AGCO Corp (AGCO) 2011 Q3 法說會逐字稿

Good morning. My name is Brandi, and I will be your conference operator today. At this time, I would like to welcome everyone to the AGCO Corporation's 2011 third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions). As a reminder, ladies and gentlemen, this conference is being recorded today 2011, October 25.

Thank you. I would now like to introduce Mr. Richenhagen. Sir, you may begin your conference.

Actually it is not Mr. Richenhagen. It is Greg Peterson, as usual. Good morning, everybody.

Good morning. Thanks, Brandi. Thanks, Martin. I would like to welcome all of you who are joining all of us on the call and over the Internet for our third quarter 2011 earnings conference call.

We will refer to a slide presentation this morning which is posted on our website at www.agcocorp.com. All of the non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the last section of the presentation.

We will make some forward-looking statements this morning, including those related to projections of earnings per share, sales, market conditions, margin improvements, commodity prices, former income and sentiment, industry demand, the impacts of currency translation, plant and product investments, production volumes, free cash flow, depreciation, emission requirements, product line expansion, general economic conditions, pricing benefits, capital expenditures, and the impact of the GSI acquisition, including projections regarding integrations, synergies, retention of key customers, demand for protein production infrastructure and grain storage, and cash generation. We wish to caution you that these statements are predictions and that actual results or 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, 2010. 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 website. On the call with me this morning, as you have heard already, is 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 to everyone.

The year 2011 is turning out to be a good year in the global farm equipment industry. Farmers are progressing with their harvests, and commodity prices remain at effective levels. AGCO took advantage of these positive conditions and delivered another quarter of strong sales growth and margin expansion in the third quarter of 2011 compared to the same period last year. AGCO's operating margins improved nearly 300 basis points in the first 9 months of 2011 compared to the first 9 months of 2010. Our Europe, Africa & Middle East business delivered exceptional performance in the third quarter. With industry demand below peak levels in Western Europe, our EAM region produced record third-quarter sales on a constant currency basis and improved operating margins by over 350 basis points compared to the third quarter of 2010. In North America, we capitalized on healthy industry conditions, new sales, and for the first 9 months of 2011, expanded operating margins by over 250 basis points compared to the same period in 2010.

Slide 3 summarizes our results for the third quarter and first 9 months of 2011. AGCO reported adjusted earnings per share for the third quarter of $0.87, up 32% compared to a year ago. In addition, our strong operating performance translated into improved cash flow. For the first 9 months of 2011, AGCO's free cash flow improved more than $150 million.

AGCO's tractor and combine production volumes for 2010 and 2011 are illustrated on slide 4. AGCO's third quarter 2011 tractor and combine production was flat compared to the same period in 2010. Lower production volumes in South America were offset by increased production levels in our European and North American factories. AGCO's order board for the North American and EAM markets at the end of September 2011 is double the level at the end of September 2010. South American order boards remained strong but were down from very high levels at the end of the third quarter of 2010. We expect production volumes to be up 8% to 9% in the fourth quarter of 2011 versus the comparable period in 2010. For the full year of 2011, we expect production to be up approximately 9% from 2010 levels.

Slide 5 details industry volume -- unit volume, so to say, by region for the first 9 months of 2011. Industry practice sales in North America were up moderately compared to 2010 levels. In North America, industry sales of utility tractors increased due to improvement in the dairy and livestock sectors. Sales of our horsepower tractors remained elevated and were up slightly from the strong levels in the first 9 months of 2010. As expected, combine industry retail sales were lower in the third quarter and are now down 4% for the first 9 months of 2011 from the high levels experienced last year.

Industry tractor unit retail sales in Western Europe were up approximately 12% in the first 9 months of 2011, compared to the weak levels experienced in the same period last year. Higher commodity prices and improvement in the dairy and livestock sectors contributed to the growth. Industry growth was strongest in Germany, France, Scandinavia, and Finland. South American industry retail tractor volumes decreased modestly during the first 9 months of 2011 from -- compared to strong levels in the first 9 months of 2010. Declines in Argentina and Brazil were mostly offset by growth in smaller South American markets. Industry retail sales in Brazil are still on pace to be the second largest in their history.

Organic growth and margin improvement continues to be AGCO's primary focus. We will, however, continue to be opportunistic in terms of acquisitions that add to our product offerings or improve our geographic reach.

