UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarter ended September 30, 2006

of

AGCO CORPORATION

A Delaware Corporation
IRS Employer Identification No. 58-1960019
SEC File Number 1-12930

4205 River Green Parkway
Duluth, GA 30096
(770) 813-9200

     AGCO Corporation (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

     As of November 3, 2006, AGCO Corporation had 91,106,453 shares of common stock outstanding. AGCO Corporation is a large accelerated filer.

     AGCO Corporation is a well-known seasoned issuer and is not a shell company.

 

 

AGCO CORPORATION AND SUBSIDIARIES

INDEX

		Page
		Numbers
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005			1
Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2006 and 2005			2
Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2006 and 2005			3
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005			4
Notes to Condensed Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures about Market Risk			34
Item 4. Controls and Procedures			36
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings			37
Item 5. Other Information			37
Item 6. Exhibits			38
SIGNATURES			39
EX-10.1 EUROPEAN SECURITIZATION FACILITY
EX-10.2 2005 EXECUTIVE NONQUALIFIED PENSION PLAN
EX-10.3 2007 EXECUTIVE NONQUALIFIED PENSION PLAN
EX-10.4 SIXTH AMENDMENT TO CREDIT AGREEMENT AND CONSENT
EX-31.1 CERTIFICATION OF MARTIN RICHENHAGEN
EX-31.2 CERTIFICATION OF ANDREW H. BECK
EX-32.0 CERTIFICATION OF RICHENHAGEN AND BECK

PART I. FINANCIAL INFORMATION

AGCO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and in millions, except shares)

		September 30,				December 31,
		2006				2005
ASSETS
Current Assets:
Cash and cash equivalents		$	166.5			$	220.6
Accounts and notes receivable, net			582.9				655.7
Inventories, net			1,261.3				1,062.5
Deferred tax assets			41.9				39.7
Other current assets			107.8				107.7
Total current assets			2,160.4				2,086.2
Property, plant and equipment, net			604.8				561.4
Investment in affiliates			186.7				164.7
Deferred tax assets			81.9				84.1
Other assets			64.3				56.6
Intangible assets, net			207.9				211.5
Goodwill			755.2				696.7
Total assets		$	4,061.2			$	3,861.2
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt		$	6.3			$	6.3
Accounts payable			565.8				590.9
Accrued expenses			594.5				561.8
Other current liabilities			67.0				101.4
Total current liabilities			1,233.6				1,260.4
Long-term debt, less current portion			863.4				841.8
Pensions and postretirement health care benefits			259.9				241.7
Other noncurrent liabilities			141.7				101.3
Total liabilities			2,498.6				2,445.2
Stockholders’ Equity:
Preferred stock; $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding in 2006 and 2005			—				—
Common stock; $0.01 par value, 150,000,000 shares authorized, 91,025,053 and 90,508,221 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively			0.9				0.9
Additional paid-in capital			907.2				894.7
Retained earnings			889.0				825.4
Unearned compensation			—				(0.1	)
Accumulated other comprehensive loss			(234.5	)			(304.9	)
Total stockholders’ equity			1,562.6				1,416.0
Total liabilities and stockholders’ equity		$	4,061.2			$	3,861.2

See accompanying notes to condensed consolidated financial statements.

AGCO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in millions, except per share data)

		Three Months Ended September 30,
		2006				2005
Net sales		$	1,180.9			$	1,233.6
Cost of goods sold			976.6				1,014.6
Gross profit			204.3				219.0
Selling, general and administrative expenses			135.0				126.2
Engineering expenses			31.9				29.9
Restructuring and other infrequent expenses			0.9				—
Amortization of intangibles			4.3				4.1
Income from operations			32.2				58.8
Interest expense, net			13.3				15.8
Other expense, net			7.6				8.8
Income before income taxes and equity in net earnings of affiliates			11.3				34.2
Income tax provision			13.9				12.7
(Loss) income before equity in net earnings of affiliates			(2.6	)			21.5
Equity in net earnings of affiliates			8.0				6.3
Net income		$	5.4			$	27.8
Net income per common share:
Basic		$	0.06			$	0.31
Diluted		$	0.06			$	0.31
Weighted average number of common and common equivalent shares outstanding:
Basic			91.0				90.4
Diluted			92.0				90.7

See accompanying notes to condensed consolidated financial statements.

AGCO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in millions, except per share data)

		Nine Months Ended September 30,
		2006				2005
Net sales		$	3,801.2			$	4,064.8
Cost of goods sold			3,139.3				3,355.1
Gross profit			661.9				709.7
Selling, general and administrative expenses			394.1				384.1
Engineering expenses			95.5				92.0
Restructuring and other infrequent expenses			1.0				0.2
Amortization of intangibles			12.6				12.4
Income from operations			158.7				221.0
Interest expense, net			41.2				64.7
Other expense, net			24.4				27.8
Income before income taxes and equity in net earnings of affiliates			93.1				128.5
Income tax provision			48.6				50.6
Income before equity in net earnings of affiliates			44.5				77.9
Equity in net earnings of affiliates			19.1				17.5
Net income		$	63.6			$	95.4
Net income per common share:
Basic		$	0.70			$	1.06
Diluted		$	0.69			$	1.01
Weighted average number of common and common equivalent shares outstanding:
Basic			90.8				90.4
Diluted			91.5				96.6

See accompanying notes to condensed consolidated financial statements.

AGCO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in millions)

		Nine Months Ended September 30,
		2006				2005
Cash flows from operating activities:
Net income		$	63.6			$	95.4
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation			71.5				66.7
Deferred debt issuance cost amortization			3.2				6.2
Amortization of intangibles			12.6				12.4
Stock compensation			4.5				0.2
Equity in net earnings of affiliates, net of cash received			(9.4	)			(14.7	)
Deferred income tax provision (benefit)			6.8				(1.5	)
Loss (gain) on sale of property, plant and equipment			0.1				(1.9	)
Changes in operating assets and liabilities:
Accounts and notes receivable, net			105.8				(3.7	)
Inventories, net			(154.5	)			(271.7	)
Other current and noncurrent assets			(13.3	)			(16.8	)
Accounts payable			(53.6	)			(10.2	)
Accrued expenses			17.2				(28.7	)
Other current and noncurrent liabilities			(0.8	)			(17.7	)
Total adjustments			(9.9	)			(281.4	)
Net cash provided by (used in) operating activities			53.7				(186.0	)
Cash flows from investing activities:
Purchases of property, plant and equipment			(80.7	)			(44.8	)
Proceeds from sales of property, plant and equipment			1.3				9.5
Investments in unconsolidated affiliates			(2.8	)			(22.5	)
Net cash used in investing activities			(82.2	)			(57.8	)
Cash flows from financing activities:
Payment of debt obligations, net			(48.3	)			(46.7	)
Proceeds from issuance of common stock			8.0				1.4
Net cash used in financing activities			(40.3	)			(45.3	)
Effect of exchange rate changes on cash and cash equivalents			14.7				(9.2	)
Decrease in cash and cash equivalents			(54.1	)			(298.3	)
Cash and cash equivalents, beginning of period			220.6				325.6
Cash and cash equivalents, end of period		$	166.5			$	27.3

See accompanying notes to condensed consolidated financial statements.

