Greg Peterson - Director of Investor Relations Martin H. Richenhagen - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Member of Succession Planning Committee Andrew H. Beck - Chief Financial Officer and Senior Vice President.

Jamie L. Cook - Crédit Suisse AG, Research Division Joseph O'Dea - Vertical Research Partners, LLC Alan M.

Fleming - Barclays Capital, Research Division Eric Crawford - UBS Investment Bank, Research Division Michael Shlisky - Global Hunter Securities, LLC, Research Division Matthew Rybak - Goldman Sachs Group Inc., Research Division Chad Dillard - Deutsche Bank AG, Research Division Lawrence T.

De Maria - William Blair & Company L.L.C., Research Division Emily McLaughlin - RBC Capital Markets, LLC, Research Division.

Good morning. My name is Leanne, and I will be your conference operator today. At this time, I would like to welcome everyone to the AGCO Third Quarter Earnings Release Conference Call. [Operator Instructions] I will now turn the call over to Greg Peterson, Head of Investor Relations. Please go ahead..

Thanks, Leanne, and good morning. Welcome to those of you joining us on the call for our third quarter 2014 earnings presentation. We will refer to a slide presentation this morning, which is posted on our website at www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the last section of the slides.

We will make forward-looking statements this morning, including demand of our products, the economic and other factors that drive that demand; product development plans, timing of those plans; acquisition, expansion and modernization plans and our expectations with respect to the costs and benefits of those plans and timings of those benefits.

Our future revenue, earnings and other financial metrics will also be discussed. We wish to caution you that these statements are predictions and that actual events 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, 2013 and subsequent Form 10-Qs.

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 later today.

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. With that, Martin, please go ahead..

Thank you, Greg, and good morning, everybody. We appreciate you joining us on the call. I'll begin my remarks on Slide 3, where you can see that in the third quarter of 2014, AGCO sales were down approximately 13% versus previous year.

While our products are performing well in the market, our results reflect the impacts from both softer industry product demand and our resulting production cost cuts. In response to weaker industry conditions, we are executing our plan to reduce inventory and aggressively control costs.

Our team is analyzing all aspects of the business to identify cost savings and to better align our operations with the current market environment. We are balancing the need for cost reduction with our commitment to customer support and the need to maintain our market presence.

Despite the downturn in the commodity markets, we remain confident that long-term agricultural fundamentals remain positive. Strong harvests are still required to meet the growing demand for food and biofuel requirements. Our optimism for the long-term demand for our products is driving continued investment in our long-term growth initiatives.

While we do plan to manage our production and working capital very closely this year, we are planning strategic investments in engineering and capital expenditures. Slide 4 details industry unit volumes by region for the first 9 months of 2014.

Nearly ideal growing conditions have contributed to record crop production across the global ag markets this year. The outlook for increased year-end grain inventories is pressuring commodity prices, which will negatively impact the economics for row crop farmers but favorably improve the profitability of dairy and livestock producers.

In North America, industry sales grew in the lower-horsepower categories, which are typically sold to dairy and livestock sectors, while sales of higher-margin, high-horsepower tractors and combines declined significantly in the first 9 months of 2014 compared to the same period in 2013.

Industry unit retail sales of tractors in Western Europe were down about 7% in the first 9 months of 2014 compared to industry sales in the first 9 months of 2013. Market results by country remained mixed with a significant decline in our key market of France. We're also experiencing lower demand in the important markets of Germany and Scandinavia.

The South American industry retail tractor volumes decreased significantly during the first 9 months of 2014 compared to the same period in 2013 as well. The decline was most pronounced in Brazil and Argentina.

Demand in Brazil has been negatively impacted by funding delays in the government financing program earlier in the year and by weaker demand from sugar producers. AGCO's tractor and combine production volumes are illustrated on Slide 5.

As I mentioned earlier, we made further reductions to our production schedule during the third quarter in response to softer market conditions. Our production was down about 11% in the third quarter 2014 compared to the third quarter of 2013.

Production of our high-horsepower equipment was down more significantly and was partially offset by increased production of small, low-horsepower tractors. Globally, our order book for tractors was down about 15% at the end of December -- of September compared to September 30, 2013.