I will finish my remarks this morning with a few comments about our recently announced agreement to acquire GSI. This acquisition is consistent with our long-term strategy of providing productive solutions for the professional farming sector. With a business model similar to AGCO's manufacturing, dealer distribution, and AG market focus, GSI will be a good fit to integrate into AGCO's operations. GSI is a strong, profitable, very well-managed AG equipment company that serves AGCO's retail customers. The combined distribution network of our 2 companies allows for better access to customers in all major markets for both AGCO and GSI.

The transaction will also help AGCO's performance both in North America and in developing markets. AGCO will be able to improve GSI's operations in the areas of purchasing, manufacturing, and international market expansion. We also are excited about GSI's growth potential in the developing markets of Brazil, Asia, and the CIS. Improving incoming levels, changing diets, and population growth in these regions are expected to drive the need for more protein production, infrastructure, and more grain storage. In addition, GSI's track record of strong profitability and cash generation improves AGCO's overall capacity for investments to support the long-term growth of our business.

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.

AGCO's regional net sales performance for the third quarter and the first 9 months of 2011 is outlined on slide 7. Currency translation and a positive impact of about 7% on AGCO's consolidated net sales in the third quarter of 2011. Acquisitions added approximately 4% to sales in the third quarter of 2011, compared to the third quarter of 2010. The Europe, Africa & Middle East segment reported a net sales increase of approximately 38%, excluding the impact of currency translation during the third quarter of 2011, compared to the third quarter of 2010. Sales increased in nearly every major market across Europe in the third quarter of 2011. The most significant improvements occurred in Germany, France, and Scandinavia. In the first 3 quarters of 2011, we managed through weaker market conditions in Western Europe. The Western European market demand began its recovery in the second half of 2010, which will result in tougher comparables for the fourth quarter of 2011.

North American net sales increased approximately 10%, excluding currency translation impacts during the third quarter of 2011, compared to the same period in 2010. Sales of combines and high-horsepower tractors showed significant improvement in the third quarter of 2011, compared to the third quarter of 2010. AGCO's third quarter 2011 net sales in South America were flat from comparable 2010 levels, excluding currency translation impacts. Trade disruptions in Argentina and lighter demand in Brazil for small tractors resulted in sales declines in those markets for AGCO during the third quarter of 2011, compared to the same period in 2010. Strong growth in the smaller South American markets offset the declines in Brazil and Argentina.

Net sales in our rest of the world segment increased approximately 15% in the third quarter of 2011 compared to 2010, excluding the impact of currency translation. Sales growth in Russia and Australia produced most of the increase. Parts sales were $347 million and $982 million for the third quarter and first 9 months of 2011, an increase of approximately 22% for the quarter and 24% for the first 9 months of 2011, compared to the same periods in 2010, excluding the impact of currency.

Slide 8 details AGCO's sales and margin performance. Adjusted operating margins were up about 80 basis points in the third quarter of 2011, compared to the third quarter of 2010. The benefit of increased production volumes, pricing, and leverage over operating expenses was partially offset by increased material cost and higher engineering and marketing expenses.

As Martin mentioned earlier, third quarter 2011 operating margins in AGCO's Europe, Africa & Middle East region were up over 350 basis points on a year-over-year basis. Margins were improved in the third quarter of 2011 compared to the same period in 2010, due to higher sales and production volumes, better pricing, and a richer mix of products. In South America region, operating margins declined in the third quarter of 2011 compared to 2010. A weaker geographic mix, lower levels of production, increased material costs, and higher operating expenses contributed to the decline. In the third quarter of 2011, operating margins improved in North America, due to higher sales and production, along with cost control initiatives, as you can see on the next slide.

Slide 9 shows the improvement in North America profitability in more detail. Margins in this region have been one of our main focus areas over the last few years. You can see from the graph on this slide that we have made significant progress. For the first 9 months of 2011, margins improved nearly 500 basis points on lower sales, compared to the same period in 2008. We introduced profitable new products, reorganized our sales organization, lowered our logistics costs, and improved the efficiency of our factories. In the third quarter of 2011, operating margins increased about 55 basis points, compared to the third quarter of 2010 due to higher sales -- higher levels of production and improved pricing, partially offset by higher levels of engineering expense and increased material costs.

