Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ________________________ 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
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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Common Stock, no par value - 593,248,463 shares
(October 31, 1998)
1
Page 2
PART I - FINANCIAL INFORMATION
[CAPTION]
<TABLE>
ARCHER DANIELS MIDLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
--------------------------
(In thousands, except
per share amounts)
<S> <C>
<C>
Net sales and other operating income $3,801,42
1 $3,651,3
02
Cost of products sold and other
operating costs 3,507,785
3,326,13
4
_________
________
_
Gross Profit 293,636
325,168
Selling, general and administrative 166,816
expenses 134,986
_________
________
_
Earnings From Operations 126,820
190,182
Other income 51,584
8,833
_________
________
_
Earnings Before Income Taxes 178,404
199,015
Income taxes 61,549
67,665
_________
________
_
Net Earnings $ 116,8 $ 131,35
55 0
========= =========
Average number of shares outstanding 597,158 585,579
Basic and diluted earnings per common $.20 $.22
share
Dividends per common share $.048 $.046
</TABLE>
See notes to consolidated financial statements.
2
Page 3
[CAPTION]
<TABLE>
ARCHER DANIELS MIDLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
SEPTEMBER JUNE 30,
30,
1998 1998
-------------------------
--
(In thousands)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 384,027 $ 346,325
Marketable securities 400,459 379,169
Receivables 2,103,297 1,990,686
Inventories 2,673,589 2,562,650
Prepaid expenses 165,663 172,884
__________ __________
Total Current Assets 5,727,035 5,451,714
Investments and Other Assets
Investments in and advances to 1,512,306 1,473,364
affiliates
Long-term marketable securities 739,970 1,168,380
Other assets 422,288 417,372
__________ __________
2,674,564 3,059,116
Property, Plant and Equipment
Land 167,944 148,135
Buildings 1,872,371 1,777,146
Machinery and equipment 8,134,289 7,901,309
Construction in progress 629,112 613,792
Less allowances for depreciation (5,353,923) (5,117,678)
__________ __________
5,449,793 5,322,704
__________ __________
$13,851,392 $13,833,534
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
Page 4
ARCHER DANIELS MIDLAND COMPANY AND SUBSIDIARIES
[CAPTION]
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
SEPTEMBER JUNE 30,
30,
1998 1998
------------------------
--
(In thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $1,215,024 $1,545,276
Accounts payable 1,963,738 1,634,681
Accrued expenses 592,512 516,287
Current maturities of long-term debt 18,955 21,059
__________ __________
Total Current Liabilities 3,790,229 3,717,303
Long-term Debt 2,940,823 2,847,130
Deferred Credits
Income taxes 564,459 632,893
Other 133,684 131,296
__________ __________
698,143 764,189
Shareholders' Equity
Common stock 4,865,173 4,936,649
Reinvested earnings 1,750,740 1,662,563
Accumulated other comprehensive loss (193,716) (94,300)
__________ __________
6,422,197 6,504,912
__________ __________
$13,851,392 $13,833,534
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
Page 5
ARCHER DANIELS MIDLAND COMPANY AND SUBSIDIARIES
[CAPTION]
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
SEPTEMBER 30,
1998
1997
------------------------
-
(In thousands)
<S> <C> <C>
Operating Activities
Net earnings $ 116,855 $
131,350
Adjustments to reconcile to net cash
provided
by operations
Depreciation and amortization 139,347 117,539
Deferred income taxes 3,137 4,128
Amortization of long-term debt discount 9,011 7,849
Gain on marketable securities (99,702) (23,698)
transactions
Other 62,663 6,152
Changes in operating assets and
liabilities
Receivables (91,482) (182,327)
Inventories (76,793) 144,598
Prepaid expenses 7,288 (23,201)
Accounts payable and accrued expenses 381,203 131,376
________ ________
Total Operating Activities 451,527 313,766
Investing Activities
Purchases of property, plant and equipment (171,517) (190,591)
Business acquisitions (48,152) (209,355)
Investments in and advances to affiliates (65,311) (188,095)
Purchases of marketable securities (219,628) (389,177)
Proceeds from sales of marketable 517,411 188,891
securities
________ ________
Total Investing Activities 12,803 (788,327
)
Financing Activities
Long-term debt borrowings 82,651 -
Long-term debt payments (4,608) (3,900)
Net borrowings under line of credit (378,821) 281,509
agreements
Purchases of treasury stock (97,497) (30,406)
Cash dividends and other (28,353) (25,601)
________ ________
Total Financing Activities (426,628) 221,602
________ ________
Increase (Decrease) In Cash and Cash 37,702 (252,959
Equivalents )
Cash and Cash Equivalents Beginning of 346,325 397,788
Period
________ ________
Cash and Cash Equivalents End of Period $ 384,027 $
144,829
======== =======
</TABLE>
5
Page 6
See notes to consolidated financial statements.