We expect production volumes to be down 15% to 20% in the fourth quarter and down about 15% for the full year versus the comparable prior year period. Declines in higher-horsepower equipment are expected to be partially offset by increases in lower-horsepower machines.

I will now turn the call over to Andy Beck, who will provide you more information on our third quarter results..

Thank you, Martin, and good morning to everyone. I will start with a look at AGCO's regional net sales performance for the third quarter and first 9 months of 2014, which are outlined on Slide 6.

The euro and Brazilian real both weakened during the third quarter, and currency translation negatively impacted net sales by about 0.7% during the third quarter. At today's rate, currency is expected to reduce our fourth quarter sales more significantly, resulting in an annual negative impact of about 2% for the full year of 2014.

Softer market conditions are pressuring results across all our regions. The Europe/Africa/Middle East segment reported a decrease in net sales of approximately 5%, excluding the negative impact of currency translation during the third quarter of 2014 compared to the third quarter of 2013.

With softer demand from the arable farming sector, France and Germany reported the largest declines. Growth in Africa and Turkey offset some of the decrease.

North American sales were down approximately 22%, excluding the unfavorable impact of currency translation during the third quarter of 2014 compared to the higher levels experienced in the third quarter of 2013.

Lower sales of high-horsepower tractors, sprayers and implements were partially offset by sales growth in lower-horsepower tractors and grain storage. North America sales were also negatively impacted by the timing of new product introductions and by some dealer de-stocking during the third quarter.

AGCO's third quarter 2014 net sales in South America were down 18% compared to strong levels in the third quarter of 2013, excluding negative currency translation impacts. Sales declined across all South American markets.

Net sales in our Asia/Pacific segment increased approximately 9% in the third quarter 2014 compared to 2013, excluding the negative impact of currency translation. The improvement resulted from sales growth in the Australia/New Zealand market.

Parts sales were $367 million for the third quarter of 2014, which were flat compared to the same period in 2013, excluding the impact of currency translation. Parts sales increased approximately 4% in the first 9 months of 2014. Slide 7 details AGCO's sales and margin performance.

Operating margins declined about 300 basis points in the third quarter of 2014 compared to the prior year period. Lower sales and production volumes and a weaker product mix generated the decline. Europe/Africa/Middle East operating income decreased about $41 million in the third quarter of 2014 from the same period in 2013.

Lower sales and the impact of lower production and a weak sales mix contributed to the decline. North America's operating income also declined about $41 million in the third quarter of 2014 compared to the third quarter of 2013. Sales declines and a weaker product mix contributed to the lower operating income.

In South America region, operating margins were 8% in the third quarter of 2014, a decline of 460 basis points compared to the same period in 2013. Weaker margins resulted from lower sales and production levels and material cost inflation.

In addition to our regional results, our results for the third quarter included reversal of previously recorded long-term stock compensation expense of about $24 million. Slide 8 details GSI sales by region and by product. GSI sales were up about 9% for the first 9 months of 2014 compared to the same period in 2013.

The largest increases incurred was grain storage sales in Europe, North America and Brazil. We are forecasting GSI sales to be up approximately 10% for the full year of 2014 compared to 2013, with most of the growth occurring outside the U.S.

Longer term, the global trends of population growth and changing diets are generating demand for additional grain storage and protein production capacity. Slide 9 looks at our depreciation and capital expenditure trends.

Our CapEx has been elevated the last few years to facilitate our plant productivity and new facility projects as well as Tier 4 new product introductions which support our growth and margin ambitions. We have reduced our CapEx program modestly for the remainder of 2014.

The spending will focus on Tier 4 emissions requirements, other new product introductions and our new facility in China. Slide 10 addresses AGCO's free cash flow, which represents cash used in operating activities less capital expenditures.

Our seasonal requirements for working capital are greater in the first half of the year and thereby, resulted in negative free cash flow in the first 9 months of both 2013 and '14. Our increased cash used in the first 9 months of 2014 resulted from higher levels of working capital.

AGCO's inventory position at the end of September was higher than a year ago due to increased inventory attributable to the transition to Tier 4 products, high replacement part inventories and increases caused by declining sales.

