My name is David, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation’s Fourth Quarter 2016 Earnings Results 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 session. [Operator Instructions] In the interest of time, please limit yourself to one question and one follow-up. I would now like to turn the call over to Ms. Lisa Curran, Vice President of Investor Relations. Ms. Curran, you may now begin your conference.

Thank you, David. Good afternoon, everyone, and thank you for joining us on the call. With us today are Jim Lico, our President and Chief Executive Officer; and Chuck McLaughlin, our Senior Vice President and Chief Financial Officer. We present certain non-GAAP financial measures on today’s call. Information required by SEC Regulation G relating to these non-GAAP financial measures are available on the Investor section of our website, www.fortive.com, under the heading, financial information. A replay of the webcast will be archived on the Investor section of our website later today under the heading Events and Presentations, and will remain archived until our next quarterly call. A replay of the conference call will be available shortly after the conclusion of this call until Tuesday, February 14, 2016. Once available, the link to this conference call replay will be posted under the Investor section of Fortive’s website under Events and Presentations. During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance, all references to period-to-period increases or decreases and financial metrics are year-over-year. During the call, we will make forward-looking statements within the meaning of the federal securities laws including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, and actual results might differ materially from any forward-looking statements that we make today. Information regarding the factors that may cause actual results to differ materially from these forward-looking statements is available in our SEC filings, including the Information Statement we furnished with the Current Report on Form 8-K filed on June 15, 2016. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements. With that, I’d like to turn the call over to Jim.

Thanks, Lisa, and good afternoon, everyone. We closed 2016 on a positive note delivering outperformance from both core sales and earnings growth perspectives as our outstanding team of 24,000 employees around the world, leverage the power of the Fortive Business System. 2016 was a remarkable year as we not only launched Fortive, but seamlessly serve our customers accelerating product innovation maintained or expanded leading market positions in all of our businesses and lift our values by holding over 700 Kaizens including the CEO Kaizen we highlighted last quarter. And our first two quarters as a standalone company, Fortive delivered over 3% core revenue growth, expanded core adjusted operating margin 90 basis points and gross margin 60 basis points. Delivered free cash flow conversion of 129% and grew adjusted earnings 12% all while continuing to invest in both growth and productivity initiatives and M&A that will allow Fortive to deliver long-term value to our shareholders. Living our values helping our customers accelerate progress and leveraging the power of the Fortive Business System positions us well for 2017 and beyond. Turning to the fourth quarter of 2016 for a more detailed discussion of our results, let me first remind you that the following information reflects year-over-year increases or decreases relative to the supplemental financial data posted to our website. Adjusted net earnings of $237.7 million were up 3.6% over the prior year. Adjusted diluted net earnings per share were $0.68. If not for the $0.04 of additional investments we guided last quarter, adjusted net earnings per share would have grown 9%. Currency was an additional $0.01 headwind to adjusted EPS. Sales grew 3.3% to $1.6 billion or a core revenue increase of 3.5% reflecting growth in five out of our six platforms. Acquisitions contributed approximately 90 basis points of growth during the…

Thanks Jim. Before we move into questions I’d like to take this opportunity to announce that Fortive will host its first Investor and Analyst Day on May 18, 2017 in New York City. Further details will be circulated soon. That concludes our formal comments. David, we are now ready for questions.

[Operator Instructions] We will take our first question from Steven Winoker with Bernstein.

Thanks, good afternoon everybody. I’d love to – Jim, get your thoughts on the M&A pipeline actually sort of stepping back for a minute here it’s obviously an important part to the overall business model. And in terms of how that’s tracking the capability building up what you see and what you would like investors to have from an expectations perspective in terms of both direction and kind of how you see that maybe playing out over the next year?

Thanks Steve. I think first of all, M&A continues to be our main priority so no change in that. We think today, we have about $3 billion worth of capacity over the next couple of years. And so we’ve got plenty of opportunity. As we mentioned on prior calls really a number of things have been happening in relative to building our own capacity, couple deals that we’ve got done in the third quarter as we mentioned on the prior call. Nothing this quarter but certainly we’re very busy and I think we are very fortunate to be in a position we are at right now from a balance sheet perspective. I’m highly confident we will get some things done in 2017 with a breadth of deals both from a size perspective and across the platforms.

And our bid-ask spreads in places which you think are favorable enough to getting deals done?

