ADM
#Thanks, <UNK>
Slide 4 provides some financial highlights for the quarter
Adjusted EPS for the quarter was $0.75, up from the $0.65 last year
Excluding specified items, adjusted operating profit was $827 million, up $194 million from the year-ago quarter
The effective tax rate for the fourth quarter was 32% compared to negative 2% in the fourth quarter of the prior year
Our tax rate was significantly higher this fourth quarter compared to last year due to the geographic mix of earnings as well as approximately $18 million of discrete tax expenses in 2016 compared to approximately $100 million of discrete tax benefit in 2015, which were a result of portfolio management actions taken in the year-ago quarter
This fourth quarter also includes $18 million of additional tax expense related to truing up the first three quarters of the year to the final year-end 2016 effective rate
This true-up had a negative impact on both reported and adjusted EPS in the fourth quarter of $0.03 per share
Our trailing four-quarter average ROIC of 5.9% is down by 150 basis points from the 7.4% at the end of the fourth quarter last year
The adjusted ROIC is below our 6.6% annual WACC for 2016. Our ROIC has started to improve following the challenging operating conditions that we experienced during the latter part of 2015 and the first half of 2016. On chart 18 in the appendix, you can see the reconciliation of our reported quarterly earnings of $0.73 to the adjusted earnings of $0.75 per share
For this quarter, we had a $0.03 per share charge related to asset impairments, restructurings and settlements, a $0.04 per share OPEB curtailment gain in corporate and certain discrete tax expenses not related to the current year earnings of $0.03 per share, including valuation allowances on net operating losses and tax credits
Slide 5 provides an operating profit summary in the components of our corporate line
Before <UNK> discusses the operating results, I'd like to highlight some of the unique items impacting our quarterly results
In all four businesses, we had some small charges related to impairments and restructurings
In the corporate line, net interest expense was up modestly due to higher interest rates on short-term debt and the issuance of a new fixed-rate debt in August of this year
Unallocated corporate costs of $132 million were up versus the prior year and slightly higher than the run-rate for previous quarters, primarily due to an approximately $20 million investment in a corporate initiative that created an equivalent offset or reduction to our income tax expense for the quarter
Minority interest and other includes a $38 million OPEB curtailment gain, related to changes to the U.S
retiree medical program
Turning to the cash flow statement on slide 6, we generated $2.1 billion from operations before working capital changes during the period, slightly lower than the prior year
Total capital spending for the year was $882 million, down from the prior year's $1.1 billion and consistent with our guidance last quarter that CapEx for the year would be below $1 billion
Acquisitions of $130 million in 2016 include Harvest Innovations, our Moroccan corn processing facility, the Medsofts joint venture and Caterina Foods
The other investing activities line of cash flow statement includes the incremental investments we made in the Wilmar, less proceeds from divestitures and asset sales, such as our Brazilian sugar ethanol operation
The proceeds from our sale of the GrainCorp shares are reflected in the marketable securities line
During the year, we spent about $1 billion to repurchase shares, consistent with our prior guidance
Our average share count for the year was 591 million diluted shares outstanding, down 30 million from this time one year ago
At the end of the year, we had 581 million shares outstanding on a fully diluted basis
Our total return of capital to shareholders, including dividends was $1.7 billion for the year
Slide 7 shows the highlights of our balance sheet as of December 31, 2016 and 2015. Our balance sheet remains strong
Our operating working capital of $7.4 billion was up slightly from the year-ago period
Total debt was about $6.9 billion resulting in a net debt balance that is debt less cash of $6 billion
Our leverage position remains comfortable with a net debt-to-total capital ratio of about 26%
Our shareholder's equity of $17.2 billion was down slightly from the $17.9 billion level last year, due to returns of capital and changes in the cumulative translation account
We had $5.8 billion in available global credit capacity at the end of December
If you add available cash, we had access to $6.7 billion of short-term liquidity
Before I turn it over to <UNK>, I'd like to comment on some of the key corporate assumptions for 2017. We expect net interest expense to average about $80 million per quarter, due to slightly higher interest rates
Unallocated corporate costs should average about $140 million per quarter, as we invest more in R&D, innovation and business transformation
We expect our tax rate to be between 27% and 29%, consistent with our normalized rates in recent years
Share repurchases should be in a range of $1 billion to $1.5 billion, subject to strategic capital requirements, which means our average share count for 2017 should be somewhere between the 565 million and 570 million shares
And we're planning capital spending to be in a range of $1 billion to $1.2 billion
Next, <UNK> will take us through a review of business performance
Good morning, <UNK>
Yes, <UNK>, it's <UNK> here
Yes, indeed we are still talking with different parties regarding these ethanol assets
We are also looking at some different structures, frankly as we think about tax reform coming in the United States, it does actually open up some different considerations as well in terms of how to structure the transaction because we've been looking effectively at some tax restructures
And if there is tax reform and if the corporate tax rate does come down, it does open up the avenue for us to look at some other mechanisms in order to look towards monetizing these assets
And when we talk about approaching $1 billion, we see improvements in sweeteners and starches both in North America as well as international
We see improvements in the lysine business based on the operational improvements that we have, and we also do see improvements, on price some small improvements in terms of the ethanol, as we talked about earlier
So when you add it all together, that's the reason why we're fairly constructive about our outlook for the Corn segment in 2017.
