Archer-Daniels-Midland Co (ADM) 2002 Q4 法說會逐字稿

All phones will be placed on the listen only mode.

And we open the phones for your questions and comments after the presentation.

It is now my pleasure to go to your host, Allen Andreas.

You may begin.

Thank you.

Good morning and welcome to all of you to our quarterly conference call for Archer Daniels Midland Company.

I'm joined today by Doug Schmaltz, our chief financial officer who will take us through the numbers for our earnings release for the current quarter and for the fiscal year ending June 30th. [Dwight Grimstead] who is our vice-president of investor relations, who will then give us a brief review of the business situation in the various segments that we're operating in.

And then I'm also joined to by Paul [Mahollem], our president, and Larry Cunningham, senior vice-president.

And we will be pleased to take your questions after the presentation has been made.

So, Doug.

Thank you, Al.

First off I need to read the obligatory statement.

As you know some of our comments today constitute forward-looking statements that reflect our views and estimates of current future economic circumstances, industry conditions, company performance and financial results.

Those statements are based on many assumptions and factors, including availability and applies of raw materials, product pricing, competitive environment, and related market conditions.

Operating efficiencies, access to capital, and actions by government.

Any changes in assumptions or factors such as crush margins, pries, crop values, could produce significantly different results.

To the extent permitted under applicable law the company assumes no obligation to update forward-looking statements as a results of new information for future event.

With that out of the way, I'd just like to also greet you to our annual conference call for our year ended June 30, 2002.

As you've seen our net earning for the quarter ended June 30th were 112 million 266,000.17 a share, that compared to net earnings last year of 46 million 99,000 or eight cents a share.

Earnings for the quarter ended June 30 included a gain from a partially settlement of the company's claims related to vitamin antitrust litigation of 93 million.

That was 58 million after tax or ninth cents a share, a tax credit of 26 million, four cents a share, and a charge of 83 million, which is 51 million after tax or eight cents a share for abandonment and write down of long-lived plant assets.

Last year's fourth quarter includes loss on security transactions of 32 million which was 20 million after tax or three cents a share and also looses from our private equity fund investment of 19 million, which is 12 million after tax or two cents a share.

Excluding those items our earnings for the current year quarter were 79 million or 12 cents a share.

That compares with earnings last year of 88 million or 13 cents a share.

Net earnings for the year ended June 30 were 4511 million.

That was 78 cents a share and that compared to 383 million or 58 cents a share last year.

Our current year earnings include security gains of three cent a share, losses from private frequent funds of five cents a share, the charge for the abandonment write down of long plan sets of eight sent a share, gain on the have it minute claims of 14 cents a share, hand a tax credit of four cents a share.

Last year 12 months include security losses of a nickel a share and losses from private equities funds of three cents a share and a 14 sent per share gain which was reported by our affiliate CIP on the sale by them of their interest in corn wet milling and wheat starch production business.

Excluding those items, earnings for fiscal 2002 were at the 70 sent per share level compared to 52 cents a share last year.

Before going on I'd like to just make a few comments and discuss some unusual attempts that affected this year fourth quarter fiscal year.

First of all, the litigation settlement received of 93 million in the quarter reflects partial settlement of the companies claim on have it minute antitrust litigation related to our feed and animal health operations.

For the full fiscal year of 2002 we received a total of 147 million related to those claims and anticipate additional recover still to be received in fiscal year 2003.

Secondly we continued to address the industry overcapacity conditions affecting almost of our business segments during the pass years.

As a part of that process we reviewed all existing items that are underperforming or out of position long-lived assets and recorded a 83 million dollars write down.

That decision was made after consideration of the ability to utilize the assets for their intended purpose or for alternative purposes.

In determining the amount of the write down we also took into account salvage value of equipment which could be used as parts and production processes in other plants or which could be realized upon sale of the product.

Thirdly, the Internal Revenue Service examinations of the company's income tax returns have become more current as years through 1996 have been completed and current examinations through 1999 are in process.

In addition, based on latest returns analysis our effective state income tax rate has declined somewhat.

As a result we've reduced our current year effective tax rate to 32 and a half percent, result nothing a reduction of $7 million in the fourth quarter provision.

In addition, we restored 26 million of taxes previously provided upon resolution of various outstanding state and federal tax issues.

Our average shares outstanding declined two percent to 651 million 174,000 average shares for the quarter and declined one percent to 656 million 955,000 for the fiscal year.

