-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QPhdpnFwzOGiB9yJzM7M6rCYqManX+CChUWPYwDz+i+cYxr6QOtF0FaiRvOHZMHD 101D4VF5eGRWpaCvDIBbJw== 0000007084-97-000042.txt : 19971216 0000007084-97-000042.hdr.sgml : 19971216 ACCESSION NUMBER: 0000007084-97-000042 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971212 FILED AS OF DATE: 19971215 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARCHER DANIELS MIDLAND CO CENTRAL INDEX KEY: 0000007084 STANDARD INDUSTRIAL CLASSIFICATION: FATS & OILS [2070] IRS NUMBER: 410129150 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-00044 FILM NUMBER: 97737959 BUSINESS ADDRESS: STREET 1: 4666 FARIES PKWY CITY: DECATUR STATE: IL ZIP: 62526 BUSINESS PHONE: 2174245200 10-K/A 1 AMENDMENT NO. 2 TO 10K FILED SEPTEMBER 29, 1997 PAGE 1 FORM 10-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from --------------------- to ---- - ------------ Commission file number 1-44 ARCHER-DANIELS-MIDLAND COMPANY (Exact name of registrant as specified in its charter) Delaware 41-0129150 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 4666 Faries Parkway Box 1470 Decatur, Illinois 62525 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code217-424-5200 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock, no par value New York Stock Exchange Chicago Stock Exchange Swiss Exchange Tokyo Stock Exchange Frankfurt Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non-affiliates of the registrant. Common Stock, no par value--$10.2 billion (Based on the closing price of the New York Stock Exchange on August 18, 1997) Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Common Stock, no par value--531,196,269 shares (August 31, 1997) 1 PAGE 2 The Amendment on Form 10-K/A is being filed for the purpose of amending item 14 and amending and restating Exhibit 13 to the registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, as amended by the registrant's Annual Report on Form 10-K/A filed September 29, 1997. Item 14(10) is hereby amended by adding the following: (iv) Exhibit A to the Definitive Proxy Statement dated September 25, 1996 for the Company's 1996 Annual Meeting of Shareholders, relating to the Company's 1996 Stock Option Plan. The following amends and restates Exhibit 13 in its entirety: MANAGEMENT'S DISCUSSION OF OPERATIONS AND FINANCIAL CONDITION - JUNE 30, 1997 Operations The Company is in one business segment - procuring, transporting, storing, processing and merchandising agricultural commodities and products. A summary of net sales and other operating income by classes of products and services is as follows:
1997 1996 1995 --------------------- ----- (in millions) Oilseed products $8,860 $8,027 $7,620 Corn products 2,171 2,431 2,368 Wheat and other milled 1,631 1,662 1,371 products Other products 1,191 1,120 1,196 ------ ------ ------ $13,85 $13,24 $12,55 3 0 5 ====== ====== ====== = = =
1997 compared to 1996 Net sales and other operating income increased $613 million to a record high $13.9 billion for 1997 due principally to a 4% increase in average selling prices and to a lesser extent sales attributable to recently acquired operations. Sales of oilseed products increased 10% to $8.9 billion due primarily to higher average selling prices reflecting relatively strong demand for protein meal in the domestic market and the higher cost of raw materials. Sales volumes of oilseed products were up for the year due principally to improved export vegetable oil demand. Sales of corn products decreased 11% to $2.2 billion due primarily to decreased sales volumes of fuel alcohol as reduced corn supplies and the resulting higher cost of corn resulted in the Company reducing its production of fuel alcohol. Average selling prices of corn products were up 3% for the year due to the good demand for the Company's fuel alcohol and bioproducts, including lysine and threonine. These average selling price increases were partially offset by lower average selling prices for the Company's sweetener products as a result of the start-up of new corn wet milling facilities in the industry and the resulting overcapacity in the marketplace. Sales of wheat and other milled products decreased 2% to $1.6 billion due to both decreased volumes of products sold and to lower average selling prices reflecting excess milling capacity in the industry. This volume decrease was partially offset by sales related to recently acquired operations in Canada and the Caribbean. The increase in other products and services was due principally to the sales related to the Company's recently acquired cocoa business partially offset by lower merchandising and transportation revenues. Cost of products sold and other operating costs increased $700 million to $12.6 billion due principally to a 5% increase in average raw material commodity prices and to costs attributable to recently acquired operations. 2 PAGE 3 The $86 million decrease in gross profit to $1.3 billion resulted primarily from decreased merchandising and transportation margins and the net effect of increased raw material costs versus higher sales prices. These decreases were partially offset by gross profit attributable to recently acquired operations. Selling, general and administrative expenses increased $202 million to $675 million due primarily to increased legal and litigation related costs of $171 million including provisions related to fines and litigation settlements arising out of the United States Department of Justice antitrust investigation of the Company's lysine and citric acid products, as well as a securities suit brought by shareholders (see note 11 to the financial statements). Additionally, selling, general and administrative expenses increased $26 million due to expenses attributable to recently acquired operations. The decrease in other income for 1997 was due principally to decreased gains on marketable securities transactions, decreased investment income due to both lower invested funds and lower interest rates, increased interest expense due primarily to increased levels of borrowings, and a decrease in other income as 1996 results included a $15 million gain on the sale of the Company's Supreme Sugar subsidiary. The decrease in income taxes for 1997 resulted primarily from lower pretax earnings. The increase in the Company's effective income tax rate to 41% for the year compared to an effective rate of 34% last year was due principally to the non-deductibility for income tax purposes of a portion of the Company's litigation settlements and fines. 