Slide 10 addresses AGCO's free cash flow, which represents cash provided by operating activities, less capital expenditures. Our balance sheet and liquidity position at the end of the third quarter remains very strong. AGCO's free cash flow for the first 9 months of 2011 of $83 million improved about $150 million from last year and covered a $100 million increase in capital expenditures. We plan to continue investing for future growth in the form of engineering expense and additional investments in our plants and new products. Even after covering the increased spending on these strategic investments, we are targeting positive free cash flow for 2011.

At the end of September 2011, our North America dealer month supply on a trailing 12-month basis was as follows. Tractors were 5 months, 4 months for combine, 6 months for hay equipment. Other working capital details are as follows. Losses on sales of receivables, which is included in both interest expense net and other expense net, were approximately $6.9 million and $15.6 million for the third quarter and first 9 months of 2011, compared to $3.9 million and $11.5 million for the same periods of 2010. During the third quarter of 2011, we retired the remaining $100 million of our 1.75% convertible notes.

Slide 11 highlights our depreciation and capital expenditure trends. In 2011, we expect to increase our capital expenditures as we work to meet tier 4 final emissions requirements, refresh and expand our product line, upgrade our German manufacturing facilities, and make investments in Russia. Through the first 9 months of 2011, our capital investments totaled $187 million and will remain at high levels through the rest of the year.

Our outlook for 2011 for our regional markets is captured on slide 12. We expect that the trends experienced in the first 9 months to continue for the balance of the year. Modest growth is expected in North America, as the healthy financial position of row crop farmers and the projection of farm income above historical averages is expected to support strong demand in the professional farming sector. We expect the South America market to remain elevated but be down 5% to 10% compared to the record demand of 2010. Higher prices for grain and dairy farmers in Western Europe and improved farmer sentiment are expected to generate market growth of about 10% to 15%, compared to the weak levels in 2010.

Slide 13 lists our view of selected 2011 financial goals. We are projecting 2011 sales to range from $8.7 billion to $8.8 billion. Forecasted pricing benefits, market share improvements, the positive impact of currency, and acquisition impacts are all expected to contribute to the growth. Including significant investments in product development and market development, we expect 2011 earnings to be improved from 2010 levels. We are raising our target for 2011 earnings per share to approximately $4.30 per share, excluding any one-time transaction costs related to the acquisition of GSI. We expect increased capital expenditures to be in the $250 million to $300 million range and our free cash flow to remain positive and exceed $150 million, after funding the expected increase in capital expenditures.

Operator, that [includes] our prepared remarks. We are now ready to take questions.

Thank you. (Operator Instructions).

And your first question comes from the line of Jamie Cook with Credit Suisse.

Hi. Good morning and congratulations. A couple of questions. Not to split hairs, but you did slightly lower your forecast in the US and western Europe. So, just questioning, is that a function of supplier not being able to ramp production, or is there something going on in the market?

And then, Martin, my second question to you relates to tier 4, and how you're going to manage that in 2012? Deere has been talking a lot about disruptions to manufacturing, the inability to pass through price on tier 4 on small- and medium-sized tractors. So, I'm just trying to get a sense of how you will handle that in 2012, and is that a potential headwind we should start to think about?

Jamie, in terms of the market changes, we are just 9 months into the year, and can see how the industry is shaping up. The industry for western Europe is up 12% for the first 9 months of the year, and as we said in our comments, the fourth quarter of 2010 -- the market did start to recover. So, we just believe that we will be somewhere in that 10% to 15% range for the full year now. But it really did not affect our own sales forecast for the year, so we are still on track to meet the unit demand -- the unit production and unit sales that we had forecasted.

But you mentioned Germany, France, and Scandinavia are strong. What are you sort of seeing in the -- and I understand they are important countries. What are you seeing in sort of the other countries in Europe with -- seeing in the other countries, I guess, besides those 3 you mentioned?

We are pretty much on budget, on plan, so no variance, no big variance. But when we mentioned Germany and some of the other countries, they were above our expectation.

Okay.

When it comes to suppliers, no major issues right now. We don't expect headwind for 2012, because we are in a very close relationship with most of our suppliers, so they know what we plan, and so they know the volumes we are expecting. Tier 4, I don't expect headwind. Everybody will have to price for it, and we will do the same. And as you might remember, we did pretty well, the industry as such, when we were adding steel price [extras], and so I think the industry will be and has to be aligned in the area of tier 4, because of the much -- the cost does increase, and we have to pass it over to customers partially.