Yes, I wouldn’t say pricing has been an issue at all I think at the end of the day, we’ve been very much – we’ve been active and I think we haven’t seen much change in pricing over the last 12 months.

Okay, great. And maybe just a little color – I know you had already guided to that $0.04 of additional investment last quarter and I’m looking also at the core margin contraction and professional instrumentation. I think that $0.04 would probably translate to something like 120 basis points headwind overall for the whole company. But maybe just talk about where we spent, did you spend more than that is there additional restructuring how that – what was the makeup of that 30 basis point contraction that kind of thing?

Hey, Steve. This is Chuck. The restructuring that we spent – we spent additional $0.02 and that was fairly evenly split between the two platforms may be a little more in terms of PI but pretty evenly split there and then I think – the other $0.02 we did an additional on growth spend.

Yes, mostly I think the other $0.02 on growth was mostly in PI I think, Steve as it translated we were able to accelerate a number of things around condition monitoring, some things we want to do on the new platform to tack as well as a couple of incremental investments in other parts of the portfolio. So that just gives you a sense of both the restructuring and the growth.

Okay, great. And Jim, I got you just one last thing which is what are you really sensing underlying drivers of sentiment in growth across your customer discussions particularly in light of all of the political and other changes or since November what are you hearing out there and Chuck probably should maybe comment on the tax position for the company as well?

Okay, we will take that in a short answer but certainly as we talk to a number of customers we’ve been out. I think there is not a real change at this point with anyone’s out look at this point, lot moving around and most customers are really started waiting to really understand if there’s difference from a policy perspective that are actually going to be enacted. So I would say its still very early days we note at the stabilization in the North American market from really the third to the fourth being pretty consistent so no real uptick and nor is there one plant in our guide.

Steve, from the tax standpoint as I’m sure you’re aware of there’s so many – there’s breadth of opportunities out there and changes going it’s really hard for us to put a fine point on that but we would note that the corporate tax rates coming down is going to be favorable for us like it is all industrials. We’re little more overweight in U.S. and we think and we know it to be a net exporter so all the scenarios I’ve seen so far are going to be favorable to us but we haven’t baked any of that and we are going to wait until something gets a little closer to print before we start quantifying that.

Sounds great. Thank you.

Thank you, Steve.

Thanks, Steve.

We will take our next question from Scott Davis with Barclays. Please go ahead.

Hi, good morning, guys.

Hey, Scott.

Hey, Scott. I’m trying to get a sense – I mean just a couple of things and one just nitpicky but is this – is 6.1% kind of the level of R&D that you expect to kind of stay at longer term and same kind of my question SG&A added, maybe you addressed why that went up year-over-year but is that function of some of the new acquisitions are came in or is that a – kind of a new level now that you’ve had a chance to hire people that you needed to hire and build-out the corporate structure that you’ve needed?

The R&D, the 6.1 we’ve been right around there, up or down 10 basis points and now you expect this to be there, when you click down by opco there’s going to be some changes this projects ebb and flow but no real changes to our R&D from – we want to change the investment level. So its just the normal place. The big thing that’s going on in terms of SG&A is the growth investments we put in, in the second half of the year as we saw the top line strengthening we kicked off a little bit more investment and we really called out some of that in the third quarter when we overachieved in the third quarter so we’re going to even put a little bit more to try and accelerate and help us out next year.

Fair enough. And then just a follow-up I’m guessing you guys would be pretty disappointed if you just did 3% to 7% EPS growth your first full year out of the gate. Is this – would you characterize this is a fairly conservative forecast that you would certainly hope to be able to beat or don’t want to put words in your mouth but we can address that a bit, how you think about that?

Scott, we think of it in a couple of ways first the guide doesn’t assume any M&A. And so whether you are getting into high single-digits without the benefit of deploying using our balance sheet is what we’ve been really consistently saying and we feel pretty good about that. Having said that, as Jim said we expect to deploy some M&A and that’s the thing I think is going to take our – that I expect to take our earnings growth up over the next year or two.

Okay. Best of luck, guys. Thank you.

Thanks Scott. Have a good day.

We will take our next question from Nigel Coe with Morgan Stanley. Your line is open.

Thanks, evening guys. Just want to – can you hear me?

Yes, we can. Hi, Nigel.

Yes. Hi, Jim. So can you just maybe talk about the low single-digits growth for next year, and how that’s – how you’ve seen that shaken out by segment and maybe by SPU? And maybe just as a follow on to that, if you just look at some of your canary in a coal mine businesses such as automation, up high single-digits. It feels like there’s a bit more of a powerful recovery maybe warm in here. You obviously not ready to make that call, but maybe just dress up on that as well.