1996 compared to 1995 Net sales and other operating income increased $685 million to $13.2 billion for 1996 due principally to a 6% increase in average selling prices. This increase was partially offset by the decrease due to the sale of the Company's Supreme Sugar subsidiary and British Arkady bakery ingredient business, and the contribution of the Company's formula feed operation to an unconsolidated subsidiary. Sales of oilseed products increased 5% to $8 billion due primarily to higher average selling prices reflecting relatively strong demand for protein meal in the domestic market and the higher cost of raw materials. Sales volumes of oilseed products were up slightly for the year as the aforementioned meal demand more than offset the weaker export vegetable oil demand. Sales of corn products increased 3% to $2.4 billion due primarily to increased sales volumes resulting from good demand for the Company's fuel, beverage, and industrial alcohol, as well as for various bioproducts, including citric acid, lysine, and MSG. These volume increases were partially offset by lower average selling prices and lower sales volumes for the Company's sweetener products. Sales of wheat and other milled products increased 21% to $1.7 billion due principally to increased average selling prices reflecting the higher costs of raw materials. These increased average selling prices were partially offset by decreased sales volumes reflecting reduced export flour demand. The decrease in sales of other products and services for the year was due principally to the sale of the Company's Supreme Sugar subsidiary and British Arkady bakery ingredient business as well as the contribution of the Company's formula feed operation to an unconsolidated joint venture. These decreases were partially offset by increased merchandising and transportation revenues. Cost of products sold and other operating costs increased $961 million to $11.9 billion due primarily to a 16% increase in average raw material commodity prices, partially offset by costs attributable to recently divested operations. The $276 million decrease in gross profit to $1.4 billion in 1996 resulted primarily from a $242 million decrease due to the net effect of higher raw material commodity prices versus increased average selling prices and, to a lesser extent, gross profit attributable to recently divested operations. Selling, general and administrative expenses increased $23 million to $473 million in 1996 due primarily to an increase in legal and litigation related expenses which were partially offset by $29 million of expenses attributable to recently divested operations and by an $8 million decrease in bad debt expense. The increase in other income for 1996 was due principally to increased gains on marketable securities transactions and, to a lesser extent, increased equity in earnings of unconsolidated affiliates. Other income for 1996 included a $15 million gain on the sale of the Company's Supreme Sugar subsidiary. The decrease in income taxes for 1996 was the result of lower pretax earnings partially offset by a higher effective income tax rate. The Company's effective income tax rate for 1996 was 34% compared to an effective rate of 33% for 1995. Liquidity and Capital Resources At June 30, 1997, the Company continued to show substantial liquidity with working capital of $2 billion, including cash and marketable securities of $728 million. Working capital also includes inventory with a replacement cost in excess of its LIFO carrying value of approximately $45 million. During 1997, the Company's cash and marketable securities net of short-term debt decreased $1.3 billion, working capital decreased $716 million and shareholders' equity decreased $95 million reflecting the Company's investments in property, plant and equipment expansions, investments in affiliates, business acquisitions, and purchases of the Company's common stock. Capital resources remained strong as reflected in the Company's net worth of $6.1 billion. The principal sources of capital during the year were funds generated from operations and funds generated from the issuance of $350 million of 7.5% debentures due in 2027. The Company's ratio of long-term debt to total capital at year end was approximately 26%. Annual maturities of long-term debt range from $11 million to $24 million during the next four years, and will be $428 million in 2002. 3 PAGE 4 Commercial paper and commercial bank lines of credit are available to meet seasonal cash requirements. At June 30, 1997, the Company had $864 million of short-term bank credit lines. Both Standard & Poor's and Moody's continue to assign their highest ratings to the Company's commercial paper and to rate the Company's long-term debt as AA- and Aa3, respectively. In addition to the cash flow generated from operations, the Company has access to equity and debt capital through numerous alternatives from public and private sources in the domestic and international markets. As discussed in Note 11 to the consolidated financial statements, various grand juries under the direction of the United States Department of Justice ("DOJ") have been conducting investigations into possible violations by the Company and others of federal antitrust laws and related matters with respect to the sale of lysine, citric acid and high fructose corn syrup. In connection with an agreement with the DOJ, the Company has paid the United States a fine of $100 million. This agreement constitutes a global resolution of all matters between the DOJ and the Company and brings to a close all DOJ investigations of the Company. In addition, related civil class actions and other proceedings have been filed against the Company, which could result in the Company being subject to monetary damages, other sanctions and expenses. As also discussed in Note 11 to the consolidated financial statements, the Company has settled certain civil federal class action suits involving lysine, citric acid, and securities, and certain state actions filed by indirect purchasers of lysine. The Company made provisions of $200 million in fiscal 