Deere & Company
Q1 2011 Earnings Call Transcript

Published: 30 Apr 2011

[Operator:]

Good morning, and welcome to Deere's first quarter earnings conference call. [Operator Instructions] I would now like to turn the call over to Mr. Tony Huegel, Director of Investor Relations. Thank you. You may begin.

[Tony Huegel:]

Thank you. Also on the call today are Jim Field, our Chief Financial Officer; Marie Ziegler, Vice President and Treasurer; Susan Karlix; and Justin Merrimac. Today, we'll take a closer look at Deere's first quarter earnings, then spend some time talking about our markets and how we see 2011 shaping up. After that, we'll respond to your questions. Please note that slides are available to complement the call this morning. They can be accessed on our website at www.johndeere.com. Just a reminder that this call is being broadcast live on the Internet and recorded for future transmission and use by Deere and Thomson Reuters. Any other use, recording or transmission of any portion of this copyrighted broadcast without the express written consent of Deere is strictly prohibited. Participants in the call, including the Q&A, agree that their likeness and remarks in all media may be stored and used as part of the earnings call. This call includes forward-looking comments concerning the company's projections, plans and objectives for the future that are subject to important risks and uncertainties. Additional information concerning factors that could cause actual results to differ materially is contained in the company's most recent Form 8-K and periodic reports filed with the Securities and Exchange Commission. This call also may include financial measures that are not in conformance with accounting principles generally accepted in the United States of America or GAAP. Additional information concerning these measures, including reconciliations to comparable GAAP measures, is included in the release and posted on our website at www.johndeere.com/financialreports under Other Financial Information. Now, for a closer look at the first quarter, here's Susan.

[Susan Karlix:]

Thanks, Tony. With this morning's first quarter earnings announcement, John Deere has started 2011 on a strong note. Income more than doubled on a 27% increase in sales and revenue, reaching a record for the first quarter of the year. The improvement was big and broad. Ag & Turf had another terrific quarter. And our other divisions, Construction & Forestry and Financial Services, reported dramatically higher profit as well. Positive global farm conditions were certainly a factor, but John Deere is achieving record results in the face of conditions that remain lackluster in some sectors. Indeed, our performance reflects continued success in executing our ambitious business plans in addition to improving demand for our innovative lines of equipment. Finally, our full-year earnings forecast has been raised considerably and now stands at about $2.5 billion. All in all, it was a strong start to what is expected to be a very strong year. Now let's look at the quarter in more detail, starting with Slide 3. As just mentioned, net sales and revenues were up 27% to $6.1 billion in the quarter. Net income attributable to Deere & Company was $514 million, the highest ever for a first quarter. Turning to Slide 4. Total worldwide Equipment operations net sales were up 30% to $5.5 billion, another first quarter record. Price realization in the quarter was positive by two points. On Slide 5, worldwide production tonnage was up 41% in the quarter. Higher tonnage was attributable to the following

[Tony Huegel:]

Thank you, Susan. Now we're ready to begin the Q&A portion of the call. The operator will instruct you on the polling procedure. [Operator Instructions] Operator?

[Operator:]

[Operator Instructions] Our first question comes from Stephen Volkmann. [Jefferies]

[Stephen Volkmann:]

It's Jefferies. I'm wondering, I guess, just how to kind of interpret your guidance, I guess. And this is the way I'm going to phrase it. Obviously, some things have changed quite a bit in the last 90 days or so since we last heard from you. And I guess I'm trying to figure out whether you were surprised by the costs perhaps not coming on quite as strongly as you thought they would. Or if the end-market growth was really the key driver or maybe we just started out very conservative. How should we sort of interpret that? What happened during the quarter that really resulted in this big change here today?