We have made further reductions to our production schedule and are targeting year -- end-of-year inventory levels at or below last year's levels. At the end of September 2014, our North America dealer month supply on a trailing 12-month basis was in the 6-month range for tractors, about 5 months for combines and 6 months for hay equipment.

These levels are comparable to those in 2013. Losses on sales of receivables associated with our receivable financing facilities, which are included in other expense, net, were approximately $4.8 million during the third quarter of 2014 compared to $6.7 million in the same period of 2013.

Slide 11 highlights AGCO's plans for returning cash to our stockholders. In March, we increased our quarterly dividend by 10%, and we've made significant progress on our share repurchase program.

Through the end of September, we purchased approximately 6.4 million shares, which lowered our weighted average share count by 4.1 million shares for the first 9 months of 2014. Our 2014 outlook for 3 major regional markets is captured on Slide 12.

In North America, we increased our outlook for the growth in utility tractors associated with improved economics being experienced by dairy and livestock producers. However, our sales forecast for higher-horsepower tractors, combines and sprayers have also been reduced to reflect softening demand within the row crop farming sectors.

Our South America industry forecast reflects pressure from FINAME funding interruptions earlier in the year, a weaker sugar sector and lower demand in Argentina. In Western Europe, we expect demand declines in the arable farming sector and are forecasting more significant drops in the demand for higher-horsepower equipment.

After several strong years of industry sales in France and Germany, we're expecting continued weakness of demand in those markets in 2014 compared to 2013. Slide 13 highlights the assumptions underlying our 2014 outlook. The 2014 forecast assumes price increases ranging from 1% to 1.5% on a consolidated basis.

At current exchange rates, we expect currency translation to reduce sales by about 2%. We also expect lower sales and production to negatively impact our gross margins. Our forecast for engineering expenses has been reduced and is now forecasted to be at or below 2013 levels.

In addition, our SG&A expense is forecasted to be lower than 2013 after including an increase in expenses associated with start-up site costs and market support cost for our Chinese operation. We are also targeting an effective tax rate of approximately 35% to 36% for 2014. Slide 14 lists our selected 2014 financial estimates.

We are projecting 2014 sales to be down about 10% compared to 2013, with the impact of softer market conditions expected to be partially offset by pricing and market share gains. We expect gross margins to be negatively impacted by lower production volumes and a weaker product mix.

Based on these assumptions, we are targeting 2014 earnings per share ranging from $4.10 to $4.30. We expect 2014 capital expenditures to be in the $350 million to $375 million range and free cash flow to range from $125 million to $150 million after funding capital expenditures. And with that, operator, we're ready to take questions..

[Operator Instructions] Your first question comes from the line of Jamie Cook from Crédit Suisse..

I guess just a couple of questions, and I apologize because there's 4 calls going on at the same time, so I apologize if I missed something.

But one, Andy, can you comment on your comfort level or where you think AGCO inventories need to be and dealer inventories need to be as you exit 2014? And then my second question, Martin, is just sort of bigger picture.

While I understand you haven't given us formal -- you won't give a formal 2015 guidance until your Analyst Meeting in December, if you could give some color on how to think about your markets or how you're managing your business. For example, a large supplier said that they thought North America would be down at least 20%.

So just sort of how you're managing your business.

Is '15 -- is it a 1-year downturn? Is it a prolonged? Or how are you thinking about the cycle?.

Yes, Jamie. Thank you very much. I will start. So when it comes to this famous large supplier you talked about, I'm not sure about the quality of his forecast. What we are doing here, we basically tried to reengineer our business in a way that we can cope with the markets in 2015.

We want to take quick and very radical and aggressive steps in order to reduce our cost.

And we start with very small things from the top, combining 3 assistant [ph] jobs between Andy, system ability and me into 1, down to very important activities, where we think that we can run Fendt as a 1-shift operation, but still, because of all the improvements we implemented during the last couple of years, be in a position to generate a capacity of 18,000 units.

So that's a major cost advantage we can take advantage of. So we look into every corner of our company in order to make sure that we deliver, and we want to outperform the market by quick and radical reengineering..