1997 and $31 million in fiscal 1996 to cover such fines and settlements and related costs and expenses. Because of the early stage of other putative class actions and proceedings, including those related to high fructose corn syrup, the ultimate outcome and materiality of these matters cannot presently be determined. Accordingly, no provision for any liability that may result therefrom has been made in the consolidated financial statements. Market Risk Sensitive Instruments and Positions The market risk inherent in the Company's market risk sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices, marketable equity security prices, foreign currency exchange rates, and interest rates as discussed below. Commodities The availability and price of agricultural commodities are subject to wide fluctuations due to unpredictable factors such as weather, plantings, government (domestic and foreign) farm programs and policies, changes in global demand created by population growth and higher standards of living, and global production of similar and competitive crops. To reduce price risk caused by market fluctuations, the Company generally follows a policy of hedging its inventories and related purchase and sale contracts. In addition, the Company from time to time will hedge portions of its production requirements. The instruments used are principally readily marketable exchange traded futures contracts which are designated as hedges. The changes in market value of such contracts have a high correlation to the price changes of the hedged commodity. To obtain a proper matching of revenue and expense, gains or losses arising from open and closed hedging transactions are included in inventories as a cost of the commodities and reflected in the statement of earnings when the product is sold. A sensitivity analysis has been prepared to estimate the Company's exposure to market risk of its commodity position. The Company's daily net commodity position consists of inventories, related purchase and sales contracts, and exchange traded contracts, including those to hedge portions of production requirements. The fair value of such position is a summation of the fair values calculated for each commodity by valuing each net position at quoted futures prices. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in such prices. The results of this analysis, which may differ from actual results, are as follows for fiscal 1997:
Fair Value Market Risk -------------------------------- ----- (in millions) Highest long position $468 $47 Highest short position 314 31 Average position (long) 123 12
Marketable Equity Securities Marketable equity securities at June 30, 1997, which are recorded at a fair value of $911 million and include net unrealized gains of $183 million, have exposure to price risk. This risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in prices quoted by stock exchanges and amounts to $91 million. Actual results may differ. Currencies In order to reduce the risk of foreign currency exchange rate fluctuations, the Company follows a policy of hedging substantially all transactions, except for amounts permanently invested as described below, denominated in a currency other than the functional currencies applicable to each of its various entities. The instruments used for hedging are readily marketable exchange traded futures contracts and forward contracts with banks. The changes in market value of such contracts have a high correlation to the price changes in the currency of the related hedged transactions. The potential loss in fair value for such net currency position resulting from 10% adverse change in foreign currency exchange rates is not material. The amount permanently invested in foreign subsidiaries and affiliates and translated into dollars using the year end exchange rate is $1.7 billion at June 30, 1997. The potential loss in fair value resulting from a hypothetical 10% adverse change in quoted foreign currency exchange rates amounts to $167 million. Actual results may differ. 4 PAGE 5 Interest At June 30, 1997, the fair value of the Company's long- term debt is estimated at $2.7 billion using quoted market prices or discounted future cash flows based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Such fair value exceeded the long-term debt carrying value by $336 million. Market risk is estimated as the potential increase in fair value resulting from a hypothetical one-half percent decrease in interest rates and amounts to $107 million. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business The Company is in one business segment - procuring, transporting, storing, processing, and merchandising agricultural commodities and products. The availability and price of agricultural commodities are subject to wide fluctuations due to unpredictable factors such as weather, plantings, government (domestic and foreign) farm programs and policies, changes in global demand created by population growth and higher standards of living, and global production of similar and competitive crops. Principles of Consolidation The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. Investments in affiliates are carried at cost plus equity in undistributed earnings since acquisition. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in its consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Reclassification Certain items in prior year financial statements have been reclassified to conform to the current year's presentation. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Marketable Securities The Company classifies all of its marketable securities as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of income taxes, reported as a component of shareholders' equity. 