Tony Huegel - Director-Investor Relations Susan Karlix - Manager, Investor Communications Raj Kalathur - Chief Financial Officer & Senior Vice President.

Tim Thein - Citigroup Global Markets Incorporated Steve Volkmann - Jefferies Joe O’Dea - Vertical Research Partners Andy Casey - Wells Fargo Securities Jamie Cook - Credit Suisse Nicole DeBlase - Morgan Stanley Ann Duignan - JPMorgan Ross Gilardi - Banc of America Merrill Lynch Mike Shlisky - Seaport Global Securities David Raso – Evercore Eli Lustgarten - Longbow Research Steven Fisher - UBS Jerry Revich - Goldman Sachs Chad Dillard - Deutsche Bank Seth Weber - RBC Capital Markets Mircea Dobre - Robert W.

Baird & Company.

Good morning everyone and welcome to Deere & Company’s Fourth Quarter Earnings Conference Call. Your lines have been placed on listen-only until the question-and-answer session of today’s conference. I would now like to turn the call over to Mr. Tony Huegel, Director of Investor Relations. Thank you, sir. You may begin..

Thank you. Also on the call today are Raj Kalathur, our Chief Financial Officer; and Susan Karlix, our Manager of Investor Communications. Today, we’ll take a closer look at Deere’s fourth quarter earnings then spend some time talking about our markets and our initial outlook for fiscal 2016. 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. First, a reminder, this call is being broadcast live on the Internet and recorded for future transmission and use by Deere & Company.

Any other use, recording or transmission of any portion of this copyrighted broadcast without the expressed written consent of Deere is strictly prohibited. Participants in the call, including the Q&A session, 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 plans and projections 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.

Additionally, 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/earnings under Other Financial Information.

Susan?.

With today’s announcement of our fourth quarter results, John Deere has completed another year of solid performance. We did so in spite of further weakness in the global agricultural sector and a slowdown in construction equipment markets.

In response to this challenging environment, the company moved aggressively, restraining costs, reducing assets, and seeing further benefits of having a broad based business line up. As a result, Deere was able to deliver solid results, including our sixth best ever year in terms of net sales and income.

We also maintained our strong financial condition, generated healthy levels of cash flow and returned some $3.4 billion a record amount to investors in the form of dividends and net share repurchases. All in all it was a sound year.

One in which Deere further demonstrated its commitment to disciplined operations and the resilience of its business model. Now let's take a closer look at the fourth quarter in detail beginning on slide 3. Net sales and revenues were down 25% to $6.715 billion. Net income attributable to Deere & Company was $351 million. EPS was $1.08 in the quarter.

On slide 4, total worldwide equipment operations net sales were down 26% to $5.9 billion. Price realization in the quarter was positive by one point. Currency translation was negative by five points. Turning to a review of our individual businesses, let's start with Agriculture & Turf on course on slide 5.

Net sales were down 25% in the quarter-over-quarter comparison. Lower sales were recorded in all regions of the world, but the decrease was primarily due to lower shipment volumes of large Ag equipment in the United States and Canada. Brazil accounted for most of the lower sales outside the US and Canada.

Also hurting sales was the negative impact of foreign currency exchange. Operating profit was $271 million.

The decrease in operating profit was primarily driven by lower shipment volumes, a less favorable product mix, and foreign currency exchange, partially offset by price realization, lower selling administrative and general expenses, and lower production costs. The division's decremental margin in the quarter was 27% and 30% for the full year.

Quite respectable considering that worldwide large Ag sales were down approximately 35% for the year. Before we review the industry sales outlook, let's look at fundamentals affecting the Ag business. Slide 6 outlines US farm cash receipts.

Given the record crop harvest of 2014 and consequently the lower commodity prices we're seeing today, our 2015 forecast calls for cash receipts to be down about 8% from 2014s peak levels. Moving to 2016, we expect total cash receipts to be about $394 billion, roughly flat with this year.

On slide 7, global grain stocks-to-use ratios remain at somewhat sensitive levels, even after the abundant harvest of the past two years. Global grain and oilseed demand remains strong, while supplies are now fully adequate.

Even so, unfavorable growing conditions in any key region of the world, as well as unknown impacts from any geopolitical tensions could result in prices quickly moving higher. Slide 8 highlights the awards John Deere earned at Agritechnica, the world's largest agricultural equipment fair earlier this month.

