Tony Huegel - Director, Investor Relations Raj Kalathur - Chief Financial Officer Josh Jepsen - Manager, Investor Communications.

Jamie Cook - Credit Suisse Securities Andy Casey - Wells Fargo Jerry Revich - Goldman Sachs David Raso - Evercore ISI Steve Fisher - UBS Securities Ross Gilardi - Bank of America/Merrill Lynch Robert Wertheimer - Barclays Capital Mike Shlisky - Seaport Global securities LLC Tim Thein - Citigroup Global Markets Mig Dobre - Robert W.

Baird & Company Brett Wong - Piper Jaffray & Company Joel Tiss - BMO Capital Markets Joe O'Dea - Vertical Research Partners LLC Nicole DeBlase - Deutsche Bank Securities Stephen Volkmann - Jefferies LLC Seth Weber - RBC Capital Markets Adam Uhlman - Cleveland Research.

Good morning and welcome to Deere & Company’s Fourth Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Tony Huegel, Director Investor Relations. Thank you. You may begin..

Hello. Also, on the call today are Raj Kalathur, our Chief Financial Officer and Josh Jepsen, our Manager of Investor Communications. Today, we will take a closer look at Deere’s fourth quarter earnings, our markets and our initial outlook for fiscal 2017. After that, we will 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 maybe 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.

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.

Josh?.

voluntary separation program cost of $96 million related to the equipment operations, pension and OPEB expenses of about $30 million and other non-recurring cost of about $55 million. After adjusting for these items, implied operating profit for 2017 is in the range of $1.88 billion to $1.93 billion.

On an adjusted basis, the comparison shows an improvement between $40 million to $90 million for 2017 even with lower sales volumes, which are projected to be down about 3%. The lower volumes negatively impact the 2017 forecast.

When considering the special and non-recurring items as well as the impact of lower volumes, they show the company is continuing to deliver improved operational performance due in part to structural cost reduction initiatives. I will now turn the call over to our CFO, Raj Kalathur, for additional comments..

Thanks, Josh. Last quarter, we talked about our plans to improve pre-tax profit by at least $500 million through structural cost reductions by the end of 2018. These benefits would apply to 2016 volume levels. We expect to see the full benefit of the $500 million improvement in the year 2019 and beyond.

These cost reduction efforts began in March of 2016 and contributed in excess of $90 million for the year 2016. The 2017 forecast includes an additional about $190 million of structural cost reduction. Here is some detail about where the $500 million in improvement is expected to come from.

Number one, structural direct and indirect material cost reduction is the largest contributor of improvement, roughly one-third. Now, this is the result of leveraging existing supplier relationships, resourcing and designing cost out of our products.

Second, people-related costs are the second largest category of reduction, about one-fifth of the total improvement. The voluntary separation program that Josh discussed is a significant example.

Other areas of improvement include changes to our variable pay structure especially under trough conditions as well as lower R&D spending and lower depreciation associated with lower capital expenditures. Overall, our teams are making good progress towards the $500 plus million goal and we have confidence it will be realized.

In conjunction with sound execution, disciplined cost management will allow us to continue delivering significantly better performance than in downturns of the past. And of course, these same factors will provide a continued benefit when market conditions strengthen.

All-in-all then, we remain confident in our company’s present direction and believe Deere is well positioned to provide significant value to our customers and investors in the future..

Thanks, Raj. Now, we are ready to begin the Q&A portion of the call. The operator will instruct you on the polling procedure and 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.

Leon?.

Thank you. [Operator Instructions] The first question comes from Jamie Cook from Credit Suisse Securities. Your line is open..

Good morning. I don’t know where to start. I guess, Raj, I appreciate the incremental color that you gave us associated with the $500 million in the savings that you outlined, the $90 million – the $190 million in 2017.

And you gave more color on sort of costs, you know what I mean, the $116 million, but can you just give us more color so for ‘16, ‘17 and ‘18, what are the total – what are the costs each year associated with the $500 million?.

So Jamie, we said for 2016, it’s in excess of $90 million on an operating profit basis, okay?.