Our net sales and other operating income increased 1.7 billion or 32 percent to 7.1 billion for the quarter and increased 17 percent to 23.5 billion for the year, reflecting sales of recently acquired trading and feed operations.

Those are principally farmland, Toepfer, and consolidated nutrition.

The increase for the fourth quarter was due principally to the tougher trading operations which would include for the first time in a consolidated result this year were which we are.

If you look at the annualization of our sales based on that fourth quarter, we should exceed 28 billion in the coming year assuming similar commodity price level.

Our gross profit increased five percent to 380 million in the quarter and reflects the 93 million gained from the vitamin claims and the 83 million charged for abandonment and write down of long lived assets.

Excluding those items gross profits for the quarter was comparable to last year's levels as gross profits resulting from recently acquired companies was offset by reduced cocoa and ethanol operating results.

For the full fiscal year excluding the vitamin settlement of 147 million and the 83 million dollar write down charge, our gross profits increased 13 percent to 1.62 billion from 1.43 billion last year due principally to improved crush margins and improved operating results of our agriculture services and our wheat milling operations.

Partially offseting those gains were reduced operating results for cocoa and ethanol operations.

For the the fiscal year we changed our segment disclosure as has been reflected in the earnings release.

We are now reporting five business segments, those being oil seed processing, corn processing, wheat processing, agriculture services, and other.

Our total segment profits increased eight percent for the quarter to 223 million from 207 million last year.

For the full fiscal year our segment operating profits increased 15 percent to one billion from 903 million last year.

Operating profits of the oil seed processing segment includes a 23 million dollars charge in the asset write down.

Although our crush volumes declined slightly for the quarter our oil seed processing results excluding the asset write down charge were up four percent to 87 million from 84 million a year ago.

For the full year oil seed processing results, excluding the write down, increased 58 percent to 411 million from 260 million a year ago as our oil seed volumes and crush margins improved in increased meal and oil demand.

The processing segment results include plant write down of ten million.

Excluding those write-downs our operating results for the quarter were 59 million, compared to last year as gains in sweetener operating results were offset by lower ethanol gains.

For the full year corn processing results declined 7 percent to 225 million excluding write downs, as lower ethanol sales volumes and prices negatively impacted the operating results.

Sweetener results improved from prior year levels due to improved pricing but still remain at unsatisfactory low levels.

Excluding plant write downs of six million, our wheat milling segment results improved in 13 percent to 12 million in the quarter and 18 percent to 85 million for the year as industry capacity rationalization has resulted in improved run rates and improve milling margins.

The operating profits of the agricultural services segment decreased 9 percent to 42 million from 46 million last year due to lower transportation operating results.

For the full fiscal year improved trading volumes and results of our Latin American and tougher trading operations resulted in a 42 percent increase in operating profits to 170 million compared to 120 million a year ago.

For the fiscal year results of our transportation operations were at comparable levels to last year.

Operating profits of our other segments includes the 93 million gained from the vitamin claims related to our feed and animal health operations and 44 million of plant set write downs.

Excluding those items, operating profit for the quarter of the other segment increased 13 million from nine million.

That increase reflects had a 22 million improvement in the equity reported of our managed funds as well as improved operating result of our bioproduct operations.

Those gains were partially offset by decreased results of our cocoa and food additive operations.

For the full fiscal year results of the other segment includes 147 million gained from the vitamin claims and 44 million of plant asset write down.

While last year's full year included the 95 million dollars gain on the sale of CIP of its interest in wet corn milling and wheat starch production business.

Excluding those items for the full year our operating profit in the other segment declined to 86 million from 115 million a year ago due primarily to a 22 million dollars decline in the managed equity fund result.

Improved operating results of protein specialties and bioproducts were offset by poor operating result in cocoa and food additive operation.

The protein specialty operations were comparable for the quarter but improved on the year due principally to improved marginss on soy isolate and concentrated protein products resulting from lower raw material and manufacturing costs and improved processing [inaudible] bioproduct results although improved in comparison to last year due to raw material costs and production efficiencies continue to suffer from low margins as selling prices declined due to excess production capacity in the industry.

Our cocoa results declined from prior year levels as margins in graineding operations declined due to excess butter stock situation and the higher cocoa bean prices.

Excess capacity in citric acid continues to put pressure on selling prices resulting in lower operating results for the food additive operations.