Acknowledging Deere's ongoing research and development efforts, the innovation committee of the German agricultural society recognized innovations from John Deere and partner companies with 3 gold and 10 silver medals. It was the most gold and most silver medals ever awarded to one company.

In addition during the show, the Waterloo-built 8R Series tractors were named Machine of the Year 2016 by a German publishing house. Our economic outlook for the EU 28 is on slide 9. Economic growth is gradually improving in the region. Farm income is below long-term averages and remains under pressure. Also, weakness continues in the dairy sector.

As a result, industry farm machinery demand in the EU region is expected to be flat to down 5% in 2016. On slide 10, you'll see the economic fundamentals outlined for other targeted growth markets. In China, the governments continued investment in equipment subsidies and mechanization is supportive of agriculture.

However, the economic slowdown there and lower commodity prices have lead to a decrease in the industry sales forecast Turning to India, positive consumer and investor sentiment are encouraging economic growth. While the government continues to support agriculture, two consecutive below normal monsoon seasons have taken a toll on the farm sector.

Shifting to Brazil. Slide 11 illustrates the crop value of agricultural production, a good proxy for the health of agribusiness. Ag production is expected to decrease about 2% in 2016 in US dollar terms due to lower global commodity prices. However, the situation is more positive in local currency due to the sharp devaluation of the real.

That's because Brazilian farmers sell their crops in dollars helping to keep profitability at good levels. Although Ag fundamentals remain positive, farmer confidence is lower due to uncertainty over government sponsored financing programs, as well as economic and political concerns, all of which are leading to lower equipment sales.

Looking beyond these immediate concerns, however, long-term fundamentals for the Ag business in Brazil remain solid. Our 2016 Ag & Turf industry outlook are summarized on slide 12. Industry sales in the US and Canada are forecast to be down 15% to 20% with large Ag sales down 25% to 30%.

Low commodity prices and stagnant farm incomes are continuing to pressure demand for farm equipment, with the decline being most pronounced in the sale of high horsepower models.

As mentioned previously, the EU 28 industry outlook is forecast to be flat to down 5% in 2016 due to low crop prices and farm incomes, as well as pressure on the dairy sector. In South America, industry sales of tractors and combines are projected to be down 10% to 15% in 2016. A reflection of the factors already discussed.

Shifting to Asia, sales are expected to be flat to down slightly, due in part to weakness in China. Turning to another product category, industry retail sales of turf and utility equipment in the US and Canada are projected to be flat to up 5% in 2016, benefiting from general economic growth. Putting this altogether on slide 13.

Fiscal Year 2016 Deere sales of worldwide Ag & Turf equipment are forecast to be down about 8% including about two points of negative currency translation. The Ag & Turf division operating margin is forecast to be about 7% in 2016, due to lower shipment volumes, a less favorable product mix, and a negative impact of foreign currency.

Now let's focus on Construction & Forestry on slide 14. Net sales were down 32% in the quarter and operating profit was down 72% due to lower shipment volumes and the unfavorable effects of foreign currency. The division’s decremental margin was 27% in the quarter and 19% for the full year. Moving to slide 15.

Looking at the economic indicators on the bottom part of the slide, GDP growth is positive. Construction spending is increasing, and housing starts are expected to exceed 1 million units this year. And yet in spite of these encouraging signs, we are seeing weakness in our order books year-over-year.

Contributing factors are weak conditions in the energy sector and energy producing regions, especially in Canada.

We're also seeing a decline in rental utilization rates, sluggish economic growth outside the United States, and importantly, the mix of housing starts in the US skewing to multi-family homes, therefore reducing demand for earth moving equipment. As a result, Deere's Construction & Forestry sales are forecast to be down about 5% in 2016.

Currency translation is forecast to be negative by about one point. Global forestry markets are expected to be down 5% to 10% from the strong levels we've experienced the last several years, primarily as a result of lower sales in the United States and Canada. C&F’s full year operating margins is projected to be about 8%.

Let's move now to our financial services operations. Slide 16 shows the annualized provision for credit losses as a percentage of the average owned portfolio at the end of the year was 13 basis points. This reflects the continued excellent quality of our portfolios. The financial forecast for 2016 contemplates a loss provision of about 19 basis points.