So, Nigel, the thing is on the core growth it has low single-digits that’s we posted a couple of low single-digits in the second half of 2016. Our markets remain stable. We’re not seeing a big change in them going forward and that’s really about what we’re seeing in the way with what’s the guide is going forward. Certainly there are some things that are going up and down by regions and by product lines, but net-net we haven’t seen any big recovery.

Nigel, maybe just a little bit of color, I think as we said in the prepared remarks, regionally we expect sort of the U.S. and kind of the developed markets to be – what I would say relatively stable in that kind of low single-digit range, will probably get a little bit uptick in the high growth markets above that, maybe mid single-digits and the high growth markets for the year. So that’s kind of our thought here. We don’t anticipate any big shift in any of the markets. Relative to operating company, certainly we’re seeing a little bit better growth in places like Fluke that we expect, in automation, Kollmorgen’s three quarters in a row, track record is pretty good – is obviously very good, we’re very pleased with that. And then some of the perennial folks like Matco and Gilbarco will continue to do well. But I think it’s a very balanced approach to growth I think as we think about it, both regionally as well as within – as Chuck mentioned in the segments and certainly as you drill down in the operating companies, pretty balanced as well. Still a little noisy at Tektronix, particularly in the developed markets, they’re doing an outstanding job in their high growth markets, particularly in China as we noted on the prepared remarks, but we still think Tek is going to be a little noisy in the first half.

Okay, that’s great. It’s great color. Just as a quick follow-on, the bridge looks very reasonable in totality. You’ve had a little bit of a couple questions on the incremental margins for next year, 30% – 35%. I think a lot of folks see you as a 35% or maybe better flow through. Anything – just thinking about it now, is it going to be conservative, anything in terms of growth investment, restructuring that you think into next year?

Well, Nigel, two things one is if you’re looking at on the bridge there, we do call it 30% – 35%. But we also call out a couple bars back where there’s productivity that probably take that number to be a little bit higher and I think that’s what you’ve been seeing this year being a little bit better on that flow through getting to the OMX of around 50 basis points.

Okay. Fair enough. Thanks very much.

Thanks Nigel.

And we will take our next question from Julian Mitchell with Credit Suisse. Your line is open.

Hi, good afternoon.

Good afternoon.

Hi, Julian.

Hi. My first question was really just be on the industrial tech piece and GVR specifically. You’d mentioned some sort of headwinds around the indoor rollouts in Q4. So I just wondered how you see that playing out over the next kind of 12 months in terms of the U.S. indoor versus outdoor growth rates.

So we would expect the indoor to be a headwind now for the next four quarters or so, Julian. It’s really – we’re at about what we would say is kind of a run – a typical run rate, almost a replacement rate at this point. So it will be a headwind the rest of the year. We noted that for Fortive the EMV outdoor would be around 100 basis points of health. We probably now think that’s going to be a little bit under given the announcement to 2020. We still have a firm belief in the strength of the opportunity over the next three or four years through 2020, but maybe an air pocket or two this year as some of our customers may be delayed things a quarter or two. I think very consistently with what we talked about because we’ve been talking about EMV over 12 months, haven’t been in the industry for a long time. We really don’t think it will be the summertime before really have a good sense of how this is going to roll out over the next couple of years.

Understood, thanks. And then my follow-up would just be around the sensing business. That have had a very tough couple of years I think maybe some share loss in their, seem to come back in the fourth quarter. Maybe give a little bit of detail on what drove the sensing recovery and what sort of growth rates you should expect that piece to have over the next sort of 12 months?

Well, I think first we were pleased in the fourth quarter with the performance. We think about the sensing platform as two pieces, the control aspect which is things like temperature controllers and then peer sensing particularly our sensing businesses Gems and Anderson-Negele. The sensing businesses are going to certainly grow in the mid single-digit range, they’re really – they had a little bit easier comp in the fourth quarter, but they’ll post that some of those comps through the year and I think we have good growth this year. That’s on the backs of some new OEM wins as well as just broader MRO performance. So what we think – I think we’re probably in that low to mid single-digit growth for them for the platform for the rest of the year, little bit depended on how the control site does, but we’re very bullish on the sensor side of that and we think they will have a good year in 2017.

Great. Thank you.

Thank you.

Thanks Julian.