But it's -- the industry leader is not going to pass through the full price increase in 1 year, and they will do it over 2 years or 3 years. I mean, will your response be to price ahead of them?

I look at that by market, so I think everybody who is leading in the market has to take a leading position also in the area of pricing. And we have our strategy, and we will implement whatever competition is doing.

All right. Thank you. Congratulations.

Thank you, Jamie.

Your next question comes from the line of Henry Kirn with UBS.

Good morning, guys.

Good morning.

Could you go through some of the puts and takes to European margins as we go through the balance of the year into 2012? What could push things up and down from where we stand today?

Actually, to be perfectly honest, not a lot, so that means the year is almost over. We know what we -- what orders we have in-house. We just need to deliver. We have the components in-house, labor cost is -- and very much known, so I am not expecting any variance.

And with the accelerated depreciation incentives in the fourth quarter, is that an opportunity to gain share in North America, if you guys have a little more inventory than some of your competitors? And are you seeing any meaningful demand there?

Fortunately, we don't have much higher inventory, so that means everybody is working on controlling the inventories much better than in the past in our industry. But I think this could help the market in total. Whether we can benefit more from it than others, I don't know.

Are you actually seeing accelerated depreciation as a bigger catalyst this year as opposed to other years?

Not really.

Okay --.

It is difficult to know. We don't ask every customer -- why do you invest, and why do you invest now, things like that. So, we might know it more or less after the fact.

That's helpful. Thanks. I will pass the baton.

Your next question comes from the line of Ann Duignan with JPMorgan.

Martin, can you just talk a little bit about Europe and Germany in particular? Normally, when we have the agritechnical show, we see a little bit of a slowdown in sales, as farmers wait to see all of the new products at the trade show, and then we see a pick-up in sales afterwards. Would you anticipate that happening again? Does Fendt have any new products it's going to launch at the show? And then also, what do your order boards look like over there right now? And where are you on the capacity expansion plans? Just a little bit more detail on Europe, and Germany in particular.

Yes, actually, overall we didn't see the market slowing down a lot. What we are expecting is a positive impact from the show, which is mainly also due to the pretty strong performance of AGCO. This year, we will win a gold medal, Fendt will win a gold medal. There are only 2 gold medals this year, 1 for us and 1 for Krone. And then we will get 2 silver medals on top of that, and the reason is the many new product introductions we did this year and we also plan to do next year. So, that means our technology leadership somewhat pays out very well. And so we are expecting some maybe positive impact coming from this.

As far as capacity improvements are concerned, we will have the [thunderhead] 2 project completed next summer, so the transition will be done during the summer shutdown. And then from August on, we are -- let's say, we are in a position to benefit from the capacity improvements. And I think not only you but we will organize ourselves in a way that you all have a chance to see the new factory.

Good, we look forward to that. And on GSI, I thought you said at the beginning that you were going to go through the GSI transaction in great detail, and discuss closing of the deal, integration, synergies, et cetera. Did I miss something, or can you give us a little more?

I went through it in great deal, as detailed as we can be, but my remarks are in the document. Actually, with this -- all the assumptions which we talked about seem to be very realistic. And we are in pretty good mood. So in the meantime, I have been to Brazil, I've been to China, I will go to Europe soon, so that means everything we hear from farmers about this acquisition is extremely positive and exciting. Even from the industry people, people react and they are very -- it looks like as if GSI is highly respected also from their competitors. I think, finally, this will turn out to be a very good deal.

Okay. I'll turn it over to the next. Thank you.

This was my little marketing section, Ann.

I know. I was looking for a little bit more analytical. Thank you.

Your next question comes from the line of Steve Volkmann with Jefferies.

Andy, on your slide 4 here, where you talk about tractor and combine production, as we looked at that one last quarter, I think we expected third-quarter production to be up quite a bit year over year, and it turned out to be fairly flat. Are you guys having any kind of near-term supplier issues, or what would account for sort of pushing that out into the fourth quarter?