And then, Jamie, in terms of your question on inventories, starting with our own company inventories, they're still, as you can see, higher than where we were a year ago, which is not what we'd like to see with our revenues down.

As I've said in my comments, we're still targeting that we can get our inventories down to level or below last year, at the end of December. So we've got a lot of work to do here in the balance of the year. We have significantly reduced our production levels here in the third quarter and the fourth quarter to try to achieve that.

Ultimately, it will depend on us meeting our sales targets at the end of the year. In terms of dealer inventories, dealer inventories across the board are fairly consistent with where they were about a year ago.

Obviously, with the decline in our sales in the market, we would like them to be below at this point, but we're working very closely with our dealers, and I think we're making good progress in that respect as well..

We are much better than any other competitor, so that means our dealer inventories look much better. And certainly, there are some who have very high inventories..

And your next question comes from the line of Rob Wertheimer from Vertical Research..

It's Joe O'Dea of Vertical. First question, just more on production, I guess.

It looks like, from the slides, that the production expectation in 4Q is roughly flat levels with 3Q, but could you talk about the mix of that? And so what high-horsepower might be down sequentially versus some of the smaller utility side of things up, just to get a sense for continued actions that you're taking from 3Q into 4Q as you work those inventory levels lower?.

Yes, sure. I think that's a good point to be making, that the production information we give is all units. And with the mix changing, where our low-horsepower equipment sales are relatively flat or even going up in some areas and then our high-horsepower equipment coming down, so the mix is an issue.

So if you take out some of the smaller horsepower production, our unit production on high-horsepower equipment's going to be down, like in the fourth quarter, likely almost 20%. And from a standard-hour standpoint, our production will be down in excess of 20%.

So that's why you're seeing some of the margin deterioration in our results as a result of the bigger, more fully integrated factories taking the brunt of the production cuts so far..

Perfect. And then along those lines, the decremental margin in Europe seemed to be considerably stronger than what you had in other regions.

So could you talk about kind of the timing of some of the planned cuts that you have? Are you maybe ahead or leading in Europe and we'll see some of the catch-up in South America and North America in the fourth quarter? Or maybe just what particularly drove that decremental in Europe in the quarter?.

Sure. Yes, the European production cuts were fairly big here in the third quarter. And also, I would point out that the margin deterioration was also pretty severe mix change.

We had growth in some of our lower-horsepower equipment with lower-margin equipment and declines, fairly significant declines because of the production cuts in the higher-horsepower equipment, and that created a pretty different margin impact than what you're normally seeing.

In the fourth quarter, it should get a little better from a mix standpoint, and so we're hoping that will be the result..

And then, Joe, for the full year, we would expect our decremental margins to be in that range that we had talked about earlier. So probably high 20s is the way to think about it..

Your next question comes from the line of Andy Kaplowitz from Barclays..

It's Alan Fleming in for Andy today. If could, I want to step back and maybe ask you a little bit of a bigger-picture question. I think the view by some investors going back to earlier this year was that AGCO had less exposure to the large ag markets in the U.S.

on the way up, and therefore, you guys might have -- might be able to weather a potential downturn a little bit better than some competitors on the way down. So I want to ask you what's kind of changed as you've adjusted your expectations down over the last few quarters.

Do you think that this is some of you guys moving a little bit quicker than others in the industry to get production down? Or has Europe come in materially worse than your initial expectations? Or if you could comment on dealer willingness to restock in the channel..

I would like to start with the first part of your question or remarks. Our footprint, in a way, basically, normally would allow us to compensate, let's say, a downturn in one market by opportunities in another market. So that's what we saw in the past.

Brazil going down, North America going up -- or North America going down, Europe going up, things like that. And what we were -- what we saw so far this year is that all markets globally went down and partially without any reason within our business.

So the market in France went down because the socialist government lost track completely and how -- as you can read in the newspapers, companies moved their headquarters out of France, CEOs move out of France, leave their headquarters there but relocate in order to avoid the taxes, which are up to 75%. And this does hit the farmers in France.

It's not completely -- or let's say this is not related to something in our industry. Then the Ukraine situation, Russia-Ukraine, as previously discussed, doesn't hit us directly. So we are still in a position to manufacture and to deliver, but we have, through the Russian sanctions, certain farmers in Europe being hit severely.