5 PAGE 6 Inventories Inventories, consisting primarily of merchandisable agricultural commodities and related value-added products, are carried at cost, which is not in excess of market prices. Inventory cost methods include the last-in, first- out (LIFO) method, the first-in, first-out (FIFO) method and the hedging procedure method. The hedging procedure method approximates FIFO cost. To reduce price risk caused by market fluctuations, the Company generally follows a policy of hedging its inventories and related purchase and sale contracts. In addition, the Company from time to time will hedge portions of its production requirements. The instruments used are readily marketable exchange traded futures contracts which are designated as hedges. The changes in market value of such contracts have a high correlation to the price changes of the hedged commodity. Also, the underlying commodity can be delivered against such contracts. To obtain a proper matching of revenue and expense, gains or losses arising from open and closed hedging transactions are included in inventories as a cost of the commodities and reflected in the statement of earnings when the product is sold. Property, Plant and Equipment Property, plant, and equipment are recorded at cost. The Company generally uses the straight line method in computing depreciation for financial reporting purposes and generally uses accelerated methods for income tax purposes. The annual provisions for depreciation have been computed principally in accordance with the following ranges of asset lives: buildings - 10 to 50 years; machinery and equipment - 3 to 30 years. Net Sales The Company follows a policy of recognizing sales at the time of product shipment. Net margins from grain merchandised, rather than the total sales value thereof, are included in net sales in the consolidated statements of earnings. Sales of the Company, including the sales value of grain merchandised, were $18.1 billion in 1997, $18.0 billion in 1996, and $15.6 billion in 1995, and such sales include export sales of $5.4 billion in 1997, $5.7 billion in 1996 and $4.3 billion in 1995. Per Share Data Share and per share information have been adjusted to give effect to all stock dividends, including the 5% stock dividend declared in July 1997 and payable in September 1997. Net earnings per common share is determined by dividing net earnings by the weighted average number of common shares outstanding. The impact of common stock equivalents is not material. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Number 128 (SFAS 128) "Earnings Per Share." This statement establishes standards for computing and presenting basic and diluted earnings per share (EPS) for financial statements issued for periods ending after December 15, 1997. The adoption of SFAS 128 will not have a material effect on the Company's reported EPS. 6 PAGE 7
CONSOLIDATED STATEMENTS OF EARNINGS Year Ended June 30 ------------------------------ ------- 1997 1996 1995 ------------------------------- ------ (In thousands, except per share amounts) Net sales and other operating $13,853,2 $13,239,8 $12,555,4 income 62 39 03 Cost of products sold and other 12,552,71 11,853,07 10,892,47 operating costs 8 0 6 --------- --------- --------- - - - Gross Profit 1,300,544 1,386,769 1,662,927 Selling, general and administrative 675,103 473,294 450,365 expenses --------- --------- --------- - - - Earnings From Operations 625,441 913,475 1,212,562 Other income (expense) 18,964 140,938 (31,039) --------- --------- --------- - - - Earnings Before Income Taxes 644,405 1,054,413 1,181,523 Income taxes 267,096 358,501 385,608 --------- --------- --------- - - - Net Earnings $ $ $ 377,309 695,912 795,915 ========= ========= ========= = = = Net earnings per common share $ $ 1.20 $ .66 1.34 ========= ========= ========= = = Average number of shares outstanding 567,954 577,547 596,139 ========= ========= ========= =
See notes to consolidated financial statements. 7 PAGE 8
CONSOLIDATED BALANCE SHEETS June 30 ---------------------- ----- 1997 1996 ---------------------- ---- Assets (In thousands) Current Assets Cash and cash equivalents $ 397,788 $ 534,702 Marketable securities 330,208 820,147 Receivables 1,329,350 1,131,591 Inventories 2,094,092 1,790,636 Prepaid expenses 132,897 107,607 ---------- ---------- Total Current Assets 4,284,335 4,384,683 Investments and Other Assets Investments in and advances to 1,102,420 624,305 affiliates Long-term marketable securities 987,665 1,092,969 Other assets 271,352 233,611 ---------- ---------- 2,361,437 1,950,885 Property, Plant and Equipment Land 118,898 114,542 Buildings 1,448,945 1,245,662 Machinery and equipment 6,841,225 6,034,979 Construction in progress 765,720 588,711 Less allowances for depreciation (4,466,193 (3,869,593 ) ) ---------- ---------- - - 4,708,595 4,114,301 ---------- ---------- - - $11,354,367 $10,449,869 ========== =========== =
8 PAGE 9
CONSOLIDATED BALANCE SHEETS June 30 ---------------------- -- 1997 1996 ---------------------- -- (In thousands) Liabilities and Shareholders' Equity Current Liabilities Short-term debt $ 604,831 $ - Accounts payable 1,126,313 993,403 Accrued expenses 493,944 525,626 Current maturities of long-term debt 23,667 114,522 ---------- ---------- Total Current Liabilities 2,248,755 1,633,551 Long-Term Debt 2,344,949 2,002,979 Deferred Liabilities Income taxes 597,514 562,362 Other 113,020 106,165 ---------- ---------- 710,534 668,527 Shareholders' Equity Common stock 4,192,321 3,869,875 Reinvested earnings 1,857,808 2,274,937 ---------- ---------- 6,050,129 6,144,812 ---------- ---------- $11,354,36 $10,449,869 7 ========== ==========
See notes to consolidated financial statements. 9 PAGE 10
CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended June 30 ----------------------------- ----- 1997 1996 1995 ----------------------------- ----- (In thousands) Operating Activities Net earnings $ $ $ 795,915 377,309 695,912 Adjustments to reconcile to net cash provided by operations Depreciation and amortization 446,412 393,605 384,872 Deferred income taxes (12,235) 72,673 25,421 Amortization of long-term debt 29,094 25,584 21,908 discount (Gain) loss on marketable securities (59,549) (109,359 27,633 transactions ) Other (40,758) (33,243) 8,432 Changes in operating assets and liabilities Receivables (23,225) (183,569 (82,203) ) Inventories 23,046 (320,529 (41,561) ) Prepaid expenses (18,760) (1,683) 5,219 Accounts payable and accrued (110,653 314,494 45,611 expenses ) -------- -------- --------- - - Total Operating Activities 610,681 853,885 1,191,247 Investing Activities Purchases of property, plant and (779,508 (754,268 (558,604) equipment ) ) Net assets of businesses acquired (429,940 (28,612) (55,126) ) Investments in and advances to (416,861 (110,615 (122,565) affiliates ) ) Purchases of marketable securities (966,203 (816,401 (2,017,619 ) ) ) Proceeds from sales of marketable 1,607,63 1,260,71 1,940,370 securities 1 0 -------- -------- --------- - - Total Investing Activities (984,881 (449,186 (813,544) ) ) Financing Activities Long-term debt borrowings 348,695 42,066 17,626 Long-term debt payments (115,853 (22,233) (32,304) ) Net borrowings under line of credit 421,046 - - agreements Purchases of treasury stock (312,525 (259,980 (179,613) ) ) Cash dividends and other (104,077 (84,443) (45,213) ) -------- -------- --------- - - Total Financing Activities 237,286 (324,590 (239,504) ) -------- -------- --------- - - Increase (Decrease) In Cash And Cash (136,914 80,109 138,199 Equivalents ) Cash And Cash Equivalents Beginning Of 534,702 454,593 316,394 Period -------- -------- -------- - - Cash And Cash Equivalents End Of $ $ $ 454,593 Period 397,788 534,702 ======== ======== ========= = =