[James Field:]

During the quarter, and you can see in our outlook for sales as well as income, certainly, we have increased our production schedules and so on in the quarter. But from a cost perspective, not a tremendous amount of change. We talked about in the last quarter expecting higher volumes and the two points of price. Obviously, volumes have gone up. Pricing, we're still looking at two points of pricing. But from a cost side of things, raw material costs, we're looking at the one to two points of margin. And keep in mind, and we talked about this on the last call as well, that much of that comes in the latter half of the year. We also talked about mix in A&T, Ag & Turf, with the one point of margin. We would still expect that to happen. R&D, SA&G costs, IT product costs, last time, we gave you a guidance of about $135 million. That's increased a little bit to $160 million, again, indicative of some of the sales increases. And much of that is rest of the year. While we did shift some 8R tractors in January, that is pretty limited. So most of that will be in future quarters. We talked about absorption related to the inventory and receivable reduction year-over-year. And as you can see in the quarter, our inventories and receivables actually built, so that was a benefit in the quarter. But we're still forecasting for receivables and inventory at October 31, to be down year-over-year, not as far of a drop but still a reduction. So that perhaps is part of the story as well. As we build that receivables and inventory perhaps it’s masking some of those cost increases, the R&D and SA&G increases that we did talk about.

[Stephen Volkmann:]

But it sounds like the basic message is that this was mostly top line driven, and the costs are coming in about as you expected.

[James Field:]

I would say that's a very fair characterization of it. I mean, the end markets for our customers have improved over the course of the quarter. And that's led to a firming up of our schedules. And as you suggest, it's primarily top line driven.

[Stephen Volkmann:]

Maybe you could just give us an update on those order boards or how far out various things are sold.

[James Field:]

On the order book, as Susan indicated, our orders are very strong this year, with the 8R tractors and the 9000 Series tractor, really very limited availability especially through the summer months. So that's very strong. Our early order program on the combines went very well. In addition, I think we're at the 90...

[Susan Karlix:]

We're basically sold out.

[James Field:]

Yes. So again, the order book is very strong. And we're very positive about the year in that regard.

[Operator:]

Our next question comes from Robert Wertheimer. [Morgan Stanley]

[Robert Wertheimer:]

It's Morgan Stanley. A quick question on just the 1Q margins, which were obviously very solid. I think it was a record in Ag & Turf. And I think that Construction & Forestry is up 300 bips on slightish [ph] quarter-over-quarter revenues. So the question is, is that a sign that the Tier 4 impact is coming through positive? And is it potentially something that could fade? I don't know whether you're selling emissions credits or sort of positive margin trade versus what is going to come through as true Tier 4 product?

[Susan Karlix:]

First of all, in the first quarter, Rob, we have very little in the way of IT4 production other than the 8R. Construction would have only one model in production at this time. For them, the bulk of their product line really is subject to IT regulations starting next year because of the horsepower ranges.

[Robert Wertheimer:]

If you do less of, let's say, a volume discount for somebody who buys a lot of equipment on the farm equipment side and you get better realized pricing, is that within the 2% pricing or do you not expect any of your range in that pursuit?

[Susan Karlix:]

Yes, that would be in our pricing.

[Robert Wertheimer:]

As you sort of start to get into the year, have you seen, as you balance the production, have you seen any upside potential to the stuff that you're starting to get sold out on, the factory shutdowns you do to change over to IT4? Do you think there is upside to your volume estimates? Or does it look pretty much like it did three or four months ago?

[James Field:]

Basically, we talked last time about there was some upside potential. And as you can see, we did increase our schedules. It's reflected in our sales. So we would have very limited upside potential.

[Robert Wertheimer:]

So you think you used up kind of what you thought you have on the cushion. And you wouldn't assume that you have the same cushion as you said last time.

[James Field:]

Correct. That would be correct and importantly for 2011.

[Operator:]

Our next question comes from Andrew Obin. [BofA Merrill Lynch]

[Andrew Obin:]

BofA Merrill Lynch. Just a question on raw material costs. Just to understand your guidance specifically. Given the first quarter price increases, the lower end of your guidance does imply flat or positive contribution from raw material costs in the second half. Is that correct? If I'm thinking, it was like over $100 million in Q1, which sort of guiding 1% to 2%. So 1% would be like $250 million. So volumes really pick up in Q2, Q3, Q4 so it implies no raw material drag. I just want to understand what's going on here at the lower end of the guidance.

[Marie Ziegler:]

There is a range at 1% to 2%. We have 2% positive price realization. If the raw material costs do come in at that 1%, clearly, that would be favorable and it would be somewhat back-end loaded. You are absolutely correct. We, however, are not sure where those prices exactly will come in for the reasons that Susan articulated and including the variability in steel costs. So that's why we have the range.

[Andrew Obin:]

So 1% just simply includes you taking what the Street are forecasting, what you commented on declining steel prices and that's what you come up with. And 2% would be another end of your scenario range. Is that fair?