The corporate costs reflected in the segment summary which includes security transaction results as well as unallocated corporate and interest expense decreased to 104 million for the quarter compared to 124 million last year due principally to the fact that last year included a loss on security transactions of 30 million.

For the full year the decline in corporate from 32 million to 320 million was also principally related to improved security transaction results.

Companywide sales in general, administrative exceptions in our consolidated statement of earnings in the fourth quarter increate 46 million to 233 million compared to 187 million last year.

That increase reflects about 22 million of costs related to recently acquired trading and feed operations.

For the year our SGA expense increased 96 million to 827 million, reflecting 57 million related to acquired companies.

Companies interest expense declined 14 million due to lower average short-term borrowing levels and rates and to a reduction in long-term interest due to the recent repayment in May of our 400 million zero coupon debt.

Interest income also declined 7 million reflecting the decreased interest rates this year.

Our security transactions were a small gain of one million for the quarter.

That compared to a 32 million last year.

Equity earnings of affiliates increased a profitable 26 million for the quarter from four million last year.

As a result of our private equity fund investments, [prima plus] flour operations and CIP investment all improved over prior year level.

Last year results also include the equity and earnings of Toepfer which is now consolidated in the financial statement beginning this quarter.

Our effective tax rate for fiscal 2002 is 32 and a half percent.

That compares to 32 and a half percent last year.

The adjustment to 32 and a half in the fourth quarter reduced our quarter provision by 7 million.

As I mentioned earlier in fourth quarter of this year we also reflected a 27 million dollars tax credit.

For the year ended June 30th, 2002, our cash flow from operations equal to our net earnings plus depreciation and amortization and plant write off increased to probably 1.2 billion from the 57 million last year.

For fiscal year year 2002 our capital expenditures are approximately 2350 million.

Business acquisition costs of approximately 30 million and our share repurchases approximately 185 million.

We continue to show substantial liquidity with working capital of approximately 2.7 billion.

Our capital resources remain strong as reflected in the company's equity of 6.8 billion and our short-term debt increase of approximately 100 million to 977 million of June 30.

Long-term debt including current maturities declined to 3.4 million and from 3.7 billion last year, reflecting the repayment in March of the 400 million zero coupon debt.

Our short-term cash and marketable securities portfolio also increased approximately 160 million and stands at about one billion on June 30.

These numbers do reflect the consolidation of the Toepfer which was effective in our financial statement February 28 With that I'll turn it over to Dwight who will review some of the operations.

I'm going to run through our business segment to discuss current business situations in each of these.

Starting with oil seed, the North American crush margins have dropped recently primarily due to volatility in soybean prices due to crop concerns and a tight carry over situation.

Quarter-over-quarter corn margins are down roughly 15 cents a bushel from 70 cents to 55 cents.

Of course, as we said before forward margings only serve as a proxy for cash margin and are use used to give you a general sense as to industry tends.

The industry has slowed production and capacity utilization is currently running at about 85 percent, reflecting both seasonal maintenance and reduced production due to weaker crush margin.

We continue to see very good demand for soybean meal and oil.

In fact, stock prices for meal are $190 per ton, spot oil is at over 19 cents a pound.

And while the old crop beans are selling at about six dollars a bushel, new crop beans are a little over $5 a bushel.

You see the new crop beans [inaudible] Crush margins a bit.

While demand is up for global production in a number of oil seeds, including Pam oil, canola and soybeans supplied by South America have tightened the supply of vegetable oil.

Brazil and Argentina have a solid soybean crop that we expect to be available for processing to the end of this year.

The USDA projects a reduction in the US crop which means the South American crop needs to be five to seven million tons larger next year just though keep up with the projected five to six percent growing demand for meal and oil.

So the current goal balance today, the good goal balance today between supply and demand for meal and oil and that should translate to solid meal and oil prices going forward.

If soybean prices stay high we would expect to see meal and oil prices move up from here.

Our refining and packaging operations continue to show good profits.

This is an area where we have been successful in moving closer to the customer and adding value to our products.

Turn to the foreign processing segment.

In ethanol we've had weaker year-over-year results as prices and volumes are down from last year.

We have built inventory versus last year in anticipation of the MTBE ban in California.

The recent change of spot price in ethanol does reflect an improved demand scenario.

Stock prices hit a low in ethanol of about 90 cents a gallon a couple months ago but data today are around 1.10 a gallon or better.

And although we sell very little ethanol at market prices, they do reflect a market environment.