The benefit..

The benefit. Yes..

Okay.

But what’s the cost?.

The cost associated with that..

Yes, I want the cost associated with those savings each year..

And we have said the voluntary separation costs are the primary ones if you look at it and it’s about $11 million in 2016, okay.

In 2017, we have said that the benefits are an incremental $190 million and we have also said the costs are – was it, $75 million?.

$105 million..

$105 million in total, yes. So, $105 million in total – in ‘17. So, now there will be some costs, but you will realize that on the structural material and direct - indirect and direct material cost side, the costs will be pretty minimal. The benefits will be substantial. Okay.

On the voluntary separation type programs, there will be a cost and we have told you a lot of it in ‘16 and ‘17, okay?.

And as we go forward, Jamie, if there are significant – to your point, if there are significant costs similar to the voluntary separation, we will certainly call those out as those are incurred and try to keep people abreast of what those are. But at this point, I mean your question about 2018..

Yes, I was just trying to understand what was incremental to the $11 million and the $105 million that you had pointed out.

Because last quarter, you said three buckets, SG&A, material costs, you know what I mean, so I was just trying to get more color beyond what you guys provided?.

Yes, undoubtedly, there is some, but there is nothing of significance..

Okay, I will get back in queue. Thanks..

Okay, thank you. Next caller..

The next question comes from Andy Casey. Your line is open..

Thanks a lot. Good morning and happy Thanksgiving early..

Thank you, sir..

I guess I had question on financial services it looked like it took you about $10 million cash charge for impairment during the quarter. You guided contribution up for ‘17.

Can you discuss what you are seeing in terms of dealer originations for operating leases? And whether it sounds like you are feeling more comfortable about the residual value risk going forward? Can you kind of talk about what you are seeing?.

Sure. As you think about the maturities and so on with leases, keep in mind that we talked about this last quarter. We did have a significant level of maturities that occurred in the fourth quarter. In fact, if you look at October alone, the month of October in terms of what sales we had of matured leases, about 2x to 3x the typical months that we had.

And again, that’s on the sales side. So, we did see again on our maturity, a pretty significant peak in the fall. We will, as we go forward, as you think about lease maturities, you will continue to see some of those seasonal increases. So, as we mentioned before, you will see some increase in the spring generally and then again in the fall.

So, typically our second and fourth quarters are the quarters that we will see those. But at this point, we would anticipate what we thought fourth quarter 2016 would be the highest peak from a maturity perspective.

Certainly, we continue to see customers continuing to elect operating leases at a bit higher level than what we would have seen on a more historic basis. I think the current market conditions explain much of that. But I would also point out it isn’t at some of the extreme levels that I have seen being reported.

If you look over the last 12 months for example, so for 2016, if you look at just the retail financing of equipment, so comparing retail notes versus operating leases. Operating leases in terms of volumes coming in the door were about 25% of the total. That’s up. Historically, we would be in the mid to upper teens.

So, it’s certainly at a more elevated level, but not to the degree or to the extent that some perhaps have reported. So, hopefully, it gives you a little bit of color on where we are at with the operating leases.

But to your point, as we move forward especially when we get past second quarter with some of the changes that were made, at that point in time on the short-term leases, we would feel and then you are seeing it reflected in the forecast, a bit more confident on that front as we go into ‘17. Right, thank you. Next caller..

Thank you. The next question comes from Jerry Revich. Your line is open..

Happy Thanksgiving everyone..

Thanks, Jerry..

Can you folks talk about now that you have completed largely anyway that Tier 4 transition how much of the cost improvement that you are seeing in ‘16 and into ‘17 is from lower factory and lower procurement costs now that you are focusing on optimizing the cost structure on the products? How much of a tailwind is that dynamic for you over the 2 years?.

Yes. I think that unfortunately a level of detail, I am not going to be able to provide. But as you think about it kind of on a higher level, I think it is worth noting we still have emissions transition cost anticipated. Some of that is final Tier 4, so we still have some Final Tier 4 conversions.