AGCO CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(unaudited)

1. BASIS OF PRESENTATION

     The condensed consolidated financial statements of AGCO Corporation and subsidiaries (the “Company” or “AGCO”) included herein have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly the Company’s financial position, results of operations and cash flows at the dates and for the periods presented. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. Certain reclassifications of previously reported financial information were made to conform to the current presentation. Results for interim periods are not necessarily indicative of the results for the year.

Stock Compensation Plans

     During the first quarter of 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). During the third quarter and first nine months of 2006, the Company recorded approximately $1.4 million and $4.6 million, respectively, of stock compensation expense in accordance with SFAS No. 123R. The stock compensation expense was recorded as follows (in millions):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Cost of goods sold		$	0.1			$	—			$	0.1			$	—
Selling, general and administrative expenses			1.3				0.2				4.5				0.3
Total stock compensation expense		$	1.4			$	0.2			$	4.6			$	0.3

     Non-employee Director Stock Incentive Plan and Long-Term Incentive Plan

     In December 2005, the Company’s Board of Directors elected to terminate the Company’s Long-Term Incentive Plan (the “LTIP”) and its Non-employee Director Incentive Plan (the “Director Plan”), and the outstanding awards under those plans were cancelled. The decision to terminate the plans and related cancellations was made primarily to avoid recognizing compensation cost in the Company’s future financial statements upon adoption of SFAS No. 123R for these awards and to establish a new long-term incentive program. The new accounting provisions of SFAS No. 123R do not allow for the reversal of previously recognized compensation expense if market-based performance awards, such as stock price targets, are not met. The new long-term incentive program has performance-based targets. As of December 31, 2005, 75,000 awarded but unearned shares under the Director Plan were cancelled. The remaining 15,000 awarded but unearned shares under the Director Plan were cancelled during January 2006. As of December 31, 2005, 857,000 awarded but unearned shares under the LTIP were cancelled. The remaining 135,000 shares were cancelled in January 2006. Awards cancelled prior to December 31, 2005 did not result in any compensation expense under the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). However, awards cancelled after January 1, 2006 are subject to the provisions of SFAS No. 123R, and, therefore, the Company recorded approximately $1.3 million of stock compensation expense during the first quarter of 2006 associated with those cancellations.

Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)

     New Stock Incentive Plans

     At the Company’s April 2006 annual stockholders’ meeting, the Company obtained stockholder approval for the 2006 Long Term Incentive Plan (“the 2006 Plan”) under which up to 5,000,000 shares of AGCO common stock may be issued. The 2006 Plan allows the Company, under the direction of the Board of Directors’ Compensation Committee, to make grants of performance shares, stock appreciation rights, stock options and stock awards to employees, officers and non-employee directors of the Company. The Company’s Board of Directors approved the grants of awards during 2006 effective under the employee and director stock incentive plans described below.

     Employee Plans

     The Company’s Board of Directors approved two new stock incentive plans to Company executives and key managers. The primary long-term incentive plan is a performance share plan that provides for awards of shares of common stock based on achieving financial targets, such as targets for earnings per share and return on invested capital, as determined by the Company’s Board of Directors. The stock awards are earned over a performance period, and the number of shares earned is determined based on the cumulative or average results for the period, depending on the measurement. Performance periods are consecutive and overlapping three-year cycles and performance targets are set at the beginning of each cycle. In order to transition to the new performance share plan, the Company established award targets in 2006 for both a one-year and two-year performance period in addition to the normal three-year period. The plan provides for participants to earn from 33% to 200% of the target awards depending on the actual performance achieved with no shares earned if performance is below the established minimum target. Awards earned under the performance share plan will be paid in shares of common stock at the end of each performance period. The Company recorded stock compensation expense of approximately $1.3 million and $3.2 million, respectively, associated with these awards during the third quarter and first nine months of 2006. Compensation expense recorded was based on the price of the Company’s common stock on April 27, 2006 (the date of the Company’s annual stockholder meeting) with respect to the initial grants under the plan, and based upon the stock price as of the grant date for grants made during the third quarter of 2006. The estimated compensation expense associated with these awards is being amortized ratably over the vesting or target period. During the third quarter of 2006, the Company reversed approximately $0.4 million of previously recorded compensation expense and ceased recording additional stock compensation expense associated with its one-year performance period transition plan, as it projects that the target performance levels would not be earned. The weighted average grant-date fair value of performance awards granted under the 2006 Plan during the nine months ended September 30, 2006 was $23.87. Performance award transactions during the nine months ended September 30, 2006 were as follows and are presented as if the Company were to achieve its target levels of performance under the plan:

Shares awarded			742,000
Shares forfeited or unearned			(74,500	)
Shares earned			—
Shares awarded but not earned at September 30			667,500

     In addition to the performance share plan, certain executives and key managers will be eligible to receive grants of stock settled stock appreciation rights (“SSARs”) or incentive stock options depending on the participant’s country of employment. The SSARs provide a participant with the right to receive the aggregate appreciation in stock price over the market price of the Company’s common stock at the date of grant, payable in shares of the Company’s common stock. The participant may exercise his or her SSAR at any time after the grant is vested but no later than seven years after the date of grant. The SSARs vest ratably over a four-year period from the date of grant. SSAR award grants made to certain executives and key managers under the 2006 Plan were made with the base price equal to the price of the Company’s common stock on the date of grant. The Company recorded stock compensation expense of approximately $0.1 million and $0.2 million, respectively, associated with SSAR award grants during the third quarter and first nine months of 2006. The compensation expense associated with these awards is being amortized ratably over the vesting period. There were no awards currently exercisable as of September 30, 2006. The Company estimated the fair value of the

Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)

grants using the Black-Scholes option pricing model. The weighted average grant-date fair value of SSARs granted under the 2006 Plan and the weighted average assumptions under the Black-Scholes option model were as follows for the three and nine months ended September 30, 2006:

		Three Months				Nine Months
		Ended				Ended
		September 30,				September 30,
		2006				2006
SSARs		$	9.50			$	8.78
Weighted average assumptions under Black-Scholes option model:
Expected life of awards (years)			5.5				5.5
Risk-free interest rate			5.1	%			5.0	%
Expected volatility			42.2	%			41.5	%
Expected dividend yield			—				—

     SSAR transactions during the nine months ended September 30, 2006 were as follows:

SSARs granted			229,250
SSARs exercised			—
SSARs canceled or forfeited			—
SSARs outstanding at September 30			229,250
SSAR price ranges per share:
Granted		$	23.80-26.00
Exercised			—
Canceled or forfeited			—
Weighted average SSAR exercise prices per share:
Granted		$	23.89
Exercised			—
Canceled or forfeited			—
Outstanding at September 30			23.89

     At September 30, 2006, the weighted average remaining contractual life of SSARs outstanding was approximately seven years.

     Director Restricted Stock Grants

     The Company’s Board of Directors approved a plan to provide $25,000 in annual restricted stock grants to all non-employee directors effective on the first day of each calendar year. The shares are restricted as to transferability for a period of three years, but are not subject to forfeiture. In the event a director departs from the Board of Directors, the non-transferability period would expire immediately. The plan allows for the director to have the option of forfeiting a portion of the shares awarded in lieu of a cash payment contributed to the participant’s tax withholding to satisfy the participant’s statutory minimum federal, state and employment taxes which would be payable at the time of grant. Effective January 1, 2006, the 2006 grant equated to 11,550 shares of common stock, of which 8,832 shares of common stock were issued, after shares were withheld for withholding taxes. The Company recorded stock compensation expense of approximately $0.3 million during the second quarter of 2006 associated with these grants.