[James Field:]

Yes, the way to think about that 1% to 2%, Andrew, is that we have a very, very volatile situation particularly on steel and also with regard to rubber. So when we look at steel forecasts that are provided by various industry groups and associations. I mean we have a variance, for instance in the third quarter of calendar '11 from the low point on the forecast to the high forecast is 40% difference. And so I think the way to think about the 1% to 2% is it’s reflective of a very broad range given this high level of uncertainty where this pricing goes and when it goes. Because it's also very important because as you know, we have these several indexed agreements and when the price, when it arrives at whatever level it arrives at, is very important to us in terms of the resetting of the index. So when you look at the low end of the range or the high end of the range, it's just reflective of very, very high level of uncertainty.

[Andrew Obin:]

And $2.5 billion in net income guidance has the low end, mid-point or the high end of the range?

[Marie Ziegler:]

I'll be the one to weigh in. It's something we're not going to specify.

[Operator:]

Our next question comes from Ann Duignan [JP Morgan]

[Ann Duignan:]

JP Morgan. Can you talk a little bit about the livestock sector? And that's one of the areas where you took up your asset for cash receipt. Both here and in Europe, I mean, that is the sector that I'm assuming you're seeing incremental improvements in and thus the comment about product mix maybe being a little bit more of a headwind this year versus the prior year. Am I interpreting that correctly?

[Marie Ziegler:]

Livestock actually is, absolutely is in a recovery mode. Although it's something that we're watching carefully with the run up in feed costs, et cetera. But as, Ann, as we're talking about mix, just generally speaking, you're seeing improvements in some of the other, like Europe, which would certainly be livestock range but just more generally reflecting very good conditions.

[Ann Duignan:]

On Europe, the VDMA get us the registration in Germany for January and they were up 57%. What are you seeing there? What is your organization seeing in Europe in terms of -- I know you commented on livestock, but livestock versus crops and the expectation for improved planting this year. Just a little bit more color on the fundamentals in Europe as we head into [indiscernible] (50

[James Field:]

If you look at the EU-27, as we indicated earlier, the sentiment is very positive there. Crop prices have continued to rise and stabilized at very strong level. From a livestock perspective, milk and beef prices are at high levels. There is some weakness in pork. But as a general rule, livestock is trending very positive. And again, we also talked about in previous calls, we talked about the used equipment overhang in the EU-27. And that has greatly improved and really returning to more normal levels, which of course is the quarter [ph] of new sales. So in general, things are trending up. I think you see that in our outlook as well.

[Ann Duignan:]

So I'm assuming if Europe turns out to be better than anticipated, you still have capacity in Europe?

[Marie Ziegler:]

We have the ability to respond. That would be a true statement.

[Operator:]

Our next question comes from Jerry Revich. [Goldman Sachs]

[Jerry Revich:]

It's Goldman Sachs. Can you talk about what your raw material guidance assumes for steel and tire inflation? And would you consider a tire surcharge mechanism? Also, you mentioned 8R price increases, are you considering price increase on other product lines as well if inflation hits the high end of the range, Susan, that you outlined?

[Tony Huegel:]

And we don't, as Jim just mentioned, we don't have a specific assumption in terms of where steel pricing goes. Again, if you look out and we look at various analysts, things are all over the board in terms of where we would be in calendar third quarter, for example. And fourth quarter also has not as wide of a variation. But certainly some variation in terms of where the pricing is going. So in terms of a surcharge, that would not be something we would normally consider. So the other question I think you had was on price increases. And certainly we're always looking over a long term, we would expect to price at levels that would enable us to meet our income targets. But keep in mind, price increases now because of our sold ahead and our order book position has, would have limited impact on current year. That would really be, the price increase we mentioned earlier is largely a 2012 implication versus 2011, has limited impact this year.

[Jerry Revich:]

And can you give us an update on customer credit availability in Russia and CIS? Any discussions on potential government financing, subsidy programs, potentially longer-term based on your relationships in the region?

[Tony Huegel:]

We did in the quarter, financing seems to be easing and opening up a little bit. But in terms of where that financing is coming from, again, it's a wide variety of places. And it's really dependent on the individual customer in terms of where that financing is coming in.

[Marie Ziegler:]

And I'll just chime in that we are working on developing other alternatives in the region, but we have no announcements.