But also keep in mind as we go into 2017, Brazil has a Tier 3 conversion. So, there will be some cost there. So, emissions does continue to be an increase year-over-year. Now, that’s on the one side.

To your point, a portion of what we have talked about with the structural cost reduction is going back to some of those applications on Final Tier 4 where we have first and foremost found the most reliable solution.

Now going back and looking at, are there ways we can still clearly meet those requirements that do so on a less expensive basis and so that really goes to – and would contribute to some of that kind of a third of the cost reduction that we are targeting on product costs.

A good portion of that does relate to some of the Tier 4 future savings we would hope as we take some of those costs out of products on a go-forward basis..

And Tony, just to clarify, the transition cost you mentioned there up in Brazil, but globally, they are down, correct because…..

It would still be an incremental cost on a global basis. You remember, those costs generally don’t go away. And you still have, yes, Brazil transitioning, you have other products on a global basis transitioning. You have got some forestry products in Europe. You would still have some smaller product in the U.S.

that we will be going through some transition. China, we have gone through some Tier 3 transition. So, the emissions broadly speaking continues to move forward on a global basis and so that will continue to provide some additional cost as we go forward at least for the foreseeable future..

Thank you..

Thank you. Next caller..

Thank you. The next question comes from David Raso. Your line is open..

Hi, good morning..

Hi, David..

My question is on pricing, obviously, the 3% was pretty impressive. We haven’t seen that in many, many quarters.

So, it maybe dovetails a bit into how you are viewing Deere Capital and the losses for residual values, but can you take us through a little bit, what are you seeing on pricing, the 3% for the quarter and maybe the pricing that you see in the order book and use pricing as it relates to the residual value thoughts for next year?.

Yes. So, as you think – yes, when you think about the new pricing and specifically in the quarter, I would say it really is attributed to the discounting was down pretty significantly and you saw that coming through in the 3 points of price realization.

And I would say that’s particularly true for the ag business as we have talked about with construction, that continues to be actually the opposite story, that’s the very challenged market from a competition perspective and a pricing perspective.

With used pricing, I would say more of what we have said last quarter where we really have seen, I would say stabilization of that used pricing as we speak with dealers, much higher confidence as they are negotiating trade-ins, the value that they are able to put on that trade-in and what they feel they can accept.

Keep in mind the challenge always on residual values is that’s more about the wholesale perspective and the ability for dealers to purchase those – that used equipment coming off of lease and adding it to their used inventory level.

So, we do continue to see some lower residual values on leasing and you saw that reflected in the results for the quarter. But again, I think the good news there is generally stabilization on that used equipment pricing..

Okay. And if I can quickly ask, that SiteOne gain from last year, I believe you don’t have any SiteOne gain in 2017 guidance.

But given the secondary that’s out there already, can you at least help us with assuming – can you give us some idea of the size of the gain essentially given where the stock is today versus May to calibrate there or is there any reason not to assume there is a gain, I guess, from the secondary?.

So David, there is a follow-on offering that SiteOne has come out with, but it’s not in our forecast and that’s probably all we can say about it. They are just doing for follow-on offering as one thing and actually doing it is the secondary thing. So, we don’t want to talk about the probabilities of that..

And that will be updated – if and when it happens, it would be updated at that point in time..

And it’s not in our 2017 forecast right now..

I appreciate it. Thank you..

Alright. Next caller. Thanks, David..

Thank you. The next question comes from Steve Fisher from UBS Securities. Your line is open..

Thanks. Good morning. Just a follow-up on the pricing question, so it sounds like things are nicely stabilizing in the ag business, allowing you to get that 3% with the lower discounting.

Just kind of curious why isn’t that sustainable into 2017 given that you are forecasting a more moderate pricing benefit in 2017 or are you assuming that there could be some upside to that as the year goes on?.

Well, again, I think the thing I would point out keep in mind that’s a quarter-over-quarter difference that you are comparing what happened in 2015 to what happened in 2016. And then so we certainly didn’t see the increased level of incentive that we perhaps would often see in the fourth quarter didn’t repeat in 2016.