ARCHER DANIELS MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1.Basis of Presentation
The accompanying unaudited consolidated financial
statements have been prepared in accordance with
generally accepted accounting principles for interim
financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements. In the opinion of
management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included. Operating results for
the quarter ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the
year ending June 30, 1999. For further information,
refer to the consolidated financial statements and
footnotes thereto included in the Company's annual
report on Form 10-K for the year ended June 30, 1998.
Note 2.New Accounting Standards
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards
Number 131 (SFAS 131) "Disclosures about Segments of an
Enterprise and Related Information." This statement,
which is required to be adopted for financial statements
issued for annual periods beginning after December 15,
1997, establishes standards for the way that public
business enterprises report information about operating
segments in financial reports issued to shareholders.
The Company has not yet determined the financial
statement disclosure impact of SFAS 131.
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards
Number 133 (SFAS 133) "Accounting for Derivative
Instruments and Hedging Activities." This statement,
which is required to be adopted for annual periods
beginning after June 15, 1999, establishes standards for
recognition and measurement of derivatives and hedging
activities. The Company has not yet determined the
financial statement impact of SFAS 133.
Note 3. Per Share Data
All references to share and per share information have
been adjusted for the 5 percent stock dividend paid
September 21, 1998.
6
Page 7
ARCHER DANIELS MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4.Comprehensive Income
As of July 1, 1998, the Company adopted Statement of Financial
Accounting Standards Number 130 (SFAS 130) "Reporting
Comprehensive Income." SFAS 130 establishes standards for the
reporting and display of comprehensive income and its
components. SFAS 130 requires foreign currency translation
adjustments and unrealized gains or losses on the Company's
available-for-sale marketable securities to be included in
"other comprehensive income." Prior to the adoption of SFAS
130, the Company reported such adjustments and unrealized gains
or losses as components of reinvested earnings. Amounts in
prior year financial statements have been reclassified to
conform to SFAS 130. Comprehensive income (net income plus
other comprehensive income) was $17 million and $121.3 million
for the quarter ended September 30, 1998 and 1997,
respectively.
[CAPTION]
<TABLE>
Note 5. Other Income
THREE MONTHS
ENDED
SEPTEMBER 30,
1998 1997
_________________
___
(In thousands)
<S> <C> <C>
Investment income $ $28,202
29,137
Interest expense (80,027 (55,419
) )
Gain on marketable
securities 99,713 23,701
transactions
Equity in earnings of 3,842 10,557
affiliates
Other (1,081) 1,792
______ ______
$ $ 8,833
51,584
====== ======
</TABLE>
7
Page 8
ARCHER DANIELS MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6.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 in fiscal 1997, the
Company paid the United States fines 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. The federal grand jury in the
Northern District of Illinois (lysine) has been closed.
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. These actions
and proceedings generally involve claims for unspecified
compensatory damages, fines, costs, expenses and unspecified
relief. The Company intends 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 $48 million in fiscal 1998,
$200 million in fiscal 1997 and $31 million in fiscal 1996 to
cover the fines, 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, certain actions filed by parties
that opted out of the class action settlements, certain other
proceedings, and the related costs and expenses associated with
the litigation described above. 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 unaudited consolidated financial
statements.
8
Page 9
ARCHER DANIELS MIDLAND COMPANY AND SUBSIDIARIES
[CAPTION]
<TABLE>
MANAGEMENT'S DISCUSSION OF OPERATIONS AND FINANCIAL CONDITION
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:
THREE MONTHS
ENDED
SEPTEMBER 30,
1998 1997
-----------------
(In millions)
<S> <C> <C>
Oilseed products $2,325 $2,309
Corn products 513 535
Wheat and other milled products 361 387
Other products and services 602 420
----- -----
$3,801 $3,651
===== =====
</TABLE>
Net sales and other operating income increased 4 percent for the
quarter to $3.8 billion due primarily to sales attributable to
recently acquired operations. This increase was partially offset
by a 6 percent decrease in average selling prices. Sales of
oilseed products increased 1 percent to $2.3 billion due
principally to sales attributable to recently acquired
operations, partially offset by lower average selling prices
reflecting the lower cost of raw materials. Sales volumes of
oilseed products were flat for the quarter as strong North
American protein meal demand was offset by weak Asian oil
demand. Sales of corn products decreased 5 percent for the
quarter as lower average selling prices for the Company's
alcohol and amino acid products more than offset the increased
sales volumes of these same products as well as the increase in
both sales volume and price of the Company's sweetener products.
Sweetener sales volume has been positively impacted by good
demand from the U.S. soft drink industry. Demand for the
Company's alcohol products continues to increase, but low
gasoline prices have negatively affected average sales prices
for the Company's fuel alcohol. The demand for amino acid
products has been good, but low domestic protein meal and corn
prices have put considerable downward pressure on amino acid
selling prices. Sales of wheat and other milled products
decreased 7 percent to $361 million due principally to lower
average selling prices reflecting the lower cost of raw
materials. These decreases were partially offset by sales
attributable to recently acquired operations. The increase in
other products and services was due primarily to the sales
related to the Company's recently acquired cocoa and feed
businesses.