The reason for spot price recovery has been that despite the delay in the mandate to switch away from MTBE, about 50 percent of the California market has committed to convert to ethanol by January 2003.

In fact, the Renewable Fuel Association reports that BP, shell, Phillips and Exxon Mobile will all begin using ethanol next year.

There is only one major refiner, which is Chevron Texaco, which has not yet committed.

Ethanol demand, then, should be substantially better in the month ahead as the California demand comes on line.

In sweeteners we've had very a small volume growth even with the loss of sales to Mexico.

So not too bad.

Corn costs are up versus last year.

Byproduct values are up also but not enough to offset higher corn prices.

So bottom line is that sweetener pricing has been flat and our margins are still being excluded.

Just to review the high fructose corn syrup situation in Mexico, Mexico has reinstated the excise tax on HFCS containing products and we are back to zero sales of HFCS to Mexico.

As a background, exports from the US to Mexico has been roughly 600 million pounds per year up until the tax first went into effect in January 1st of 2002.

Even though the tax was temporarily lifted, volumes, exports to Mexico never recovered very much and in fact were running more like ten percent of annualized level.

Both US trade representative and the Mexican trade secretariat have expressed optimism on reaching agreement on Mexican sugar exports and US HFCS by October 1st.

In fact the Reuters article on Monday this week reported that negotiations are in high gear.

So we rmain cautiously optimistic about a resolution to the HFCS and sugar issue.

I could discuss the MCP situation just very briefly.

The MC board of directors has approved the ADM offer and members will vote by the even of August.

The government is also reviewing this acquisition and we're optimistic about receiving their approval by September.

MCP will fit nicely into the ADM network and is a strategic fit with our HFCS and ethanol business.

Our offer is for 2.90 per share on the 136 million shares of MCP outstanding.

Turn to the agricultural services segment.

We continue to make progress in our efforts to build our consumer service and to make ADM both the grain buyer and the supplier of choice.

Our destination based business does continue to grow and we seek consolidation in this industry as farm coops face tough economic times.

But late planning and dry weather will reduce the - may reduce the size of the corn and soybean crops, and we already know that we have a poor wheat harvest.

Small crop size typically pressures marginss in the grain storage business, so we expect a challenge here as we go forward.

We're also currently integrating the MC customers into the global ADM organization and we're finding synergies as we better coordinate our global efforts here.

On the wheat segment.

Lower wheat production in the US is putting pressure on wheat prices.

We will need some price increases in flour to maintain our operating margins.

We're optimistic about getting some price increases here.

Operating rates are pretty flat at the 86 to 88 percent range and flour demand continues to be flat.

And we have seen developments in baking write have extend the the shelf life for bread in the US which thus reduces flour demand.

That means additional capacity rationalization appears to be needed in this industry.

Just reviewing the highlights of our other segments.

Cocoa this quarter results were, as Doug said, negatively affected by deteriorating ratios of product values to cocoa beans.

Our cocoa processing business continues to have excess capacity.

The industry has excess capacity.

And we've been reducing our grinds as have others.

We continue to see substantial restructuring occurring in this industry.

Grind capacities are being rationalized as our customers move to buy cocoa liquor, powder and butter instead of processing their own cocoa beans.

Om fact we have secured one new major supply contract and are in continuing discussions with our customers to provide cocoa and/or chocolate product as way move closers to the consumer.

The chocolate side of our industry remains steady.

In our natural health and nutrition area, the Enova oil development is on plan.

We are making progress in our [semi works] plans and we will confirm our watch plans coming months.

Vitamin E, both prices and volumes have improved.

And we continue to see very good demand in sterol with gain in both pricing and volumes there.

In specialty ingredients.

Prices in protein specialty business have been challenging due to new international competition.

Our customers continue to replace isolates with functional concentrate.

And we expanded our [europort] facility to meet this additional demand.

In bioproducts while lysine prices are flat we do expect to see some improvement as the Euro strengthens relative to the dollar.

And also demand for lysine should grow as [as dry grain] from ethanol [dry grain] are sold as [dental feed] in the US.

Citric acid business continues to be very competitive but volumes are growing.

Over time we do expect to have a better supply and demand balance here.

And we talked about our expansion in xantham gum before.

That expansion is on track and we're targeting higher margin food applications with our new capacity.

At this point I'll turn the back to Al and we'll be happy to take your questions. 00:25:40 >>ALLEN ANDREAS: Yes.