So again, I think as you go forward, we are still focused on seeing good positive price realization across equipment operations and you are seeing that reflected in the forecast.

So candidly, we are still in very low end markets, especially as you think about large ag equipment and so the price realization is I think fairly attractive given that perspective. But it’s really driven I would point out by our ability to continue to innovate.

You are seeing that in our R&D spend and now you are seeing the benefit of that as we bring innovative new product out, we are able to then see that in the form of price realization. And so I think again, I think it’s a pretty positive story overall. Thank you..

Thank you..

Next caller..

Thank you. The next question comes from Ross Gilardi from Bank of America Securities Merrill Lynch. Your line is open..

Yes, good morning.

Yes, I was just wondering, can you guys just talk more about how your early order program kind of finished out or is looking now in sort of the backlog by region? And does your current order intake reflect the 15% increase that you are forecasting for South America?.

Yes. So, as you think about orders and keep my early order program primarily relate to the U.S. and Canada on large ag equipment. You see it in limited form in some of the other parts of the world. As you think about the combine early order program, keep in mind, it’s still in process. So, that actually ends in January.

During the quarter, we would have ended our second phase of a multiphase program. I would tell you the order intake there was very supportive of the forecast in that regard.

And again on large tractors, we continue to be pretty much in line slightly behind on the 8R tractors, if you think about availability year-over-year, but again, very supportive order position on the North American large ag versus our forecast.

As you think about outside and I think maybe the most significant one is Brazil in South America and I think the question there that we talked about last quarter was, how much of that is simply pull ahead of that Tier 3 conversion that I mentioned previously.

And we are seeing strength in the order book beyond the January 1 date and so that really is why we are reflecting that higher level of sales for the full fiscal year. Certainly, you will see some strength in the next couple of months, this month and December, ahead of that Tier 3.

But our belief is what we are seeing in the order book that, that strength will continue beyond December 31. So, the short answer to your question on South America is yes, we are seeing it in the order book..

Thanks, Tony..

Thank you. Next caller..

Thank you. The next question comes from Robert Wertheimer from Barclays Capital. Your line is open..

Yes, hi, good morning..

Hi, Rob..

Are you – now that we have finished out the year, you have noted in the past, obviously how the 100 plus horsepower category isn’t really big farming tractors anymore stuff has crept in.

Can you give us a sense of what your high horsepower 180 and above or whatever you want to do is versus maybe the 2002 trough or how far down we are from peak on the 180-hp revenues?.

Yes. Again, we don’t break out the inventory levels and give quite that much detail.

I think what I – I think what is worth, pardon me?.

Revenues – what production was in revenues for you guys versus the prior peak in trough?.

Yes. Again, we don’t guide on what those levels are by product type per se. But I think when you think about the levels that we are seeing from an inventory perspective specifically with that 100 plus, we did end the year with higher levels of 100 plus horsepower tractors.

But as you point out, that was almost all below the 200 – 220 horsepower, what we call large ag and really in that 6,000 series type of product. And you see that reflected in our lower receivables and inventory next year for the ag division. Much of that is kind of that midsized equipment getting pulled down further in 2017.

And some of that candidly as we ended the year up higher than we would have liked on the 6,000 in particular. We talked a lot about that issue in the past. As you think about large ag equipment, as we expected, we are producing mostly the retail on large ag equipment as we go into 2017 and that’s I think reflected in that sales outlook..

Okay. Thanks, Tony..

Okay, thank you. Appreciate it. Next caller..

The next question comes from Mike Shlisky from Seaport Global securities LLC. Your line is open..

Good morning, guys. A lot of questions here, but maybe I will just touch on turf and utility on my question. I think you said that it should be flat in 2017 with Deere outperforming.

Can you just give us more color as to why you might outperform, is there a change in dealership networks or new products there or anything I should kind of point to there as to why you might be better than the industry in 2017?.

Sure. I think probably the biggest category or biggest reason there is simply the new products that we have in the market and we would expect those to help continue to provide some market share. So, that would be the short answer. Alright, thank you..