Cost of products sold and other operating costs increased $182
million for the quarter to $3.5 billion due principally to costs
related to recently acquired
9
Page 10
operations. These increases were partially offset by lower
average raw material costs.
Gross profit declined $32 million to $294 million for the
quarter due primarily to the net effect of decreased sales
prices versus lower raw material costs. This decrease was
partially offset by gross profits of recently acquired
operations.
Selling, general and administrative expenses increased $32
million to $167 million due principally to expenses attributable
to recently acquired
operations.
The increase in other income for the quarter was due primarily
to increased gains on marketable securities transactions. These
gains were partially offset by increased interest expense due to
both higher short-term and long-term borrowing levels and by
decreased equity in earnings of unconsolidated affiliates.
The decrease in income taxes for the quarter resulted primarily
from lower pretax earnings. The Company's effective income tax
rate for the quarter was 34.5% compared to an effective rate of
34% for the comparable period of a year ago.
Liquidity and Capital Resources
At September 30, 1998, the Company continued to show substantial
liquidity with working capital of $1.9 billion. Capital
resources remained strong as reflected in the Company's net
worth of $6.4 billion. The Company's ratio of long-term debt to
total capital at September 30, 1998 was approximately 29%.
As discussed in Note 6 to the unaudited consolidated financial
statements, various grand juries 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. In connection with an agreement with the DOJ in
fiscal 1997, the Company paid the United States fines 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 6 to the unaudited 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 has made provisions of $48 million in fiscal 1998,
$200 million in fiscal 1997 and $31 million in fiscal 1996 to
cover the fines, litigation settlements related to the federal
lysine class action, federal securities class action, the
federal citric class action and certain state actions filed
10
Page 11
by indirect purchasers of lysine, certain actions filed by
parties that opted out of the class action settlements, certain
other proceedings, and the related costs and expenses associated
with the litigation described above. 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 unaudited consolidated financial
statements.
Year 2000 Issues
Readiness
The Company's centralized corporate business and technical
information systems have been fully assessed as to year 2000
compliance and functionality. Presently, these systems are
nearly complete with respect to required software changes,
tests, and migration to the production environment. The Company
anticipates that internal business and technical information
system year 2000 compliance issues will be substantially
remediated by the end of calendar year 1998.
The Company has satisfactorily completed the identification and
review of computer hardware and software suppliers and is in the
process of verifying year 2000 preparedness of general business
partners, suppliers, vendors, and/or service providers that the
Company has identified as critical.
Cost
The total historical or anticipated remaining costs for year
2000 remediation activity are not material.
Risks and Contingency Plans
Considering the substantial progress made to date, the Company
does not anticipate delays in finalizing internal year 2000
remediation within remaining time schedules. However, third
parties having a material relationship with the Company may be a
potential risk based on their individual year 2000 preparedness
which may not be within the Company's reasonable control. The
Company is in the process of identifying, reviewing, and logging
the year 2000 preparedness of critical third parties.
Anticipated completion of this review is calendar 1998 year-end.
Pending the results of that review, the Company will then
determine what course of action and contingencies may need to be
made.
Euro Conversion
On January 1, 1999, certain member countries of the European
Union are scheduled to establish fixed conversion rates between
their existing currencies and the European Union's common
currency (Euro). The transition period for the introduction of
the Euro will be between January 1, 1999 and January 1, 2002.
The Company has been preparing for the introduction of the Euro
and is currently evaluating methods to address the many issues
involved
11
Page 12
with the introduction of the Euro, including the conversion of
information technology systems, recalculating currency risk,
strategies concerning continuity of contracts, and impacts on
the processes for preparing taxation and accounting records. The
Company believes that the Euro conversion will not have a
material impact on its consolidated financial statements.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
In 1993, the State of Illinois Environmental Protection
Agency ("IEPA") brought administrative enforcement
proceedings arising out of the Company's alleged failure
to obtain permits for certain pollution control equipment
at certain of the Company's processing facilities in
Illinois. The Company and IEPA have executed a settlement
agreement with respect to one of these proceedings. That
agreement is currently before the Illinois Pollution
Control Board for approval. The Company believes it has
meritorious defenses to the remaining proceeding. In 1998,
the IEPA filed an administrative enforcement proceeding
arising out of certain alleged permit exceedances relating
to one of the Company's production facilities located in
Illinois. Also in 1998, the Company voluntarily reported
to the IEPA certain permit exceedances relating to another
Illinois production facility operated by the Company. In
management's opinion this settlement and the remaining
proceedings, all seeking to ensure compliance with
applicable environmental permits and regulations, will
not, either individually or in the aggregate, have a
material adverse effect on the Company's financial
condition or results of operations.