Even so, losses would remain below the 10 year average of 26 basis points and well below the 15 year average of 39 basis points. Moving to slide 17, worldwide financial services net income attributable to Deere & Company was $153 million in the fourth quarter versus $172 million last year.

Lower results for the quarter were primarily due to the unfavorable effects of foreign currency exchange translation and higher losses on residual values, primarily for construction equipment operating leases. These factors were partially offset by lower selling, administrative and general expenses.

2015 net income attributable to Deere & Company was $633 million, an all-time record high for John Deere Financial. The 2016 forecast is about $550 million. The outlook reflects less favorable financing spreads and an increased provision for credit losses.

Also remember that 2015 results benefited from a gain on the sale of our crop insurance business of about $30 million. Before we leave financial services, especially with all of the questions we've been getting over leasing. Let's take a closer look at the portfolio composition as shown on slide 18.

At 31 October 2015, operating leases made up 13% of the portfolio, up two points compared to a year earlier. The vast majority of the impairment charge taken in the quarter was on a handful of construction equipment models.

JDF has not been encouraging customers to utilize leases in general or short term leases specifically through pricing or residual values. Leasing, however, is becoming more attractive to many of our customers. That's because of an uncertain business environment, coupled with the lack of confidence and clarity in tax incentives.

Meeting our customers financing preferences continues to be our top priority. We monitor the leasing portfolio daily, taking necessary actions to mitigate risk and expect to continue to see strength in our used equipment values. Slide 19 outlines receivables in inventories.

For the company as a whole receivables and inventories ended the year down $619 million. We expect to end 2016 with total receivables in inventory down about $650 million. Our 2016 guidance for cost of sales as a percentage of net sales as shown on slide 20 is about 79%. When modeling 2016 keep these unfavorable impacts in mind.

Tier 4 product costs, overhead spend and an unfavorable mix of product. On the favorable side we expect price realization of about two points, lower pension and OPEB expense and to a lesser extent favorable raw material costs. Now let's look at a few housekeeping items.

With respect to R&D expense on slide 21, R&D was down 2% in the fourth quarter and full year, including about three points of negative currency translation in each period. Our 2016 forecast calls for R&D to be down about 3%. Moving now to slide 22.

SA&G expense for equipment operations was down 17% in the fourth quarter with currency translation and incentive compensation accounting for about 12 points of the change.

Our 2016 forecast shown on slide 23, contemplates SA&G expense being down about 1% with currency translation accounting for about two points of the change, so essentially flat in comparison to 2015. Turning to slide 24, pension and OPEB ex pen was up $20 million for the quarter and up $80 million for the full year.

Pension and OPEB expense is forecast to be down about $200 million in 2016 due to the fact that we are adopting a change in the measurement of service and interest costs, known as the spot yield curve approach. On slide 25, the equipment operations tax rate was 14% in the quarter and 28% for the full year.

The lower rate resulted mainly from a reduction of a valuation allowance recorded during the quarter due to a change in the expected realizable value of a deferred tax asset. For 2016, the projected effective tax rate is forecast to be in the range of 34% to 36%. Slide 26 shows our equipment operations history of strong cash flow.

Cash flow from the equipment operations was approximately $3.1 billion in 2015 and is forecast to be about $2.6 billion in 2016. Slide 27 outlines our use of cash priorities which are unchanged and familiar to many of you.

Our number one priority is to manage the balance sheet, including liquidity to support a rating that provides access to low cost and readily available short and long-term funding. Thus, Deere is firmly committed to it’s A rating.

Our second use of cash priority is funding value creating investments in our operations, mostly relating to CapEx and R&D spending, but also acquisitions. Our third priority is to provide for the common stock dividend, which has been raised 114% since 2010.

Over time, we want to consistently deliver a series of moderately increased dividends, while targeting at mid cycle earnings, a 25% to 35% payout ratio on average. In this regard, we are mindful of the importance of maintaining the dividend and not raising it beyond a point that can be sustained by our cash flow throughout the cycle.

Share repurchase is are preferred method of deploying excess cash, once the previous requirements are met, so long as such repurchase is value enhancing. Since 2004 Deere has repurchased about 242 million shares, resulting in a net share reduction of 36%.

Cumulatively from 2004 to 2015, we have returned about 65% of cash from the equipment operations to shareholders through dividends and share repurchases. The 2016 outlook for the first quarter and full year is on slide 28. Net sales for the quarter are forecast to be down about 11% compared with 2015.