Thank you so much..

Next caller..

Next question comes from Tim Thein from Citigroup Global Markets. Your line is open..

Thank you. Good morning. Tony, just want to come back to one of the headwinds you have cited for ag and turf being product mix. And I know you used to provide that in kind of the basis point term. But I am not sure you can do that now.

But just kind of thinking through your comments with producing in line in large ag and not in small, Brazil being up nicely, both of which you think would be positive for mix. So, maybe just put a little bit more color around that your expectations for product mix? Thank you..

Right. Generally, when we have talked about large versus small, we have also pointed out small really combines midsize and utility. And so what you are seeing in some of that underproduction, as I mentioned earlier, a lot of that underproduction is coming of that midsized product, which again from a mix perspective would be a bit more negative.

So, as you think about year-over-year strengths and weaknesses in the business, you are still seeing a fair level of weakness in some of that mid to large equipment at least year-over-year with continued strength in the smaller end of the portfolio.

So, that’s just from a product mix perspective and given where South American volumes are today, that geographic mix wouldn’t be as attractive as what it would be if we were in more normal levels. So keep in mind, their production is significantly down as well and so that does put pressure there. So, it’s kind of a combination of those things.

Volume candidly though, year-over-year volume for ag and turf is the bigger headwind, there is some mix impact as well..

Alright. Understood. Thank you..

Thank you. Next caller..

The next question comes from Mig Dobre from Robert W. Baird & Company. Your line is open..

Yes, good morning everyone..

Hi, Mig..

A lot of questions already asked, but I am going to ask you a tax question, if you would. Have you formed some sort of a view or do you have any internal modeling as to how your tax rate might progress going forward if what Mr.

Trump is proposing out there in terms of tax reform actually comes to be?.

Yes. I am going to take that question and make it broader than just tax. And what I would tell you is the thing – the most important thing is anything that’s being talked about in media and anywhere else is obviously speculation at this point in terms of what may or may not happen. And so certainly internally, we are evaluating different scenarios.

So, the short answer to your question is the, of course, we are looking at what that impact may or may not be, but we are looking at all kinds of scenarios, because at the end of the day, we want to be prepared for whatever does become reality.

But we are – at this point, it would be premature to talk about that publicly just because it would be pure speculation, so – but we do appreciate the question. Thanks. Next caller..

The next question comes from Brett Wong from Piper Jaffray & Company. Your line is open..

Hi, thanks.

Just wondering if you can talk to Europe a little bit since you haven’t talked about that yet, I am just wondering kind of the drivers behind the 5% and what could indicate bottoming in the weaker dairy industry?.

Yes. It certainly – Europe as you are well aware, it’s always a mixed bag country by country in terms of where you maybe seeing some strength versus weakness. I will start with dairy though.

I mean really what we are seeing there is in some of the dairy pricing, you are certainly starting to see some of that level – you see some periods where dairy pricing was up pretty nicely, but it’s early. But again, I think that’s what we characterize it as we did.

There are signs that it’s bottoming, that doesn’t mean it bottomed or how soon things might recover, but that is a positive versus where we would have been even as early as last quarter incrementally in Europe.

But if you think about more broadly, I mean clearly, I think maybe the two of the more noteworthy regions there, France, which is our largest market, went through a very difficult harvest and the harvest is down. Farm incomes are going to be lower.

That’s going to put pressure clearly on sales there, and coupled with that, as you are probably aware, there was a tax incentive program earlier in the year in France that did drive a lot of sales.

And now while it’s still in place, not a lot of income for those French farmers, so it’s unlikely to have this anywhere near the type of advantages it did last year. So arguably, France would be a more challenged market.

In the very short-term, I don’t want to emphasize that, the concerns around Brexit and so on could – is expected to drive some benefit for the UK. You have seen exports of the used equipment become much more attractive with the FX shifts.

And in the short-term we are likely to see some higher level of sales as most of those customers they are expecting that they still see some price increases as most manufacturers are importing into the UK. And so again, with the FX shift, that’s likely to drive higher pricing and so they are buying ahead of that.