We will take our next question from Jeffrey Sprague with Vertical Research Partners. Please go ahead.

Good day everyone.

Hi, Jeff.

Hi, Jeff.

Hi. Jim, could you touch a little bit more on really Tek and how you see it plane for the year? I think through the back half of 2016 you’re kind of gearing up for some new product launches, just kind of a refresh going on. Is there any particular timeline to think about in terms of meaningful things hitting the market or do they expect some kind of more gradual progression there?

Yes. So the fourth quarter performance was really more of a story of just them blocking and tackling well. The high-growth market is doing very well. China, India, number of those markets doing well. So there really was not as much an innovation story, that’s really to come. I think we highlighted that they have a new platform coming out in the second half of the year, which we’re really excited about. We think it will deliver some increased revenue for sure. And we just passed a major milestone on that platform here a couple of weeks ago, so it gives us even more confidence that launch is going to be on time in the second half and that will start a series of new products over the next several years. So it’s not just sort of one big launch in the second half, but really office platform that will keep a level of innovation in the marketplace that we’re excited about. So the tech team is doing – I think we’ll see a little bit choppy first half. I think they will probably be okay in the first quarter because they’re little bit easier comp in the first quarter as well. But I think as we get to the second half we’ll see improved performance.

In a similar vein in terms of kind of growth initiatives maybe update us a little bit on the Fluke Connect. You mentioned it in your opening script, but how that is progressing maybe the size of the business at this point if you would like to share with any other color around that.

Yes. When we launched the condition – we have the Fluke Connect tools out for a few years and then just as we mentioned on the new infrared camera, this is the launch of another connected tool which is great. So that level of innovation we’ve continued into the marketplace. The condition monitoring solution that will certainly highlight at the Investor Conference as well. We’ll give you a sense of that, but that really got launched in the fourth quarter. Early days as I mentioned that combined with the eMate suite, software suite that will be an integrated solution here shortly. And we’re seeing a lot of dual selling that’s able to happen with the team relative to the getting sales leads and building funnel. But it’s still fairly early days, not a lot of revenue yet. I think one thing the sales cycles a little bit longer. This is a SaaS-based solution. So it takes a little bit longer to get the customer to think through that. So I think we’re probably not going to see meaningful revenue to the second half, as we work through the lead gen, work through the funnel and then obviously you need to build momentum with SaaS-based business before it starts to bring the cash register. So we – it’s really probably a second half even in the 2018 kind of story, but we’ll – we’re very –it’s still early days I said in the prepared remarks, but I think we’re in a very good place relative to the solution and the way customers are really understanding and getting to understand the solutions.

Great, thank you.

Maybe just a final note on that – we’ve got about that the target market on that is about 600,000 manufacturing sites around the world where they really, really don’t have a solution today and can really easily install the solution for a low, with a very low interest costs and ability to upsell them with new features over time. So it takes a little while to get out of those places and get the lead generation engine going, but we’re – we’ve started and I’m very – I’ve got great optimism here.

Great, thank you.

Thank you.

We’ll take our next question from Richard Eastman with Robert W. Baird. Your line is open.

Yes. Good afternoon.

Hi, Rick.

Jim, Chuck, maybe one of you could just address pricing and how much price we’re able to capture in 2016 and maybe what the outlook is for 2017. And just kind of flow that into the gross margin discussion, I’m curious with gross margin of 90 basis points year-over-year. What’s the realistic pacing of improvement? We gross margin year-over-year that we should look forward kind of help you pay for the other investments.

So Rick, it’s Chuck. Couple of things for the year, I think we were up 40 basis points in pricing and our gross margins – the easy one going for 50 basis points is a good thing to plug in looking forward deploying FBS from all the levers that we have that it sometimes it can be a little higher, sometimes going to be a little lower. So I think that’s – those are the quick answers. One thing I feel like a probably get your next question is Q4 was actually down in pricing and it was down 20 basis points largely due to the some big deals around EMV. If we call that out, we would’ve been up 10 points to 20 points and special instrumentation and industrial technologies, but because of that EMV some of the big deals, some of the big guys that did post negative in Q4, but still 40 basis points for the year.

And maybe this is a final point, even though we did have a little bit more price at Gilbarco on the quarter, we had excellent gross margin in performance in the quarter. So one of the things we look at the combination of pricing gross margin is probably part of your question Rick, is to make sure that even if we’re giving up a little price, sometimes we’re giving price on maybe higher software or something that inevitably brings higher gross margins in the portfolio anyway. And in this case even with that price, we are able to as you pointed out to deliver excellent gross margins.