The United States Environmental Protection Agency
("USEPA") filed a civil administrative action in September
1998 seeking a $240,000 civil penalty for violations of
Section 16(a) of the Toxic Substances Control Act, 15
U.S.C. 2601, et. seq ("TSCA"), which requires persons who
annually manufacture or import for commercial purposes
certain chemicals to file reports with USEPA every four
years. USEPA has alleged that the Company's reports were
not timely filed.
The Company is involved in approximately 30 administrative
and judicial proceedings in which it has been identified
as a potentially responsible party (PRP) under the federal
Superfund law and its state analogs for the study and
clean-up of sites contaminated by material discharged into
the environment. In all of these matters, there are
numerous PRPs. Due to various factors such as the required
level of remediation and participation in the clean-up
effort by others, the Company's future clean-up costs at
these sites cannot be reasonably estimated. However, in
management's opinion these proceedings will not, either
individually or in the aggregate, have a material adverse
effect on the Company's financial condition or results of
operations.
12
Page 13
LITIGATION REGARDING ALLEGED ANTICOMPETITIVE PRACTICES
The Company and certain of its current and former officers
and directors are currently defendants in various lawsuits
related to alleged anticompetitive practices by the
Company as described in more detail below. The Company and
the individual defendants named in these actions intend to
vigorously defend the actions unless they can be settled
on terms deemed acceptable to the parties. The Company has
paid and intends to continue to pay the legal expenses of
its current and
former officers and directors and to indemnify these
persons with
respect to these actions in accordance with Article X of
the Bylaws of the Company.
GOVERNMENTAL INVESTIGATIONS
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 in fiscal 1997, the Company paid the
United States fines of $100 million. This agreement
constitutes a global resolution of all matters between the
DOJ and the Company and brought to a close all DOJ
investigations of the Company. The federal grand jury in
the Northern District of Illinois (lysine) has been closed.
The Company has received notice that certain foreign
governmental entities were commencing investigations to
determine whether anticompetitive practices occurred in
their jurisdictions. Except for the investigations being
conducted by the Commission of the European Communities as
described below, all such matters have been resolved as
previously reported. In June 1997, the Company and several
of its European subsidiaries were notified that the
Commission of the European Communities had initiated an
investigation as to possible anticompetitive practices in
the amino acid markets, in particular the lysine market, in
the European Union. On October 29, 1998 the Commission of
the European Communities initiated formal proceedings
against the Company and others and adopted a Statement of
Objections. The response of the Company is due on or
before January 4, 1999. In September 1997, the Company
received a request for information from the Commission of
the European Communities with respect to an investigation
being conducted by that Commission into the possible
existence of certain agreements and/or concerted practices
in the citric acid market in the European Union. The
ultimate outcome and materiality of the proceedings of the
Commission of the European Communities can not presently be
determined. The Company may become the subject of similar
antitrust investigations conducted by the applicable
regulatory authorities of other countries.
13
Page 14
HIGH FRUCTOSE CORN SYRUP ACTIONS
The Company, along with other companies, has been named as
a defendant in thirty-one antitrust suits involving the
sale of high fructose corn syrup. Thirty of these actions
have been brought as putative class actions.
FEDERAL ACTIONS. Twenty-two of these putative class
actions allege violations of federal antitrust laws,
including allegations that the defendants agreed to fix,
stabilize and maintain at artificially high levels the
prices of high fructose corn syrup, and seek injunctions
against continued alleged illegal conduct, treble damages
of an unspecified amount, attorneys fees and costs, and
other unspecified relief. The putative classes in these
cases comprise certain direct purchasers of high fructose
corn syrup during certain periods in the
1990s. These twenty-two actions have been transferred to
the United States District Court for the Central District
of Illinois and consolidated under the caption In Re High
Fructose Corn Syrup Antitrust Litigation, MDL No. 1087 and
Master File No. 95-1477. The parties are in the midst of
discovery in this action.
On January 14, 1997, the Company, along with other
companies, was named a defendant in a non-class action
antitrust suit involving the sale of high fructose corn
syrup and corn syrup. This action which is encaptioned
Gray & Co. v. Archer Daniels Midland Co., et al, No. 97-69-
AS, and was filed in federal court in Oregon, alleges
violations of federal antitrust laws and Oregon and
Michigan state antitrust laws, including allegations that
defendants conspired to fix, raise, maintain and stabilize
the price of corn syrup and high fructose corn syrup, and
seeks treble damages, attorneys' fees and costs of an
unspecified amount. The parties are in the midst of
discovery in this action.
STATE ACTIONS. The Company, along with other companies,
also has been named as a defendant in seven putative
class action antitrust suits filed in California state
court involving the sale of high fructose corn syrup.