See notes to consolidated financial statements. 10 PAGE 11
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Stock --------- -- Shares Amount Reinvest ed Earnings ----------------------------- ------ (In thousands) Balance July 1, 1994 343,639 $3,415,9 $1,629,4 55 66 Net earnings - - 795,915 Cash dividends paid - $.08 per - - (46,825) share 3-for-2 stock split 172,030 - - 5% stock dividend 25,358 406,019 (406,019 ) Treasury stock purchases (9,756) (179,613 - ) Foreign currency translation - - 66,005 Unrealized net gains on marketable securities - - 147,118 Other 1,253 26,616 (472) --------- -------- -------- - - Balance June 30, 1995 532,524 3,668,97 2,185,18 7 8 Net earnings - - 695,912 Cash dividends paid - $.16 per - - (90,860) share 5% stock dividend 25,991 411,542 (411,542 ) Treasury stock purchases (15,632) (259,980 - ) Foreign currency translation - - (96,101) Change in unrealized net gains on marketable securities - - (7,421) Other 2,938 49,336 (239) --------- -------- -------- - - Balance June 30, 1996 545,821 3,869,87 2,274,93 5 7 Net earnings - - 377,309 Cash dividends paid - $.19 per - - (106,990 share ) 5% stock dividend 26,565 594,590 (594,590 ) Treasury stock purchases (16,707) (312,525 - ) Foreign currency translation - - (73,393) Change in unrealized net gains on marketable securities - - (19,199) Other 2,195 40,381 (266) --------- -------- -------- -- Balance June 30, 1997 557,874 $4,192,32 $1,857,8 1 08 ========= ======== ======== = ==
See notes to consolidated financial statements. 11 PAGE 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1-Marketable Securities and Cash Equivalents
Unrealiz Unrealize Fair ed d Cost Gains Losses Value -------------------------------------- -------- (In thousands) 1997 United States government obligations Maturity less than 1 year $ $ $ $ 455,657 66 19 455,704 Maturity 1 year to 5 years 74,332 70 108 74,294 Other debt securities Maturity less than 1 year - 157,588 435 158,023 Equity securities 728,448 186,551 3,540 911,459 -------- -------- -------- -------- -- -- -- -- $1,416,0 $ $ $1,599,4 25 187,122 3,667 80 ======== ======== ======== ======== == == == == 1996 United States government obligations Maturity less than 1 year $1,184,2 $ $ $1,188,0 16 4,027 235 08 Maturity 1 year to 5 - years 19,026 201 18,825 Other debt securities Maturity less than 1 year - 148,345 716 149,061 Maturity 1 year to 5 - years 58,962 1,813 60,775 Equity securities 804,052 212,906 5,602 1,011,35 6 -------- -------- -------- -------- -- -- -- -- $2,214,6 $219,462 $ $2,428,0 01 6,038 25 ======== ======== ======== ======== == == == ==
12 PAGE 13 Note 2-Inventories
1997 1996 ---------------------- ----- (In thousands) LIFO inventories FIFO value $ 521,277 $ 705,814 LIFO valuation reserve (44,811) (190,641) ---------- ---------- LIFO carrying value 476,466 515,173 FIFO inventories, including hedging procedure method 1,617,626 1,275,463 ---------- ---------- $2,094,092 $1,790,636 ========== ========== Note 3-Accrued Expenses 1997 1996 ---------------------- ----- (In thousands) Payroll and employee benefits $ $ 128,205 117,211 Income taxes 175,603 99,744 Other 232,812 265,995 --------- ---------- - - $ $ 493,944 525,626 ========== ==========
13 PAGE 14
Note 4-Debt and Financing Arrangements 1997 1996 ------------------------ ----- (In thousands) 7.5% Debentures $350 million face amount, due in 2027 $ 347,860 $ - 8.875% Debentures $300 million face amount, due in 2011 298,331 298,271 8.125% Debentures $300 million face amount, due in 2012 298,079 298,015 8.375% Debentures $300 million face amount, due in 2017 294,285 294,178 7.125% Debentures $250 million face amount, due in 2013 249,416 249,397 6.25% Notes $250 million face amount, due in 2003 249,353 249,280 Zero Coupon Debt $400 million face amount, due in 2002 209,967 183,736 7% Debentures $250 million face amount, due in 2011 131,486 129,083 10.25% Debentures $100 million face amount, due in 2006 98,847 98,767 6% Bonds 150 million Deutsche Mark face amount, due in June 1997 - 98,370 Industrial Revenue Bonds at various rates from 5.30% to 13.25% and due in varying amounts to 2011 74,571 76,498 Other 116,421 141,906 ---------- ---------- Total long-term debt 2,368,616 2,117,501 Less current maturities (23,667) (114,522) ---------- ---------- $2,344,949 $2,002,979 ========== ==========
14 PAGE 15 At June 30, 1997, the fair value of the Company's long-term debt exceeded the carrying value by $336 million, as estimated by using quoted market prices or discounted future cash flows based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Unamortized original issue discounts on the 7% Debentures and Zero Coupon Debt issues are being amortized at 15.35% and 13.80%, respectively. Accelerated amortization of the discounts for tax purposes has the effect of lowering the actual rate of interest to be paid over the remaining lives of the issues to approximately 10.33% and 5.36%, respectively. The aggregate maturities for long-term debt for the five years after June 30, 1997 are $24 million, $15 million, $11 million, $21 million and $428 million, respectively. At June 30, 1997 the Company had lines of credit totaling $864 million. The weighted average interest rate on short-term borrowings outstanding at June 30, 1997 was 4.81%. Note 5-Shareholders' Equity The Company has authorized 800 million shares of common stock and 500,000 shares of preferred stock, both without par value. No preferred stock has been issued. At June 