Yes. Is it noticeable, the mix of business shifting again towards description toward SaaS. Is that noticeable or is just really about price and about and FBS at this point.

I think at this point it still price in FBS. I mean that we really do as you know, we drive businesses really hard on a regular basis around continuous improvement on gross margins. Price is an FBS tool and we utilize it in every business every year. So those are just kind of standard work in our businesses. If our SaaS and software today its 4%. Those businesses were up about –up double digit. I think if we look at all those collective offerings in the quarter, but it’s still a small part of the business. It’s really going to take a little while for that, that to really be a meaningful impact. And that part of our confidence whenever we get the question about our ability to drive gross margins over time, it’s not only the power of FBS, but it’s also the business mix that we can see over the next four or five years that coming at us.

Yes. And then just last question on the telematics business, the shift has been going on, I’m going to say industry wide, but certainly at Fortive towards more of a SaaS-based model for subscription on within the telematics business. Is that going to continue and will it keep the growth rate within the telematics business kind of in this low-single digit range here for another 12 months or could that accelerate.

Yes. It should accelerate. I think the market’s growing. I think as we pointed out last couple of quarters that our non-U.S. business has been exceptionally good. We added in the fourth quarter double-digit units into the portfolio, but because of a variety of different things that we needed to do relative to some customers they didn’t necessarily, it doesn’t necessarily transition in the quarter right, because it SaaS takes a number of quarters to play out. So we think that this certainly can be the markets growing in the U.S. mid to high-single digits and in some segments even higher than that. So we really believe. We’ve launched this new director platform as we mentioned in the prepared remarks and we’re excited about it. We need to get it more pervasively through our installed base. And we think once that’s more in with more customers are opportunity to change the trajectory that growth rate is pretty good as we move throughout 2017.

Understood. Okay, thank you.

Thanks. Have a great night.

We’ll take our next question from Shannon O’Callaghan with UBS. Your line is open. Shannon O’Callaghan: Good evening everyone.

Hi Shannon.

Hi Shannon. Shannon O’Callaghan: Hey Jim maybe just follow-up on the EMV, the idea of maybe people pushing things out a little bit, post the deadline. I mean have you heard that so far and also what’s your view on how the mix of kits versus the dispensers might shift versus now that there’s a longer timeframe do you think people might get the kit and wait for a full dispenser upgrade. Maybe just some thoughts on how the push out might affect some of the dynamics even if the overall opportunities. Thanks.

Yes, I think our instincts, right, as we said we really wouldn’t know what the rollout would be. I think our instincts would tell us right now. I know it’s not as much customer conversations as it is instinct haven’t been in the industry for 20 years. Our instincts tell us will be a little bit of a pause here for customers as they think about the rollout strategy. That will be months and quarters not years. So but – and that’s why we think we come off a little bit of that 100 basis points maybe a little bit less than 100 basis points. But those are the upside of that is – as they probably a better curve in terms of rollout, and as you mentioned we think probably less kits and more dispensers. So probably, as we get to mid-year, we’ll have a better sense of that, where we remodel it every month, but I think our model will be more accurate. And at that point, we’ll have a better sense for the market opportunity. But I think we always knew that there was probably going to be some level of push out and this really is probably mostly good news for us relative to how the next several years are look. Shannon O’Callaghan: Okay, thanks. And then as you think about the payoff from some of these growth investments, I just – you look at a business like Qualitrol that’s grown for 11 straight quarters. It seems like every once in a while, you guys have a business like that goes on one of these run. Was that the result of some growth investment prior year, you saw particular market opportunity and if the current spending, do you see that kind of opportunity in other business and then you’re spending money on now.

Yes, it’s a couple things. One is that some expansion in resources around sales force around the world. The business just is doing great globally. That’s number one. And in a couple of acquisitions, we did several years ago that gave us that can some of the products from a condition monitoring perspective that are driving some growth as well. So there – the team is done and that’s the growth flywheel that we talk about metaphorically, so often about how acquisitions even small ones could accelerate growth in mid-size businesses and we think that that opportunity exists in a number of places in the portfolio. Shannon O’Callaghan: Great, thanks.

Thank you.

We’ll take our next question from Steve Tusa with JPMorgan. Please go ahead.

Hi guys, good evening.

Hi, Steve.