So, there would be some benefit again in the short-term there. Longer term, obviously, that would likely have more downside than upside. So, I think those are maybe a couple of the more significant and especially when you throw the dairy commentary in the more significant pieces of Europe as you think about 2017. Thank you. Next caller..

Thank you. The next question comes from Joel Tiss from BMO Capital Markets. Your line is open..

Alright. I made it..

Hi, Joel..

Hi, how is it going? I just wondered if you could talk a little bit about your produce – your production levels, because just trying to understand how the volumes of the factories are moving.

How much you under-produced retail in 2016 and I know you said you are going to produce in line with 2017 just so we can get a little bit of a sense of the production changes underneath the covers there?.

Sure. Yes, I think – as you know I would start with while certainly being able to produce to retail in some of those large ag factories is a benefit year-over-year. I would stress we are still at really low levels. We have talked before about capacity being below 50% in most of those – really across the board in the large ag facilities.

That wouldn’t change with the ability to build to retail. Because keep in mind, while we did draw field inventories down last year, it wasn’t as significant of a drawdown as what we experienced for example in 2015. So again, you get benefit, but it’s not like all of a sudden, those factories are running at highly efficient levels.

So, I think that’s probably the most important thing to keep in mind. We haven’t talked about the level of specifically what the underproduction was last year. But I think again, you are seeing that reflected in the overall outlook.

If you look at the sales, while most of our markets especially our largest market down 5 to 10 on a retail basis, you are seeing our sales reflecting a more positive trend than that. And I think that’s part of that story. So, probably not much more I can say on that, but hopefully gives you a little bit of additional color..

Am I able to sneak another half a question in?.

I think we are going to have to move on. There is a large number of people still in queue. Yes, sorry. Thank you..

Thanks very much..

Next caller..

Thank you. The next question comes from Joe O'Dea from Vertical Research Partners LLC. Your line is open..

Hi, good morning..

Hi, Joe..

Could you talk about the operating leases and when you see higher volumes rolling off lease in the fourth quarter, just what the experience was with where that equipment went, whether the farmers were leasing it, were then buying it? The dealers are absorbing it whether you took more of it than you normally do, but if we just think about that, is it proxy for dealing with higher volumes coming off lease moving forward?.

Yes. I think in the quarter, we would have seen similar maybe slightly higher return rates. So, it wasn’t a major shift towards customers or dealers keeping that equipment. So that kind of continued. But again, that’s all factored in.

Any of those shifts would have been factored into the impairment and loss in anticipation or charge that we would have taken in the quarter as we have through most of 2016.

We continue to look out over the next 12 months at our lease maturities and based on more recent activity both the return rate and loss rate would book, what we think is an appropriate impairment on some of those future maturities.

So, again, we would have – I think the key there is we would have reflected that already at least for the next 12 months in that outlook..

Great. Thanks very much..

Okay, thank you. Next caller..

The next question comes from Nicole DeBlase from Deutsche Bank Securities. Your line is open..

Yes, thanks. Good morning..

Hi, Nicole..

Hi. So, just a question around C&F, some of your peers have talked about channel inventory still being too high and needing to work those down at the dealer level for the next several quarters.

I am just curious how you view your current dealer inventory levels within the construction business?.

Yes, to appreciate that question, we – as you saw really in our numbers for receivables and inventory last year, our dealers drew their inventory level down pretty dramatically in ‘16. As a result, while we are still on an inventory and receivable level bringing C&F down further, that’s almost all inventory for C&F.

There is very little receivable reduction in that division and it’s really just reflective from a new equipment perspective, we think our dealers are in very good shape.

Now, the good news there is if we ever do start seeing more positive trends in that market for us, I think we would be in a position where dealers would likely need to add to their inventory from current levels.

So again, I think that’s reflective of the good work the division and our dealers did in 2016 that we are able to put that type of forecast for sales in 2017..

And is it a similar dynamic on used inventory?.

