, big [ph] tractors.

Okay. All right thank you.

Our next question comes from Charlie Rentschler from Wall Street Access.

Picking up on that last comment. Could we expect another plant to open to make bigger wheel trackers or not?

First of all, you could expect two more smaller, two more assembly operations for smaller tractors and then of course we also look into the situation of big tractors. As I said we know exactly where the breakeven point for such a factory is and the more successful we are in sales, the closer we come to that. So we certainly watch that carefully but we would of course inform you early enough about on the investments like that.

Okay. But skipping over to Europe which is such an important market for you guys, Martin. Can you give us a bit of detail on what's happening to your share and also some comments about how business is in Western Europe versus Central and Eastern?

Well actually our share, we have of course in many countries of Europe a very strong market position being number one or two. But we still try to grow market share in Europe and we also work on the... since quite some years now already on the repositioning of Massey Fergusson, as you might know Massey Fergusson's position was very strong years ago and then we somewhat lost track. We are very successful with this, so in some markets we see market share gains of Massey Fergusson but also in some other markets like Scandinavia, due to a broader cooperation with our dealers we now combined Valtra brand with Fendt and see market share, very positive market share development of Fendt tractors, which can be seen also in some of the Southern European markets. So that means the Fendt technology with the growing farm size and more professional farmers does get... it's becoming more and more attractive. And as you remember we also work on repositioning our combines we have... I just came back from Denmark where I saw the new face lift of the classical Massey Ferguson Conventional combine, so that means our combine business, that's developed into the right direction; in Nevada in total we will produce about thousand combines in this year plus about 200, 300 combines coming from Denmark. So that means this help us of course also to gain market share in Europe and the development of the hybrid combine and the self-propelled forage harvester is pretty much progressing according to schedule.

Which would you say would be your strongest countries in Europe for your sales?

The biggest countries?

The strongest, yes.

Well actually for us, Germany is very important, the biggest market in Europe for farm equipment is France, and in Eastern Europe for us the biggest market is most probably Poland, the biggest growth will come from countries like Belarus, Ukraine and Russia.

Thank you.

Our next question comes from the line of Barry Bannister, from Stifel Nicolaus & Company.

Hi, Jamie touched on it earlier but when I look at the South American foreign exchange $5 million it doesn't really explain the 5% incremental operating margin on 48% sales growth. So when you think about the competitive conditions down there in South America would you say that it's maybe a competitor who is green with envy of your market share or one that is feeling blue about their non-ag business and trying to make Brazil grow for them?

My impression that it's a little bit local management that when you read operational announcements of the main players everybody talks about the need to pass over material price increases via higher sales prices and I think some of the locals didn't get that message yet or by intention as one is lip service while some try to buy market share. That's something you have to ask the other guys. We actually... my idea is to optimize our cost position in order to be strong enough to defend both our market position and our margins.

And then changing gears, when I look at the Brazilian farmers, they are pretty highly leveraged, they've got over $50 billion of debt dating back to the '80s and '90s and they keep rolling it over but rates are starting to rise inflation is high. So what I don't understand is the opaque Rabobank JV where the income jumped up to $14.6 million versus $6.3 million a year ago, I have no insight into things like age of your receivables, bad debts from the recent deferral of payments, credit terms; could you give us some information on why that jumped in and how the conditions are in the credit side down there?

Barry, Andy will answer that question.

Hi, Barry. In terms of starting with the increase in the equity and earnings, certainly a portion of that was related to our finance joint ventures around the world, including Brazil. But the large increase was relating to the Laverda joint venture that we initiated, closed in the third quarter of last year. Laverda for background information is a combine harvesting manufacturer in Italy, and we bought a 50% interest in that business, a little about a year ago. And so that was the major source of the increase in income, as this was one of the peak seasons for the combine business, and they had very good performance this year. But our JV business is improving; when you talk about Brazil, certainly, some of the points that you made are correct, that the farm sector there is leveraged to some extent, mainly with subsidized financing, sponsored by the government. There has been a number of restructurings of the debt in Brazil, and the latest one occurred in the second quarter. Whereas some of the debt was subsidized, and rates lowered to help the farmer with his cash flow. Looking at our equipment debt, I think some positive things came out of the last work that the government did. They did not extend any more payments. They're putting the control back with the finance companies to help work out any problem situations they have, but also start a normal flow of collections of payments. So the first installments of 2008 payments which will not be deferred will be due in October, and so we'll get our arms around our situation much better by the end of this year. Every quarter, we do a portfolio review of our portfolio in Brazil, it's about $1.5 billion. Certainly we use the credit criteria that's driven by Rabobank, and we feel comfortable that we're being ... doing everything we can to assess the situation in Brazil. We did make a small increase to the reserves in the second quarter to reflect the changes in the government programs and how that affects our collectibility but again, we're staying on top of it, and we think our reserves are adequate.

Okay. I'll follow-up with you later on that. And then why did the tax rate guidance go from mid 30s down to low mid 30s?

It's the improvement primarily in the North American business, we're expecting to do better than we had earlier in the year, as a result of the stronger market and some of the good things that we're doing in terms of margins, and as a result, that pulls down our overall consolidated tax rate, because we're not benefiting those losses, and so as you reduce those losses, that produces a benefit to your tax rate.

Okay, thanks a lot.

If there are no further questions. We will turn the call back over to Mr. Peterson for any concluding remarks.

Thank you very much for joining us today for our call, and we encourage you to follow-up with us later today, if we haven't answered all your questions. Thanks again, and have a great day.