Hi, Steve.

Can you just touch on organic growth for the – have you’re going to start here for the first quarter just generally and then anything seasonally to think about on the EPS split, as it work for the year from a quarterly perspective.

Yes, I think the core growth as we’re talking about a slow single digit, but we do have an easier compare in Q1. So it’s probably going to the higher end of that range in Q1. And then I think that the EPS split as it goes through the year, we’re still learning as we go here, but it’s going to be something like 22, 26 – 26, 28 if I get the numbers. That probably didn’t adequately. But it’s in those range…

Okay, perfect. And I know I snap on it talked about some weakness in their business, maybe just from a macro perspective anything to talk about their growth rates – growth rate wise, it’s been pretty strong in the last couple years, just curious if there’s anything that changes here in the intermediate term.

Yes, they had a strong quarter, again the team is really executing well. They’re continuing expand franchises, which really drives growth. We really kind of make sure that same-store sales are good. I suspect there was a little bit annoyed and if we went month to month, but as we really roll up the quarter, it was still very good. So I think at this point, what we’re seeing right now with a combination of just wonderful attendance rate at our expo here in a couple of weeks as well as a good start. I think we’re still going to be in that mid to high single-digit range for a while now. They’re doing a great job. As we’ve said and I know this is, FBS is really just one of our – from a growth perspective, is one of our best businesses for deploying FBS and our – in from a growth perspective. So they’ll continue to do that. And I think will continue to perform well.

And then one last one, you may have discussed if I may have missed it, sorry, if that happened but any – on the acquisition front, any commentary on whether it’s kind of tougher to get things to the finish line with all the uncertainty out there out of Washington. And any color around, the phase of discussions between the buyers and sellers or even just being able to see the deal given the uncertainty around tax rates et cetera.

Nothing yet, I think we’ve been number of things that we’re doing actively have been going on for a little while. I don’t necessarily get a sense that anyone’s holding up for doing anything, because of waiting for Washington to do anything. And obviously, our discussions are global as well. So between the various things that go on both from a macroeconomic perspective in a geopolitical situation, you’ve got a number of elections in Europe as well, which provide some uncertainty and usually uncertainty is a good thing, so for M&A. So I think all those things roll up to I think a pretty good environment right now. And as I mentioned before the bit out they haven’t changed radically. So I – that’s what gives me confidence say I know we’ll do some deals here in 2017.

Okay, great. Thanks a lot guys.

Thanks, have a great evening.

Thanks, Steve.

We’ll take our next question from Andrew Obin, Bank of America. Your line is open.

Hi, guys. Good evening.

Hi, Andrew.

Just a question on China. Can you just talk about Chinese trend and we’ve been hearing that there are some messages in China about delays in capital spending in the first quarter yet. All the numbers that have been reported by corporate so far very good, and everybody believes that things continue to accelerate. Can you just give a more detail lead as to what you’re seeing in China?

Yes, sure. I think, one we don’t have a lot of CapEx businesses in China. So we’re really fortunate to have things that are more related operating expense kinds of things. We’re certainly getting the benefit of the secular trend in Tektronix, where they really well positioned themselves over the years to take advantage of a lot of the semiconductor and communication expansion that’s going there and they’re doing exceptionally well. So that’s in our – certainly in our number and really have to do with – it really isn’t a macro point. I think we go around the rest of the portfolio though we’re continuing to see strength with a number of our OEMs that our automation team has partnerships with in our cultural business has and our food business is done pretty well as well. So we had – we just had an exceptional fourth quarter. I don’t necessarily think that the strength that we’ve seen is necessarily what happened all of 2017. But we still feel very bullish on what China look like next year and think it’ll outpace our overall growth rate next year.

You’re not seeing a slowdown in China so far.

Not really, not really – it’s still early right, you could never call China until about March, because of the new year in particularly the way the new year was position this year. So it is the – having run China for a long time. I generally try not to make any predictions and so well into March.

That makes sense. And just one question, you sort of highlighted highway Thomson being very strong. Could you just comment what region or end market that refers to?

That’s mostly a North America and a little bit of China comment. Their positions are pretty niche. So it really is market share gains for them and business with that size a few big market share wins really makes a big difference.

Terrific. Thank you.

Thanks, Andrew.

We’ll take our next question from Andrew Kaplowitz with Citi. Your line is open.

Good afternoon, guys.

Hey, Andy.

Andy, how are you doing?