I think there was just some -- mainly some mix changes. We have had some minor issues with suppliers from here and there, but really hadn't affected deliveries of equipment at this point. But we are working through those on a daily basis, so I believe it was just some change in timing between some of the South America production that was a little lower than what we expected.

Stephen, overall, supply base this year is in pretty good shape. And I also think it is partially a structural improvement, so some they put in some capacity, some planning that improved. And where we had problems in the past, we also went for dual sourcing, and developed different sources. So overall, I think we are doing much better than in previous years.

Okay, thanks. And just a quick follow-up, I guess, on your North American EBIT margin. Certainly, year to date you are making good progress, but I actually thought things might be a little better in the third quarter, which could just be my irrational exuberance, but I wonder if there was --?

I think it is.

-- but I wonder if there was anything in the third quarter North American production that came in a little lighter than we thought? I noticed you actually trimmed your year-over-year margin growth forecast for the full year, as well.

Actually, we performed quite well on the gross margin line for North America. What pulled the margins down was some additional operating expenses, primarily in engineering was ramped up, as well as some marketing and product introduction expenses that were a little higher than where we were last year. So, that, as a percentage of net sales were higher, which pulled the overall operating margins down. So, we were very pleased with our gross margins, which were pretty much in line with where we were in the second quarter. And that is pretty good, because third quarter is typically -- the margins come back down a little.

All right. Okay. And based on your earlier commentary, Andy, I guess that we should expect that to continue -- those spending items to continue, going forward?

They should. We will continue to see higher operating expenses and some -- not getting much leverage over -- it will actually be -- we will probably not get leverage over operating expenses in the fourth quarter, as well. We have ramped up engineering expenses as it relates to tier 4 compliance and new product introductions, as well as some of the -- as we call them, market expansion and market introduction of new product expenses that are occurring in eastern Europe, some in Asia, and in South America, as well.

But Steve, the normal seasonality that you see both in western Europe and in North America, due primarily to the higher volumes, you will see again, or we expect you to see again in the fourth quarter. So you should expect margins to improve in both of those markets in the fourth quarter from the third quarter.

That's helpful. And a final one, Martin, if I could. Certain other companies are giving broad brush strokes about what they think 2012 might look like. Is there anything in that regard you would like to give us?

Yes, I can say in the tradition of AGCO, which is that we just start our planning process for 2012. The planning will be completed end of November, and then when we come towards it in December, we will talk about 2012, but unfortunately not today. This is the same procedure as last year, I would call it.

Fair enough. Thank you.

Sorry, Steve.

You can't blame me for trying.

That's okay. That's your job.

Your next question comes from the line of Rob Wertheimer with Vertical Research.

Hi. Good morning, everybody. Two questions. One on Europe. You have had a couple of people I guess lower in the non-related, semi-related industry truck outlook for next year. Are you seeing any flow through whatsoever from the macro uncertainty? Any difficulties in financing?

Not really. Let's say the truck industry is a very special segment. They also were -- they are directly related to supply and demand, and basically also consumer goods. So, I heard about that, because I know some of the truck guys very well. The truck business is very different globally, because it is extremely strong in South America, it is strong in North America, and it slowed down theoretically a little bit, because people talk about it. Whether it will really happen, is uncertain yet.

We do not see any major impact from the overall situation in Europe yet. But we of course, carefully watch what's going on. The fundamentals for our industry are still very, very strong, so therefore, I personally think that we might not see impact. And in the meantime, all the initiatives the European governments are talking about might finally come also to a conclusion, and they might come up with a pretty comprehensive action plan. That's how I see it, and that will also then help to basically get consumer confidence back.

Your next question comes from the line of Tim Thein with Citigroup.

Thank you, and congrats on the strong results. I just wanted to come back to the earlier comments on the -- you mentioned the order boards being double the level of a year ago in, I believe you said, North America and Europe. I was hoping you could maybe give a little bit more color in terms of what you are seeing by product type? Even if you just group that amongst tractors, combines, as well as sprayers and planners.

Typically, I don't do that, because also we don't want to be too transparent for our friends on competition.

But overall, the high horsepower markets are strong, in most of the markets. I think that is a key trend for you to keep in mind. And then, obviously, major markets, North America, Europe, our order boards are up pretty much across the board.

Okay, got you. Just to come back on the fourth quarter from a modeling perspective. Should we assume that the fourth quarter shares outstanding will reflect the full -- I guess it is roughly 4 million shares issued with the notes conversion?