So the vegetable farmers in The Netherlands lose about $350 million top line. The Polish farmers lose their potato and swine business and all kind of things, collateral damages which have been created, which were difficult to forecast. So that means -- we then have election -- an election year in Brazil. This is finally over now.

I'm not sure whether it's good news for the country that the candidate who was more pro-business didn't make it but was close. So on the other hand, we will see more stability in Brazil. We have a problem in Argentina with elections coming soon.

There are a lot of -- basically, there's a lot of volatility, which is not created by the fundamentals of our industry. So that makes it -- or made it more difficult. And then I think I would agree to your point that we decided to make severe radical cuts very early, and therefore, we might -- I hope that we are a little bit ahead of the events..

Okay. That's helpful, Martin. I'll build off of that last part then.

And how are you thinking about the need for additional restructuring going forward? I see you took some modest restructuring charge in the quarter, but can you talk about your ability to flex the business down and how much more headroom you have in terms of dialing back production or reducing shifts before you need to look at larger actions if we do see a more significant decline in the markets going forward?.

Yes. Everybody now is working on the sales plan, and we do that like every year bottom-up. So we talk to farmers and dealers in order to figure out what's going on in the markets. This will be closed rather soon.

And in the past, we basically did the sales plan first, and then we'd look into how to match sales and how to do -- to basically organize the factories and things like that. So this year, we take a different approach.

At the same time, while we do the sales plan, we also come in with a very serious discussion about the restructuring needs in our company. And as I already mentioned, we want to be -- we want to satisfy our shareholders and create shareholder value, and therefore, we will be very, very fast and very aggressive.

But that being said, we also don't want to talk about it now, so we will come to Wall Street, as usual. I look at it as business as usual in a way because with all the headwinds, 2014 still will be a very good year in the history of AGCO. So we will come in with the third best year in the history or something like that.

So it's not a disaster or complete mess, but we want to show that we can stand substantial headwinds, and we will talk about it in December..

Okay. And Andy, if I could squeeze one more in. Can you remind us of the....

Actually, Alan, I think in the spirit of letting others participate, why don't you get back in queue? And we'll get back to you..

Your next question comes from the line of Steven Fisher from UBS..

It's Eric Crawford on for Steve. I guess, on the EMEA margins, appreciate the color on sales mix in 3Q, the impact that had and what you're expecting for the fourth quarter.

Is what you're expecting for 4Q mix a more normalized mix, if you will, with respect to what you're thinking for 2015 as far as the dynamic you expect to play out?.

Yes, I would say I don't know how to answer that. I think the mix does get a little better in the fourth quarter, but still, it's -- the high-horsepower market is what's coming down the most. And we'll have to obviously look at how our sales plan for next year will be consistent with that or will there be more mix impacts for next year.

We're not ready to -- we don't know that yet. We're not ready to comment on that..

I look at it -- most probably, it will not be on record levels, but it will improve..

Okay. No, that's helpful. And I guess taking a step back, I know everybody's trying to get a sense of how to frame out 2015, myself included..

That's your job, actually. So that's why you are an analyst..

But as far as the CapEx components and how you're just viewing your priorities there, I mean, your commitment to investing in IT and new products....

Yes, what we want to do is we want to still continue with the implementation of our strategic initiatives. So we think we have a very good strategy, which we also proved during the last years. But we also, of course, are more aware of the market environment. And therefore, as already planned also, you will see CapEx going down.

But this was already discussed, basically, last year, where we said that we are -- basically, we had some peak years, and from -- we did do quite some very important strategic investments, and from thereon, we wanted to be down anyhow. And that is what you should expect for 2015..

Your next question comes from the line of Mike Shlisky from Global Hunter Securities..

I wanted to touch briefly here on Brazil. So most of your commentary so far has been on sugarcane. I just want to know a little bit about the health of your current row crop business there, with the current crop being the size that it is and the prices being as low as they are. Just any kind of extra color there would be appreciated..

Yes. I think overall, the business in Brazil is pretty solid. And I would also like to mention that many farmers are very aware of the situation and take action immediately. In sugarcane, people talk about Generation 2 Ethanol, which is made out of all the waste, which has been thrown away so far.