Good, how are you? So Western Europe grew high single digits in the quarter and last quarter I think you said it was going to moderate, it doesn’t seem like it did sell. So maybe you could talk about that. And then how concerned are you that geopolitical risk over there could moderate the growth as you go into 2017 because it does look like it’s performing pretty well for you right now.

Yes. You’re exactly right. Thanks for calling out my inability to forecast the geography. But clearly I think what we saw, some really good performance with some work that we’ve been doing like at Kollmorgen on collaborative robots where they have a number of strong customers in Europe. And the number of businesses as well that are really more secular driven than any macro. And that continued in the quarter, but we don’t think that that will continue. You mentioned some of the geopolitical risk I think we – Chuck and I would say that that does exist. We’re monitoring it to understand it and we do think that Western Europe will moderate through the balance – through 2017. But we still think it will grow, we still think its probably at least a low single digit grower right now and it might be a little bit more noisy month to month and maybe even quarter to quarter because of what we just described on the election cycle. But I still think given our positions and what we’ve been doing from an execution perspective, we feel good that we can get growth out of Europe this year.

Okay. That’s helpful. And then Chuck maybe you can talk about free cash flow conversion that you mentioned at end of the year that 115%, I know you guided its greater than 100% for the year. But can you talk about if there’s any reason why free cash flow conversion would materially change in 2017. The business does ramp up a bit more, do you need more working capital to fund the business any sort of puts and takes that we should think about as we go into 2017 here?

Yes, I think you got pretty well nailed. 115% for the year I think that’s a strong number for us. There’s a couple of things that give us a little downward pressure we have a little bit of amortization rolling off in the year into 2017. We also finish really strong in our collections and that has a little bit of artifact to the days and how they fell out and probably be wise for us to count on that. So we think definitely over 100% and I think that’s a good number for us.

Okay. And just real quick follow up. The weakness that you said at GBS we start to see orders pickup in the U.S. heavy truck market have you seen any impact on the business yet or is it too early for that.

I think its certainly still early, their story for performances they have done a great job of mitigating much of the North American challenge – with a great challenge with a great business in China. But we’re – its still a little early days on North America and if that’s going to tick up or not.

Thanks guys.

Thank you.

We’ll take our next question from Patrick Newton with Stifel. Please go ahead.

Yes, good afternoon, Jim and Chuck. I guess my first question is on EMV I think in the past one of the key competitive advantages that was highlighted was first market with qualified products. I’m just curious if the delayed enforcement opens the window for increased competition or is that more of an indoor phenomena.

Well, certainly the certifications and those kinds of things are certainly something that was from an early perspective is really one of the reasons why we have such great growth last couple of years in North America. At the end of the day there’s really it’s sort of mostly a two horse race here and with good competitor there in Wayne. So I think at the end of the day how that will play out over the next several years is how we predicted. So we were never counting on that certifications being our competitive advantage. Our real competitive advantage is being number one, and dispensers being number one in payments and having the largest retail POS system for retail petroleum in the industry. So you combine that with our lead detection capability at Veeder-Root that ultimately is our completive weapon it’s the technology we have at the site that we think is how we compete in. It’s a logical competition amongst smart minded players if you will. So we – that’s one of the reason why we like the market so much.

Great. Thank you for the detailed answer. And I guess shifting to M&A focusing on a transaction that occurred in the test measurement industry rather large take out to whatever extent you can comment. Did you look at the asset and if so any discussion you can provide there and if not why not. And then just given that we’re seeing that test measurement industry kind of heat up given multiple companies are looking to roll up the industry can you help us compare how this fits into your ranks as an M&A opportunity relative to your other platforms.

Well as we think about M&A relative to both field solutions and product realization or where Fluke and tech are. We certainly feel very strongly that additions to the set of solutions that we want to add at Fluke in manufacturing, in facilities where we take advantage of our huge installed base as Fluke are going to really like eMaint like we did last quarter are going to be the transactions or something bigger that would give us the ability to leverage our position around the world. Those are great deals and I think we’ve said over time that our funnel for field solutions is been good for a while. Relative to tech and product realization, there was certainly a large transaction – we know the company well, we used to be in that industry but we got out of it. So we really were interested in it, we felt strongly that that exposure to the telecommunications players and things like that over time was probably less where we were going. So I think from that perspective it’s probably safe to say that while we were in that business a number of years ago and so we know a number of the players in the industry, its where we’re going with Tektronix is really around service and adding capabilities there to reduce volatility, to improve the margin structure, built on the great brand that we have attacked. Those are going to be the kind of deals that we would typically play that would be in our suite spot. But nothing in industries where we’d likely see more volatility and where we’d see consolidation amongst customers.