[Jerry Revich:]

And Marie, just with the other alternatives, is that with governments as partners? Or is that with local...

[Marie Ziegler:]

It's a variety. We have a variety of alternatives that we're working on. I can't give a definitive answer.

[Operator:]

Our next question comes from Henry Kirn. [UBS]

[Henry Kirn:]

It's UBS. On the supply chain, can you talk about where you may be feeling tightness there? And how much that would constrain you if you wanted to take production much higher as you went through the year?

[James Field:]

Really, as we talked about our production schedules have grown a lot this year and certainly have heavy build schedules. We work closely with our suppliers. At this point, there are no major issues that we're aware of. Of course, as we talked about before, there are day-to-day issues and challenges that we work through. But again, we'll just continue to work with our suppliers. But no, there aren't supplier constraints that we would be able to point to you today that would prevent us from expanding.

[Marie Ziegler:]

Really, we're looking at more issues of capacity in managing our emissions credits, planned product transitions. Remember, we have a significant number of product transitions ahead of us. And so there are a lot of factors at play as we look at our abilities to further increase schedule.

[Henry Kirn:]

And could you talk a little bit about what you're hearing from Ag and Construction customers about the tax bonus depreciation for this year?

[Marie Ziegler:]

I think it is certainly a factor as you look at the market, but so would be the very strong incomes and the need for good equipment. We think in the U.S. alone, we'll plant over 7 million more acres this year than we did last year. So the thing is if you look at it, Henry, incrementally year-over-year while they tweaked some of the programs, we've been in a period of bonus depreciation for several years now. So I don't think at the margin, it's a factor on the Ag side, incrementally on the Ag side. On the Construction side, that incentive alone is not a reason for people to buy equipment. They buy equipment if they know they're going to use it and it will be operational. So we think the activity that we're seeing in the market, which is and the biggest changes there have been in the rental and some on the governmental side. Those things are really driven by need, not incentive.

[Operator:]

Our next question comes from David Raso. [ISI Group]

[David Raso:]

ISI. Just a quick question on the Interim Tier 4 for the non-8000. What is the timing expected for the Interim Tier 4 9000, 7000 and also the new combine?

[Tony Huegel:]

Again, we've not given specific dates on any of those other than second half of the year. And nothing further has been announced.

[David Raso:]

Do you have any flexibility in the timing of that, just again due to the idea of second half calendar year, if you do have some relatively strong demand? The timing of that, do you feel it's under your control? Where if you do, you say you run out of the pre Interim Tier 4, is there going to be any hole in the production schedule where the dealers are looking for product but you're not ready for the Interim Tier 4 to be released?

[Tony Huegel:]

We would not anticipate that being an issue.

[David Raso:]

And on the pricing announced, the 3.5%, obviously, one of the products mentioned is already Tier 4. But how should I think about new 9000 Series, 7000 Series Interim Tier 4 pricing for '12? Is this 3.5% trying to smooth out that Interim Tier 4 increase for next year? Or is it completely separate and I should think of Interim Tier 4 is going to get another XYZ percent, whatever that would do with the cost?

[Tony Huegel:]

It would be separate. We would expect that as we introduce the new products, that there would be pricing associated with that.

[David Raso:]

In Construction equipment, how should we be thinking about the margins this year in Construction & Forestry?

[Marie Ziegler:]

In what way? I'm not sure where you're going with this.

[David Raso:]

Well the margins just came in at 7.7%. Should we be looking at low double digit? How should we be thinking about margins?

[Marie Ziegler:]

Our guidance that we provided was that we were thinking about an 8% margin on the Construction & Forestry business.

[David Raso:]

And to that point, we're at 7.7% now, the lack of improvement the rest of the year have any significance. Why would that be, given the revenue growth? Is it costs or is it pricing...

[Marie Ziegler:]

As we moved through last year, we were increasing our schedules. So your comparisons change over the course of the year. Plus you see our costs will accelerate as we move through the year. And do bear in mind, there's SAP conversion as we move from the second to the third quarter. So there is a lot going on in that division as we move into the year. And their IT4 compliance, their product startups are definitely more back half loaded.

[David Raso:]

The new product in IT, before, it seemed like you felt the material costs may be become less of a drag late in the year?

[Marie Ziegler:]

We've got a range on material costs so I'm not prepared to specific...