These California actions allege violations of the
California antitrust and unfair competition laws,
including allegations that the defendants agreed to fix,
stabilize and maintain at artificially high levels the
prices of high fructose corn syrup, and seek treble
damages of an unspecified amount, attorneys fees and
costs, restitution and other unspecified relief. One of
the California putative classes comprises certain direct
purchasers of high fructose corn syrup in the State of
California during certain periods in the 1990s. This
action was filed on October 17, 1995 in Superior Court for
the County of Stanislaus, California and encaptioned
Kagome Foods, Inc. v Archer-Daniels-Midland Co. et al.,
Civil Action No. 37236. This action has been removed to
federal court and consolidated with the federal class
action litigation pending in the Central District of
Illinois referred to above. The other six California
putative classes comprise certain indirect purchasers of
high fructose corn syrup and dextrose in the State of
California during certain periods in the 1990s. One such
action was filed on July 21, 1995 in the Superior Court
14
Page 15
of the County of Los Angeles, California and is
encaptioned Borgeson v. Archer-Daniels-Midland Co., et
al., Civil Action No. BC131940. This action and four
other indirect purchaser actions have been coordinated
before a single court in Stanislaus County, California
under the caption, Food Additives (HFCS) cases, Master
File No. 39693. The other four actions are encaptioned,
Goings v. Archer Daniels Midland Co., et al., Civil Action
No. 750276 (Filed on July 21, 1995, Orange County Superior
Court); Rainbow Acres v. Archer Daniels Midland Co., et
al., Civil Action No. 974271 (Filed on November 22, 1995,
San Francisco County Superior Court); Patane v. Archer
Daniels Midland Co., et al., Civil Action No. 212610
(Filed on January 17, 1996, Sonoma County Superior Court);
and St. Stan's Brewing Co. v. Archer Daniels Midland Co.,
et al., Civil Action No. 37237 (Filed on October 17, 1995,
Stanislaus County Superior Court). On October 8, 1997,
Varni Brothers Corp. filed a complaint in intervention
with respect to the coordinated
action pending in Stanislaus County Superior Court,
asserting the same claims as those advanced in the
consolidated class action. The parties are in the midst of
discovery in the coordinated action.
The Company, along with other companies, also has been
named a defendant in a putative class action antitrust
suit filed in Alabama state court. The Alabama action
alleges violations of the Alabama, Michigan and Minnesota
antitrust laws, including allegations that defendants
agreed to fix, stabilize and maintain at artificially high
levels the prices of high fructose corn syrup, and seeks
an injunction against continued illegal conduct, damages
of an unspecified amount, attorneys fees and costs, and
other unspecified relief. The putative class in the
Alabama action comprises certain indirect purchasers in
Alabama, Michigan and Minnesota during the period March
18, 1994 to March 18, 1996. This action was filed on March
18, 1996 in the Circuit Court of Coosa County, Alabama,
and is encaptioned Caldwell v. Archer-Daniels-Midland Co.,
et al., Civil Action No. 96-17. On April 23, 1997, the
court granted the defendants' motion to sever and dismiss
the non-Alabama claims. The remaining parties are in the
midst of discovery in this action.
LYSINE ACTIONS
The Company, along with other companies, had been named as
a defendant in twenty-one putative class action antitrust
suits involving the sale of lysine. Except for the actions
specifically described below, all such suits have been
settled, dismissed or withdrawn.
STATE ACTIONS. The Company has been named as a defendant,
along with other companies in two putative class action
antitrust suits. These two putative class actions allege
violations of the Alabama antitrust laws, including
allegations that the defendants agreed to fix, stabilize
and maintain at artificially high levels the prices of
lysine, and seek an injunction against continued alleged
illegal conduct, damages of an unspecified amount,
attorneys fees and costs, and other unspecified relief.
The putative classes in these actions comprise certain
indirect purchasers of lysine in the State of Alabama
during certain periods in the 1990s. One such action was
filed on August 17, 1995 in the Circuit
15
Page 16
Court of DeKalb County, Alabama, and is encaptioned Ashley
v. Archer-Daniels-Midland Co., et al., Civil Action No. 95-
336. On March 13, 1998, the court denied plaintiff's
motion for class certification. Subsequently, the
plaintiff amended his complaint to add approximately 200
individual plaintiffs. The other Alabama action,
encaptioned Bailey v. Archer Daniels Midland Co., et al.,
Civil Action No. 95-165, and filed on December 11, 1995 in
the Circuit Court of Tallapoosa County, has been placed on
the court's administrative docket pending the outcome of
the Ashley action.
CITRIC ACID ACTIONS
The Company, along with other companies, had been named as
a defendant in eleven putative class action antitrust suits
and two non-class action antitrust suits involving the sale
of citric acid. Except for the actions specifically
described below, all such suits have been settled or
dismissed.