This includes about two points of price realization and about four points of unfavorable currency translation. The full year forecast calls for net sales to be down about 7%. Price realization and currency translation will offset one another with each expected to be about two points.

Finally, our full year 2016 net income forecast is about $1.4 billion. I will now turn the call over to our Chief Financial Officer, Raj Kalathur..

Thanks, Susan. Thanks, everyone for participating in the call today. In closing, I'd like to summarize a few things, and also reiterate a few things that Susan mentioned about Deere's recent performance and the current Ag downturn. We have faced 2 years of lower equipment sales in 2014 and 2015. We are forecasting a third year of decline in 2016.

Industry sales of large Ag equipment in North America have declined by more than 60% over this time, again its large Ag in North America industry, relative to the 2016 forecast, okay. This is 2013 to 2016 end. And in addition, all key Ag markets around the world and construction equipment markets in the Americas were down in 2015.

Even with such a steep industry pullback, our businesses have remained solidly profitable, delivering respectable decremental margin of 30% in 2015. Now we also expect to be solidly profitable 2016 as well. Now we also expect to continue generating strong cash flow.

Last year, Deere delivered third highest ever level of cash flow from operations and we are forecasting a very healthy level of cash flow of over $2.5 billion in 2016.

Our actions and proactively controlling expenses, costs, and managing assets have enabled us to deliver substantially better results than in any of the past downturns, at the same time, I should stress that the trends that hold so much promise for John Deere's future.

The ones we have told you about in the past, based on population growth, rise in living standards and increasing urbanization, they haven't gone away. They are still quite compelling in our view and have ample staying power. In fact, the demand for grain has continued to grow and the supply, demand balance is even closer now than last year.

That's in spite of record production in some cases, corn as an example, recall that earlier this year, in the summer, corn prices shot up to $4.50 over worries about the weather in the US Corn Belt.

All-in all then, we believe John Deere can continue to earn solid returns even in a weak farm economy, deliver financial performance, much improved over downturns in the past and longer term see substantial benefits from the world's growing need for advanced equipment and technology solutions..

Thank, Raj. Now we're ready to begin the Q & A portion of the call. The operator will instruct you on the polling procedure. In consideration of others and our hope to allow more of you to participate in the call, please limit yourself to one question. If you have additional questions, we ask that you rejoin the queue.

Carlos?.

Thank you, sir. [Operator Instructions] Our first question will be coming from the line of Mr. Tim Thein from Citigroup Global Markets Incorporated. Your line is now open..

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Thank you. Our next question will be coming from Steve Volkmann from Jefferies. Your line is now open, sir..

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Thank you. Our next question will be coming from the line of Joe O’Dea from Vertical Research Partners. Your line is now open, sir..

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Thank you. Our next question will be coming from Andy Casey from Wells Fargo Securities. Your line is now open..

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Thank you. Our next question will be coming from Jamie Cook from Credit Suisse. Your line is now open..

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Thank you. Our next question will be coming from the line of Nicole DeBlase from Morgan Stanley. Your line is now open..

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Thank you. Our next question will be coming from the line of Ms. Ann Duignan from JPMorgan. Your line is now open..

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Thank you. The next question will be coming from Ross Gilardi from Banc of America Merrill Lynch. Your line is now open..

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Thank you. Our next question will be coming from the line of Mr. David Raso from Evercore ISI. Your line is now open..

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We will be going and getting his line, sir. One moment please..

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Sure. Our next question will be coming from Mike Shlisky from Seaport Global Securities. Your line is open, sir..

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Thank you. Our next question will be coming from Eli Lustgarten from Longbow Research. Your line is now open..

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Thank you. Our next question will be coming from Steven Fisher from UBS. Your line is now open..

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Thank you. The next question will be coming from the line of Mr. Jerry Revich from Goldman Sachs. Your line is now open..

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Thank you. The next question will be coming from Vishal Shah from Deutsche Bank. Your line is now open..

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Thank you. The next question will be coming from Seth Weber from RBC Capital Markets. Your line is now open, sir..

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Thank you. The last question will be coming from Mircea Dobre from Robert W. Baird & Company. Your line is now open..

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Thank you. And that concludes today’s conference call. Thank you all for participating. You may now disconnect..