Does anyone have any questions.

Thank you, ladies and gentlemen.

The floor is now open for questions.

If you have any questions or comments, please press number one followed by four on your touchtone phone at this time.

Pressing one and four a second time will remove you from the queue should your question be answered.

Lastly we do ask while posing your question that you please pick up your handset if listening on a speakerphone to optimize your sound quality.

Please hold while we pause for questions.

Thank you.

Our first question comes from Bill Leach.

Please state your affiliation then pose your question.

Banc of America Securities.

Good morning, everyone.

Good morning.

I'd like to congratulate you on your segment reporting.

I always wondered what you made in all these businesses.

I finally know now.

You're welcome.

I'm just wondering do you have historical data for us on these segments so we can do our models properly.

We're getting that all together and we can get that off to you of just call in and we'll did that.

We'll send a release.

As you know last year our segments and for the first three quarters were differently skewed from what we reported in this quarter.

So this is the first quarter where we've given as much transparency to our financials as we felt was really appropriate to send an important message to the investment community about how our business is functioning and particularly in light of the fact that we have more public competitors after more information available for our industry on an ongoing basis.

So although the prior quarters will not be stated in the same way we'll give you that information if you'd like to have it.

And it will, in the annual report, the year will be concluded and put in the footnotes on this new system.

And we plan to do that from here forward.

Bill, I think one thing I'll just say too, very simply speaking, what used to be old loyalty to corn is now just broken down to two pieces.

And wheat was pulled out of the other.

And all the rest of the other remains the same.

And I hope this is more helpful to you, Bill, and to the rest of you guys too who are looking at our company and our results on a quarterly basis.

It is.

Let me ask two questions.

Could you update us on the progress of the energy bill as far as it affects ethanol and also providing some guidance as far as how the acquisition of MCP might affect earnings this year.

On the energy bill, that bill has not passed yet.

But it's in house conference.

And so they will be finding the appropriate compromises.

We have every reason to believe that it will continue to include the provisions with respect to renewable fuel standards.

And that bill is expected to be passed latener the year and signed by the president into law.

So we're still quite optimistic about it.

What it effectively will do is starting with the year 2004 it will mandate the inclusion of 2.3 billion gallons of ethanol in the fuel supply and ratchet that up over a period of ten years to 2012 where it is increased then to 5 billion gallons.

That bill will I think have some positive benefits for us.

We continue to produce a little less than a billion gallons of ethanol.

And with the acquisition of MCP, assuming that that all goes forward appropriately, we'll be a little in excess of a billion, a billion one to billion two in total production capacity, which will put our capacity at a little less than 50 percent of the market.

So it still is down from previous years' levels but continues to be a strong important product for us.

So we're positive about the new energy bill.

It gives us some significant improve.

In our ability to be able to access the markets across the United States.

And as was pointed out in the earlier presentation, California is already beginning to make that shift.

On MCP, we have made our tender to the shareholders, the SEC still is reviewing the proxy which will go out to all of the members of that farm cooperative organization who now own interest in the LLC.

We have nothing but positive comments coming back on that acquisition.

It iwll increase our ethanol capacity, as I pointed out earlier, and will also give us a little stronger position in the high fructose corn business because those are their two major principle businesses.

We have every reason to believe that that will go forward.

Last year their profits were a little over $20 million for the fiscal year end.

I think 21 million.

And so based on those numbers, we will have some synergies and some efficiencies in incorporating that business into ours.

And so we would foresee that that would have a positive and hopefully an accretive impact on our business within perhaps a year or so of our acquisition time.

We can immediately followed their products into our sales organization and reduce some of their overhead and some of their costs.

They have excellent plants but we do have some plans to review in the light of all of our operations, where we produce which products and how much we produce of those.

So it will strength then our position both in high fructose and in ethanol.

And represents I think a strategic geographic diversion for us which puts us more significantly in the western part of the United States, since their two plants are Nebraska and Minnesota and puts us very squarely into the middle of those corn production areas and into the utilization of wet feed as a larger component of our total sales.

So this is a very positive move for us, we believe, and we expect that it will soon complement our business activities and be accretive to our bottom line earnings.

Okay.

Thanks a lot.

Yes, you're welcome, Bill.

Thank you.

Our next question comes from David Driscoll.

Please state your affiliation.

Hi.

David Driscoll of Salomon Smith Barney.

Good morning, everyone.

Good morning.

Good morning.