STATE ACTIONS. The Company, along with other companies,
has been named as a defendant in one putative class action
antitrust suit filed in Alabama state court involving the
sale of citric acid. This action alleges violations of the
Alabama antitrust laws, including allegations that the
defendants agreed to fix, stabilize and maintain at
artificially high levels the prices of citric acid, and
seeks an injunction against continued alleged illegal
conduct, damages of an unspecified amount, attorneys fees
and costs, and other unspecified relief. The putative
class in the Alabama action comprises certain indirect
purchasers of citric acid in the State of Alabama from
July 1993 until July 1995. This action was filed on July
27, 1995 in the Circuit Court of Walker County, Alabama
and is encaptioned Seven Up Bottling Co. of Jasper, Inc.
v. Archer-Daniels-Midland Co., et al., Civil Action No. 95-
436. The Company currently is seeking appellate review of
the denial of its motion to dismiss this action. The
Company, along with other companies, also has been named
as a defendant in one putative class action antitrust suit
filed in Wisconsin state court involving the sale of
citric acid. This action alleges violations of the laws of
Wisconsin, Minnesota, Alabama,
Arizona, California, District of Columbia, Florida,
Tennessee, West Virginia, Mississippi, New Mexico, North
Carolina, South Dakota, North Dakota, Kansas, Louisiana,
Michigan and Maine, including allegations that defendants
conspired to maintain the price of citric acid at
artificially high levels and seeks injunctive relief,
treble damages of an unspecified amount, attorneys fees
and costs and other unspecified relief. The putative class
in this case comprises certain indirect purchasers of
citric acid in the above referenced states during the
period July 1, 1991 through June 27, 1995. This action was
filed on December 20, 1996 in the Circuit Court for
Milwaukee County, Wisconsin and is encaptioned Raz, et al.
v. Archer-Daniels-Midland Co., et al., No. 96-CV-9729. On
June 26, 1998, the Company executed a settlement agreement
with counsel for the plaintiff class in which, among other
things, the Company agreed to pay $1,831,634 to the
plaintiff class. This settlement has received preliminary
court approval and a final approval hearing will be on
held November 20, 1998.
16
Page 17
HIGH FRUCTOSE CORN SYRUP/CITRIC ACID STATE CLASS ACTIONS
The Company, along with other companies, has been named as
a defendant in five putative class action antitrust suits
involving the sale of both high fructose corn syrup and
citric acid. Two of these actions allege violations of the
California antitrust and unfair competition laws,
including allegations that the defendants agreed to fix,
stabilize and maintain at artificially high levels the
prices of high fructose corn syrup and citric acid, and
seek treble damages of an unspecified amount, attorneys
fees and costs, restitution and other unspecified relief.
The putative class in one of these California cases
comprises certain direct purchasers of high fructose corn
syrup and citric acid in the State of California during
the period January 1, 1992 until at least October 1995.
This action was filed on October 11, 1995 in the Superior
Court of Stanislaus County, California and is entitled
Gangi Bros. Packing Co. v. Archer-Daniels-Midland Co., et
al., Civil Action No. 37217. The putative class in the
other California case comprises certain indirect
purchasers of high fructose corn syrup and citric acid in
the state of California during the period October 12, 1991
until November 20, 1995. This action was filed on November
20, 1995 in the Superior Court of San Francisco County and
is encaptioned MCFH, Inc. v. Archer-Daniels-Midland Co.,
et al., Civil Action No. 974120. The California Judicial
Council has bifurcated the citric acid and high fructose
corn syrup claims in these actions and coordinated them
with other actions in San Francisco County Superior Court
and Stanislaus County Superior Court. The Company, along
with other companies, also has been named as a defendant
in at least one putative class action antitrust suit filed
in West Virginia state court involving the sale of high
fructose corn syrup and citric acid. This action also
alleges violations of the West Virginia antitrust laws,
including allegations that the defendants agreed to fix,
stabilize and maintain at artificially high levels the
prices of high fructose corn syrup and citric acid, and
seeks treble damages of an unspecified
17
Page 18
amount, attorneys fees and costs, and other unspecified
relief. The putative class in the West Virginia action
comprises certain entities within the State of West
Virginia that purchased products containing high fructose
corn syrup and/or citric acid for resale from at least
1992 until 1994. This action was filed on October 26,
1995, in the Circuit Court for Boone County, West
Virginia, and is encaptioned Freda's v. Archer-Daniels-
Midland Co., et al., Civil Action No. 95-C-125. The
Company, along with other companies, also has been named
as a defendant in a putative class action antitrust suit
filed in the Superior Court for the District of Columbia
involving the sale of high fructose corn syrup and citric
acid. This action alleges violations of the District of
Columbia antitrust laws, including allegations that the
defendants agreed to fix, stabilize and maintain at
artificially high levels the prices of high fructose corn
syrup and citric acid, and seeks treble damages of an
unspecified amount, attorneys fees and costs, and other
unspecified relief. The putative class in the District of
Columbia action comprises certain persons within the
District of Columbia that purchased products containing
high fructose corn syrup and/or citric acid during the
period January 1, 1992 through December 31, 1994. This
action was filed on April 12, 1996 in the Superior Court
for the District of Columbia, and is encaptioned Holder v.