     As of September 30, 2006, of the 5,000,000 shares reserved for issuance under the 2006 Plan, 3,426,918 shares were available for grant, assuming the maximum number of shares are issued related to the grants discussed above.

     Prior to the adoption of SFAS No. 123R, the Company accounted for all stock-based compensation awards under the Director Plan, the LTIP and Stock Option Plan (the “Option Plan”) as prescribed under APB No. 25 and also provided the disclosures required under SFAS No. 123 and SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS No. 148”). APB No. 25 required no recognition of

Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)

compensation expense for options granted under the Option Plan as long as certain conditions were met. The Company has not recorded any compensation expense in previous years under APB No. 25 related to the Option Plan. APB No. 25 required recognition of compensation expense under the Director Plan and the LTIP at the time the award was earned.

     There were no grants of options under the Option Plan during the nine months ended September 30, 2005. For disclosure purposes only, under SFAS No. 123, the Company estimated the fair value of grants under the Company’s Option Plan using the Black-Scholes option pricing model and the Barrier option model for awards granted under the Director Plan and the LTIP for periods prior to the adoption of SFAS No. 123R. Based on these models, the weighted average fair value of awards granted under the Director Plan and the LTIP were as follows for the three and nine months ended September 30, 2005:

		Three Months				Nine Months
		Ended				Ended
		September 30,				September 30,
		2005				2005
Director Plan		$	—			$	13.61
LTIP		$	15.65			$	15.65
Weighted average assumptions under Barrier option model:
Expected life of awards (years)			5.0				4.4
Risk-free interest rate			3.9	%			3.8	%
Expected volatility			42.9	%			42.4	%
Expected dividend yield			—				—

     The fair value of the grants and awards are amortized over the vesting period for stock options and awards earned under the Director Plan and LTIP and over the performance period for unearned awards under the Director Plan and LTIP. The following table illustrates the effect on net income and earnings per common share if the Company had applied the fair value recognition provisions of SFAS No. 123 and SFAS No. 148 for the three and nine months ended September 30, 2005 (in millions, except per share data):

		Three Months				Nine Months
		Ended				Ended
		September 30,				September 30,
		2005				2005
Net income, as reported		$	27.8			$	95.4
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects			0.1				0.2
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(1.4	)			(5.6	)
Pro forma net income		$	26.5			$	90.0
Earnings per share:
Basic — as reported		$	0.31			$	1.06
Basic — pro forma		$	0.29			$	1.00
Diluted — as reported		$	0.31			$	1.01
Diluted — pro forma		$	0.29			$	0.96

Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)

Stock Option Plan

     The Company’s Option Plan provides for the granting of nonqualified and incentive stock options to officers, employees, directors and others. The stock option exercise price is determined by the Company’s Board of Directors except in the case of an incentive stock option for which the purchase price shall not be less than 100% of the fair market value at the date of grant. Each recipient of stock options is entitled to immediately exercise up to 20% of the options issued to such person, and the remaining 80% of such options vest ratably over a four-year period and expire no later than ten years from the date of grant.

     There were no grants under the Option Plan during the nine months ended September 30, 2006. Stock option transactions during the nine months ended September 30, 2006 were as follows:

Options outstanding at January 1			1,249,058
Options granted			—
Options exercised			(508,000	)
Options canceled or forfeited			(85,038	)
Options outstanding at September 30			656,020
Options available for grant at September 30			1,919,837
Option price ranges per share:
Granted		$	—
Exercised			11.00-22.31
Canceled or forfeited			22.31-25.50
Weighted average option exercise prices per share:
Granted		$	—
Exercised			15.80
Canceled or forfeited			25.83
Outstanding at September 30			18.73

     At September 30, 2006, the outstanding options had a weighted average remaining contractual life of approximately three years and there were 650,020 options currently exercisable with option prices ranging from $8.50 to $31.25 with a weighted average exercise price of $18.71 and an aggregate intrinsic value of $4.8 million.

     The following table sets forth the exercise price range, number of shares, weighted average exercise price, and remaining contractual lives by groups of similar price:

		Options Outstanding												Options Exercisable
						Weighted Average								Exercisable
						Remaining				Weighted Average				as of				Weighted Average
						Contractual Life				Exercise				September 30,				Exercise
Range of Exercise Prices		Number of Shares				(Years)				Price				2006				Price
$8.50 — $11.88			172,150				3.8			$	11.09				172,150			$	11.09
$15.12 — $22.31			382,900				3.7			$	19.18				376,900			$	19.16
$23.00 — $31.25			100,970				1.2			$	30.01				100,970			$	30.01
			656,020												650,020

     The total intrinsic value of options exercised during the nine months ended September 30, 2006 was $5.4 million and the total fair value of shares vested during the same period was less than $0.1 million. There were 6,000 stock options that were not vested as of September 30, 2006. Cash received from stock option exercises was approximately $8.0 million for the nine months ended September 30, 2006. The Company did not realize a tax benefit from the exercise of these options.

Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)

Recent Accounting Pronouncements

     In September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 requires that public companies utilize a “dual-approach” to assessing the quantitative effects of financial misstatements. This dual approach includes both an income statement focused assessment and a balance sheet focused assessment. The guidance in SAB 108 must be applied to annual financial statements for fiscal years ending after November 15, 2006. The Company is currently assessing the impact of adopting SAB 108 on its 2006 consolidated financial position.

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). SFAS No. 158 requires an employer that sponsors one or more single-employer defined benefit plans to (a) recognize the overfunded or underfunded status of a benefit plan in its statement of financial position, (b) recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, “Employers’ Accounting for Pensions”, or SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”, (c) measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end, and (d) disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition assets or obligations. SFAS No. 158 is effective for the Company’s year ended December 31, 2006. The Company is in the process of evaluating the impact SFAS No. 158 will have on its 2006 consolidated statement of financial position related to its underfunded defined benefit pension plans, primarily in the U.K. and the U.S. Based upon the funded status as of December 31, 2005, and discount rates applicable on that date, the adoption of SFAS No. 158 would increase pension liabilities by approximately $40 — 45 million.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 establishes a common definition for fair value to be applied to guidance regarding U.S. generally accepted accounting principles, requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 157 on its 2008 consolidated financial position and results of operations.

     In September 2006, the FASB issued FASB Staff Position (“FSP”) AUG AIR-1 “Accounting for Planned Major Maintenance Activities” (“FSP AUG AIR-1”). FSP AUG AIR-1 amends the guidance on the accounting for planned major maintenance activities; specifically it precludes the use of the previously acceptable “accrue in advance” method. FSP AUG AIR-1 is effective for fiscal years beginning after December 15, 2006. The implementation of this standard will not have a material impact on the Company’s 2007 consolidated financial position or results of operations, as the Company does not employ the “accrue in advance” method.

     In June 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 06-4 (“EITF 06-4”), “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements,” which requires the application of the provisions of SFAS No. 106 “Employers’ Accounting for Postretirement Benefits Other Than Pensions” (“SFAS No. 106”), to endorsement split-dollar life insurance arrangements. SFAS No. 106 would require the Company to recognize a liability for the discounted future benefit obligation that the Company will have to pay upon the death of the underlying insured employee. An endorsement-type arrangement generally exists when the Company owns and controls all incidents of ownership of the underlying policies. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. The Company may have certain policies subject to the provisions of this new pronouncement, but does not believe the adoption of EITF 06-4 will have a material impact on its 2008 consolidated results of operations or financial position.