I'd just like to hear show thoughts about the corn crop.

Are you concerned about the crop.

Number two, what's your exposure in corn milling.

And then secondly, do you understand or know what MCP's exposure is on that.

And is this something that you guys are actively worried about right now.

We share everyone's concern about the weather conditions across the Midwest and particularly here in Decatur and right in this region and to the east of here.

We've had some very dry weather following the almost flood conditions earlier in the spring.

So it's been very difficult for the crop.

But we're still optimistic that rain will come again soon to be able to make that crop adequate to meet our needs.

The corn prices have gone up considerably as a result of concerns over the weather conditions.

They do have some better crops to the north and to the west.

And so, I should say that we are concerned but it's part of the business of managing our processing operations.

And our diversity and our strength across world in all of these businesses mitigates somewhat the pressures that we would normally feel from particularly localized adverse continues in the weather.

So I would say we generally run a hedged operation.

And so although we do have concern about the relative escalation in corn costs in relationship to some of our final product, we have excellent coverage in terms of our exposure there and do not anticipate that it will have major impact, at least at this point in time, on our coming fiscal year.

In the course of doing our due diligence at MCP we had access to information with respect to their corn position.

We know how their hedging policies are carried out.

We're satisfied, and we're well aware of those coverage positions for MCP going into, even prior to the time at which we fixed the price.

Is it was part of our considerations overall.

And we do not have serious concerns that their philosophies are very different from ours in terms of having cover in these kinds of volatile markets.

So we're expecting that we will be able to continue to monitor our corn positions in our soybeans as well in the light of world conditions and that we will get through this period of time in a relatively positive way.

Another question for Doug.

On the charges that were taken in the quarter, the one time items, the vitamins and the write downs.

All those items hit the cost of goods sold line; is that correct?

That is correct.

And then so in the vitamins, it's specifically going to be something that would be in your corn processing division.

That's really in the animal feed and health and nutrition area.

It's really in the other segment.

And I think that's set forth in the footnote.

Okay.

And then maybe one last question on soy processing.

Yes, David.

We have seen one of your competitors justacquired [Cerol].

And I'm interested in what your thoughts are as to how the competitive dynamic is going to change in Europe if at all.

Do you think - are you, you know, positive on this, or do you think that the environment just got tougher.

Well, the environment has always been very difficult in soybean processing.

It's a very competitive business and there's been a lot of consolidation over the past decade in recognition of the fact that without a strong diverse group of oil seed operations, that it is highly unlikely that you will be able to compete and meet your customers' demands.

So competition is something that we are very familiar with and have worked with many many years in this business.

As you know this is our 100th anniversary.

So we have survived in oil seed for 100 years.

And we have a diverse basis across not only soybeans but canola and flax and rapeseed and palm oil in the Asia Pacific region.

So we are a very strong factor in this business. [Bungy] recently went public which gives them access to additional capital they needed to continue to grow and expand their business.

We are very positive about their acquisition of the [Cerol] group.

It fits very nicely into their overall position in the industry, giving them new strength in Europe.

But they are primarily to the south across Spain and Italy and into the eastern European areas, as contrasted with our focus in Europe which is in Germany and England and across the north in Holland.

And so we will continue to have very competitive markets there in the oil seed business.

That acquisition of [Cerol] by bunky, assuming that it all goes forward as has been spoken about in the press, I think will add a dimension of responsibility to this industry.

Monty Edison has for some time not really focused on the food businesses.

As you know they divested, of [Cerol] to Cargill and also are very close to divesting the [barion emprosay].

So this acquisition bunky of [Cerol] from our viewpoint is a very positive development.

It will increase bunky's ability to deliver very competitive value to, excellent products to their customers across world in direct competition primarily with Cargill and ourselves, who both remain very significant factors in this business.

So we consider it to be a positive development for our customers, for the consumer , and also for the industry.

Thank you very much.

Yes, you're welcome, David.

Our next question comes from John McMillan.

Please state your affiliation.

Prudential.

Good morning, everybody.

Good morning, John.

[Inaudible].

Thank you for the new segment reporting.

You're welcome.

Despite some progress, Allen, in improving returns your stock, like others, has traded down sharply.

What's the intent for share [inaudible].

In past times you have used declines to buy back stock.

What's your appetite now.

John, as you know, we have a very, very focused business here at ADM.

And our capex has dropped dramatically in the last five or six years as we have recognized a real shift in our business away from a growth period in which we needed to consolidate and make very efficient each of our operations.