Yes, those -- they were actually, depending on where the share price is, were in those already as part of the diluted share count. So, there should not be a change there from what you see in the third quarter.

Okay. Thanks a lot.

Your next question comes from the line of Andrew Obin with Bank of America Merrill Lynch.

You guys have had very strong execution this year, but as I look at your operating leverage for the past 4 quarters, it has sort of been steadily declining into the third quarter. And I appreciate the increased investments you guys have been making throughout the year. And just to follow up on Andy's comments, going to Q4, what should we think about operating leverage? And I know we refer to -- I look at incremental margins. Where would incremental margins be, relative to the rest of the year, going into the fourth quarter for the Company?

Well, when we look at our margins, we are looking at margin improvement in the fourth quarter of -- over on the gross margin side over 100 basis points in the fourth quarter, and again, operating margin improvement. There will be some decline in terms of operating margin improvement over what the improvement is on the gross margin side. So we give a little back, but operating margin is to be about 100 basis points higher in the fourth quarter overall. You can run the incrementals off of that information.

Terrific. And just a follow-up question on Europe, just to dig a little bit. When you guys talk to farmers, and as you look at this market, which you obviously know extremely well, are you seeing any yellow flags in terms of financing availability to farmers from large French banks, large Dutch banks, or anything you are seeing on residual values or anything you're seeing in eastern Europe that would make us worried?

No.

Nothing, Andrew, nothing that we have seen. Obviously, on equipment financing, as we experienced even back in 2009, there was sufficient financing in the market in western Europe to finance farm equipment. We have our own AGCO finance captive JV financing, which will continue to be fully available to our customers. When you go to eastern Europe and Russia, that is more of a complex situation, but so far we have finance alternatives for our customers that remain available.

And so, and farmers seem to be able to access credit as far as you can tell still?

Yes, absolutely.

Terrific. Thank you very much.

Your next question comes from the line of Seth Weber with RBC Capital Markets.

I guess just following up on Andrew's question, are you seeing any buildup of used equipment inventories in Europe at this point?

No.

No significant changes at this point in used. That is for North America and Europe.

And the fact that eastern Europe is doing better also helps, because this was a kind of difficult situation maybe during the last 2 years.

Right, okay. And I guess in South America, the decline in margin in that region, is that -- is it possible to talk about how much of that is related to price competition versus volume versus some of these -- I guess there have been some hiccups there with -- you mentioned some disruptions in Argentina or what have you. Is it possible just to sort of talk about what you think the normalized South American margin should look like?

Right. The 3 major reasons why our margins were down over a year ago, you pointed out most of them. The pricing did not cover the material cost inflation that we are seeing in the market, so that was probably about 150 basis points of the decline. Then, a lower production and a weaker mix of products as well impacted us, as we pointed out. The sales in Brazil are down slightly, but our sales in other South America markets are up, and our margins are better in Brazil, so we are getting a weaker mix there.

And then lastly, we have increased our expenditures and operating expense, and we had some higher marketing expenses in the quarter, which resulted in lower leverage on the operating costs. So, those were the main items for our decline. When you look at fourth quarter margins, we are forecasting that our margins do -- are relatively flat from where we are in the third quarter, which would make them up from where we were a year ago.

That's very helpful. Thank you, Andy. Thanks, guys.

Your next question comes from the line of Joel Tiss with Buckingham Research.

Hi, guys. Thanks for taking the time. Just two quick questions. The share count at the end of the quarter? Not the average for the quarter.

Share count for the quarter?

At the end, what was it on the last week or the last day, as opposed to the average for the whole quarter?

Joel, I don't have that in front of me. We'll have to get that back to you.

Okay. And can you give us a sense of what kind of rates are out there for the debt that you have to borrow for the acquisition? Just sort of a range to help us get into the ballpark.

Yes, our bank credit facility that we are working with that has been underwritten by Rabobank has a grid to it, but the basic terms will be LIBOR plus 150 basis points when we start out.

All right. Thank you very much.

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

Question -- can you guys just discuss the timing of the close for GSI? Do you need more regulatory approval outside the US? And maybe touch on the, or elaborate on the distribution synergies I think you referenced in the prepared comments, specifically in North America.