     In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is in the process of evaluating the impact FIN 48 will have on its 2007 consolidated results of operations and financial position.

Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)

     In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140” (“SFAS No. 156”). SFAS No. 156 requires an entity to recognize a servicing asset or liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in specified situations. Such servicing assets or liabilities would be initially measured at fair value, if practicable, and subsequently measured at amortized value or fair value based upon an election of the reporting entity. SFAS No. 156 also specifies certain financial statement presentations and disclosures in connection with servicing assets and liabilities. SFAS No. 156 is effective for fiscal years beginning after September 15, 2006 and may be adopted earlier but only if the adoption is in the first quarter of the fiscal year. The Company does not expect that the adoption of SFAS No. 156 will have a material effect on its 2007 consolidated financial position.

     In March 2006, the EITF reached a consensus on EITF Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (that is, Gross versus Net Presentation)” (“EITF 06-3”), which allows companies to adopt a policy of presenting taxes in the income statement on either a gross or net basis. Taxes within the scope of this EITF would include taxes that are imposed on a revenue transaction between a seller and a customer; for example, sales taxes, use taxes, value-added taxes, and some types of excise taxes. EITF 06-3 is effective for interim and annual reporting periods beginning after December 15, 2006. EITF 06-3 will not impact the method for recording and reporting these sales taxes in the Company’s 2007 consolidated results of operations or financial position as the Company’s policy is to exclude all such taxes from net sales and present such taxes in the consolidated statements of operations on a net basis.

     In April 2005, the SEC adopted a new rule that changed the adoption date of SFAS No. 123R. The Company adopted SFAS No. 123R effective January 1, 2006, and is using the modified prospective method of adoption. The Company currently estimates that the application of the expensing provisions of SFAS No. 123R will result in a pre-tax expense during 2006 of approximately $6.5 million, including the $1.3 million, discussed above, recorded in the first quarter of 2006 associated with the cancellations of awards.

     In November 2004, the FASB issued SFAS No. 151, “Inventory Costs-An Amendment of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 amends the guidance in Accounting Research Bulletin No. 43, Chapter 4, “Inventory Pricing” (“ARB No. 43”), to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight and rehandling costs be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” as stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. The Company’s adoption of SFAS 151 in the first quarter of 2006 did not have a material impact on the Company’s consolidated results of operations or financial position.

2. RESTRUCTURING AND OTHER INFREQUENT EXPENSES

     During the third quarter of 2006, the Company initiated the restructuring of certain parts, sales, marketing and administrative functions within its Coventry, United Kingdom location, resulting in the termination of approximately 13 employees. The Company recorded severance costs of approximately $0.4 million associated with the restructuring during the third quarter of 2006. Approximately $0.3 million of severance costs had been paid as of September 30, 2006 and 10 of the 13 employees had been terminated. The remaining $0.1 million of severance costs as of September 30, 2006 are expected to be paid during the fourth quarter of 2006.

     During the third quarter of 2006, the Company announced the closure of two sales offices located in Germany, including a Valtra sales office. The closures will result in the termination of approximately 16 employees. The Company recorded severance costs of approximately $0.5 million associated with the closures during the third quarter of 2006. None of the severance costs had been paid as of September 30, 2006 and none of the employees had been terminated. The severance costs and related terminations are expected to be paid and completed during 2007.

     During the second quarter of 2005, the Company announced that it was changing its distribution arrangements for its Valtra and Fendt products in Scandinavia by entering into a distribution agreement with a

Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)

third-party distributor to distribute Valtra and Fendt equipment in Sweden and Valtra equipment in Norway and Denmark. As a result of this agreement and the decision to close other Valtra European sales offices, the Company initiated the restructuring and closure of its Valtra sales offices located in the United Kingdom, Spain, Denmark and Norway, resulting in the termination of approximately 24 employees. The Danish and Norwegian sales offices were transferred to the third-party Scandinavian equipment distributor in October 2005, which included the transfer of certain employees, assets and lease and supplier contracts. The Company recorded severance costs, asset write-downs and other facility closure costs of approximately $0.4 million, $0.1 million and $0.1 million, respectively, related to these closures during 2005, $0.5 million of which were recorded during the first nine months of 2005. During the fourth quarter of 2005, the Company completed the sale of property, plant and equipment associated with the sales offices in the United Kingdom and Norway, and recorded a gain of approximately $0.2 million, which was reflected within “Restructuring and other infrequent expenses” within the Company’s Condensed Consolidated Statements of Operations. During the first quarter of 2006, the Company recorded an additional $0.1 million of severance costs related to these closures. As of September 30, 2006, all of the employees had been terminated and all severance and other facility closure costs had been paid.

     During the fourth quarter of 2004, the Company initiated the restructuring of certain administrative functions within its Finnish tractor manufacturing operations, resulting in the termination of approximately 58 employees. During 2004, the Company recorded severance costs of approximately $1.4 million associated with this rationalization. The Company recorded an additional $0.1 million associated with this rationalization during the first quarter of 2005, and, during the fourth quarter of 2005, reversed $0.1 million of previously established provisions related to severance costs as severance claims were finalized during the quarter. During 2005, the Company paid approximately $0.8 million of severance costs. As of March 31, 2006, all of the 58 employees had been terminated. The $0.6 million of severance payments accrued at September 30, 2006 are expected to be paid through 2009. In addition, during the first quarter of 2005, the Company incurred and expensed approximately $0.3 million of contract termination costs associated with the rationalization of its Valtra European parts distribution operations.

     In July 2004, the Company announced and initiated a plan related to the restructuring of its European combine manufacturing operations located in Randers, Denmark, to include the elimination of the facility’s component manufacturing operations, as well as the rationalization of the combine model range to be assembled in Randers. The restructuring plan is intended to reduce the cost and complexity of the Randers manufacturing operations by simplifying the model range. The Company now outsources manufacturing of the majority of parts and components to suppliers and has retained critical key assembly operations at the Randers facility. Component manufacturing operations ceased in February 2005. The Company recorded $11.5 million of restructuring and other infrequent expenses during 2004 associated with the rationalization and $0.9 million of restructuring charges during 2005, all of which were recorded during the first six months of 2005. During the third quarter of 2005, the Company reversed approximately $0.1 million of previously established provisions related to retention payments as employee retention claims were finalized during the quarter. During the second quarter of 2005, the Company completed auctions of machinery and equipment and recorded a gain of approximately $1.5 million associated with such actions. The gain was reflected within “Restructuring and other infrequent expenses” within the Company’s Condensed Consolidated Statement of Operations. As of December 31, 2005, all of the 298 employees associated with the rationalization had been terminated and all severance and other facility closure costs had been paid.