30, 1997 and 1996, the Company had approximately 19.7 million and 33.4 million common shares, respectively, in treasury. Treasury stock is recorded at cost, $327 million at June 30, 1997, as a reduction of common stock. Stock option plans provide for the granting of options to employees to purchase common stock of the Company at market value on the date of grant. Options expire five to ten years after the date of grant. At June 30, 1997, options for 4,320,588 shares at a weighted average price of $14.39 per share were outstanding of which 1,616,528 shares were exercisable at a weighted average price of $13.16 per share. There were 3,958,635 shares available for future grant at June 30, 1997. The Company accounts for its stock option plans in accordance with Accounting Principles Board (APB) Opinion Number 25 "Accounting for Stock Issued to Employees." Under APB 25 no compensation expense is recognized if the exercise price of the employee stock option equals the market price on the grant date. Statement of Financial Accounting Standards Number 123 "Accounting for Stock-Based Compensation" requires the fair value of options granted and the pro forma impact on earnings and earnings per share be disclosed when material. The pro forma impact for 1997 and 1996 is not material. Cumulative foreign currency translation losses of $107 million and unrealized gains on securities of $120 million at June 30, 1997, net of applicable taxes, are included as components of reinvested earnings. 15 PAGE 16
Note 6-Other Income (Expense) 1997 1996 1995 (In thousands) Investment income $ 121,991 $ $147,133 150,446 Interest expense (197,214) (170,089) (170,886 ) Gain (loss) on marketable securities transactions 59,810 109,359 (27,633) Equity in earnings (losses) 35,243 31,780 of (19,801) affiliates Other (866) 19,442 40,148 __________ _________ ________ _ _ $ 18,964 $ $ 140,938 (31,039) ======= ======= ========
Interest expense is net of interest capitalized of $41 million, $43 million and $32 million in 1997, 1996 and 1995, respectively. The Company made interest payments of $198 million, $188 million and $181 million in 1997, 1996 and 1995, respectively. The realized gains on sales of available-for-sale marketable securities totaled $63 million, $109 million and $18 million in 1997, 1996 and 1995, respectively. The realized losses totaled $3 million and $46 million in 1997 and 1995, respectively. 16 PAGE 17 Note 7-Income Taxes For financial reporting purposes, earnings before income taxes includes the following components:
1997 1996 1995 ________________________________ (In thousands) United States $ 563,086 $ 907,376 $1,022,2 45 Foreign 81,319 147,037 159,278 __________ __________ _ __________ $ $ $1,054,413 $ 644,405 $1,181,523 = ========== ========= ======== = =
Significant components of income taxes are as follows:
1997 1996 1995 ______________________________________ (In thousands) Current Federal $ 216,641 $ 207,166 $ 271,702 State 29,440 29,604 38,768 Foreign 27,352 46,646 42,085 Deferred Federal (5,357) 69,253 30,191 State (2,910) 6,467 2,108 Foreign 1,930 (635) 754 _________ _________ _________ _ $ 267,096 $ $ 385,608 358,501 ======== ======== =======
Significant components of the Company's deferred tax liabilities and assets are as follows:
1997 1996 __________________________ (In thousands) Deferred tax liabilities Depreciation $446,083 $413,792 Unrealized gain on marketable 62,957 73,727 securities Bond discount amortization 56,312 60,659 Other 76,992 66,812 ________ ________ 642,344 614,990
Deferred tax assets Postretirement benefits 29,318 27,822 Other 64,186 76,337 ________ ________ 93,504 104,159 ________ ________ Net deferred tax liabilities 548,840 510,831 Current net deferred tax assets included in prepaid expenses 48,674 51,531 ________ ________ Non-current net deferred tax $597,514 $562,362 liabilities ======= =======
Reconciliation of the statutory federal income tax rate to the Company's effective tax rate is as follows:
1997 1996 1995 Statutory rate 35.0% 35.0% 35.0% Litigation settlements and fines 7.5 - - State income taxes, net of federal tax benefit 2.7 2.2 2.3 Foreign sales corporation (3.4) (2.4) (1.8) Other (0.4) (0.8) (2.9) _____ _____ ____ Effective rate 41.4 % 34.0% 32.6% ==== ==== ====
The Company made income tax payments of $312 million, $268 million and $354 million in 1997, 1996 and 1995, respectively. Undistributed earnings of the Company's foreign subsidiaries amounting to approximately $460 million at June 30, 1997, are considered to be permanently reinvested and, accordingly, no provision for U.S. income taxes has been provided thereon. It is not practicable to determine the deferred tax liability for temporary differences related to these undistributed earnings. Note 8-Leases The Company has noncancellable operating leases with total future rental commitments of $161 million, which range from $7 million to $31 million during each of the next five years, and expire on various dates through 2026. Rent expense for 1997, 1996 and 1995 was $69 million, $73 million and $73 million, respectively. 17 PAGE 18 Note 9-Employee Benefit Plans The Company has noncontributory and trusteed pension plans covering substantially all employees. It is the Company's policy to fund pension costs as required by the Employee Retirement Income Security Act. At June 30, 1997, the plans had assets at fair value of $432 million and projected benefit obligations of $458 million based on a discount rate of 7.5%. Pension expense is not material. The Company has postretirement health care and life insurance plans covering substantially all employees. The fully accrued accumulated postretirement benefit obligations (APBO) for the unfunded plans at June 30, 1997 were $59 million, based on a discount rate of 7.5% and an assumed health care cost trend rate of 9.7% for 1998 gradually decreasing to 5.5% by 2004. Expense of these plans is not material. A 1% increase in the health care cost trend rate assumption would not have had a material impact on the APBO or expense for the year. In addition, the Company has savings and investment plans available to eligible employees with one year of service. Employees may contribute up to 6% of their salaries, not to exceed $9,500. The Company matches these contributions, at various levels, to a maximum of $6,333.