Sure, Larry. In terms of closing, as you point out, we are still waiting on regulatory approval in certain countries. It is hard to say exactly when we will get those, so we do expect to still close sometime in the fourth quarter of this year, but I can not give you a specific date at this point.

In terms of distribution synergies, most of the ones that we're highlighting we believe are likely to be outside of the US. So, markets like Brazil, where we have a very strong distribution network and a very active group, and some of these developing markets in central west portion of Brazil we believe can help us grow, particularly the grain storage side of the GSI business. And then, we think we can work together in markets like the CIS and in Asia to jointly market our products.

And so, in North America, they have a very strong established distribution network. And obviously, we have a very focused distribution network as well that we are improving, and we are very positive about. There may be some opportunities to cross sell, but I think they are much more likely in foreign international markets rather than the US.

Okay, thanks. And then, you guys talked about credit obviously being pretty available. We are seeing or hearing of some reports of more challenging credit in eastern Europe. But if credit does dry up more considerably, or dries up at all, how do you think about the impact to western Europe? Obviously, last time it was pretty adversely impacted, and it sounds like you guys don't think it would be as bad this time around. Can you just elaborate on that as well, please? Thanks.

The problem we faced in 2009 was not related to the availability of credit. It was more so that farmers, due to all the bad news which were discussed in the media, did hold back investments. And so, there were really no fundamental problems to do business. It was all more emotional. And this is how I see it also right now, so I don't expect any negative impact from lack of retail finance.

Also, Larry, I believe that used inventories and overall inventories or dealer inventories are in better shape than when they were at 2008 -- end of 2008. I think that is a positive sign, as well.

Okay. Thanks. And then just finally if I could ask one more. I think, Martin, you were quoted as saying you might buy a sugarcane harvester in Brazil. Is there any news on that, that you can talk about?

No, there is nothing we can talk about now.

Okay. Thank you.

Your next question comes from the line of Stuart Pulvirent with Merlin Securities.

Good morning. My question about Brazil, because the real has weakened pretty considerably here short term. So, I know there is a translation effect. Are there other effects, maybe some positive ones on exports, or how do you see that? Because it is kind of a sudden change.

Yes, we do benefit, as Andy was talking about earlier, we do export some of the production from Brazil to the -- well, to the US in some cases, but also just some of the other South American countries like Chile and Peru and, in better times, Argentina. And in times when the real does weaken, since those export sales out of Brazil are oftentimes denominated in dollars, we do see margin improvement for those export sales. So, that is a benefit that down the line we look to receive, if and when we see the real continue to weaken.

Okay. So all else being equal, whatever you lose on sales in FX, you feel it is just better for the business to have -- when the real was really strong, that that was not a great effect on the business.

Right, and actually the farmers in Brazil benefit more from a weaker real, since they export a very large percentage of their crop. It is easier for them, and their pricing is more competitive on a global basis when the real is not as strong. So, net-net, we would probably prefer to see a weaker real than where we are today.

All right, and if I could just one more. You mentioned a few times that a high horsepower market is strong. Now, I'm just confused. I'm sure everyone else knows this. So, are those -- is that equipment tier 4 equipment or the equivalent that is in the high horsepower, or is this a pre-buy in front of 2012 to some degree?

There is no pre-buy, so that's all.

For 2000, the emissions requirements for the tier 4 interim for horsepowers over about 175 horsepower kicked in at the beginning of 2011. So -- but what you have is a lot of -- including us and competitors, introducing the tier 4 interim compliant products throughout 2011, so they all were not in the market at the beginning of the year. Customer companies, including us, were using available credits and other means to continue to sell the tier 3 products throughout the year. So, it is a blend -- it is blending into our sales mix during this 2011; you'll see for high horsepower a much stronger tier 4 mix in 2012.

All right. You can tell why I'm asking, because obviously, there is a price increment on the tier 4 compliant equipment. So, if tier 3 is available and someone does not want to pay that --?

Well, there is no tier 3 available anymore.

Not anymore, right? That was earlier this year.

Yes.

Thanks.

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers. I will now turn the call back over to the presenters for any concluding remarks.

Thanks. We appreciate everyone's participation today, and we continue to appreciate your interest in AGCO. And I encourage you to follow up with me later today if you have additional questions. Thank you.

This does conclude today's conference call. You may now disconnect.