[James Field:]

But the IT4 material costs is back end loaded. So we're dealing with two different buckets of material costs. One is what's going on in the steel markets and rubber markets. And then the other is the increased costs associated with IT4 and that clearly is back half loaded.

[Operator:]

Our next question comes from Eli Lustgarten. [Longbow Securities]

[Eli Lustgarten:]

Longbow Securities. One clarification, your 1% to 2% margin impact on material costs, you originally said $250 million, are you really saying somewhere between $250 million and $500 million in round numbers?

[Marie Ziegler:]

Yes.

[Eli Lustgarten:]

That's correct, isn't it?

[Marie Ziegler:]

Yes.

[Eli Lustgarten:]

And the only way you're at the lower end is if steel prices stop going up and come down.

[James Field:]

I'm not sure we can give you a steel forecast.

[Eli Lustgarten:]

Question on the big capital spending that you're doing. I think you indicated a couple of minutes ago that your ability to further increase schedules this year would be limited, the bulk of it. How much incremental capacity you think you have available for 2012 versus 2011 with some [ph] of the spending that was going on this year? You're running pretty full out at this point.

[Marie Ziegler:]

Eli, the bulk of the spending that you're seeing is not capacity adds in our traditional markets. The bulk of it really reflects IT4-related products, expenditures, some refreshing of things in conjunction with IT4. There is some growth in some market's growth spending. And we've been talking for several quarters about some of the new facilities that we're building. I think you might be referring to the fact that we did delay some capital, specifically at Waterloo. In the financial crisis, you may recall that in 2008, we had two separate ASEs that collectively would have raised Waterloo's capacity by about 40%. We had 25 points of the 40-point increase in place and then elected to defer. And that capacity of the additional 15 points will come in over the course of 2012.

[Eli Lustgarten:]

I guess what I'm asking is how much, since you're running pretty full out this year, [indiscernible] (1

[James Field:]

If you're referring to large tractors and combines, yes. Because keep in mind, and we've talked about the fact that -- when we talk about having limited capacity this year, that's due to the constraints with all of the transitions with IT4. That goes away for 2012.

[Eli Lustgarten:]

So you will have some reasonable ability to produce more physical product next year. That's what I'm really asking.

[James Field:]

Yes, on the large equipment. Keep in mind, we go through, on the smaller Ag, we go through a transition next year in 2012. They’ll be facing some of the transitions that the large equipment is facing this year.

[Eli Lustgarten:]

Can you help me with the pricing on the 8000 tractor? I thought the year-over-year pricing was about 9.6%. And now I think you just said it was another three. Is that indicative of the kinds of pricing we can expect on Interim Tier 4 for next year, that as those products are rolling out, they could begin to approach double-digit price increases year-over-year?

[Marie Ziegler:]

We have a variety of pricing strategies and things that we're looking at in our pricing. So you really can't look at one model and say it's indicative of what we'll be doing across the product line, Eli.

[Eli Lustgarten:]

Right now, we're looking at 2% pricing year-over-year. And I know you adjusted for future, and all that. But that's mostly raw materials driven. But there’s a second level of pricing affecting the market, which is regulatory driven and it seems it's much, much bigger than what we're seeing in raw material. I'm just trying to get a handle of how to think about that.

[Marie Ziegler:]

The regulatory pricing is reclassed, as you know, into our volume numbers. And we don't have a specific amount that we are publicly articulating model-by-model on regulatory. It's a factor as we look at the overall pricing.

[Operator:]

Our next question comes from Andy Casey. [Wells Fargo Securities]

[Andrew Casey:]

Wells Fargo Securities. Just a follow-up on the Construction outlook. Should we expect most of the projected receivable reduction to occur in Q2?

[Marie Ziegler:]

No.

[James Field:]

We don’t believe that is the case.

[Marie Ziegler:]

No, we are not. It will occur over the course of the year.

[Andrew Casey:]

So it wasn't entirely a buildup in Q1 in front of the SAP-related shutdown?

[James Field:]

Well, certainly, for Construction and Forestry, the SAP shutdown would be a part of that. But as we look at Ag, which is the larger, a big chunk of that receivable and inventory buildup, that will come out throughout the year.

[Andrew Casey:]

Maybe I wasn't specific. I was just talking about the Construction outlook for receivables.