And then in the area of arable farms, you can see in the very big and important region of Mato Grosso farmers looking into more harvests. So from 1, they go to 2 or from 2 to 3, depending on climate conditions and availability of water. So overall, I think that the arable farmers in Brazil do pretty well.

And I would expect that after the election now also, the BNDES subsidies will basically stabilize more, and we will maybe, hopefully, get more visibility about next year soon..

Great. And my other question is just a quick update on how it's going with interest systems thus far through the third quarter now..

As far as we can say today, very well, so I think it was a very intelligent acquisition. But to be also honest, I think the proof is in the coming years, so because we had, of course, very high expectations as well..

Your next question comes from the line of Jerry Revich from Goldman Sachs..

It's Matt Rybak on behalf of Jerry. Gentlemen, I was wondering if you could maybe touch on the pricing environment that you're seeing play out across the various regions and, in particular, any sort of competitive dynamics that are shaping up over the quarter and heading into the fourth quarter..

As you can see from our comments, we've pulled down the pricing expectations again, so I think we're seeing a more competitive environment. This is very typical when conditions get a little softer and manufacturers are working on their dealer inventory levels and the dealers are as well.

But I would also categorize it as more competitive, but there's not crazy things going on in the market at this point. It's still, I think, a good market, and everyone's able to compete in a good way so far..

But there were certain crazy things going on here in the U.S. A smaller German competitor basically dumped combines in the market because nobody wanted to buy them, and that's bad for them. It didn't hurt us so far because they're some kind of a niche player..

Understood. And then just briefly, wondering if you could maybe touch on how order books are shaping up. You're 1 month into the fourth quarter, and just any commentary you can find on the progression will be much appreciated..

Yes. Our order board, as we said, is down about 15% overall, again, better on the low-horsepower side of things, worse on the high-horsepower side of the market..

And we see slight improvements, I would call it, mainly in Europe..

And that's for the fourth quarter?.

Yes..

Your next question comes from the line of Vishal Shah from Deutsche Bank..

This is Chad Dillard on for Vishal. Just wanted to dig a little bit more into the inventories and get a sense of where you see the most need to stock down.

Particularly, do you think you'll be able to hit your target on the high-horsepower of getting to where they were last year?.

Well, in terms of our inventories, a lot of the increase that we have over a year ago at this point is attributable to Tier 4. So probably, $120 million or so of the inventory increase is transition inventory that we start to work down in the fourth quarter.

So we should actually see that coming down and being lower than the levels of transition inventory we had at the end of last year. So that's the key reduction. Also, we'll be pulling down, like we always do in the fourth quarter, our replacement parts inventory and other finished goods inventory.

So it's really across-the-board changes in inventory levels in the fourth quarter..

That's helpful. And I just wanted to go to the Brazil market. It seems like over the year, a little bit of your share has declined as per SAVI data. I just wanted to get a sense of whether you're seeing more of this decline in like the high-horsepower or low-horsepower..

Well, I think actually, our share's pretty stable this year. What's happening is that there's a lot of movements going on down there. Our share has been -- is lower in the kind of new regions of Brazil and still very, very high in kind of the traditional markets.

And then also, we have a very high share in the sugarcane sector, and that's what's down most severely. So I think there's a lot of mix changes going on, but overall, we've been comfortable that we've been -- stabilized that market share this year..

And the most important message is we don't lose customers. So the customer retention by brand product like Massey Ferguson in South America is excellent..

Your next question comes from the line of Larry De Maria from William Blair..

I was hoping that you guys could clarify the intention of TAFE, a board member that's been obviously buying stock on behalf of TAFE and the enterprise maybe behind TAFE.

What led you to cap at 12.5%? What should we read into that? And what does TAFE hope to gain by having a stake? Can you just give us some clarity on that, please?.

Yes, TAFE is a private-owned -- family-owned company in India. Their origins basically generate from being a major, a leading bookseller in India. And then 1960, the founder decided to invest in other businesses, a typical Indian diversified conglomerate, and they decided to invest in farming, organic tea, motorcycles and automotive parts.