Note 10-Geographic Information 1997 1996 1995 (In millions) Net sales and other operating income: United States $ 9,773 $ 9,661 $ 9,052 Europe 3,039 2,753 2,754 Other foreign 1,041 826 749 _______ _______ _______ $13,853 $13,240 $12,555 ====== ====== ====== Sales or transfers between geographic areas: United States $ 354 $ 282 $ 166 Europe 51 108 115 Other foreign 146 133 54 _______ ______ ______ $ 551 $ 523 $ 335 ==== ==== ==== Earnings from operations: United States $ 550 $ 805 $ 1,089 Europe 46 69 77 Other foreign 29 39 47 _______ ______ ______ $ 625 $ 913 $ 1,213 ==== ==== ==== Identifiable assets: United States $ 6,663 $ 6,025 $ 5,351 Europe 1,288 929 846 Other foreign 585 418 334 _______ ______ ______ $ 8,536 $ 7,372 $ 6,531 ===== ===== =====
Earnings from operations represent earnings before other income and income taxes. Sales or transfers between geographic areas are made at established transfer prices. Identifiable assets exclude cash and cash equivalents, marketable securities and investments in and advances to affiliates. At June 30, 1997, approximately $1.3 billion of the Company's cash and cash equivalents, marketable securities and investments in affiliates were foreign assets, of which $697 million were in Europe. 18 PAGE 19 Note 11. Antitrust Investigation and Related Litigation Federal grand juries in the Northern Districts of Illinois, California and Georgia, under the direction of the United States Department of Justice ("DOJ"), have been investigating possible violations by the Company and others with respect to the sale of lysine, citric acid and high fructose corn syrup, respectively. In connection with an agreement with the DOJ, the Company has paid the United States a fine of $100 million. This agreement constitutes a global resolution of all matters between the DOJ and the Company and brings to a close all DOJ investigations of the Company. Following public announcement in June 1995 of these investigations, the Company and certain of its then current directors and executive officers were named as defendants in a number of putative class action suits for alleged violations of federal securities laws on behalf of all purchasers of securities of the Company during the period between certain dates in 1992 and 1995. The Company, along with other domestic and foreign companies, was named as a defendant in a number of putative class action antitrust suits and other proceedings involving the sale of lysine, citric acid, and high fructose corn syrup. The plaintiffs generally request unspecified compensatory damages, costs, expenses and unspecified relief. The Company and the individuals named as defendants intend to vigorously defend these actions and proceedings unless they can be settled on terms deemed acceptable by the parties. These matters have resulted and could result in the Company being subject to monetary damages, other sanctions and expenses. The Company has made provisions of $200 million in fiscal 1997 and $31 million in fiscal 1996 to cover the fine, litigation settlements related to the federal lysine class action, federal securities class action, the federal citric class action and certain state actions filed by indirect purchasers of lysine, and related costs and expenses associated with the litigation described in the proceeding paragraph. Because of the early stage of other putative class actions and proceedings, including those related to high fructose corn syrup, the ultimate outcome and materiality of these matters cannot presently be determined. Accordingly, no provision for any liability that may result therefrom has been made in the consolidated financial statements. The Company and its directors have also been named as defendants in a putative class action suit which alleges violations of Delaware state law and seeks invalidation of the election of the Company's directors on the basis of alleged omissions from the proxy statement issued by the Company prior to its 1995 Annual Meeting of Shareholders. This case was dismissed and is now on appeal in the Supreme Court of Delaware. 19 PAGE 20 QUARTERLY FINANCIAL DATA (Unaudited)
Quarter --------------------------------------- -------- First Second Third Fourth Total ------- ------- ------- ------- ------- (In thousands, except per share amounts) Fiscal 1997 Net sales $3,330,47 $3,514,9 $3,414,8 $3,593,03 $13,853,2 5 38 18 1 62 Gross profit 370,000 386,463 216,407 327,674 1,300,544 Net earnings 3,553 189,941 61,167 122,648 377,309 Per common 0.01 0.33 0.10 0.22 0.66 share Fiscal 1996 Net sales $3,078,58 $3,424,6 $3,433,4 $3,303,13 $13,239,8 6 85 35 3 39 Gross profit 329,244 402,790 344,877 309,858 1,386,769 Net earnings 163,102 225,970 163,285 143,555 695,912 Per common 0.28 0.39 0.28 0.25 1.20 share
Results for the first quarter of fiscal 1997 include a charge of $.31 per share for fines and litigation settlements arising out of the United States Department of Justice antitrust investigation of the Company's lysine and citric acid products as well as resolution of a securities suit brought by shareholders. COMMON STOCK MARKET PRICES AND DIVIDENDS The Company's common stock is listed and traded on the New York Stock Exchange, Chicago Stock Exchange, Tokyo Stock Exchange, Frankfurt Stock Exchange and the Swiss Exchange. The following table sets forth, for the periods indicated, the high and low market prices of the common stock and common stock cash dividends.