So with capex down around 350 million that year to 75 last year we are generating substantial solid cash flows in our business.

We are still focused on agribusiness.

We are making natural products from agricultural production in a very capital intensive business.

Our assets are on our you are books at a fraction of their replacement costs.

And our franchise in this business really just could not be replicated.

So with the cash flow the way it is and with our capex substantially reduced.

We look for good opportunities to expand and grow and add value to our shareholder base.

As Doug pointed out, this past year we repurchased approximately 180 million dollars worth of our stock which is right around 13 million shares.

We continue to look for opportunities to add to that repurchase program.

We do have availability still of additional cash flows coming from a billion two this year of cash flow into our business that will not go back into property plant and equipment in the near future.

As you know, last year we repaid 400 million of debt.

We paid about 130 million of shareholder dividends.

And so with those components we pretty well used up our capital cash flows last year.

And our balance sheet is somewhat stronger again this year.

So looking forward, we will continue on an aggressive basis, barring any substantial changes in our financial position, to scale our purchases down in a prudent way to repurchase shares.

We've never started an aggressive policy of going into the market, but we look for opportunities to acquire as to good levels.

This morning our stock was trading right around depreciated book value.

And our assets are on our books at a very low cost in relationship to replacement values.

So it gives us a rare opportunity, I think, to improve our shareholders long-term interests by continuing our repurchase program.

What does the stronger Euro mean for your business?

As you know, really starting quite substantially in 1997, we have invested considerable amounts of our capital in both fixed assets and in trading operations all around Western Europe and into the Asia Pacific region and down into Brazil, Paraguay, Argentina, Bolivia.

So we have vastly strengthened our international operation.

From a translation viewpoint, those investments in the international area have been adding to our balance sheet this past fiscal year as a result of both translation of their values.

So I think the lower dollar really helps us in two ways.

One is translation and bringing strength to our balance sheet.

But probably more importantly, because that really isn't a physical change in our business.

More importantly the lower dollar makes our products very attractive to the international markets where food and feed materials and energy costs are a greater proportion of the income of the citizens that live there.

So from our viewpoint this will strengthen demand.

It's go for our business.

And our diversification into the international area is beginning to show some real results.

At the same time ADM has a lot of moving parts.

And you do in the press release talk about the challenging environment and suggest that this 12 cents operating rate seen in the fourth quarter might continue out of the gate in the next fiscal year depending on a lot of different parts that develop.

It seems to me that you were talking numbers down.

Am I right.

Pardon?

To the extent you appear to be talking numbers down, estimates down given where estimates are in the street.

Can you give more color in term of that statement in the press release regarding the more call alleging environment continuing.

It's very difficult, as you know, John, for us to predict what earnings are likely to be in the coming year.

And so we've never done that.

We operate our businesses on a day-to-day basis as officially as we can.

And there are a number of factors that influence our business that we don't have control over.

And so, in the past few months, I think the more critical factors that will relate to whether we see substantial improvement in our ability to bring profits to the bottom line on our asset base, we probably face three real challenges in the coming year.

In the first place, our basic core businesses are very strong and solid.

For example, in the oil seed sector.

So the questions that we will be facing and confronting in the coming year really relate first, I suppose is, to the weather conditions and how that impacts on our industry across board.

Secondly, we've got some substantial possibilities of increased demand coming next year from ethanol and the California market.

And I think that could have a positive impact.

As you know, ethanol prices have declined quite dramatically during the past quarter and particularly in the past six months as a result of these delays in California on implementation on the ban on MTBE.

So that will begin to show reversal as British petroleum and Phillips and shell and others in the industry stand up and get counted and get MTBE out of their fuel supply and start using ethanol which is a natural renewable fuel.

And so with California beginning to take production in the early parts of 2003, and then continuing their interest in our product, I think that bodes well for the future.

I would also like to mention that there is a great deal of effort being made on the part of USGR, the trade representative in Washington and the trade representative in Mexico to try to resolve this Mexican trade stand off on high fructose corn syrup.

So that's another development that could bring back better balances to supply and demand in the wet corn milling business.

And that's where our profitability was severely tested in this past quarter.

Thanks for everything.

Yes, you're welcome, John.

Our next question comes from David Nelson.

Please state your question.

Good morning.

Good morning, David.

[Inaudible] The greater disclosure. [Inaudible] Within corn, if we could delve there a little bit, please.

