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)
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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:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------
-----
(in millions)
<S> <C> <C>
<C>
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
====== ====== ======
= = =
</TABLE>
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
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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.
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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:
<TABLE>
<CAPTION>
Fair Value Market
Risk
--------------------------------
-----
(in millions)
<S> <C> <C>
Highest long position $468 $47
Highest short position 314 31
Average position (long) 123 12
</TABLE>
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
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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
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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.
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended June 30
------------------------------
-------
1997 1996 1995
-------------------------------
------
(In thousands, except per share
amounts)
<S> <C> <C> <C>
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
========= ========= =========
=
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
June 30
----------------------
-----
1997 1996
----------------------
----
Assets (In thousands)
<S> <C> <C>
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
========== ===========
=
</TABLE>
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<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
June 30
----------------------
--
1997 1996
----------------------
--
(In thousands)
<S> <C> <C>
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
========== ==========
</TABLE>
See notes to consolidated financial statements.
9
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30
-----------------------------
-----
1997 1996 1995
-----------------------------
-----
(In thousands)
<S> <C> <C> <C>
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
======== ======== =========
= =
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
---------
--
Shares Amount Reinvest
ed
Earnings
-----------------------------
------
(In thousands)
<S> <C> <C> <C>
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
========= ======== ========
= ==
</TABLE>
See notes to consolidated financial statements.
11
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1-Marketable Securities and Cash Equivalents
<TABLE>
<CAPTION>
Unrealiz Unrealize Fair
ed d
Cost Gains Losses Value
--------------------------------------
--------
(In thousands)
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
== == == ==
</TABLE>
12
PAGE 13
Note 2-Inventories
<TABLE>
<CAPTION>
1997 1996
----------------------
-----
(In thousands)
<S> <C> <C>
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
========== ==========
</TABLE>
13
PAGE 14
<TABLE>
<CAPTION>
Note 4-Debt and Financing Arrangements
1997 1996
------------------------
-----
(In thousands)
<S> <C> <C>
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
========== ==========
</TABLE>
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
<TABLE>
<CAPTION>
Note 6-Other Income (Expense)
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
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)
=======
======= ========
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
________________________________
(In thousands)
<S> <C> <C> <C>
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
=
========== ========= ========
= =
</TABLE>
Significant components of income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
______________________________________
(In thousands)
<S> <C> <C> <C>
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
======== ======== =======
</TABLE>
Significant components of the Company's deferred tax liabilities
and assets are as follows:
<TABLE>
<CAPTION>
1997 1996
__________________________
(In
thousands)
<S> <C>
<C>
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
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
<C>
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
======= =======
</TABLE>
Reconciliation of the statutory federal income tax rate to the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
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%
==== ==== ====
</TABLE>
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.
<TABLE>
<CAPTION>
Note 10-Geographic Information
1997 1996 1995
(In millions)
<S> <C> <C> <C>
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
===== ===== =====
</TABLE>
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)
<TABLE>
<CAPTION>
Quarter
---------------------------------------
--------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION
<S> <C> <C>
<C>
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
</TABLE>
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
<TABLE>
<CAPTION>
Operating, Financial and Other Data (Dollars in thousands,
except per share data)
1997 1996 1995
<S> <C> <C> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
$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
</TABLE>
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.
<TABLE>
<CAPTION>
<S> <C>
/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
</TABLE>
*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