Great. Thank you for taking my questions. Good luck.

All right. Thanks, Patrick. Have a great night.

[Operator Instructions] We’ll move next to Joe Ritchie with Goldman Sachs. Your line is open.

Thanks, good evening guys.

Hey, Joe.

Good evening.

So following up on that price cost question from earlier, I guess what your expectation in for 2017. Are you baking in much material or labor inflation and your ability to use price to offset any of that.

So Joe, what we’ve got begin is – what we normally have been looking for we think we have opportunities for 30 to 50 basis points of price. I think your question, on the cost side about what we expect from commodities and inflation and we’re not really seeing a lot of inflation and if this plan. So when we see it will react to it. And we also have one of the great things about our portfolio’s we’re not exposed to a lot of commodities. So as this mean we’re perhaps zero, but fairly little. So we haven’t seen much of that upward pressure but even when there is we don’t think it’s going to be a big driver that we won’t be able to offset.

Got it. That’s helpful. I guess maybe thinking on the margin point for a second. I saw that in your 2017 earnings bridge. You did get caught about $0.04 or $0.05 productivity and restructuring benefits. How much flexibility do you guys have to potentially collect this number higher and in this net of the growth investments that you’re making in 2017 as well?

So what we haven’t here is – in on that line is the investments that we made in prior years in 2016. How much we think that’s going to improve our earnings because we invested in the business in the year before. So that’s what that is the whole guide does include we expect to be doing restructuring in these businesses at all times. So in any point in time there’s with the number of businesses we have and things going on there’s always some level of this restructuring.

Thank you. Got it.

Joe, I just wanted to add to that. That includes growth to – so when we think about it what Chuck and I view on our quarterly basis as we mean with every month we meet with our operating leaders to go through the financial. And if we think we have opportunity both either on the cost side or on the growth side will typically make decisions for incremental investments as we see the quarter play out.

Got it. That makes sense. Thank you, guys.

All right, thanks, Joe.

We will take our next question from Brian Drab with William Blair. Your line is open.

Hi, thanks for taking my questions. I just have two quick follow ups to earlier questions. On the free cash flow for the year, do we need to see a pickup in M&A activity for you to get to that 100% and above to get to that threshold – given you – if without that you won’t have some of the low hanging fruit in terms of working capital generation.

No, good question, but no, no our guide have been 100% or 105% free cash flow to net income does not assume any significant change in that. Going forward over time I can see that percentage working up with when we – as we do more M&A and get that benefit amortization you’ll see it come off of 100% to 105% to something higher. But that is not in there now.

Okay, thanks. And then I may have missed this. But when you’re talking about the impact of price, I heard you talk about 2016 in the fourth quarter but what is baked into the 2017 forecast in terms of price.

So we have but baked into next year 50 basis points of operating margin – gross margin expansion. Price is a piece of that and we would expect through the cycles to get 30 to 50 basis points there. Not every quarter but when you take a look at three or four quarters that’s what we typically average.

Okay, thanks very much.

Thanks, Brian.

And we’ll take our next question from Charley Brady with SunTrust Robinson Humphrey. Your line is open.

Hey, thanks guys. Just a couple of quick one’s here. Can you give me a little granularity on a lot of talk around border tariffs and kind of make a sense of any meaningful amount of COGS that you’re getting from outside that goes into the U.S. manufacturing operations? And if there were something meaningful that we hit that line in your cost of goods sold line. And then on the other side of that kind of what you’re manufacturing maybe outside the U.S. you’re bringing back and get sold in here that could be affected by any kind of border tariff or tax?

Well, there’s a lot of scenarios out there and we’re watching them all. But net, net from the best way, the way we’re working on it that we were a net exporter here. And so every scenario that I have seen this is going to be favorable to us. We do have things that we import externally but we export more. So every – so far in every scenario that I think we’re going to turn out to have a lower tax rates as if and when they pass the law and in act.

Okay. Thanks, that’s all I have.

All right, thanks, Charley.

All right. We thanks for joining us today. Remember we announced our Investor Day will be May 18 and Josh and I are around this evening if you have any follow up questions. Tomorrow as well, thank you.

This does conclude today’s program. Thank you for your participation and you may disconnect at any time.