You cited the weakness in the ethanol prices.

But within the quarter, quarter-over-quarter for corn processing were roughly flat.

Can you comment to the extent possible on how much ethanol may have been down versus other parts, namely fructose possibly up?

As you know, what I think you can generally assume based on information that is generated by our industry and by others who analyze this, is that the prices of a 1.70 a gallon on ethanol were very solid, gave us solid results in the past.

And those markets have now declined down to a little over a there are a gallon.

And the stock market was actually as low as 90 cents.

So there is no question but that the profitability in the last quarter of our ethanol business was down.

I think also it should be noted that we've got - we had last year about a billion eight of production capacity.

And there have been 16 new plants under construction of which about 14 have now begun production.

So that will raise the total amount of ethanol to somewhere in the neighborhood of two billion three and at the end of next year is expected to be up to two billion seven.

So there is a lot of production capacity that needed to be absorbed by the market.

So during this last period of time, in anticipation of major potential orders from the California market, we have declines not only in the profitability of that sector as a result of lower selling costs, but in addition to that, we have put more of our production into store during this period so that we would be able to meet the demand for the California market when it comes in 2003.

So our sales volumes have been less.

Our production continues but our sales volumes have been reduced and also our prices have been reduced.

So from that viewpoint, the corn sweeteners division this past quarter produced much lower results than what we had hoped might be possible earlier in the year.

Sweeteners, as you know from prior discussions, we have maintained a solid position in our sales volume in the coming year despite the fact that we lost the Mexican market.

If the Mexican market should return - it's currently 148,000 tons as compared with approximately 300 in the past.

So if that market returns it will bring back a better balance between supply and demand.

And our results should be more favorable there.

Pricing was a little stronger.

And with corn, our cost having escalated due to the weather conditions, it's going to be a very difficult time for us to produce sweeteners at the same kind of levels that we have in the past.

So we would expect some solid strength in that market as well as we move into the coming year.

How much ethanol do you have in storage.

We accumulated some over the past quarter in anticipation of what our needs would be.

These numbers are not publicly available.

And so I can't give you those numbers.

But we have an adequate amount of supplies.

I think the general figures that have been available in the industry is there's about 400 million gallons of total ethanol available.

But those are not our figures.

And that is what the industry talks about.

We do have a substantial portion of our ethanol waiting the contracts that we put on our books for the coming year.

And we expect our inventories to client during the coming year as those needs are met and as additional capacity comes on stream from the farm coop new facility, keeping a good balance to that industry so we can meet what our consumer's demands are in a very efficient fashion as necessary at competitive prices.

Okay.

Maybe a couple for Doug, please.

What was D and A for the year?

A little bit over 570.

570.

And I thought you heard you mention on the vitamin claims, that's a big recovery here this year, that you said there was more to come.

How much more might there be coming?

Well, we're in ongoing negotiations there so we're not really in had a position to comment ^ in a position to comment.

But I would just say whatever those are they will be positive.

And they are one of a kind items.

Once we're finished cleaning up this controversy, that cash goes into the till.

Just one last question.

You have an awful lot of assets in storage and transportation which are usually hit when we have droughts.

Can you comment on the situation and process there?

We read reports about margins not being able to move on the Mississippi because of water levels and so forth.

How leveraged are you there.

We always are net buyers of transportation equipment.

And although we owned a substantial amount of our own equipment for specialty uses, what happens during period where there is last demand for that transportation system is we talk of cut back on our external leases and reduce the amount of capacity we're buying in and get still solid utilization of our owner facility.

As you know way own about 16,000 railroad cars.

That's down from about 18,000 a few years ago.

And it's primarily due to great new efficiencies in the system that we are able to utilize.

So those cars are still being used effectively.

Our barge fleet was well utilized this past year.

But our profitability was less due to a number of different factors including the back haul business.

As you know, we added to our grain network this past year with farmland industries.

Those elevators made nice returns in our joint venture [inaudible] As a result of good carrying charges because of surplus number of supplies.

Clearly our entire grain division will be impacted if we [inaudible] Drop in the carry out in corn and soybeans and wheat [inaudible] for this coming year.

So that segment of our business will be less strong than what it has been.

But I would say that we have rationalized our businesses and we've built a very solid support system of origination for our factories around the world.

We've added substantial new businesses in China.

We are new consolidating. 00:56:00 (Transmission closed/interrupted.)