Cash Market Price Dividends High Low Per Share Fiscal 1997--Quarter Ended June 30 22 7/8 16 1/4 0.048 March 31 21 7/8 16 1/2 0.048 December 31 22 18 1/8 0.048 September 30 18 3/8 14 7/8 0.046 Fiscal 1996--Quarter Ended June 30 18 3/8 16 1/4 0.046 March 31 17 3/4 15 1/4 0.046 December 31 16 5/8 13 1/2 0.046 September 30 16 3/8 13 0.022
The number of shareholders of the Company's common stock at June 30, 1997 was 33,834. The Company expects to continue its policy of paying regular cash dividends, although there is no assurance as to future dividends because they are dependent on future earnings, capital requirements and financial condition. 20 PAGE 21 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Archer Daniels Midland Company Decatur, Illinois We have audited the accompanying consolidated balance sheets of Archer Daniels Midland Company and subsidiaries as of June 30, 1997 and 1996, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended June 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Archer Daniels Midland Company and its subsidiaries at June 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG, LLP Minneapolis, Minnesota July 31, 1997 21 PAGE 22 Archer Daniels Midland Company TEN-YEAR SUMMARY
Operating, Financial and Other Data (Dollars in thousands, except per share data) 1997 1996 1995 Operating Net sales and other operating $13,853,2 $13,239,8 $12,555,4 income 62 39 03 Depreciation and amortization 446,412 393,605 384,872 Net earnings 377,309 695,912 795,915 Per common share .66 1.20 1.34 Cash dividends 106,990 90,860 46,825 Per common share .19 .16 .08 Financial Working capital $2,035,58 $ $2,540,26 0 2,751,132 0 Per common share 3.65 4.80 4.33 Current ratio 1.9 2.7 3.2 Inventories 2,094,092 1,790,636 1,473,896 Net property, plant and equipment 4,708,595 4,114,301 3,762,281 Gross additions to property, plant and equipment 1,127,360 801,426 657,915 Total assets 11,354,36 10,449,86 9,756,887 7 9 Long-term debt 2,344,949 2,002,979 2,070,095 Shareholders' equity 6,050,129 6,144,812 5,854,165 Per common share 10.85 10.72 9.97 Other Weighted average shares 567,954 577,547 596,139 outstanding (000's) Number of shareholders 33,834 35,431 34,385 Number of employees 17,160 14,811 14,833
Certain items in prior year financial statements have been reclassified to conform to the current year's presentation. Share and per share data have been adjusted for three-for-two stock splits in December 1989 and December 1994, and annual 5% stock dividends through September 1997. Net earnings for 1997 include a charge of $.31 per share for fines and litigation settlements arising out of the United States Department of Justice antitrust investigation of the Company's lysine and citric acid products as well as resolution of a securities suit brought by shareholders. Net earnings for 1993 includes a credit of $68 million or $.11 per share and a charge of $35 million or $.06 per share for the cumulative effects of changes in accounting for income taxes and postretirement benefits, respectively. 22 PAGE 23
1994 1993 1992 1991 1990 1989 1988 $11,158,4 $9,578,37 $9,026,17 $8,271,5 $7,551,9 $7,729,6 $6,808,6 79 0 7 88 72 20 32 354,463 328,549 293,729 261,367 248,113 220,538 183,952 484,069 567,527 503,757 466,678 483,522 424,673 353,058 .80 .91 .80 .74 .77 .68 .56 32,586 32,266 30,789 29,527 25,976 17,271 17,095 .05 .05 .05 .05 .04 .03 .03 $2,783,81 $2,961,50 $2,276,56 $1,674,7 $1,627,4 $1,487,1 $1,408,6 7 3 4 35 59 51 64 4.67 4.75 3.64 2.68 2.59 2.39 2.27 3.5 4.1 3.4 3.0 3.4 3.4 3.0 1,422,147 1,131,787 1,025,030 917,495 771,233 694,998 773,702 3,538,575 3,214,834 3,060,096 2,695,62 2,131,80 1,832,25 1,661,22 5 7 8 0 682,485 572,022 614,844 911,586 550,851 405,888 370,295 8,746,853 8,404,111 7,524,530 6,260,60 5,450,01 4,728,30 4,397,56 7 0 8 4 2,021,417 2,039,143 1,562,491 980,273 750,901 690,052 692,878 5,045,421 4,883,251 4,492,353 3,922,29 3,573,22 3,033,50 2,630,52 5 8 3 9 8.46 7.82 7.19 6.28 5.68 4.87 4.25 602,307 624,968 626,641 628,811 626,610 620,769 631,571 33,940 33,654 32,277 28,981 26,076 20,382 18,491 16,013 14,168 13,524 13,049 11,861 10,214 9,631
23 PAGE 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: December 12, 1997 ARCHER-DANIELS-MIDLAND COMPANY /s/ D. J. Smith /s/ D. J. Schmalz /s/ S. R. Mills D. J. Smith D. J. Schmalz S. R. Mills Vice President, Secretary Vice President and Controller and General Counsel Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on December 12, 1997, by the following persons on behalf of the Registrant and in the capacities indicated.
/s/ G. A. Andreas G. A. Andreas*, Chief Executive and Director (Principal Executive Officer) /s/ D. O. Andreas /s/ M. B. Mulroney D. O. Andreas*, M. B. Mulroney*, Chairman of the Board of Director Directors /s/ S. M. Archer, Jr. /s/ R. S. Strauss S. M. Archer, Jr.*, R. S. Strauss*, Director Director /s/ J. R. Block /s/ J. K. Vanier J. R. Block*, J. K. Vanier*, Director Director /s/ R. R. Burt /s/ O. G. Webb R. R. Burt*, O. G. Webb*, Director Director /s/ Mrs. M. H. Carter /s/ A. Young Mrs. M. H. Carter*, A. Young*, Director Director /s/ G. O. Coan /s/ D. J. Smith G. O. Coan*, Attorney-in-Fact Director /s/ F. R. Johnson F. R. Johnson*, Director
*Powers of Attorney authorizing R. P. Reising, D. J. Schmalz and D. J. Smith and each of them, to sign the Form 10-K on behalf of the above-named officers and directors of the Company are being filed with the Securities and Exchange Commission. 24 -----END PRIVACY-ENHANCED MESSAGE-----