3. GOODWILL AND OTHER INTANGIBLE ASSETS

     Changes in the carrying amount of acquired intangible assets during the nine months ended September 30, 2006 are summarized as follows (in millions):

		Trademarks and				Customer				Patents and
		Tradenames				Relationships				Technology				Total
Gross carrying amounts:
Balance as of December 31, 2005		$	32.7			$	81.5			$	45.1			$	159.3
Foreign currency translation			0.1				5.7				3.0				8.8
Balance as of September 30, 2006		$	32.8			$	87.2			$	48.1			$	168.1

Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)

		Trademarks
		and				Customer				Patents and
		Tradenames				Relationships				Technology				Total
Accumulated amortization:
Balance as of December 31, 2005		$	4.8			$	17.7			$	13.5			$	36.0
Amortization expense			0.9				6.4				5.3				12.6
Foreign currency translation			—				1.3				0.9				2.2
Balance as of September 30, 2006		$	5.7			$	25.4			$	19.7			$	50.8

		Trademarks
		and
		Tradenames
Unamortized intangible assets:
Balance as of December 31, 2005		$	88.2
Foreign currency translation			2.4
Balance as of September 30, 2006		$	90.6

     Changes in the carrying amount of goodwill during the nine months ended September 30, 2006 are summarized as follows (in millions):

		North				South				Europe/Africa/
		America				America				Middle East				Consolidated
Balance as of December 31, 2005		$	174.0			$	137.0			$	385.7			$	696.7
Adjustment related to income taxes			—				—				22.0				22.0
Foreign currency translation			—				10.2				26.3				36.5
Balance as of September 30, 2006		$	174.0			$	147.2			$	434.0			$	755.2

     SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), establishes a method of testing goodwill and other indefinite-lived intangible assets for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The Company’s annual assessments involve determining an estimate of the fair value of the Company’s reporting units in order to evaluate whether an impairment of the current carrying amount of goodwill and other indefinite-lived intangible assets exists. Fair values are derived based on an evaluation of past and expected future performance of the Company’s reporting units. A reporting unit is an operating segment or one level below an operating segment (e.g., a component). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and the Company’s executive management team regularly reviews the operating results of that component. In addition, the Company combines and aggregates two or more components of an operating segment as a single reporting unit if the components have similar economic characteristics. The Company’s reportable segments reported under the guidance of SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” are not its reporting units, with the exception of its Asia/Pacific geographical segment.

     The Company utilized a combination of valuation techniques, including a discounted cash flow approach, a market multiple approach and a comparable transaction approach, when making its initial and subsequent annual and interim assessments. As stated above, goodwill is tested for impairment on an annual basis and more often if indications of impairment exist. The results of the Company’s most recent analyses, conducted as of October 1, 2005, indicated that no reduction in the carrying amount of goodwill was required in 2005.

     During the fourth quarter of 2006, the Company will be performing its annual impairment testing of goodwill and other intangible assets under SFAS No. 142. Net sales and results of operations of our sprayer business have been below the Company’s expectations. Accordingly, there is a possibility that a portion or all of the goodwill and other intangible assets associated with the sprayer business might be impaired. As of September 30, 2006, goodwill and other intangible assets related to the sprayer business totaled approximately $192 million.

     The Company amortizes certain acquired intangible assets primarily on a straight-line basis over their

Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)

estimated useful lives, which range from 3 to 30 years.

4. LONG-TERM DEBT

    Long-term debt consisted of the following at September 30, 2006 and December 31, 2005 (in millions):

		September 30,				December 31,
		2006				2005
Credit facility		$	407.1			$	401.5
13/4% Convertible senior subordinated notes due 2033			201.3				201.3
67/8% Senior subordinated notes due 2014			253.5				237.0
Other long-term debt			7.8				8.3
			869.7				848.1
Less: Current portion of long-term debt			(6.3	)			(6.3	)
Total long-term debt, less current portion		$	863.4			$	841.8

5. INVENTORIES

     Inventories are valued at the lower of cost or market using the first-in, first-out method. Market is net realizable value for finished goods and repair and replacement parts. For work in process, production parts and raw materials, market is replacement cost. Cash flows related to the sale of inventories are reported within “Cash flows from operating activities” within the Company’s Condensed Consolidated Statements of Cash Flows.

     Inventories at September 30, 2006 and December 31, 2005 were as follows (in millions):

		September 30,				December 31,
		2006				2005
Finished goods		$	641.8			$	477.3
Repair and replacement parts			329.1				307.5
Work in process			72.2				63.3
Raw materials			218.2				214.4
Inventories, net		$	1,261.3			$	1,062.5

6. PRODUCT WARRANTY

     The warranty reserve activity for the three months ended September 30, 2006 and 2005 consisted of the following (in millions):

		Three Months Ended
		September 30,
		2006				2005
Balance at beginning of quarter		$	128.5			$	128.8
Accruals for warranties issued during the period			27.9				32.5
Settlements made (in cash or in kind) during the period			(29.9	)			(36.3	)
Foreign currency translation			(0.9	)			2.5
Balance at September 30		$	125.6			$	127.5

Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)

     The warranty reserve activity for the nine months ended September 30, 2006 and 2005 consisted of the following (in millions):

		Nine Months Ended
		September 30,
		2006				2005
Balance at beginning of the year		$	122.8			$	135.0
Accruals for warranties issued during the period			85.8				90.9
Settlements made (in cash or in kind) during the period			(86.9	)			(91.4	)
Foreign currency translation			3.9				(7.0	)
Balance at September 30		$	125.6			$	127.5

     The Company’s agricultural equipment products are generally warranted against defects in material and workmanship for a period of one to four years. The Company accrues for future warranty costs at the time of sale based on historical warranty experience.

7. NET INCOME PER COMMON SHARE

     The computation, presentation and disclosure requirements for earnings per share are presented in accordance with SFAS No. 128, “Earnings Per Share.” Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during each period. Diluted earnings per common share assumes exercise of outstanding stock options and vesting of restricted stock when the effects of such assumptions are dilutive.

     During the fourth quarter of 2004, the EITF reached a consensus on EITF Issue No. 04-08, “Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings per Share,” which requires that contingently convertible debt should be included in the calculation of diluted earnings per share using the if-converted method regardless of whether a market price trigger has been met. The Company adopted the statement during the fourth quarter of 2004 and included approximately 9.0 million additional shares of common stock that could have been issued upon conversion of the Company’s former $201.3 million aggregate principal amount of 1³/4% convertible senior subordinated notes in its diluted earnings per share calculation for the six months ended June 30, 2005. In addition, diluted earnings per share for periods prior to the fourth quarter of 2004 was required to be restated for each period that the former convertible notes were outstanding. The convertible notes were issued on December 23, 2003. Since the Company is not recording a tax benefit for losses in the United States for tax purposes, the interest expense associated with the convertible notes included in the diluted earnings per share calculation does not reflect a tax benefit. On June 29, 2005, the Company completed an exchange of its former notes for new notes that provide for (i) the settlement upon conversion in cash up to the principal amount of the converted new notes with any excess conversion value settled in shares of the Company’s common stock, and (ii) the conversion rate to be increased under certain circumstances if the new notes are converted in connection with certain change of control transactions occurring prior to December 10, 2010, but otherwise are substantially the same as the old notes. The impact of the exchange resulted in a reduction in the diluted weighted average shares outstanding of approximately 9.0 million shares on a prospective basis. Dilution of weighted shares outstanding subsequent to the exchange depends on the Company’s stock price once the market price trigger or other specified conversion circumstances are met. A reconciliation of net income and weighted average common shares outstanding for purposes of calculating basic and diluted earnings per share for the three and nine months ended September 30, 2006 and 2005 is as follows (in millions, except per share data):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2006				2005				2006				2005
Basic net income per share:
Net income		$	5.4			$	27.8			$	63.6			$	95.4
Weighted average number of common shares outstanding			91.0				90.4				90.8				90.4
Basic net income per share		$	0.06			$	0.31			$	0.70			$	1.06

Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2006				2005				2006				2005
Diluted net income per share:
Net income		$	5.4			$	27.8			$	63.6			$	95.4
After-tax interest expense on contingently convertible senior subordinated notes			—				—				—				2.3
Net income for purposes of computing diluted net income per share		$	5.4			$	27.8			$	63.6			$	97.7
Weighted average number of common shares outstanding			91.0				90.4				90.8				90.4
Dilutive stock options and restricted stock awards			0.2				0.3				0.3				0.3
Weighted average assumed conversion of contingently convertible senior subordinated notes			0.8				—				0.4				5.9
Weighted average number of common and common equivalent shares outstanding for purposes of computing diluted earnings per share			92.0				90.7				91.5				96.6
Diluted net income per share		$	0.06			$	0.31			$	0.69			$	1.01

     There were SSARs and stock options to purchase 0.1 million and 0.5 million shares for the three and nine months ended September 30, 2006, respectively, and stock options to purchase 0.5 million shares for both the three and nine months ended September 30, 2005, that were excluded from the calculation of diluted earnings per share because the option exercise prices were higher than the average market price of the Company’s common stock during the related period.

8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     The Company applies the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities — An Amendment of FASB Statement No. 133.” All derivatives are recognized on the consolidated balance sheets at fair value. On the date the derivative contract is entered into, the Company designates the derivative as either (1) a fair value hedge of a recognized liability, (2) a cash flow hedge of a forecasted transaction, (3) a hedge of a net investment in a foreign operation, or (4) a non-designated derivative instrument.

     The Company formally documents all relationships between hedging instruments and hedged items, as well as the risk management objectives and strategy for undertaking various hedge transactions. The Company formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flow of hedged items. When it is determined that a derivative is no longer highly effective as a hedge, hedge accounting is discontinued on a prospective basis.

Foreign Currency Risk

     The Company has significant manufacturing operations in the United States, France, Germany, Finland, Brazil and Denmark, and it purchases a portion of its tractors, combines and components from third-party foreign suppliers, primarily in various European countries and in Japan. The Company also sells products in over 140 countries throughout the world. The Company’s most significant transactional foreign currency exposures are the Euro, Brazilian Real and the Canadian dollar in relation to the United States dollar.

     The Company attempts to manage its transactional foreign exchange exposure by hedging foreign currency cash flow forecasts and commitments arising from the settlement of receivables and payables and from future purchases and sales. Where naturally offsetting currency positions do not occur, the Company hedges certain, but not all, of its exposures through the use of foreign currency forward contracts. The Company’s hedging policy prohibits foreign currency forward contracts for speculative trading purposes.

     The Company uses foreign currency forward contracts to economically hedge receivables and payables on the Company and its subsidiaries’ balance sheets that are denominated in foreign currencies other than the

Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)

functional currency. These forward contracts are classified as non-designated derivatives instruments. Gains and losses on such contracts are historically substantially offset by losses and gains on the remeasurement of the underlying asset or liability being hedged. Changes in the fair value of non-designated derivative contracts are reported in current earnings.

     During the second quarter of 2006, the Company designated certain foreign currency option contracts as cash flow hedges of expected sales. The effective portion of the fair value gains or losses on these cash flow hedges are recorded in other comprehensive income and subsequently reclassified into net sales as the sales are recognized. These amounts offset the effect of the changes in foreign exchange rates on the related sale transactions. The amount of the unrealized gain recorded in other comprehensive income that is expected to be reclassified to net sales during the fourth quarter ended December 31, 2006 is approximately $2.5 million on an after tax basis based on the exchange rate as of September 30, 2006. These contracts all expire prior to December 31, 2006.

     The following table summarizes activity in accumulated other comprehensive gain related to derivatives held by the Company during the nine months ended September 30, 2006 (in millions):

		Before-Tax				Income				After-Tax
		Amount				Tax				Amount
Accumulated derivative net gains as of December 31, 2005		$	—			$	—			$	—
Net changes in fair value of derivatives			3.9				—				3.9
Net gains reclassified from accumulated other comprehensive gain into earnings			1.4				—				1.4
Accumulated derivative net gains as of September 30, 2006		$	2.5			$	—			$	2.5

     The Company’s senior management establishes the Company’s foreign currency and interest rate risk management policies. These policies are reviewed periodically by the Audit Committee of the Company’s Board of Directors. The policy allows for the use of derivative instruments to hedge exposures to movements in foreign currency and interest rates. The Company’s policy prohibits the use of derivative instruments for speculative purposes.

9. COMPREHENSIVE INCOME

    Total comprehensive income for the three and nine months ended September 30, 2006 and 2005 was as follows (in millions):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Net income		$	5.4			$	27.8			$	63.6			$	95.4
Other comprehensive income, net of tax:
Foreign currency translation adjustments			(7.5	)			16.7				69.7				13.3
Unrealized (loss) gain on derivatives			(0.6	)			—				2.5				—
Unrealized (loss) gain on derivatives held by affiliates			(3.7	)			2.0				(1.8	)			2.1
Total comprehensive (loss) income		$	(6.4	)		$	46.5			$	134.0			$	110.8

10. ACCOUNTS RECEIVABLE SECURITIZATION

     At September 30, 2006, the Company had accounts receivable securitization facilities in the United States, Canada and Europe totaling approximately $489.4 million. Under the securitization facilities, wholesale accounts receivable are sold on a revolving basis to commercial paper conduits either on a direct basis or through a wholly-owned special purpose U.S. subsidiary. The Company accounts for its securitization facilities and its wholly-owned special purpose U.S. subsidiary in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a Replacement of FASB Statement No. 125” (“SFAS No. 140”), and FIN No. 46R, “Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51” (“FIN 46R”). Due to the fact that the receivables sold to the commercial paper

Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)

conduits are an insignificant portion of the conduits’ total asset portfolios and such receivables are not siloed, consolidation is not appropriate under FIN 46R, as the Company does not absorb a majority of losses under such transactions. In addition, these facilities are accounted for as off-balance sheet transactions in accordance with SFAS No. 140.

     Outstanding funding under these facilities totaled approximately $387.3 million at September 30, 2006 and $462.7 million at December 31, 2005. The funded balance has the effect of reducing accounts receivable and short-term liabilities by the same amount. Losses on sales of receivables primarily from securitization facilities included in other expense, net were $6.5 million and $5.9 million for the three months ended September 30, 2006 and 2005, respectively, and $20.3 million and $16.5 million for the nine months ended September 30, 2006 and 2005, respectively. The losses are determined by calculating the estimated present value of receivables sold compared to their carrying amount. The present value is based on historical collection experience and a discount rate representing the spread over LIBOR as prescribed under the terms of the agreements.

     During the second quarter of 2005, the Company completed an agreement to permit transferring, on an ongoing basis, the majority of its wholesale interest-bearing receivables in North America to AGCO Finance LLC and AGCO Finance Canada, Ltd., its U.S. and Canadian retail finance joint ventures. The Company has a 49% ownership interest in these joint ventures. The transfer of the receivables is without recourse to the Company and the Company continues to service the receivables. As of September 30, 2006, the balance of interest-bearing receivables transferred to AGCO Finance LLC and AGCO Finance Canada, Ltd. under this agreement was approximately $130.6 million.