Archer-Daniels-Midland Co., et al., Civil Action No. 96-
2975. Plaintiff's motion for class certification is
currently pending. The Company, along with other
companies, has been named as a defendant in a putative
class action antitrust suit filed in Kansas state court
involving the sale of high fructose corn syrup and citric
acid. This action alleges violations of the Kansas
antitrust laws, including allegations that the defendants
agreed to fix, stabilize and maintain at artificially high
levels the prices of high fructose corn syrup and citric
acid, and seeks treble damages of an unspecified amount,
court costs and other unspecified relief. The putative
class in the Kansas action comprises certain persons
within the State of Kansas that purchased products
containing high fructose corn syrup and/or citric acid
during at least the period January 1, 1992 through
December 31, 1994. This action was filed on May 7, 1996 in
the District Court of Wyandotte County, Kansas and is
encaptioned Waugh v. Archer-Daniels-Midland Co., et al.,
Case No. 96-C-2029. Plaintiff's motion for class
certification is currently pending.
HIGH FRUCTOSE CORN SYRUP/CITRIC ACID/LYSINE STATE CLASS
ACTIONS
The Company, along with other companies, has been named as
a defendant in six putative class action antitrust suits
filed in California state court involving the sale of high
fructose corn syrup, citric acid and/or lysine. These
actions allege violations of the California antitrust and
unfair competition laws, including allegations that the
defendants agreed to fix, stabilize and maintain at
artificially high levels the prices of high fructose corn
syrup, citric acid and/or lysine, and seek treble damages
of an unspecified amount, attorneys fees and costs,
restitution and other unspecified relief. One of the
putative classes comprises certain direct purchasers of
high fructose corn syrup, citric acid and/or lysine in the
State of California during
18
Page 19
a certain period in the 1990s. This action was filed on
December 18, 1995 in the Superior Court for Stanislaus
County, California and is encaptioned Nu Laid Foods, Inc.
v. Archer-Daniels-Midland Co., et al., Civil Action No.
39693. The other five putative classes comprise certain
indirect purchasers of high fructose corn syrup, citric
acid and/or lysine in the State of California during
certain periods in the 1990s. One such action was filed on
December 14, 1995 in the Superior Court for Stanislaus
County, California and is encaptioned Batson v. Archer-
Daniels-Midland Co., et al., Civil Action No. 39680. The
other actions are encaptioned Nu Laid Foods, Inc. v.
Archer Daniels Midland Co., et al., No 39693 (Filed on
December 18, 1995 Stanislaus County Superior Court);
Abbott v. Archer Daniels Midland Co., et al., No. 41014
(Filed on December 21, 1995, Stanislaus County Superior
Court); Noldin v. Archer Daniels Midland Co., et al., No.
41015 (Filed on December 21, 1995, Stanislaus County
Superior Court); Guzman v. Archer Daniels Midland Co., et
al., No. 41013 (Filed on December 21, 1995, Stanislaus
County Superior Court) and Ricci v. Archer Daniels Midland
Co., et al., No. 96-AS-00383 (Filed on February 6, 1996,
Sacramento County Superior Court). As noted in prior
filings, the plaintiffs in these actions and the lysine
defendants have executed a settlement agreement that has
been approved by the court and the California Judicial
Council has bifurcated the citric acid and high fructose
corn syrup claims and coordinated them with other actions
in San Francisco County Superior Court and Stanislaus
County Superior Court.
SODIUM GLUCONATE ACTIONS
The Company, along with other companies, has been named as
a defendant in three federal antitrust class actions
involving the sale of sodium gluconate. These actions
allege violations of federal antitrust laws, including
allegations that the defendants agreed to fix, raise and
maintain at artificially high levels the prices of sodium
gluconate, and seek various relief, including treble
damages of an unspecified amount, attorneys fees and
costs, and other unspecified relief. The putative classes
in these cases comprise certain direct purchasers of
sodium gluconate during periods in the 1990s. One such
action was filed on December 2, 1997, in the United States
District Court for the Northern District of California and
is encaptioned Chemical Distribution, Inc, v. Akzo Nobel
Chemicals BV, et al., No. C -97-4141 (CW). The second
action was filed on December 31, 1997, in the United
States District Court for the District of Massachusetts
and is encaptioned Stetson Chemicals, Inc. v. Akzo Nobel
Chemicals BV, 97-CV-1285 RCL. The third action, which was
amended on February 12, 1998 to name the Company as a
defendant, was filed in the United States District Court
for the Northern District of Illinois. On April 9, 1998,
the Judicial Panel on Multidistrict Litigation transferred
all three sodium gluconate actions to the United States
District Court for the Northern District of California for
coordinated or consolidated pretrial proceedings. On
October 29, 1998, the Company executed a
19
Page 20
Settlement Agreement with counsel for the plaintiff class
in which, among other things, the Company agreed to pay
$69,600 to the plaintiff class. Papers will soon be filed
with the Court seeking approval of this settlement.