I think if you recall, the $1 billion to $1.5 billion range is both subject to strategic capital allocation
So in that respect, to the extent that we find that there are opportunities for us to redeploy capital for our shareholders that makes more sense in terms of a strategic transaction, then we will
We'll reduce the amount that we buy back, and we'll redeploy that amount towards acquisitions
Remember our capital allocation framework was roughly 30% of the cash flows would go towards CapEx and about 70% will go towards strategic M&A and/or buybacks
So therefore, we are going to follow that framework
With respect to Wilmar, you've seen us increase steadily our stake in Wilmar
We've been opportunistic about that
We've increased our stake and taking advantage of pullbacks in terms of share price
We haven't paid consistent with book value
So we've been very careful in terms of how we increase our stake in Wilmar, which we believe is a very important strategic partner and frankly a very important part of our Asia and emerging marketplace
So at the current level, which is about 23.9%, we feel fairly comfortable
Will we increase further in 2016 (sic) [2017]? It will be a function of whether we believe there's an opportunity for us to pick up the shares at an attractive price
So again, we'll just monitor the market, take a look at our cash flows, take a look at how we're deploying capital, and then make decisions as we move through the course of the year
You also have to remember that when you talk about strong dollar, you have to talk about what the currency pair is because a lot of people kind of focus on the dollar versus the euro, but when you actually look at versus the Brazilian reais
or the Argentine peso, a year ago at this call, the reais was trading at BRL 4 to the dollar
Right now it's trading at BRL 3.1. So the reais has actually strengthened
When you take a look at versus the Russian ruble or Ukrainian hryvnia, again crop growing regions, those currencies actually strengthened versus the dollar
So we just have to be careful when we talk about the strength of the dollar
Yes, generally, there's a trend towards a strengthening dollar
But relative to a lot, the crop-growing regions of the world, over the past 12 months we've actually seen those currencies strengthen relative to the dollar
So I just want to make sure that there's a balanced perspective when we talk about the currency here
I think the biodiesel tax credit, I think we've indicated over the years, it's been roughly around $50 million, plus or minus
And so therefore that's a number that it's in our plan and we believe there is a good chance for the biodiesel tax credit getting renewed
But don't forget, I mean, it's very possible that the biodiesel tax credit may get wrapped up in the whole aspect of corporate tax reform as well
And from our perspective, we believe that any type of corporate tax reform would be positive for ADM, because as you know, in the agricultural sector, being a U.S
domicile company, we pay the highest tax rates in the industry
So bringing our statutory tax rates from 35% level to either at the 15% level that Mr. Trump has talked about or the 20% level that Republican Blue Print is talking about is very, very positive
And then, they've also talked about the border adjustment tax, which for exporters, agricultural exporters like ADM, that would be a positive too for us
So there is a lot of dynamics when you think about implications of tax reforms, the biodiesel tax credit
We're all monitoring this very, very carefully, but in general, we feel very positive about the direction that the administration is heading towards looking at improvements to our corporate taxes