11. EMPLOYEE BENEFIT PLANS

     The Company has defined benefit pension plans covering certain employees, principally in the United States, the United Kingdom, Germany, Finland, Norway, France, Australia and Argentina. The Company also provides certain postretirement health care and life insurance benefits for certain employees, principally in the United States, as well as a supplemental executive retirement plan which is an unfunded plan that provides Company executives with retirement income for a period of ten years after retirement.

     Net pension and postretirement cost for the plans for the three months ended September 30, 2006 and 2005 are set forth below (in millions):

		Three Months Ended
		September 30,
Pension benefits		2006				2005
Service cost		$	1.5			$	1.5
Interest cost			9.7				10.3
Expected return on plan assets			(9.1	)			(8.6	)
Amortization of net actuarial loss and prior service cost			4.6				4.5
Net pension cost		$	6.7			$	7.7

Postretirement benefits		2006				2005
Service cost		$	0.1			$	0.1
Interest cost			0.4				0.5
Amortization of prior service cost			—				0.1
Amortization of unrecognized net loss			0.2				0.2
Curtailment gain			—				(1.1	)
Net postretirement cost (income)		$	0.7			$	(0.2	)

Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)

     Net pension and postretirement cost for the plans for the nine months ended September 30, 2006 and 2005 are set forth below (in millions):

		Nine Months Ended
		September 30,
Pension benefits		2006				2005
Service cost		$	4.3			$	4.5
Interest cost			28.9				30.8
Expected return on plan assets			(27.3	)			(25.9	)
Amortization of net actuarial loss and prior service cost			13.9				13.6
Net pension cost		$	19.8			$	23.0

Postretirement benefits		2006				2005
Service cost		$	0.2			$	0.5
Interest cost			1.3				1.7
Amortization of prior service cost			(0.1	)			0.2
Amortization of unrecognized net loss			0.5				0.9
Curtailment gain			—				(1.1	)
Net postretirement cost		$	1.9			$	2.2

     During the third quarter of 2005, the Company recognized a curtailment of one of its postretirement health care plans, resulting in a $1.1 million decrease to its net postretirement cost.

     During the nine months ended September 30, 2006, approximately $16.0 million of contributions had been made to the Company’s defined benefit pension plans. The Company currently estimates its minimum contributions for 2006 to its defined benefit pension plans will aggregate approximately $22.7 million. During the nine months ended September 30, 2006, the Company made approximately $2.0 million of contributions to its U.S.-based postretirement health care and life insurance benefit plans.

12. SEGMENT REPORTING

     The Company has four reportable segments: North America; South America; Europe/Africa/Middle East; and Asia/Pacific. Each regional segment distributes a full range of agricultural equipment and related replacement parts. The Company evaluates segment performance primarily based on income from operations. Sales for each regional segment are based on the location of the third-party customer. The Company’s selling, general and administrative expenses and engineering expenses are charged to each segment based on the region and division where the expenses are incurred. As a result, the components of income from operations for one segment may not be comparable to another segment. Segment results for the three and nine months ended September 30, 2006 and 2005 and assets as of September 30, 2006 and December 31, 2005 are as follows (in millions):

Three Months Ended		North				South				Europe/Africa/				Asia/
September 30,		America				America				Middle East				Pacific				Consolidated
2006
Net sales		$	259.5			$	169.0			$	709.0			$	43.4			$	1,180.9
(Loss) income from operations			(19.3	)			12.2				50.9				6.0				49.8
Depreciation			6.2				4.1				13.2				0.7				24.2
Capital expenditures			4.9				1.8				26.1				0.1				32.9
2005
Net sales		$	350.2			$	167.9			$	658.5			$	57.0			$	1,233.6
Income from operations			1.6				13.1				48.3				10.1				73.1
Depreciation			6.1				3.7				11.0				0.7				21.5
Capital expenditures			2.5				1.4				15.0				0.1				19.0

Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)

Nine Months Ended		North				South				Europe/Africa/				Asia/
September 30,		America				America				Middle East				Pacific				Consolidated
2006
Net sales		$	923.5			$	470.8			$	2,295.2			$	111.7			$	3,801.2
(Loss) income from operations			(22.4	)			32.3				188.5				13.3				211.7
Depreciation			18.4				12.2				39.1				1.8				71.5
Capital expenditures			11.3				4.4				64.7				0.3				80.7

2005
Net sales		$	1,208.2			$	505.5			$	2,200.9			$	150.2			$	4,064.8
Income from operations			24.1				36.4				177.0				25.3				262.8
Depreciation			19.7				10.3				34.5				2.2				66.7
Capital expenditures			9.3				3.3				31.8				0.4				44.8
Assets
As of September 30, 2006		$	720.8			$	390.2			$	1,243.5			$	92.5			$	2,447.0
As of December 31, 2005			760.3				346.1				1,091.4				79.8				2,277.6

     A reconciliation from the segment information to the consolidated balances for income from operations and total assets is set forth below (in millions):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Segment income from operations		$	49.8			$	73.1			$	211.7			$	262.8
Corporate expenses			(11.1	)			(10.0	)			(34.9	)			(28.9	)
Stock compensation expenses			(1.3	)			(0.2	)			(4.5	)			(0.3	)
Restructuring and other infrequent expense			(0.9	)			—				(1.0	)			(0.2	)
Amortization of intangibles			(4.3	)			(4.1	)			(12.6	)			(12.4	)
Consolidated income from operations		$	32.2			$	58.8			$	158.7			$	221.0

		As of				As of
		September				December
		30, 2006				31, 2005
Segment assets		$	2,447.0			$	2,277.6
Cash and cash equivalents			166.5				220.6
Receivables from affiliates			2.0				2.0
Investments in affiliates			186.7				164.7
Deferred tax assets			123.8				123.8
Other current and noncurrent assets			172.1				164.3
Intangible assets, net			207.9				211.5
Goodwill			755.2				696.7
Consolidated total assets		$	4,061.2			$	3,861.2

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

     Our operations are subject to the cyclical nature of the agricultural industry. Sales of our equipment have been and are expected to continue to be affected by changes in net cash farm income, farm land values, weather conditions, demand for agricultural commodities, commodity prices and general economic conditions. We record sales when we sell equipment and replacement parts to our independent dealers, distributors or other customers. To the extent possible, we attempt to sell products to our dealers and distributors on a level basis throughout the year to reduce the effect of seasonal demands on manufacturing operations and to minimize our investment in inventory. Retail sales by dealers to farmers are highly seasonal and are a function of the timing of the planting and harvesting seasons. As a result, our net sales have historically been the lowest in the first quarter and have increased in subsequent quarters.

RESULTS OF OPERATIONS

     For the three months ended September 30, 2006, we generated net income of $5.4 million, or $0.06 per share, compared to net income of $27.8 million, or $0.31 per share, for the same period in 2005. For the first nine months of 2006, we generated net income of $63.6 million, or $0.69 per share, compared to net income of $95.4 million, or $1.01 per share, for the same period in 2005.

     Net sales during the third quarter and first nine months of 2006 were $1,180.9 million and $3,801.2 million, respectively, which were 4.3% and 6.5% lower than the third quarter and first nine months of 2005, respectively, primarily due to sales declines in the North America, South America and Asia/Pacific regions, partially offset by sales increases in the Europe/Africa/Middle East region, particularly in Europe.