No. Used continues to be – and that’s one of the drags we would continue to point to. I think Josh pointed out in the opening comments. Used continues to be one of those kind of weights or headwinds for that market.

Certainly, our dealers aren’t – we would argue probably in a little better shape than much of the competition, but again, that’s a little harder to gauge as well, but certainly broadly for that market will continue to be a headwind..

Okay, thanks..

Thank you. Next caller..

The next question comes from Stephen Volkmann from Jefferies LLC. Your line is open. Can you recheck your phone Mr.

Volkmann?.

Sorry about that..

There we go, okay..

The next question comes – sorry….

We got it, yes..

So, just a question about how to think about your forecasting ability, I mean, obviously, a quarter ago, you kind of gave us an idea of the full year. We backed into the fourth quarter, which you then beat handily. And normally, I feel like you guys have kind of good visibility quarter out and things don’t change too markedly.

And I am just trying to figure out if that’s changed or if you are maybe being conservative last quarter or just how I should think about your visibility relative to history?.

And I am assuming that question is mostly targeted towards ag since that was the division that really had a pretty strong beat in the quarter. I would tell you from a sales perspective clearly, our sales were higher. Pricing again was the incentive spend just wasn’t as high in the quarter. So, that was a big part of the – most of the beat.

But as you think about even on a volume basis, we did see kind of broadly some better sales levels. So, it didn’t come from all U.S. and Canada. It didn’t come even to the extent that there was increases in U.S. and Canada, it was broadly across a number of products.

So, it would be difficult for us to even call out unless we put a very long list together where that sales increase came from. And sometimes, we will have quarters where unfortunately everything kind of moves against us. And we have a lot of little things that add up to a big negative.

This happens to be a quarter where we have a lot of little things that were positive that all added up to a pretty nice advantage for us..

Steve, to add to Tony’s comments, the price and discounts we talked about was beat, and then you also talked about higher volumes and then higher volumes coming from regions 4, 3 and 2 and region 4, multiple units, now had little bit higher volume and then better mix than we had anticipated, lower overhead spending, lower material costs, lower R&D, structural cost reductions beginning to pay off a little earlier.

So, all those things added to our beat in the Q4..

Great. I appreciate that. Thanks..

Thank you. Next caller..

Next question comes from Seth Weber from RBC Capital Markets. Your line is open..

And happy Thanksgiving..

Thanks, Seth..

Most of the questions have been asked.

Just a real kind of housekeeping, is there any color on the impairment charge that you took in the quarter, the $25 million, is there anything you can anymore details you can give us on that?.

The only other thing and you will see it certainly in the – when we release the K that it’s almost – we talked about it being international. It really relates to both our Chinese operations as well as the joint venture in Brazil. It’s roughly half and half..

C&F..

Yes, for C&F. So again, yes, so, it’s about $13 million related to C&F China – operations in China and then about $12 million related to the joint venture in Brazil. Thank you..

That’s all I have. Thanks..

Alright. We have time for – we will squeeze one more call in..

Thank you. The next question comes from Adam Uhlman from Cleveland Research. Your line is open..

Hi, good morning. Thanks for squeezing me in and happy early Thanksgiving..

Yes, thank you..

I am wondering, Raj, you had mentioned in your remarks that you – that there had been some changes to the compensation plans I believe if I didn’t really hear that out.

I was wondering if you could expand on how you are changing the incentives at the company and what that means for 2017 as well?.

Yes. So, this is for the short-term incentive. At trough, we had a maximum payout at 13% operating – return on operating assets that went up to 16% now. So, that’s specifically what I was referring to..

And then keep in mind, we did increase historically – that would have been 12% last year for 2016, it went to 13% for 2017, we are bumping that up yet again to 16%. I will point out a slight increase at mid-cycle as well. Last year, we bumped it to 24% and that moves to 26%..

Okay, thank you..

Alright, thank you. Again, we appreciate your participation on the call. As always, we will be available throughout the day to take any follow-up questions. Thank you..

Thank you. That concludes today’s conference. Thank you all for your participation. All participants may disconnect at this time..