SHAREHOLDER DERIVATIVE ACTIONS
Following the public announcement of the grand jury
investigations in June 1995 discussed above, three
shareholder derivative suits were filed against certain of
the Company's then current directors and executive officers
and nominally against the Company in the United States
District Court for the Northern District of Illinois and
fourteen similar shareholder derivative suits were filed in
the Delaware Court of Chancery. The derivative suits filed
in federal court in Illinois were consolidated under the
name Felzen, et al. v. Andreas, et al., Civil Action No. 95-
C-4006, 95-C-4535, and a consolidated amended derivative
complaint was filed on September 29, 1995. This complaint
names all then current directors of the Company (except Mr.
Coan) and one former director as defendants and names the
Company as a nominal defendant. It alleges breach of
fiduciary duty, waste of corporate assets, abuse of control
and gross mismanagement, based on the antitrust allegations
described above, as well as other alleged wrongdoing. On
October 31, 1995, the Court granted the defendants' motion
to transfer the Illinois consolidated derivative action to
the Central District of Illinois, wherein it now bears the
case number 95-2279. On April 26, 1996, the court dismissed
the suit without prejudice and permitted the plaintiffs
twenty-one days to refile it. The plaintiffs refiled the
complaint on May 17, 1996. The defendants again moved to
dismiss the complaint on June 1, 1996. Plaintiffs have
supplemented the complaint to include the antitrust
settlements and guilty plea described above. The fourteen
shareholder derivative suits filed in the Delaware Court of
Chancery have been consolidated as In Re Archer Daniels
Midland Derivative Litigation, Consolidated No. 14403. An
amended and consolidated complaint was filed on November
19, 1996. ADM moved to dismiss the complaint on December
12, 1996. On May 29, 1997, the Company executed a
Memorandum of Understanding with counsel for both the
Illinois and Delaware shareholder derivative plaintiffs.
This Memorandum of Understanding provides for, among other
things, $8 million to be paid by or on behalf of certain
defendants in these actions to the Company and certain
changes in the structure and policies of the Company's
Board of Directors. On May 30, 1997, the United States
District Court for the Central District of Illinois
preliminarily approved this settlement and on July 7, 1997
final approval was granted. Certain entities appealed the
final settlement approval order to the United States Court
of Appeals for the Seventh Circuit. On January 21, 1998 the
Court of Appeals dismissed the appeal. On September 29,
1998, the United States Supreme Court granted a writ of
certiorari filed by the unsuccessful appellants in the
Seventh Circuit. Argument before the Supreme Court is
scheduled for January, 1999. The parties will jointly seek
dismissal of the Delaware actions with prejudice once the
federal action is concluded.
20
Page 21
OTHER
The Company has made provisions to cover certain legal
proceedings and related costs and expenses as described in
the notes to the unaudited consolidated financial
statements and management's discussion of operations and
financial condition. However, because of the early stage of
other putative class actions and proceedings described
above, 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 unaudited consolidated financial statements.
Item 2. Changes in Securities
a) In July, 1998, the Board of
Directors declared a 5 percent stock
dividend which was paid on September 21, 1998, to
shareholders of record on August 24, 1998.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
(3) Articles of Incorporation and Bylaws
Composite Certificate of Incorporation and
Bylaws filed on November 7, 1986 as Exhibits
3(a) and 3(b), respectively, to Post Effective
amendment No. 1 to Registration Statement on
Form S-3, Registration No. 33-6721, are
incorporated herein by reference.
(27) Financial Data Schedules
b) A Form 8-K was not filed during the
quarter ended September 30, 1998.
21
Page 22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ARCHER-DANIELS-MIDLAND COMPANY
/s/ D. J. Schmalz
D. J. Schmalz
Vice President
and Chief Financial Officer
/s/ D. J. Smith
D. J. Smith
Vice President, Secretary and
General Counsel
Dated: November 13, 1998
22
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 384,027
<SECURITIES> 400,459
<RECEIVABLES> 2,103,297
<ALLOWANCES> 0
<INVENTORY> 2,673,589
<CURRENT-ASSETS> 5,727,035
<PP&E> 10,803,716
<DEPRECIATION> 5,353,923
<TOTAL-ASSETS> 13,851,392
<CURRENT-LIABILITIES> 3,790,229
<BONDS> 2,940,823
<COMMON> 4,865,173
0
0
<OTHER-SE> 1,557,024
<TOTAL-LIABILITY-AND-EQUITY> 13,851,392
<SALES> 3,801,421
<TOTAL-REVENUES> 3,801,421
<CGS> 3,507,785
<TOTAL-COSTS> 3,507,785
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,027
<INCOME-PRETAX> 178,404
<INCOME-TAX> 61,549
<INCOME-CONTINUING> 116,855
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,855
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