[James Field:]

I was looking at everything. It would be about the same. It's really throughout the year.

[Andrew Casey:]

And then kind of a question on availability for some stuff that we don't talk about that much. Is the availability for cotton pickers and sugarcane harvesters similar to combines right now?

[Marie Ziegler:]

It's pretty much sold out, yes.

[Operator:]

Our next question comes from Seth Weber. [RBC]

[Seth Weber:]

It's RBC. On the Construction business, can you just give us some clarity? Was pricing positive there in the quarter?

[Tony Huegel:]

Both divisions contributed to the pricing, yes.

[Seth Weber:]

And just conceptually, as we move deeper into the year on the Construction business, as you move further away from some of the early buyers, should we think the pricing would get better there as there's less discounting?

[Marie Ziegler:]

I would not be able to articulate, I guess, a different set of expectations. Our pricing actually is fairly good in Construction. And we would expect it to continue. We don't know that we would have a different expectation as we move through the course of the year.

[Seth Weber:]

I mean, the thought was just...

[Tony Huegel:]

To add to that, we've experienced, as we've shared with you previously, we've had pretty reasonable price realization in the Construction business throughout the course of the crisis and the period that followed that. And we would anticipate...

[Seth Weber:]

The thought was just maybe initially you get the big customers buying early and then you get better pricing from the smaller customers. And I guess just my follow-up question is on the higher revenue guide. Does that affect at all the absorption headwinds that you guys had talked about last quarter? I think it was $100 million. Does that change at all? How we should be thinking about it?

[Marie Ziegler:]

That wasn't an absorption number. That really was just strictly overhead related to all the significant amount of capital and the startups and things like that. And nothing has changed in that outlook.

[Operator:]

Our next question comes from Mark Koznarek. [Cleveland Research]

[Mark Koznarek:]

Cleveland Research. Just a clarification, where do IT4 technology costs reside? Is that considered part of your materials costs?

[Marie Ziegler:]

The development of or the actual, like catalytic converter?

[Mark Koznarek:]

The actual content on 8R.

[Marie Ziegler:]

That would be in product costs.

[Mark Koznarek:]

So some of your upgraded schedule outlook is incorporated in your higher materials outlook?

[Tony Huegel:]

Keep in mind, we're giving a separate number related to the IT4 costs and that did increase. We're now looking at about $160 million in the year versus on our last call, we said $135 million. And that again is indicative of the increased schedule.

[James Field:]

But that's separate and distinct from the one to two points of material inflation.

[Mark Koznarek:]

So where does that IT4, the $160 million reside?

[Tony Huegel:]

That will be in product costs. It will be in our cost of sales.

[Mark Koznarek:]

So both are in COGS but you're just splitting different buckets.

[Tony Huegel:]

We're splitting those out, that's correct.

[Mark Koznarek:]

The question I had, had to do with CIS given that you've got an outlook that's moderately improving, but it's off a very low base. I'm just wondering if you can help maybe characterize the market a little bit different. I think in past discussions, the commentary suggests that the market is down 70% or 80% from the peak. First of all, is that a reasonable assessment? And are we talking about getting half way back this year? Or what kind of magnitude of improvement are we talking about prior, relative to prior peak?

[Tony Huegel:]

The first half of your question, yes, that would be a reasonable view of where things went. But the answer to the second part of your question is no, we wouldn't expect that kind of an increase this year. Things are certainly turning and improving not to that level.

[James Field:]

I think we would use the word moderate in the way that, I mean, 50% of it would not be our view of moderate. So we're not going to give a specific percent. But I think when we say moderate you can, I mean, we mean moderate.

[Operator:]

Our final question comes from Jamie Cook.

[Jamie Cook:]

Can you give us an update? Last quarter, you talked about closing down facilities for two weeks. Where we are and are we still assuming April time period?

[Tony Huegel:]

Actually, it would be, pretty much, they're looking at April, late April, early May. And that is still on schedule. I assume you're referring to the SAP conversion for Construction & Forestry.

[Jamie Cook:]

And is that still two weeks?

[Tony Huegel:]

Yes, that's still two weeks.

[Marie Ziegler:]

Thank you all for participating. The IR team will be available the rest of the day to answer your questions.

[Operator:]

This does conclude today's conference call. We do thank you for your participation. You may now disconnect your lines.