1960, there was a contract signed between Massey Ferguson and TAFE. And it was a license agreement, where basically, TAFE started to assemble -- CKD assemble tractors between -- or let's say, up to 75 horsepower and branded by Massey Ferguson and sold them in India.

Today -- and at that time, AGCO, because of legal restrictions coming from the Indian government, could only own 23.5%, which is still the case today. And in the meantime, TAFE is #2 in India, very close to the market leader, Mahindra Mahindra.

While Mahindra has a tendency to lose market share, TAFE does gain market share every year, and this is also supported by the technology transfer between AGCO and TAFE. So that's a very solid, long-lasting relationship.

TAFE is our main supplier for simple, high-quality, durable, small tractors for markets like Africa, the South America and also here in the U.S. So that's a long-lasting and very successful relationship. We also use them as our agency for the purchase of components in India, and we basically do generate a dividend through our investment.

Then several years ago, the board -- or I invited Mallika to join the board, which gives us a very good diversification. She's not only a woman, she has been Businesswoman of India for several years, and she is very, very well connected and knows our industry very, very well. And on top of that, she is a woman which also was attractive to us.

And then there's mandatory stock ownership for directors, and Mallika wanted to signalize how much she believes in our business and how much she believes in our strategic alliance and wanted to buy more.

In order to make sure that we don't get into complication here long term, we decided to agree on a standstill agreement, which is 12.5% on the basis of the share count December 31, 2013, and this is pretty much what she is holding out through programs, and she is pretty close.

I think she is at around 11% right now, 11%-something, 11.2%, 11.3%, 11.4%, depending on how you look at it. And we are actually very satisfied to have such an important strategic shareholder. She's in for the long run.

I just talked to her last week, and so she sees it as a strategic long-term investment without the intention to become a traitor or to sell and buy depending on the stock price.

She's not concerned about the market because she believes in the fundamentals that we do, and she's a very, very supportive and also, at the same time, challenging director, helping us to understand the markets of Asia much better than we could do that just from Georgia..

Okay. That's a lot of color. So I guess we shouldn't read too far into the stake as far as limiting it and taking that eventually, there could be a bigger collaboration or something like that, which is simply a strategic investment that she believes long term, it sounds like..

It's a smaller, reasonable strategic investment in the company, no other interpretation..

Okay. That's great. I guess my second question, you said end-of-year inventory will be at or below last year's levels. We're assuming next year is probably going to be down.

Does that imply that inventory is too high to start the year, and you'll need to underproduce versus retail again in the first half? We're just not sure about how the engine making plays into that calculation..

Larry, it's something that we'll have to look at as we finalize our sales plans for next year and it'd be something that'll be -- we'll have to consider as part of our planning process..

Okay.

Do you break out how much of the engines and parts are yet, sorry if I missed that, in the inventory?.

Yes, we said engines were about $120 million of the year-over-year change..

[Operator Instructions] Your next question comes from the line of Seth Weber from RBC Capital Markets..

This is Emily McLaughlin filling in for Seth today. Just a couple of questions.

First, can you tell us what used inventory levels and pricing are by region and product, high-horsepower versus some of the smaller equipment? And then secondly, can you update us on your capital allocation plans, specifically in light of the lower free cash flow guidance for 2014?.

Sure. On used inventors, I don't have all that details that you're asking for, but generally, our used inventory levels at our dealers are higher than where they were a year ago but I think in a manageable range.

So it's certainly an important area for our dealers to -- important focus area for our dealers right now, but I think we're in pretty good shape in terms of used inventories. In terms of capital allocation, you have, in our results and our footnotes, how much -- how many shares we've purchased so far.

We're steadily working our way through the $500 million share repurchase authorization that we started with at the beginning of the year, and our intention is to continue to steadily repurchase shares. So the change in our fee cash flow guidance is not changing our plans for share repurchase..

And this concludes our Q&A session. I will now turn the call back over to our presenters for closing remarks..

Thanks, Leanne. I'd like to encourage the remainder of the folks still interested to follow up with me later today, and we appreciate everyone's interest in AGCO and wish you a very good day. Thank you..

This concludes today's conference call. You may now disconnect..