     Third quarter income from operations was $32.2 million in 2006 compared to $58.8 million in the third quarter of 2005. Income from operations was $158.7 million for the first nine months of 2006 compared to $221.0 million for the same period in 2005. The decrease in income from operations was primarily due to the decrease in net sales.

     Income from operations increased in our Europe/Africa/Middle East region in the third quarter and first nine months of 2006 primarily due to the increase in net sales as a result of strong market conditions in key regions of Europe, particularly in Germany. In the South America region, income from operations decreased in the third quarter and first nine months of 2006 due to sales declines resulting from weak market conditions. Income from operations in North America was lower in the third quarter and first nine months of 2006 primarily due to a reduction in net sales resulting from weaker market conditions and reductions in seasonal dealer inventory levels during 2006. Income from operations in our Asia/Pacific region was lower in the third quarter and first nine months of 2006 due to lower sales in Australia, New Zealand and Asia.

Retail Sales

     In North America, industry unit retail sales of tractors for the first nine months of 2006 decreased approximately 2% compared to the first nine months of the prior year resulting from decreases in the compact and high horsepower tractor segments, offset by a slight increase in the utility tractor segment. Industry unit retail sales of combines for the first nine months of 2006 were approximately 8% lower than the prior year period. Expected decline in farm income in North America is likely contributing to the weaker demand. Our unit retail sales of tractors and combines were lower in the first nine months of 2006 compared to 2005.

     In Europe, industry unit retail sales of tractors for the first nine months of 2006 increased approximately 1% compared to the prior year period. Retail demand declined in France, Italy, Finland and Spain, but improved in Germany, the United Kingdom, Scandinavia and Central and Eastern Europe. Southern Europe industry demand continues to be lower than the prior year resulting from the impact of drought conditions in second half of 2005. Our unit retail sales were higher in the first nine months of 2006 compared to 2005.

     South American industry unit retail sales of tractors in the first nine months of 2006 decreased approximately 8% over the prior year period. Retail sales of tractors in the major market of Brazil increased approximately 7% during the first nine months of 2006 compared to the same period in 2005. Industry unit retail sales of combines for the first nine months of 2006 were approximately 40% lower than the prior year period, with a decline in Brazil of approximately 47% compared to the prior year period. Market demand in South America has continued to decline in 2006 particularly in the soybean and grain sectors where farmers have been negatively affected by reduced export margins due to the strong Brazilian currency and high debt levels. South American unit retail sales of tractors and combines also decreased in the first nine months of 2006 compared to 2005.

     Outside of North America, Europe and South America, net sales for the first nine months of 2006 were lower than the prior year period due to lower sales in Asia, Australia and the Middle East.

Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

STATEMENTS OF OPERATIONS

     Net sales for the third quarter of 2006 were $1,180.9 million compared to $1,233.6 million for the same period in 2005. Net sales for the first nine months of 2006 were $3,801.2 million compared to $4,064.8 million for the prior year period. The decrease in net sales was primarily due to sales declines in the North America, South America and Asia/Pacific regions, partially offset by sales increases in the Europe/Africa/Middle East region, particularly in Europe. Foreign currency translation positively impacted net sales by $41.5 million, or 3.4%, in the third quarter of 2006 and by $19.3 million, or 0.5%, in the first nine months of 2006. The following table sets forth, for the three and nine months ended September 30, 2006 and 2005, the impact to net sales of currency translation by geographical segment (in millions, except percentages):

		Three Months Ended																Change Due to Currency
		September 30,								Change								Translation
		2006				2005				$				%				$				%
North America		$	259.5			$	350.2			$	(90.7	)			(25.9	)%		$	2.4				0.7	%
South America			169.0				167.9				1.1				0.6	%			7.6				4.5	%
Europe/Africa/Middle East			709.0				658.5				50.5				7.7	%			31.0				4.7	%
Asia/Pacific			43.4				57.0				(13.6	)			(23.8	)%			0.5				0.9	%
		$	1,180.9			$	1,233.6			$	(52.7	)			(4.3	)%		$	41.5				3.4	%

		Nine Months Ended																Change Due to Currency
		September 30,								Change								Translation
		2006				2005				$				%				$				%
North America		$	923.5			$	1,208.2			$	(284.7	)			(23.6	)%		$	10.2				0.8	%
South America			470.8				505.5				(34.7	)			(6.9	)%			39.9				7.9	%
Europe/Africa/Middle East			2,295.2				2,200.9				94.3				4.3	%			(29.0	)			(1.3	)%
Asia/Pacific			111.7				150.2				(38.5	)			(25.6	)%			(1.8	)			(1.2	)%
		$	3,801.2			$	4,064.8			$	(263.6	)			(6.5	)%		$	19.3				0.5	%

Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

     Regionally, net sales in North America decreased during the third quarter and first nine months of 2006, primarily due to lower seasonal increases in dealer inventories in 2006 compared to 2005. This was as a result of lower dealer deliveries during 2006 to achieve a reduction in dealer floorplan inventories compared to the prior year period. In addition, retail demand in North America softened considerably during the third quarter of 2006. In the Europe/Africa/Middle East region, net sales increased in the third quarter and first nine months of 2006 primarily due to sales growth in Germany and Eastern Europe. Net sales in South America decreased during the third quarter and first nine months of 2006 primarily as a result of weak market conditions in the region. In the Asia/Pacific region, net sales decreased in the third quarter and first nine months of 2006 compared to the same periods in 2005 due to decreases in industry demand in the region. We estimate that consolidated price increases during both the third quarter and the first nine months of 2006 contributed approximately 2% as an offset to the decrease in sales. Consolidated net sales of tractors and combines, which comprised approximately 70% and 69% of our net sales in the third quarter and first nine months of 2006, respectively, decreased approximately 4% and 8% in the third quarter and first nine months of 2006, respectively, compared to the same periods in 2005. Unit sales of tractors and combines increased approximately 3% during the third quarter of 2006 and decreased approximately 9% in the first nine months of 2006 compared to similar periods in 2005. The difference between the unit sales increase and decrease for the three and nine months ended September 30, 2006, respectively, and the decrease in net sales was primarily the result of foreign currency translation, pricing and sales mix changes.

     The following table sets forth, for the periods indicated, the percentage relationship to net sales of certain items in our condensed consolidated statements of operations (in millions, except percentages):

		Three Months Ended
		September 30,
		2006								2005
						% of								% of
		$				Net Sales				$				Net Sales(1)
Gross profit		$	204.3				17.3	%		$	219.0				17.8	%
Selling, general and administrative expenses			135.0				11.4	%			126.2				10.2	%
Engineering expenses			31.9				2.7	%			29.9				2.4	%
Restructuring and other infrequent expenses			0.9				0.1	%			—				—
Amortization of intangibles			4.3				0.4	%			4.1				0.3	%
Income from operations		$	32.2				2.7	%		$	58.8				4.8	%

		Nine Months Ended
		September 30,
		2006								2005
						% of								% of
		$				Net Sales				$				Net Sales
Gross profit		$	661.9				17.4	%		$	709.7				17.5	%
Selling, general and administrative expenses			394.1				10.4	%			384.1				9.5	%
Engineering expenses			95.5				2.5	%			92.0				2.3	%
Restructuring and other infrequent expenses			1.0				—				0.2				—
Amortization of intangibles			12.6				0.3	%			12.4				0.3	%
Income from operations		$	158.7				4.2	%		$	221.0				5.4	%